<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-Q

(Mark One)
|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2003

                                       or

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



For the transition period ended

                         Commission file number: 0-10990


                            CASTLE ENERGY CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

<TABLE>
<CAPTION>

                             Delaware                                            76-0035225
--------------------------------------------------------------      ------------------------------------
<S>                                                                 <C>
(State or Other Jurisdiction of Incorporation or Organization)      (I.R.S. Employer Identification No.)

                 357 South Gulph Road, Suite 260, King of Prussia, Pennsylvania 19406
--------------------------------------------------------------------------------------------------------
(Address of Principal Executive Offices)                                                      (Zip Code)

Registrant's Telephone Number, Including Area Code                  (610) 992-9900
                                                                    ------------------------------------


          (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
---------------------------------------------------------------------------------------------------------
</TABLE>

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

    Indicate by check whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act) Yes ___ No ___.

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: 6,652,784 shares of Common
Stock, $.50 par value, outstanding as of February 6, 2004.


<PAGE>




                            CASTLE ENERGY CORPORATION

                                      INDEX

<TABLE>
<CAPTION>
                                                                                               Page #
                                                                                               ------
<S>                                                                                            <C>

Part I.  Financial Information

         Item 1.  Financial Statements:

                 Consolidated Balance Sheets - December 31, 2003 (Unaudited) and
                 September 30, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . .           2

                 Consolidated Statements of Operations - Three Months Ended December 31,
                 2003 and 2002 (Unaudited)  . . . . . . . . . . . . . . . . . . . . . . .           3

                 Condensed Consolidated Statements of Cash Flows - Three Months Ended
                 December 31, 2003 and 2002 (Unaudited) . . . . . . . . . . . . . . . . .           4

                 Consolidated Statements of Stockholders' Equity and Other Comprehensive
                 Income - Year Ended September 30, 2003 and Three Months Ended
                 December 31, 2003 (Unaudited). . . . . . . . . . . . . . . . . . . . . .           5

                 Notes to the Consolidated Financial Statements (Unaudited) . . . . . . .           6

         Item 2. Management's Discussion and Analysis of Financial Condition and
                 Results of Operations  . . . . . . . . . . . . . . . . . . . . . . . . .          17

         Item 3. Qualitative and Quantitative Disclosures About Market Risk . . . . . . .          22

         Item 4. Controls and Procedures  . . . . . . . . . . . . . . . . . . . . . . . .          22


Part II. Other Information

         Item 1. Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . .          23

         Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . .          23

Signature   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          24

</TABLE>




                                     - 1 -

<PAGE>


                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements

                            CASTLE ENERGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                     ("$000's" Omitted Except Share Amounts)

<TABLE>
<CAPTION>

                                                                                                       December 31,    September 30,
                                                                                                              2003              2003
                                                                                                       -----------     -------------
                                                                                                        Unaudited
<S>                                                                                                     <C>            <C>


                                     ASSETS

Current assets:
     Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $   9,112           $ 10,615
     Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        4,283              4,285
     Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           68                152
     Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        3,240              4,088
     Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .           81                112
     Note receivable - Networked Energy LLC, net of allowance for doubtful account
        of $126. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
     Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          342                648
                                                                                                       -----------     -------------
          Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        17,126            19,900
Property, plant and equipment, net:
     Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            52                65
Investment in Network Energy LLC, net of impairment reserve of $354
Investment in Delta Petroleum Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        30,575            29,477
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           366               366
                                                                                                       -----------     -------------
          Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  48,119          $ 49,808
                                                                                                       ===========     =============


                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Dividend payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $     329          $    330
     Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           505               541
     Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           190               241
     Accrued taxes on appreciation of marketable securities. . . . . . . . . . . . . . . . . . . . .           343               649
                                                                                                       -----------     -------------
          Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         1,367             1,761
Net refining liabilities retained. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         2,404             2,404
                                                                                                       -----------     -------------
          Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         3,771             4,165
Commitments and contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders' equity:
     Series B participating preferred stock; par value - $1.00;
          10,000,000 shares authorized; no shares issued
     Common stock; par value - $0.50; 25,000,000 shares authorized;
          11,503,904 shares issued at December 31, 2003 and September 30,  2003 . . . . . . . . . . .        5,752             5,752
     Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       69,338            68,532
     Accumulated other comprehensive income, net of taxes . . . . . . . . . . . . . . . . . . . . . .          859             1,383
     Retained earnings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       35,066            36,643
                                                                                                       -----------     -------------
                                                                                                           111,015           112,310
     Treasury stock at cost - 4,911,020 shares at December 31, 2003 and
          September 30,  2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (66,667)          (66,667)
                                                                                                       -----------     -------------
          Total stockholders' equity  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       44,348            45,643
                                                                                                       -----------     -------------
          Total liabilities and stockholders' equity  . . . . . . . . . . . . . . . . . . . . . . . .     $ 48,119          $ 49,808
                                                                                                       ===========     =============

</TABLE>


   The accompanying notes are an integral part of these financial statements

                                     - 2 -

<PAGE>



                            CASTLE ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     ("$000's" Omitted Except Share Amounts)
                                   (Unaudited)




<TABLE>
<CAPTION>

                                                                                                     Three Months Ended December 31,
                                                                                                     -------------------------------
                                                                                                        2003                 2002
                                                                                                     ==========           ==========
                                                                                                                          (Restated)
<S>                                                                                                  <C>                   <C>
Revenues:

Expenses:
     General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $    1,239           $      869
     Depreciation, depletion and amortization. . . . . . . . . . . . . . . . . . . . . . . . . .             12                   15
                                                                                                     ----------           ----------
                                                                                                          1,251                  884
                                                                                                     ----------           ----------

Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (1,251)                (884)
                                                                                                     ----------           ----------
Other income (expense):
     Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             36                   63
     Other income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                  14
     Decrease in fair value of option granted to Delta Petroleum
       Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 198
     Equity in loss of Networked Energy LLC  . . . . . . . . . . . . . . . . . . . . . . . . . .                                (20)
     Equity in income of Delta Petroleum Corporation . . . . . . . . . . . . . . . . . . . . . .            260                  188
                                                                                                     ----------           ----------
                                                                                                            296                  443
                                                                                                     ----------           ----------

Income (loss) before provision for (benefit of) income taxes . . . . . . . . . . . . . . . . . .          (955)                (441)
                                                                                                     ----------           ----------
Provision for (benefit of) income taxes:
     State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              9                 (12)
     Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            284                (416)
                                                                                                     ----------           ----------
                                                                                                            293                (428)
                                                                                                     ----------           ----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     ($   1,248)         ($      13)
                                                                                                     ==========           ==========
Net income (loss) per share:
     Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     ($     .19)          $      .00
                                                                                                     ==========           ==========
     Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     ($     .19)          $      .00
                                                                                                     ==========           ==========

Weighted average number of common and potential dilutive common shares
  outstanding:
     Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     6,592,884            6,592,884
                                                                                                     ==========           ==========
     Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     6,592,884            6,592,884
                                                                                                     ==========           ==========


</TABLE>


   The accompanying notes are an integral part of these financial statements

                                     - 3 -

<PAGE>




                            CASTLE ENERGY CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                     ("$000's" Omitted Except Share Amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                                                     Three Months Ended December 31,
                                                                                                     -------------------------------
                                                                                                        2003                 2002
                                                                                                     ==========           ==========
                                                                                                                          (Restated)
<S>                                                                                                  <C>                   <C>
Net cash used in operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     ($ 1,173)           ($ 1,241)
                                                                                                     ----------           ----------

Cash flows from investing activities:
   Investment in note to Networked Energy LLC  . . . . . . . . . . . . . . . . . . . . . . . . . .                             (125)
                                                                                                     ----------           ----------
      Net cash used in investing activities  . . . . . . . . . . . . . . . . . . . . . . . . . . .                             (125)
                                                                                                     ----------           ----------

Cash flows from financing activities:
   Dividends paid to stockholders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         (330)               (330)
                                                                                                     ----------           ----------
      Net cash used in financing activities  . . . . . . . . . . . . . . . . . . . . . . . . . . .         (330)               (330)
                                                                                                     ----------           ----------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (1,503)             (1,696)
Cash and cash equivalents - beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . .       10,615               15,539
                                                                                                     ----------           ----------
Cash and cash equivalents - end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ 9,112              $13,843
                                                                                                     ==========           ==========


