<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                 March 31, 2004
                                ------------------------------------------------

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

      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)

         Indicate by check X 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  X    No    .
                                             ---      ---

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

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 6,717,384 shares of
Common Stock, $.50 par value, outstanding as of May 6, 2004.



<PAGE>





                            CASTLE ENERGY CORPORATION


                                      INDEX
<TABLE>
<CAPTION>
                                                                                           PAGE #
                                                                                           ------
<S>                                                                                        <C>
Part I.      Financial Information
             ---------------------

             Item 1. Financial Statements:

                     Consolidated Balance Sheets - March 31, 2004 (Unaudited) and
                     September 30, 2003....................................................... 2

                     Consolidated Statements of Operations - Three Months Ended March 31,
                     2004 and 2003 (Unaudited)................................................ 3

                     Consolidated Statements of Operations - Six Months Ended March 31,
                     2004 and 2003 (Unaudited)................................................ 4

                     Condensed Consolidated Statements of Cash Flows - Six Months Ended
                     March 31, 2004 and 2003 (Unaudited)...................................... 5

                     Consolidated Statements of Stockholders' Equity and Other Comprehensive
                     Income - Year Ended September 30, 2003 and Six Months Ended
                     March 31, 2004 (Unaudited)............................................... 6

                     Notes to the Consolidated Financial Statements (Unaudited)............... 7

             Item 2. Management's Discussion and Analysis of Financial Condition and Results
                     of Operations........................................................... 19


             Item 3. Qualitative and Quantitative Disclosures About Market Risk.............. 23

             Item 4. Controls and Procedures................................................. 23

Part II.     Other Information
             -----------------

             Item 1. Legal Proceedings....................................................... 24

             Item 4. Submission of Matters to a Vote of Security Holders..................... 24

             Item 6. Exhibits and Reports on Form 8-K........................................ 24

Signature    ................................................................................ 25
</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>
                                                                                                 MARCH 31,        SEPTEMBER 30,
                                                                                                  2004                2003
                                                                                               ------------       ------------
                                                                                                 UNAUDITED
<S>                                                                                              <C>                <C>
                                       ASSETS
Current assets:
    Cash and cash equivalents........................................................            $ 22,443           $ 10,615
    Restricted cash..................................................................               4,194              4,285
    Accounts receivable - sale of marketable securities..............................
    Accounts receivable..............................................................                 886                152
    Marketable securities............................................................                  15              4,088
    Prepaid expenses and other current assets........................................                  93                112
    Note receivable - Networked Energy LLC, net of allowance for doubtful account
     of $126.........................................................................
    Deferred income taxes............................................................                                    648
                                                                                                 --------           --------
      Total current assets...........................................................              27,631             19,900
Property, plant and equipment, net:
    Furniture, fixtures, equipment and vehicles......................................                  83                 65
    Oil and gas properties, net (full cost method)...................................
     Proved properties...............................................................               9,208
     Unproved properties not being amortized.........................................
Investment in Network Energy LLC, net of impairment reserve of $354..................
Investment in Delta Petroleum Corporation............................................              28,759             29,477
Deferred income taxes................................................................               2,072                366
                                                                                                 --------           --------
     Total assets....................................................................            $ 67,753           $ 49,808
                                                                                                 ========           ========

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Dividend payable.................................................................            $    334           $    330
    Accounts payable.................................................................                 394                541
    Accrued expenses.................................................................                 190                241
    Accrued taxes on appreciation of marketable securities...........................                                    649
    Income taxes payable.............................................................                 258
                                                                                                 --------           --------
      Total current liabilities......................................................               1,176              1,761
Net refining liabilities retained....................................................               2,406              2,404
Asset retirement obligation..........................................................                 222
Deferred income taxes................................................................               1,483
                                                                                                 --------           --------
      Total liabilities..............................................................               5,287              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; 11,596,404
      shares issued at March 31, 2004 and 11,503,904 shares issued at
      September 30, 2003.............................................................               5,799              5,752
    Additional paid-in capital.......................................................              76,187             68,532
    Accumulated other comprehensive income, net of taxes.............................                 248              1,383
    Retained earnings................................................................              46,899             36,643
                                                                                                 --------           --------
                                                                                                  129,133            112,310
    Treasury stock at cost - 4,911,020 shares at March 31, 2004 and
       September 30,  2003...........................................................             (66,667)           (66,667)
                                                                                                 --------           --------
      Total stockholders' equity.....................................................              62,466             45,643
                                                                                                 --------           --------
      Total liabilities and stockholders' equity.....................................            $ 67,753           $ 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 MARCH 31,
                                                                                ----------------------------
                                                                                   2004              2003
                                                                                ----------        ----------
<S>                                                                             <C>               <C>
Expenses:
    General and administrative...............................................   $    1,185        $      696
    Depreciation, depletion and amortization.................................           13                14
                                                                                ----------        ----------
                                                                                     1,198               710
                                                                                ----------        ----------

Operating income (loss)......................................................       (1,198)             (710)
                                                                                ----------        ----------

Other income (expense):
        Gain on sale of marketable securities................................          538
        Gain on sale of Delta Petroleum Corporation investment...............       12,547
        Interest income......................................................           36                88
        Other income (expense)...............................................          448               (12)
        Equity in income of Delta Petroleum Corporation......................          246               562
        Equity in loss of Networked Energy LLC...............................
        Impairment provision - investment in Networked Energy LLC............                           (480)
      Decrease in market value of option granted to Delta Petroleum
          Corporation........................................................                            217
                                                                                ----------        ----------
                                                                                    13,815               375
                                                                                ----------        ----------

Income (loss) before provision for income taxes..............................       12,617              (335)
                                                                                ----------        ----------