</TABLE>


   The accompanying notes are an integral part of these financial statements

                                     - 4 -

<PAGE>



                            CASTLE ENERGY CORPORATION
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
                           OTHER COMPREHENSIVE INCOME
                     ("$000's" Omitted Except Share Amounts)



<TABLE>
<CAPTION>

                                  Year Ended September 30, 2003 and Three Months Ended December 31, 2003 (Unaudited)
                              -----------------------------------------------------------------------------------------------------
                                                                             Accumulated
                                               Additional                       Other
                                   Common Stock      Paid-In   Comprehensive Comprehensive  Retained          Treasury Stock
                                 Shares    Amount    Capital      Income     Income (Loss)  Earnings    Shares     Amount    Total
                              ---------- ---------- ---------- ------------- ------------- ---------- ---------- ----------  -------
<S>                            <C>         <C>         <C>       <C>          <C>           <C>        <C>        <C>        <C>
Balance - October 1, 2002. .  11,503,904     $5,752    $67,365                     $   487    $39,965  4,911,020   ($66,667) $46,902

Issuance of additional stock
  by Delta Petroleum
  Corporation. . . . . . . .                             1,167                                                                 1,167
Dividends declared
  ($.20 per share). . . . .                                                                    (1,321)                       (1,321)
Comprehensive income (loss):
  Net income (loss). . . . .                                         ($2,001)                  (2,001)                       (2,001)
  Other comprehensive income
    (loss):
    Unrealized gain (loss) on
      marketable securities,
      net of $375 of income
      taxes. . . . . . . . .                                             666                      666                            666
    Equity in other
      comprehensive income
      (loss) of Delta
      Petroleum Corporation,
      net of $129 tax benefit                                            230                      230                            230
                                                               --------------
                                                                     ($1,105)
                              ---------- ---------- ---------- ============= ------------- ---------- ---------- ----------  -------
Balance - September 30,. 2003 11,503,904      5,752     68,532                       1,383     36,643  4,911,020    (66,667)  45,643

Issuance of additional stock by
  Delta Petroleum Corporation                              806                                                                   806
Dividends declared ($05
  per share). . . . . . . .                                                                      (329)                         (329)
Comprehensive income (loss):
  Net income (loss) . . . .                                          ($1,248)                  (1,248)                       (1,248)
  Other comprehensive income
    (loss):
    Unrealized gain (loss) on
      marketable securities,
      net of $306 of income
      taxes . . . . . . . .                                             (543)                    (543)                         (543)
    Equity in other
      comprehensive income
      (loss) of Delta
      Petroleum Corporation,
      net of $13 tax benefit                                              19                       19                             19
                                                               -------------
                                                                     ($1,772)
                              ---------- ---------- ---------- ============= ------------- ---------- ---------- ----------  -------
Balance - December 31, 2003   11,503,904     $5,752    $69,338                        $859    $35,066 4,911,020    ($66,667) $44,348
                              ========== ========== ==========               ============= ========== =========  ==========  =======











</TABLE>


   The accompanying notes are an integral part of these financial statements

                                     - 5 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)


Note 1 - Basis of Preparation

     The unaudited consolidated financial statements of Castle Energy
Corporation (the "Company") included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). Certain
reclassifications have been made, where applicable, to make the periods
presented comparable. Although certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. Operating results
for the three-month period ended December 31, 2003 are not necessarily
indicative of the results that may be expected for the fiscal year ending
September 30, 2004 or subsequent periods. These unaudited consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2003.

     In the opinion of the Company, the unaudited consolidated financial
statements contain all adjustments necessary for a fair statement of the results
of operations for the three-month periods ended December 31, 2003 and 2002 and
for a fair statement of financial position at December 31, 2003.

Note 2 - September 30, 2003 Balance Sheet

     The amounts presented in the balance sheet as of September 30, 2003 were
derived from the Company's audited consolidated financial statements which were
included in its Annual Report on Form 10-K for the fiscal year ended September
30, 2003.

Note 3 - Discontinued Operations

     From August 1989 to September 30, 1995, several of the Company's
subsidiaries conducted refining operations. By December 12, 1995, the Company's
refining subsidiaries had sold all of their refining assets and the purchasers
had assumed all related liabilities, including contingent environmental
liabilities. In addition, in 1996, Powerine Oil Company ("Powerine"), one of the
Company's former refining subsidiaries, merged into a subsidiary of the
purchaser of the refining assets sold by Powerine and is no longer a subsidiary
of the Company. The Company's remaining refining subsidiaries own no refining
assets, have been inactive for over eight years and are in the process of
liquidation. As a result, the Company has accounted for its refining operations
as discontinued operations. Such discontinued refining operations have not
impacted the Company's operations since September 30, 1995, although they may
impact the Company's future operations.

Note 4 - Environmental Liabilities/Litigation

     ChevronTexaco Litigation

     On August 13, 2002, three subsidiaries of ChevronTexaco filed Cause No.
02-4162-JPG in the United States District Court for the Southern District of
Illinois against the Company, as well as against two inactive subsidiaries of
the Company and three unrelated parties. The lawsuit seeks damages and
declaratory relief under contractual and statutory claims arising from
environmental damage at the now dismantled Indian Refinery. In particular, the
lawsuit claims that the Company is contractually obligated to indemnify and
defend ChevronTexaco against all liability and costs, including lawsuits, claims
and administrative actions initiated by the United States Environmental
Protection Agency ("EPA") and others, that ChevronTexaco has or will incur as a
result of environmental contamination at and around the Indian Refinery, even if
that environmental contamination was caused by Texaco, Inc. and its present and
former subsidiaries ("Texaco" - now merged into ChevronTexaco) which previously
owned the refinery for over 75 years. The suit also seeks costs, damages and
declaratory relief against the Company under the Federal Comprehensive
Environmental Response Compensation Liability Act ("CERCLA"), the Oil Pollution
Act of 1990 ("OPA") and the Solid Waste Disposal Act, as amended, ("RCRA").

                                     - 6 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)


     History

     In December 1995, Indian Refining Limited Partnership, an inactive refining
subsidiary of the Company ("IRLP") sold its refinery, the Indian Refinery, to
American Western Refining L.P. ("American Western"), an unaffiliated party. As
part of the related purchase and sale agreement, American Western assumed all
environmental liabilities and indemnified IRLP with respect thereto.
Subsequently, American Western filed for bankruptcy and sold large portions of
the Indian Refinery to an outside party pursuant to a bankruptcy proceeding. The
outside party has substantially dismantled the Indian Refinery. American Western
filed a Liquidation Plan in 2001. American Western anticipated that the
Liquidation Plan would be confirmed in January 2002 but confirmation was delayed
primarily because of legal challenges by Texaco, and subsequently ChevronTexaco.
American Western's Liquidation Plan was confirmed in April 2003. In the plan,
IRLP reduced a $5,400 secured claim against American Western to $800. In
exchange the EPA and Illinois EPA entered into an Agreement and Covenant Not to
Sue with IRLP, which extinguished all CERCLA claims against IRLP. Under the
American Western Liquidation Plan, IRLP received $599 which it is currently
distributing to its creditors.

     During fiscal 1998, the Company was informed that the EPA had investigated
offsite acid sludge waste found near the Indian Refinery and had investigated
and remediated surface contamination on the Indian Refinery property. Neither
the Company nor IRLP was initially named with respect to these two actions.

     In October 1998, the EPA named the Company and two of its inactive refining
subsidiaries as potentially responsible parties for the expected clean-up of an
area of approximately 1,000 acres, which the EPA later designated as the Indian
Refinery-Texaco Lawrenceville Superfund Site. In addition, eighteen other
parties were named including Texaco and a subsidiary of Texaco which had owned
the refinery until December of 1988. The Company subsequently responded to the
EPA indicating that it was neither the owner nor the operator of the Indian
Refinery and thus not responsible for its remediation.

     In November 1999, the Company received a request for information from the
EPA concerning the Company's involvement in the ownership and operation of the
Indian Refinery. The Company responded to the EPA information request in January
2000.

     Claims by Texaco

     On August 7, 2000, the Company received notice of a claim against it and
two of its inactive refining subsidiaries from Texaco. Texaco had made no
previous claims against the Company although the Company's subsidiaries had
owned the refinery from August 1989 until December 1995. In its claim, Texaco
demanded that the Company and its former subsidiaries indemnify Texaco for all
liability resulting from environmental contamination at and around the Indian
Refinery. In addition, Texaco demanded that the Company assume Texaco's defense
in all matters relating to environmental contamination at and around the Indian
Refinery, including lawsuits, claims and administrative actions initiated by the
EPA, and indemnify Texaco for costs that Texaco had already incurred addressing
environmental contamination at the Indian Refinery. Finally, Texaco also claimed
that the Company and two of its inactive subsidiaries were liable to Texaco
under the CERCLA as owners and operators of the Indian Refinery. The Company
responded to Texaco disputing the factual and legal contentions for Texaco's
claims against the Company. The Company's management and special counsel
subsequently met with representatives of Texaco but the parties disagreed
concerning Texaco's claims. In October 2001, Texaco merged with Chevron and the
merged Company was named ChevronTexaco.

     In May 2002, the Company received a letter from ChevronTexaco which
asserted a new claim against the Company and its subsidiaries pursuant to OPA
for costs and damages incurred or to be incurred by ChevronTexaco resulting from
actual or threatened discharges of oil to navigable waters at or near the Indian
Refinery. ChevronTexaco estimated these costs and damages to be $20,500.

     The Company subsequently corresponded with ChevronTexaco and voluntarily
provided a number of documents requested by ChevronTexaco. In June 2002,
ChevronTexaco indicated to the Company that ChevronTexaco did not intend to sue
the Company. Subsequently, ChevronTexaco requested additional documents from the
Company,

                                     - 7 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)


which the Company promptly and voluntarily again supplied to ChevronTexaco.

     In August 2002, the Company's management and special counsel met with legal
and management
representatives of ChevronTexaco in an effort to resolve outstanding issues. At
the meeting a special outside counsel of ChevronTexaco asserted claims against
the Company based upon newly expressed legal theories. ChevronTexaco also
informed the Company that residential landowners adjacent to the Indian Refinery
site had recently filed a toxic torts suit against ChevronTexaco in Illinois
state court. The meeting ended in an impasse.

     Litigation

     On August 13, 2002, ChevronTexaco filed the above litigation in federal
court. By letter dated August 28, 2002, ChevronTexaco tendered the Illinois
state court litigation to the Company for indemnification, but the Company
promptly responded, denying responsibility. Following the initiation of
litigation the Company retained Bryan Cave LLP as trial counsel.

     On October 25, 2002, the Company filed motions to dismiss as a matter of
law the contractual claims in Texaco's complaint, as well as the OPA and RCRA
claims. At the same time, the Company filed its answer to ChevronTexaco's
lawsuit on the remaining CERCLA claim. A pre-trial scheduling conference was
held May 5, 2003 and on May 8, 2003 two unrelated defendants were dismissed from
the case with prejudice under a stipulation with ChevronTexaco on undisclosed
terms. On June 2, 2003, the Federal District Court denied the Company's motions
to dismiss, following which, on July 9, 2003, the Company filed answers to the
contractual, OPA and RCRA claims. The parties are currently conducting discovery
and depositions. The Federal District Court has set a presumptive trial date for
this matter for December 13, 2004, but the actual trial date could be later due
to a crowded docket in the district. The Company does intend to pursue all
available opportunities for early dismissal of this matter, including requests
for summary judgement prior to trial.

     The central argument to both ChevronTexaco's contractual and statutory
claims is that the Company should be treated as a "successor" and "alter ego" of
certain of its present and former subsidiaries, and thereby should be held
directly liable for ChevronTexaco's claims against those entities. ChevronTexaco
makes this argument notwithstanding the fact that the Company never directly
owned the refinery and never was a party to any of the disputed contracts.
ChevronTexaco has also claimed that the Company itself directly operated the
refinery. The leading opinion in this area of the law, as issued by the U.S.
Supreme Court in June 1998 in the comparable matter of United States v.
Bestfoods, 524 U.S. 51, 118 S.Ct. 1876 (1998), supports the Company's positions.

     Estimated gross undiscounted clean-up costs for this refinery are at least
$80,000-$150,000 according to public statements by Texaco to the Company and
third parties. In January 2003, the United States and the State of Illinois
filed a motion in the American Western bankruptcy case which stated that the
estimated total response costs for one portion of the site alone could range
from $109,000 to $205,000. ChevronTexaco has asserted in its contractual claim
that the Company should indemnify ChevronTexaco for all environmental
liabilities related to the Indian Refinery. If ChevronTexaco were to prevail on
this theory, the Company could be held liable for the entirety of the estimated
clean up costs, a sum far in excess of the Company's financial capability. On
the other hand, if the Company were found liable by reason of ChevronTexaco's
statutory claims for contribution and reimbursement under CERCLA and/or OPA, the
Company could be required to pay a percentage of the clean-up costs based on
equitable allocation factors such as comparative time of ownership and
operation, toxicity and amount of hazardous materials released, remediation
funded to date, as well as other factors. Since the Company's subsidiary only
operated the Indian Refinery five years, whereas Texaco operated it over
seventy-five years, the Company would expect that its share of remediation
liability would at a minimum be reduced to an amount proportional to the years
of operation by its subsidiary, although such may not be the case. Additionally,
since Texaco and its subsidiaries intentionally disposed of hazardous wastes on
site at the Indian Refinery while the Company's subsidiary arranged to remove
for offsite destruction and disposal any hazardous wastes

                                     - 8 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)


it may have generated, any allocation to the Company and/or its subsidiaries
might be further reduced.

     The Company and its special counsel, Reed Smith LLP, do not consider an
unfavorable and final outcome for the Company in ChevronTexaco's lawsuit to be
probable and the Company intends to vigorously defend itself against all of
ChevronTexaco's claims in the litigation and any lawsuits that may follow. In
addition to the numerous defenses that the Company has against ChevronTexaco's
contractual claim for indemnity, the Company and its special counsel believe
that by the express language of the agreement which ChevronTexaco construes to
create an indemnity, ChevronTexaco has irrevocably elected to forego all rights
of contractual indemnification it might otherwise have had against the Company.

     Contingent Environmental Liabilities

     Although the Company does not believe it is liable for any of its
subsidiaries' clean-up costs and intends to vigorously defend itself in such
regard, the Company cannot predict the ultimate outcome or timing of these
matters due to inherent uncertainties. If funds for environmental clean-up are
not provided by former and/or present owners, it is possible that the Company
and/or one of its former refining subsidiaries could be held responsible or
could be named parties in additional legal actions to recover remediation costs.
In recent years, government and other plaintiffs have often sought redress for
environmental liabilities from the party most capable of payment without regard
to responsibility or fault.

     Although any environmental liabilities related to the Indian Refinery have
been transferred to others, there can be no assurance that the parties assuming
such liabilities will be able to pay them. American Western, owner of the Indian
Refinery, filed for bankruptcy and is in the process of liquidation.

     As noted above, the EPA named the Company as a potentially responsible
party for remediation of the Indian Refinery and requested and received relevant
information from the Company and ChevronTexaco has tendered the defense of a
state court toxic torts action to the Company. Whether or not the Company is
ultimately held liable in the current litigation or other proceedings, it is
probable that the Company will incur substantial legal fees and experience a
diversion of corporate resources from other opportunities.

Other Litigation

    Long Trusts Lawsuit

  In November 2000, the Company and three of its subsidiaries were defendants in
a jury trial in Rusk County, Texas. The plaintiffs in the case, the Long Trusts,
are non-operating working interest owners in certain wells previously operated
by Castle Texas Production Limited Partnership ("CTPLP"), an inactive
exploration and production subsidiary of the Company. The wells were among those
sold to Union Pacific Resources Corporation ("UPRC") in May 1997. The Long
Trusts claimed that CTPLP did not allow them to sell gas from March 1, 1996 to
January 31, 1997 as required by applicable joint operating agreements, and they
sued CTPLP and the Company's other subsidiaries, claiming (among other things)
breach of contract, breach of fiduciary duty, conversion and conspiracy. The
Long Trusts sought actual damages, exemplary damages, prejudgment and
post-judgment interest, attorney's fees and court costs. CTPLP counterclaimed
for approximately $150 of unpaid joint interest billings plus interest,
attorney's fees and court costs.

  After a three-week trial, the District Court in Rusk County submitted 36
questions to the jury which covered the claims and counterclaim in the lawsuit.
Based upon the jury's answers, the District Court entered judgment on some of
the Long Trusts' claims against the Company and its subsidiaries, as well as
CTPLP's counterclaim against the Long Trusts. The District Court issued an
amended judgment on September 5, 2001 which became final December 19, 2001. The
net amount awarded to the plaintiffs was approximately $2,700.

  The Company and its subsidiaries and the Long Trusts subsequently filed
notices of appeal, submitted legal briefs


                                     - 9 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)

in April 2002, reply briefs in June and July 2002, and ultimately argued the
case before the 12th Court of Appeals in Tyler, Texas in October 2002. On July
31, 2003, that court reversed and remanded in part the trial court's judgment
against the Company and its subsidiaries while affirming the judgment against
the Long Trusts which had awarded damages on the counterclaim asserted by CTPLP.
In its decision, the appellate court held that the trial court had submitted
erroneous theories to the jury, expressly rejecting the Long Trusts' claims for
breach of fiduciary duty, conversion, implied covenants and exemplary damages.
It also remanded the Long Trusts' claims for breach of contract to the district
court for retrial. The appellate court upheld the trial court's award to CTPLP
on its counterclaim for approximately $150 of unpaid joint interests billings,
$450 in attorneys' fees, plus interest and court costs. Both the Company and its
subsidiaries and the Long Trusts thereafter submitted motions for a rehearing on
certain rulings to the 12th Court of Appeals. That court denied both motions for
a rehearing.

  To pursue the appeal, the Company and its subsidiaries were required to post a
bond to cover the gross amount of damages awarded to the Long Trusts, including
interest and attorney's fees, and to maintain that bond until the resolution of
the appeal. Originally, the Company and its subsidiaries anticipated posting a
bond of approximately $3,000 based upon the net amount of damages but the
Company and its subsidiaries later decided to post a bond of $3,886 based upon
the gross damages in order to avoid on-going legal expenses and to expeditiously
move the case to the Tyler Court of Appeals. The certificate of deposit,
including accumulated interest, supporting the bond was $4,088 as of December
31, 2003. The letter of credit supporting this bond was provided by the
Company's lender pursuant to the Company's line of credit with that lender, and
such letter of credit was supported by a certificate of deposit of the Company.
The certificate of deposit will remain restricted until all appeals have been
completed. Having sold all of its domestic oil and gas properties, the Company
no longer directly owns any oil and gas assets with which to collateralize the
bond.

  The Long Trusts have filed a petition for review with the Supreme Court of
Texas. The Texas Supreme Court grants only a small percentage of petitions for
review that are filed. Should the Long Trusts' petition for retrial for review
be denied and their breach of contract claims be retried, the Company will
vigorously defend against them. Based on the evidence presented at the initial
trial, the Company believes such claims, even if decided adversely to the
Company, will not result in a material loss to the Company. Because the Long
Trusts have filed a petition for review with the Supreme Court of Texas, the
Company will be required to maintain its appeal bond until 30 days following a
decision by the Supreme Court, which could be in the spring or summer of 2004 if
the Long Trusts' petition is denied or longer if the petition is granted. When
all appeals are completed and if there are no changes to the court of appeals
decision by the Supreme Court of Texas, CTPLP will be permitted to enforce its
judgment against the Long Trusts.

  The Company has not accrued any recoveries for this litigation but will record
recoveries, if any, when realized.

  Pilgreen Litigation

  As part of the oil and gas properties acquired from AmBrit Energy Corporation
("AmBrit") in June 1999, Castle Exploration Company, Inc., a wholly-owned
subsidiary of the Company ("CECI") acquired a 10.65% overriding royalty interest
("ORRI") in the Simpson lease in south Texas, including the Pilgreen #2ST gas
well. CECI subsequently transferred that interest to Castle Texas Oil and Gas
Limited Partnership ("CTOGLP"), an indirect wholly-owned subsidiary. Because the
operator suspended revenue attributable to the ORRI from first production due to
title disputes, AmBrit, the previous owner, filed claims against the operator of
the Pilgreen well, and CTOGLP acquired rights in that litigation with respect to
the period after January 1, 1999. In August 2002, $282 was released to the
Company of which $249 was recorded as income by the Company and the remaining
$33 paid to Delta Petroleum Corporation ("Delta"). Because of a claim by
Dominion Oklahoma Texas Exploration and Production, Inc. ("Dominion") (see
below), a working interest owner in the same well, that CTOGLP's ORRI in the
Simpson lease should be deemed burdened by 3.55% overriding royalty interest,
there is still a title dispute as to approximately $120 of suspended CTOGLP
Pilgreen #2ST production proceeds for the Company's account. (The Company sold
all of its oil and gas assets, including the Pilgreen #2ST well, to Delta on May
31, 2002.) The Company has named Dominion as a defendant in a legal action
seeking a declaratory judgment that the Company is entitled to its full 10.65%
overriding royalty interest in the Pilgreen well. The

                                     - 10 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)


Company believes that Dominion's title exception to CTOGLP's overriding royalty
interest is erroneous and notes that several previous title opinions have
confirmed the validity of CTOGLP's interest.

  CTOGLP has also been informed that production proceeds from an additional well
on the Simpson lease in which CTOGLP had a 5.325% overriding royalty interest
have been suspended by the court because of title disputes. The Company intends
to contest this matter vigorously. At the present time, the amount held in
escrow applicable to the additional well attributable to the Company's interest
is approximately $66.

  The Company's policy with respect to any amounts recovered is to record them
as income only when and if such amounts are actually received.

  Dominion Litigation

  On March 18, 2002, Dominion, operator of the Mitchell and Migl-Mitchell wells
in the Southwest Speaks field in south Texas and a working interest owner in the
Pilgreen #2ST well, filed suit in Texas against CTOGLP seeking declaratory
judgment in a title action that the overriding royalty interest held by CTOGLP
in these wells should be deemed to be burdened by certain other overriding
royalty interests aggregating 3.55% and should therefore be reduced from 10.65%
to 7.10%. Dominion is also seeking an accounting and refund of payments for
overriding royalty to CTOGLP in excess of the 7.10% since April 2000. The
Company preliminarily estimates the amount in controversy to be approximately
$1,180. Dominion threatened to suspend all revenue payable to the Company from
the Mitchell and Migl-Mitchell to offset its claim. The Company and Dominion are
currently examining land and lease documents concerning the overriding royalty
interests. The Company believes that Dominion's title exception to CTOGLP's
overriding royalty interest is erroneous and notes that several previous title
opinions have confirmed the validity of CTOGLP's interest.

  In July 2003, Dominion filed a motion for partial summary judgement concerning
the Company's claim that it had assumed the liabilities of its predecessor in
interest and CTOGLP filed its response to Dominion's motion as well as its own
cross motion for partial summary judgement. In September 2003, the District
Court of Lavaca County granted Dominion's partial motion for partial summary
judgement. In January 2004, Dominion filed a Motion for Final Summary Judgement
on this matter to which CTOGLP and the other defendants filed a response to be
heard in February 2004. No date has been set for trial.

  The Company is contesting this matter vigorously and believes that Dominion's
claims are without merit and has accordingly made no provision for Dominion's
claim in its December 31, 2003 financial statements.

Note 5 - New Accounting Pronouncements

     Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") were issued in
July 2001. SFAS No. 141 requires that all business combinations entered into
subsequent to June 30, 2001 be accounted for under the purchase method of
accounting and that certain acquired intangible assets in a business combination
be recognized and reported as assets apart from goodwill. SFAS No. 142 requires
that amortization of goodwill be replaced with periodic tests of the goodwill's
impairment at least annually in accordance with the provisions of SFAS No. 142
and that intangible assets other than goodwill be amortized over their useful
lives. The Company adopted SFAS No. 141 in July 2001 and adopted SFAS No. 142 on
October 1, 2002.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), which provides accounting requirements
for retirement obligations associated with tangible long-lived assets,
including: 1) the timing of liability recognition; 2) initial measurement of the
liability; 3) allocation of asset retirement cost to expense; 4) subsequent
measurement of the liability; and 5) financial statement disclosures. SFAS No.
143 requires that asset retirement cost be capitalized as part of the cost of
the related long-lived asset and subsequently allocated to expense using a
systematic


                                     - 11 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)


and rational method. Any transition adjustment resulting from the adoption of
SFAS No. 143 would be reported as a cumulative effect of a change in accounting
principle. The Company adopted this statement effective October 1, 2002. The
adoption of this statement did not have any material effect on the Company's
financial position or results of operations since the Company disposed of its
long-lived assets, its oil and gas properties, to which SFAS No. 143 would have
applied, in May 2002.

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"), which is effective for financial statements issued for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
SFAS No. 144 requires that long-lived assets to be disposed of by sale be
measured at the lower of the carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. SFAS
No. 144 broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from the rest
of the entity and that will be eliminated from the ongoing operations of the
entity in a disposal transaction. The Company adopted SFAS No 144 effective
October 1, 2002. The Company's adoption of this statement has not had any effect
on its financial position or results of operations and the Company does not
anticipate that adoption of this statement will have any future effect on its
financial position or results of operations.

     Statement of Financial Accounting Standards No. 145, "Recision of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145") was issued in April 2002. This statement rescinds
SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, which
required all gains and losses from extinguishment of debt to be aggregated and,
if material, classified as an extraordinary item, net of income taxes. As a
result, the criteria in Accounting Principles Board No. 30 ("APB 30") will now
be used to classify those gains and losses. Any gain or loss on the
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB 30 for classification
as an extraordinary item shall be reclassified. The provisions of this Statement
are effective for fiscal years beginning after January 1, 2003 and the Company
adopted SFAS No. 145 on October 1, 2003. The Company's adoption of this
statement has not had any effect on its financial position or results of
operations to date and the Company does not expect at this time that adoption of
this statement will have a material effect on its future financial position or
results of operations.

     Statement of Financial Accounting Standards No. 146, "Accounting for Exit
or Disposal Activities" ("SFAS No. 146"), was issued in June 2002. SFAS No. 146
addresses significant issues regarding the recognition, measurement and
reporting of disposal activities, including restructuring activities that are
currently accounted in Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Activity." The provisions of SFAS
146 are effective for exit or disposal activities initiated after December 31,
2002. The Company adopted SFAS 146 on January 1, 2003. SFAS No. 146 has not had
any impact on the Company's financial condition or results of operations to date
and the Company does not presently expect SFAS No. 146 to have any affect on its
financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an Amendment of FASB Statement No.
123" ("SFAS No. 148"). This Statement amends FASB SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002. Since the Company has not issued
any stock options since January 2002, the provisions of SFAS No. 148 have not
had any effect on the Company's financial position or results of operations.

     In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an Interpretation of FASB Statements No.
5, 57 and 107 and a Rescission of FASB Interpretation No. 34" ("Interpretation
No. 45"). This Interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation undertaken. The initial recognition and

                                     - 12 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)



measurement provisions of Interpretation No. 45 are applicable to guarantees
issued or modified after December 31, 2002. The disclosure requirements are
effective for financial statements of interim and annual periods ending after
December 31, 2002. The provisions of Interpretation No. 45 have not had an
effect on the Company's financial position or results of operations to date and
the Company does not presently expect Interpretation No. 45 to have a material
effect on the Company's future financial position or results of operations.

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interests Entities, an Interpretation of ARB No. 51" ("Interpretation
No. 46"). This Interpretation addresses the consolidation by business
enterprises of variable interest entities as defined in the Interpretation.
Interpretation No. 46 applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable interests in
variable interest entities obtained after January 31, 2003. For public
enterprises with a variable interest in a variable interest entity created
before February 1, 2003, the Interpretation applies to that enterprise no later
than the beginning of the first interim or annual reporting period beginning
after June 15, 2003. The Interpretation requires certain disclosures in
financial statements issued after January 31, 2003 if it is reasonably possible
that the Company will consolidate or disclose information about variable
interest entities when the Interpretation becomes effective. The provisions of
Interpretation No. 46 have not had an effect on the Company's financial position
and results of operations to date, and the Company does not presently expect
Interpretation No. 46 to have any effect on the Company's future financial
position or results of operations.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ( "SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The Company adopted SFAS No. 149
on July 1, 2003 and SFAS No. 149 has not had any impact on the Company's
financial position or results of operations to date and SFAS No. 149 is not
presently expected to have any impact on the Company's future financial position
or results of operations.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS No. 150"). SFAS No. 150 changes the accounting for certain financial
instruments that, under previous guidance, issuers could account for as equity.
FASB No. 150 requires that those instruments entered into or modified after May
31, 2002, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. SFAS No. 150 had not had and is not
expected to have a material impact on the Company's financial position and
results of operations.

Note 6 - Income Taxes

     The Company's deferred taxes are comprised of the following:


<TABLE>
<CAPTION>
                                        December 31, 2003     September 30, 2003
                                        -----------------     ------------------
                                           (Unaudited)
<S>                                     <C>                   <C>
Deferred tax assets - gross. . . . . .             $7,478                $7,431
Valuation allowance. . . . . . . . . .             (6,770)               (6,417)
                                        -----------------     ------------------
Deferred tax assets - net. . . . . . .           $    708                $1,014
                                        =================     ==================

</TABLE>


     At December 31, 2003, the Company determined that $6,770 of its gross
deferred tax asset more likely than not would not be realized because of changes
in the Company's expectations concerning future taxable income and thus
increased its valuation allowance from $6,417 at September 30, 2003 to $6,770 at
December 31, 2003. If future taxable income (loss) estimates change, the Company
will change its valuation allowance. The net deferred tax asset relates to
income that has been recognized for tax purposes and has not been recognized for
financial reporting purposes.


                                     - 13 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)

Note 7 - Restricted Cash

     Restricted cash consists of the following:

<TABLE>
<CAPTION>
                                                                  December 31, 2003     September 30, 2003
                                                                  -----------------     ------------------
                                                                     (Unaudited)
<S>                                                               <C>                   <C>
Funds supporting bond for Long Trusts Lawsuit. . . . . . . . . .             $4,088                 $4,075
Funds supporting letters of credit for operating bonds . . . . .               195                     210
                                                                  -----------------     ------------------
                                                                             $4,283                 $4,285
                                                                  =================     ==================
</TABLE>

     The Company anticipates that the funds supporting letters of credit for
operating bonds will be replaced by Delta before March 31, 2004.



                                     - 14 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)


Note 8 - Investment in Delta Petroleum Corporation

     Condensed financial information concerning Delta is as follows:


                             Condensed Balance Sheet
<TABLE>
<CAPTION>
                                                                         December 31,     September 30,
                                                                             2003             2003
                                                                         ------------     -------------
                                                                            (Unaudited)
<S>                                                                      <C>                   <C>
                                     Assets
     Current assets . . . . . . . . . . . . . . . . . . . . . . . . . .   $    8,021        $    7,456
     Oil and gas properties, net  . . . . . . . . . . . . . . . . . . .        96,379            93,198
     Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .         1,354               195
                                                                         ------------     -------------
                                                                             $105,754          $100,849
                                                                         ============     =============

               Liabilities and Stockholders' Equity

     Current liabilities, including current portion of long-term debt       $  15,765         $  18,029
     Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . .       29,060            27,555
     Stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . .       60,929            55,265
                                                                         ------------     -------------
                                                                             $105,754          $100,849
                                                                         ============     =============

</TABLE>


<TABLE>
<CAPTION>

                                                                           For the Three Months Ended
                                                                                  December 31,
                                                                         ------------------------------
                                                                             2003             2002
                                                                         ------------     -------------
                                                                                  (Unaudited)
<S>                                                                      <C>              <C>
                        Condensed Statement of Operations
Revenue:
     Oil and gas sales. . . . . . . . . . . . . . . . . . . . . . . . .        $8,074            $5,808
     Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (68)             (387)
                                                                         ------------     -------------
                                                                                8,006             5,421
                                                                         ------------     -------------
Expense:
     Lease operating expenses . . . . . . . . . . . . . . . . . . . . .         2,341             2,303
     General and administrative . . . . . . . . . . . . . . . . . . . .         1,836             1,013
     Depreciation, depletion and amortization . . . . . . . . . . . . .         2,306             1,101
     Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           315                83
                                                                         ------------     -------------
                                                                                6,798             4,500
                                                                         ------------     -------------
Other (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . .          (561)             (422)
                                                                         ------------     -------------
Discontinued operations - income (loss) . . . . . . . . . . . . . . . .             5               (71)
                                                                         ------------     -------------
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . .           652               428
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
                                                                         ------------     -------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .          $652              $428
                                                                         ============     =============

</TABLE>

     The Company currently owns 9,948,289 shares of Delta. Of these, 9,566,000
shares were acquired on May 31, 2002 when the Company sold all of its domestic
oil and gas properties to Delta.

     The above condensed financial information has been compiled using Delta's
unaudited quarterly financial statements for the quarters ended December 31,
2003 and 2002and September 30, 2003.

     Delta's stock is traded on the Nasdaq stock market under the symbol "DPTR."
At December 31, 2003 the closing price of Delta's common stock was $6.07.
Subsequent to December 31, 2003 the closing price of Delta's

                                     - 15 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)


common stock increased significantly and closed at $8.74/share on February 11,
2004.

     At December 31, 2003, there were approximately 5,805,000 options and
warrants to acquire Delta's stock outstanding, including options and warrants
that are out of the money. The average exercise price for such options and
warrants was $3.78. The Company holds none of these options and warrants. If all
such options and warrants had been exercised at December 31, 2003, the Company's
percentage ownership of Delta would have decreased from approximately 39% to
approximately 32%.

Note 9 - Amendment of Stockholder Rights Plan

     On April 21, 1994, the Board of Directors of the Company adopted a
Stockholder Rights Plan ("Plan") under which one preferred stock purchase right
would be distributed for each outstanding share of the Company's common stock.
Each right initially entitles holders of common stock to buy one-hundredth of
one share of a new series of preferred stock at an exercise price of $35.00. The
rights will be exercisable only if a person or group, without the prior approval
of the Company's Board of Directors, acquires 15% or more of the outstanding
common stock or announces a tender offer as a result of which such person or
group would own 15% or more of the common stock. If a person to whom these
provisions apply becomes a beneficial owner of 15% or more of the outstanding
common stock, each right (other than rights held by such acquiring person) will
also enable its holder to purchase common stock (or equivalent securities) of
the Company having a value of $70.00 for a purchase price of $35.00. In
addition, if the Company is involved in a merger or other business combination
with another entity, at or after the time that any person acquires 15% or more
of the outstanding common stock, each right will entitle its holder to purchase,
at $35.00 per right, common shares of such other entity having a value of $70.00

     On December 31, 2002, the Company's Board of Directors amended the Plan
such that the rights will not become exercisable if a person who is an
institutional investor acquires more than 15% but less than 25% of the Company's
outstanding common stock.

Note 10 - Subsequent Events

     Subsequent to December 31, 2003, officers of the Company and one of its
subsidiaries exercised options for 59,900 shares of the Company's common stock,
increasing the number of outstanding shares to 6,652,784. Proceeds from such
option exercise were $325.

   Subsequent to December 31, 2003, the Company sold 60,297 shares of Penn
Octane Corporation common stock, reducing its share holding of Penn Octane
Corporation to 1,283,303 shares. Proceeds were $152.

Note 11 - Restatement

     As previously discussed on Form 10-K/A, the Company has restated its
September 30, 2002 financial statements. The restatement reflects an adjustment
to general and administrative expenses to correct overaccrued severance recorded
in the year ended September 30, 2002 for approximately $258 which was also
incorrectly reversed during the quarter ended December 31, 2002. The following
table reflects the impact of restating the amounts previously reported in the
income statement for the quarter ended December 31, 2002:


                                     - 16 -

<PAGE>

                   Castle Energy Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Share Amounts)
                                  (Unaudited)



<TABLE>
<CAPTION>

                                                                             Quarter Ended December
                                                                                    31, 2002
                                                                         ------------------------------
                                                                          Previously
                                                                           Reported        As Restated
                                                                         ------------     -------------
<S>                                                                      <C>              <C>
     General and administrative expenses . . . . . . . . . . . . . . .           $611              $869
     Operating income (loss) . . . . . . . . . . . . . . . . . . . . .          ($626)            ($884)
     Net income (loss) before provision for (benefit of) income taxes.          ($183)            ($441)
     Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .           $245              ($13)
     Net income (loss) per share:
        Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $ .04            ($.002)

        Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . .          $ .04            ($.002)

</TABLE>


                                     - 17 -

<PAGE>


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

                     ("$000's" Omitted Except Share Amounts)


RESULTS OF OPERATIONS

     All statements other than statements of historical fact contained in this
report are forward-looking statements. Forward-looking statements in this report
generally are accompanied by words such as "anticipate," "believe," "estimate,"
or "expect" or similar statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove correct. Factors that
could cause the Company's results to differ materially from the results
discussed in such forward-looking statements are disclosed in this report are
discussed below. All forward-looking statements in this Form 10-Q are expressly
qualified in their entirety by the cautionary statements in this paragraph.

     During the period from August 1989 to September 30, 1995, two of the
Company's subsidiaries conducted refining operations. By December 12, 1995, the
Company's refining subsidiaries had sold all of their refining assets. In
addition, Powerine merged into a subsidiary of EMC and was no longer a
subsidiary of the Company. The Company's other refining subsidiaries own no
refining assets and are in the process of liquidation. As a result, the Company
accounted for its refining operations as discontinued operations in the
Company's consolidated financial statements as of September 30, 1995 and
retroactively. Accordingly, discussion of results of refining operations has
been confined to the anticipated impact, if any, of liquidation of the Company's
remaining inactive refining subsidiaries and contingent environmental
liabilities of the Company and its refining subsidiaries.

     Since November of 1996, the Company has reacquired 4,911,020 shares or 69%
of its common stock (after taking into account a three for one stock split in
January 2000). As a result of these share acquisitions, earnings and losses per
outstanding share have been higher than would be the case if no shares had been
repurchased.

     General and administrative expenses increased $370 or 43% from the quarter
ended December 31, 2002 to the quarter ended December 31, 2003. The increase
resulted from increased legal costs related to the ChevronTexaco lawsuit. In
addition, the Company recorded a bad debt provision of $86 for the quarter ended
December 31, 2003 because of delays and uncertainties in the collection of
estimated accounts receivable that are over eighteen months old. No similar bad
debt provision was recorded for the quarter ended December 31, 2002.

     The Company recorded no gain or loss in the value of the option it granted
to Delta for the quarter ended December 31, 2003 because that option expired
unexercised on May 31, 2003. The Company had granted Delta an option to
repurchase 3,188,667 of the Delta shares held by the Company at $4.50/share
until May 31, 2003 as part of the sale of its domestic oil and gas properties to
Delta on May 31, 2003. The Company currently owns approximately 39% of Delta.

     The Company recorded no portion of the loss of Networked Energy LLC
("Network") for the quarter ended December 31, 2003 because the Company had
recorded a $354 impairment provision on its equity investment in Network's and a
$126 allowance for doubtful accounts on its note receivable from Network at
March 31, 2003, reducing both amounts to zero. The Company has no obligation to
and has not funded Network's losses. For the quarter ended December 31, 2003,
Network's loss was $9. The Company owns 45% of Network.

     The Company's equity in Delta's net income increased $72 or 38% from the
quarter ended December 31, 2002 to the quarter ended December 31, 2003 although
the Company's percentage ownership of Delta decreased from approximately 43% to
39%. The increase was caused by Delta's increased net income.

     The $293 tax provision for the quarter ended December 31, 2003 results
primarily because of changes in the Company's expectations that it will generate
future taxable income. The Company increased its valuation allowance by $353
from September 30, 2003 to December 31, 2003, resulting in a deferred tax asset,
net of $343 of accrued income taxes on appreciation of marketable securities, of
$366. The net deferred tax asset at December 31, 2003 relates to income that has
been recognized for tax purposes but not yet been recognized for financial
reporting purposes.


                                     - 18 -

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     During the three months ended December 31, 2003, the Company used $1,173 in
operating activities. During the same period the Company paid $330 for dividends
to stockholders. At December 31, 2003, the Company had $9,112 of unrestricted
cash, $15,759 of working capital, no long-term debt and no operating assets or
operating revenues, having sold all of its domestic oil and gas properties to
Petroleum Corporation on May 31, 2002 and its Romanian oil and gas concessions
to the operator of those concessions in September 2002.

     At the present time the three most likely alternative courses of action
available for the Company are liquidation, merger with another company or
continuing to operate. Factors supporting possible liquidation or merger include
the Company's previous disposition of its direct operating assets, its reduction
in personnel to five employees and the ever- increasing regulatory, legal,
accounting and administrative costs of remaining a public company. The Company's
Board of Directors has not, however, adopted any plan of liquidation or merger.
Since a settlement of the lawsuit filed by ChevronTexaco (see Note 4 to the
consolidated financial statements) in the near term appears unlikely, the
Company has been reviewing potential acquisitions with a view to continuing to
operate. At the present time, however, oil and gas prices are at or near record
highs and the Company has not been able to make any acquisitions on favorable
terms. Although the Company's general counsel, management and special counsel do
not consider an unfavorable and final outcome for the Company in ChevronTexaco's
lawsuit to be probable, the Company expects that it will incur significant legal
costs to continue to defend itself in the lawsuit.

     A brief discussion of alternatives available to the company follows:

LIQUIDATION

     If a decision is made to liquidate, the Company anticipates that it would
distribute some cash and Delta shares to its stockholders in complete
liquidation of their stock as soon as possible while retaining sufficient assets
to reasonably provide for existing and anticipated future liabilities, including
those related to the contingent and litigated environmental claims and other
current litigation. Such provision would include sufficient assets to provide a
reasonable reserve for the Company's other outstanding litigation liabilities,
if any, including any outstanding contingent environmental litigation and other
liabilities. If any net assets remain after the Company pays or provides for
such remaining liabilities, the net proceeds of such assets would then be
distributed to stockholders as a final distribution. The Company would probably
also file a no action letter with the SEC seeking relief from continuing SEC
reporting requirements. Such a plan of liquidation or any other plan of
liquidation would be subject to prior approval by the Company's stockholders.
The primary risks associated with such a liquidation scenario are as follows:

     a.   Litigation - As noted above, the Company is a defendant in three
          significant unsettled lawsuits. Although the Company does not believe
          it has any material liabilities with respect to any of these lawsuits,
          any or several of the plaintiffs in these lawsuits could undertake
          legal actions to prevent the Company from making liquidating
          distributions to its stockholders. Any resulting litigation could not
          only cause the Company to incur significant legal costs but could also
          delay any distributions to stockholders for years and/or reduce or
          eliminate entirely such distributions. If ChevronTexaco were to
          prevail on its indemnity claim in its lawsuit (Note 4 to the
          consolidated financial statements), ChevronTexaco's recovery could
          conceivably exceed the Company's net worth and prevent liquidating
          distributions to stockholders. ChevronTexaco could also conceivably
          sue larger stockholders of the Company after a distribution had been
          made. In addition, even if the Company's stockholders approve any
          future plan of liquidation, dissident stockholders of the Company
          could conceivably also take legal actions to prevent the Company from
          implementing any liquidation plan.

     b.   Tax Risks - As a result of the Delta transaction, the Company received
          9,566,000 shares of Delta's common stock in addition to the 382,289
          shares of Delta common stock it previously owned. If Delta's stock
          price increases significantly before any distribution to stockholders,
          the Company could be subject to federal and state income tax at the
          corporate level on the interim appreciation of Delta's stock if the
          Company's remaining tax carryforwards are not sufficient to offset
          income taxes on such appreciation. Under such circumstances the tax
          treatment would be the same as if the Company had sold its Delta
          shares for their fair market value and then distributed the proceeds
          to its stockholders.

                                     - 19 -

<PAGE>

          Subsequent to December 31, 2003, Delta's stock price increased
          significantly and is currently trading in excess of $8.00/share. If
          the Company were to distribute Delta stock to its shareholders at the
          present time or at a time when such stock was trading at similar or
          higher prices, the Company would incur a significant tax liability
          because the gain from Delta's stock appreciation would not be
          completely offset by the Company's existing tax carryforwards. For
          this reason, merger with another company has become a third option for
          the Company and is discussed below. Obviously, if Delta's stock price
          decreases, the tax impact of liquidation may be lessened or eliminated
          and the tax burden associated with liquidation would decrease.

     c.   Continuing Public Company Administrative Burden - If the Company's
          directors decide to liquidate, the Company will probably seek relief
          from most of its public company reporting requirements. If such a
          request is denied by the SEC, the Company would continue incurring the
          costs of being a public company while having no operating revenues to
          absorb such costs. Such costs are significant and probably will
          increase in the future given the myriad of new regulatory
          requirements. The result would be a diminution of assets available for
          distribution to stockholders.

     d.   Lack of Liquidity - If the Company's directors decide to liquidate and
          the related plan of liquidation is approved by the Company's
          stockholders, it is likely that the Company's stock would cease to
          trade after the plan of liquidation is approved. Stockholders would
          not be able to trade their stock. Stockholders who have used their
          Company stock as collateral for margin loans would probably be
          required to provide other collateral to support such loans. Even if
          the Company is able to distribute Delta stock as part of its initial
          distribution to stockholders without any legal challenges or other
          delays, there could be a delay between the date the Company's stock is
          delisted and the date when the Company's stockholders receive Delta
          shares that could be substituted as collateral for a margin loan.
          Stockholders would presumably have to provide other collateral in the
          interim.

     e.   Liquidation of Assets - The Company's primary remaining assets consist
          of cash and cash equivalents and the Company's investments in Penn
          Octane Corporation (1,283,303 shares) and Delta (9,948,289 shares).
          Although most of the Company's shares of Penn Octane are already
          registered, Penn Octane is a thinly capitalized company with small
          trading volumes and the Company may not be able to sell its Penn
          Octane stock for its listed market prices if the Company needs cash to
          distribute to its stockholders or to liquidate liabilities. In
          addition, the Company owns 45% of Network. Network is a private
          development stage limited liability company with no public market for
          its membership units. As a result, the Company expects that it would
          be difficult at the present time to sell its interest in Network if
          liquidation is required.

MERGER

     If Delta's stock price remains high, the Company's management and general
counsel believe that merger of the Company into another company could
substantially avoid the tax burden of liquidation and the Company's shareholders
would receive stock in that company for their Castle Energy Corporation stock.
At the present time, finding a merger partner would be difficult because of the
reluctance of any potential merger partner to assume the Company's current
litigation risks. Before the Company sold its assets to Delta, discussions
regarding potential mergers of the Company with two other exploration and
production companies were terminated primarily for this reason. Even if concerns
about the Company's litigation issues were resolved, a merger would have to be
approved by the Company's shareholders and probably also by the shareholders of
the company into which the Company would merge.

     If the Company ultimately merged with another company it would avoid many
of the risks associated with the liquidation. Some of these risks, however, such
as those associated with liquidation of assets and litigation, to the extent
such risks are not resolved before any such merger, would continue in the
surviving company. If such a merger were structured as a tax-free
reorganization, stockholders' bases in their Castle Energy Corporation stock and
relating holding periods would probably carryover to the new stock of the
surviving corporation although the precise tax consequences cannot be evaluated
until any related merger is negotiated. Whatever the case, it is probable that
any merger would require a significant amount of regulatory filings and take
several months or longer to complete.

                                     - 20 -

<PAGE>

CONTINUING TO OPERATE

     If the Company does not liquidate but instead continues to operate, the
Company would still be subject to several of the risks noted above, including
litigation risk, the continuing public company administrative burden and the
lack of liquidity. The Company estimates that its annual general and
administrative costs, if it continues to exist as a public company, would be at
least $700-$900, excluding litigation - related legal costs. In addition, the
Company would lack direct operating assets and a business to operate. In
addition, the Company may not be able to hire sufficient experienced staff to
operate such assets, having severed most of its personnel in fiscal 2002. Under
such circumstances, the Company would be subject to many competitive
disadvantages if it again decides to acquire energy assets or other assets and
businesses. For example, few analysts believe it is possible to acquire oil and
gas properties at favorable prices at the present time or in the near future
given current high prices for oil and gas production and reserves. Many energy
companies have more financial resources than the Company and could easily outbid
the Company in such an acquisition scenario. Furthermore, the Company must be
engaged primarily in a business other than that of investing, reinvesting,
owning, holding or trading in securities to avoid becoming an investment company
subject to federal regulation under the Investment Company Act of 1940
("Investment Act"). Although the Company does not believe the Company is an
investment company within the meaning of the Investment Act, a future
determination that the Company is an investment company subject to the
Investment Act would result in even more significant regulatory compliance costs
and obligations.

     In addition, if the Company continues to operate, it would continue to be
subject to the following risk factors:

     a.   Contingent and litigated environmental liabilities (see Note 4 to the
          consolidated financial statements).

     b.   Public market for Company's stock - the small trading volumes in the
          Company's stock may create liquidation problems for large investors in
          the Company.

     c.   Other risks including general business risks, insurance claims against
          the Company in excess of insurance coverage, tax liabilities resulting
          from tax audits and litigation risk.

     Although the Company has reviewed and sought to acquire oil and gas assets
during fiscal 2003 and for the first quarter of fiscal 2004, the Company has not
been successful in such acquisitions. The prices paid by successful bidders has
been higher than that the Company would be willing to pay. Nevertheless, no
resolution of the ChevronTexaco litigation appears imminent in the near term and
the Company is increasing its effort to acquire oil and gas or other
energy-related assets if such assets can be acquired on favorable terms.

CRITICAL ACCOUNTING POLICIES:

     The accounting policies critical to the Company in the future, are as
follows:

Equity Method of Accounting

     The Company currently owns approximately 39% of Delta and accounts for its
investment in Delta using the equity method of accounting. Under this method,
the Company is required to increase its investment in Delta by its share of
Delta's income and decrease such investment by its share of Delta's losses and
any distributions from Delta. If Delta incurs future losses, the Company would
thus include its share of such losses in its consolidated statement of
operations. In addition, the Company estimates that its investment in Delta
exceeded the Company's proportional share of Delta's equity by approximately
$6,900 at May 31, 2002 and December 31, 2003. The Company has allocated such
excess to Delta's ownership interests in offshore California leases and the
related potential recovery from a lawsuit Delta and other owners of offshore
California leases have instituted against the United States for breach of
contract. The Company is required to evaluate the recoverability of the leases
periodically and write off the excess costs or reduce them to the extent they
are not deemed recoverable. In addition, if Delta incurs recurring losses in the
future and/or the market value of its stock declines significantly, the
Company's investment in Delta may be impaired and the Company may then be
required to recognize the impairment.

Discontinued Refining Operations

     At December 31, 2003, the Company had recorded net refining liabilities
retained of $2,404. As noted in Note 4 to the consolidated financial statements
in this Form 10-Q, ChevronTexaco has sued the Company for environmental
remediation costs that have been estimated at $80,000-$150,000. In January 2003,
the United States and the State of Illinois filed a motion which estimated the
total costs for just one portion of the Indian Refinery-Texaco-Lawrenceville

                                     - 21 -

<PAGE>

Superfund Site to be $109,000 to $205,000. The Company's accounting policy with
respect to contingent environmental liabilities is to record environmental
liabilities when and if environmental assessment and/or remediation costs are
probable and can be reasonably estimated. Although the Company and its special
counsel do not consider an unfavorable and final outcome for the Company in
ChevronTexaco's lawsuit to be probable, the Company would be required to record
additional environmental liabilities if it becomes probable that the Company
will incur liabilities related to ChevronTexaco's claims and/or other
environmental liabilities and such liabilities exceed $2,404. As noted above, if
such liabilities exceed the value of the Company's assets, the Company would not
have the financial capability to pay such liabilities. The amounts and
classification of the estimated values of discontinued net refining assets and
net refining liabilities retained could change significantly in the future as a
result of litigation or other factors.

Future Distributions to Stockholders, If Any

     If the Company's Board of Directors decides to liquidate the Company, it is
possible that the related plan of liquidation would contemplate distributions to
stockholders of shares of Delta common stock and perhaps of other assets of the
Company. If the Company distributes Delta stock or other assets to stockholders,
the Company will first adjust the book value of the assets to be distributed to
their fair market values and, if appropriate, for an indicated impairment of
value, recognizing the resultant loss. The Company would then record the
distribution as a charge to retained earnings equal to the book value of the
assets being distributed.

Valuation Allowance for Deferred Income Tax Asset

     At December 31, 2003, the Company recorded a valuation allowance of $6,770,
substantially offsetting its gross deferred tax asset of $7,478 at that date.
That valuation allowance is based upon the Company's assessment that the Company
will not generate future taxable income to utilize all of its gross deferred tax
assets at December 31, 2003 based primarily on the Company's expectations that
it will incur significant general and administrative expenses liquidating its
assets without earning offsetting revenue. In addition, the Company is a party
to several lawsuits, including a complaint for environmental indemnification,
for which the Company has recorded no liabilities except for $2,404 of net
refining liabilities retained. The net deferred tax asset at December 31, 2003
relates to income that has been recognized for tax purposes but has not yet been
recognized for financial reporting purposes. If circumstances change such that
the Company expects future taxable income, the Company will revise its valuation
allowance, resulting in tax recoveries.

Investment in Network

     At March 31, 2003, the Company recorded a $480 impairment provision related
to its investment in Network. This provision consisted of $354 provision related
to the Company's 45% equity investment in Network and a $126 provision related
to the Company's $126 note receivable from Network. As a result of these
impairment provisions the Company's investment in Network was reduced to zero.
The impairment provisions were recorded because Network had not entered into any
revenue generating contracts by May 9, 2003. Network still has not entered into
any revenue- generating contracts. If Network is able to enter into
revenue-generating contracts and generate future net income, the Company may
record its share of such income under the equity method of accounting.

                                     - 22 -

<PAGE>

Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company has sold all of its direct oil and gas production and currently
is not subject to market risk on the prices received for oil and gas production
as in the past.

Item 4. Controls and Procedures

   The conclusions of the Company's Chief Executive Officer and Chief Financial
Officer concerning the effectiveness of the Company's disclosure controls and
procedures and changes in internal controls as of December 31, 2003 are as
follows:

     a)   They have concluded that the Company's disclosure controls and
          procedures are effective in promptly identifying items that should be
          included in the Company's reports required under the Exchange Act.

     b)   There have not been any significant changes in the Company's internal
          controls or in other factors that could affect such controls
          subsequent to December 31, 2003.

     The Company was required to restate its September 30, 2002 financial
statements because of a charge to general and administrative expenses that
should have been recorded as a reduction to accrued expenses. As a result of
this restatement, the Company instituted an additional internal control
procedure whereby the Company's Chief Financial Officer will review all
quarterly closing journal entries in excess of $25,000. The Company's management
believes that this new procedure will preclude future restatements arising from
charges to incorrect account(s).

     See Exhibits 31.1 and 31.2 to this Form 10-Q.

                                     - 23 -

<PAGE>

                   PART II. OTHER INFORMATION


Item 1. Legal Proceedings

     For additional information regarding lawsuits, reference is made to Item 3
of the Company's Form 10-K (Annual Report) for the fiscal year ended September
30, 2003. Also see Note 4 to the December 31, 2003 consolidated financial
statements included in Part I.

Item 6. Exhibits and Reports on Form 8-K

     (A)  Exhibits:

            Exhibit 11.1 - Statement re: Computation of Earnings Per Share
            Exhibit 31.1   Certificate of Chief Executive Officer (Section 302
                             of Sarbanes Oxley Act)
            Exhibit 31.2   Certificate of Chief Financial Officer (Section 302
                             of Sarbanes Oxley Act)
            Exhibit 32.1   Certificate of Chief Executive Officer (Section 906
                             of Sarbanes Oxley Act)
            Exhibit 32.2   Certificate of Chief Financial Officer (Section 906
                             of Sarbanes Oxley Act)

      (B)  Reports on Form 8-K:  None



                                     - 24 -

<PAGE>

                                    SIGNATURES


    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


     Date: February 13, 2004            CASTLE ENERGY CORPORATION



                                        /s/Richard E. Staedtler
                                        --------------------------------------
                                        Richard E. Staedtler
                                        Chief Financial Officer
                                        Chief Accounting Officer

                                     - 25 -