    Provision for (benefit of) income taxes:
      State..................................................................           12                 9
      Federal................................................................          437               312
                                                                                ----------        ----------
                                                                                       449               321
                                                                                ----------        ----------
Net income (loss)............................................................   $   12,168             ($656)
                                                                                ==========        ==========

Net income (loss) per share:
        Basic.................................................................  $     1.83             ($.10)
                                                                                ==========        ==========
        Diluted..............................................................   $     1.77             ($.10)
                                                                                ==========        ==========
    Weighted average number of common and potential dilutive common shares
        outstanding:
      Basic..................................................................    6,651,203         6,592,884
                                                                                ==========        ==========
      Diluted................................................................    6,889,729         6,593,082
                                                                                ==========        ==========
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       -3-

<PAGE>

                            CASTLE ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     ("000's" Omitted Except Share Amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED MARCH 31,
                                                                                 ---------------------------
                                                                                    2004              2003
                                                                                 ----------       ----------
<S>                                                                              <C>              <C>
Expenses:
      General and administrative..............................................   $    2,424       $    1,565
      Depreciation, depletion and amortization................................           25               29
                                                                                 ----------       ----------
                                                                                      2,449            1,594
                                                                                 ----------       ----------

Operating income (loss).......................................................       (2,449)          (1,594)
                                                                                 ----------       ----------

Other income (expense):
        Gain on sale of marketable securities.................................          538
        Gain on sale of Delta Petroleum Corporation investment................       12,547
        Interest income.......................................................           72              151
        Other income..........................................................          448                2
        Equity in income of Delta Petroleum Corporation.......................          506              750
        Equity in loss of Networked Energy LLC................................                           (20)
        Impairment provision - investment in Networked Energy LLC.............                          (480)
      Decrease in fair market value of option granted to Delta Petroleum
        Corporation...........................................................                           415
                                                                                 ----------       ----------
                                                                                     14,111              818
                                                                                 ----------       ----------

Income (loss) before provision for income taxes...............................       11,662             (776)
                                                                                 ----------       ----------

    Provision for (benefit of) income taxes:
      State...................................................................           21               (3)
      Federal.................................................................          721             (104)
                                                                                 ----------       ----------
                                                                                        742             (107)
                                                                                 ----------       ----------
Net income (loss) ............................................................   $   10,920            ($669)
                                                                                 ==========       ==========

Net income (loss) per share:
        Basic.................................................................   $     1.65            ($.10)
                                                                                 ==========       ==========
        Diluted...............................................................   $     1.61            ($.10)
                                                                                 ==========       ==========

    Weighted average number of common and potential dilutive common shares
        outstanding:
       Basic..................................................................    6,622,269        6,592,884
                                                                                 ==========       ==========
        Diluted...............................................................    6,803,515        6,594,657
                                                                                 ==========       ==========
</TABLE>



    The accompanying notes are an integral part of these financial statements

                                       -4-

<PAGE>

                            CASTLE ENERGY CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                ("000's" Omitted)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                          SIX MONTHS ENDED MARCH 31,
                                                                                        ----------------------------
                                                                                         2004                 2003
                                                                                        -------              -------
<S>                                                                                     <C>                  <C>
Net cash flow provided by (used in) operating activities.................               ($2,195)             ($1,961)
                                                                                        -------              -------

Cash flows from investing activities:
       Investment in vehicles............................................                   (43)
       Investment in oil and gas properties..............................                (9,512)
       Investment in Networked Energy LLC................................                                       (125)
                                                                                        -------              -------
                 Net cash used in investing activities...................                (9,555)                (125)
                                                                                        -------              -------

Cash flows from financing activities:
         Proceeds from exercise of stock options.........................                   514
         Proceeds from sale of marketable securities.....................                 2,809
         Proceeds from sale of investment in Delta Petroleum Corporation.                20,914
         Dividends paid to stockholders..................................                  (659)                (660)
                                                                                        -------              -------
         Net cash provided by (used in) financing activities.............                23,578                 (660)
                                                                                        -------              -------
Net increase (decrease) in cash and cash equivalents.....................                11,828               (2,746)
Cash and cash equivalents - beginning of period..........................                10,615               15,539
                                                                                        -------              -------
Cash and cash equivalents - end of period................................               $22,443              $12,793
                                                                                        =======              =======
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       -5-

<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 SIX MONTHS ENDED MARCH 31, 2004 (UNAUDITED)
                                           -----------------------------------------------------------------------------
                                                                                               ACCUMULATED
                                              COMMON STOCK     ADDITIONAL                        OTHER
                                           -----------------    PAID-IN      COMPREHENSIVE   COMPREHENSIVE     RETAINED
                                           SHARES     AMOUNT    CAPITAL         INCOME        INCOME (LOSS)    EARNINGS
                                           ------     ------    -------         ------        -------------    --------
<S>                                      <C>          <C>       <C>                              <C>           <C>
Balance-October 1, 2002..................11,503,904   $5,752    $67,365                          $487          $39,965

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


Options exercised........................    92,500       47        467
Tax benefit of options exercised                                     99
Issuance of additional stock by Delta
  Petroleum Corporation..................                         7,089
Dividends declared ($.10 per share)                                                                               (664)
Comprehensive income (loss):
  Net income (loss)......................                                      $10,920                          10,920
  Other comprehensive income (loss):
     Reclassification adjustment, net of
     $649 tax............................                                       (1,153)        (1,153)
     Equity in other comprehensive
      income (loss) of Delta Petroleum
      Corporation, net of $9 tax
      benefit............................                                           18             18
                                                                               -------
                                                                               $ 9,785
                                         ----------   ------    -------        =======        -------          -------
Balance - March 31, 2004.................11,596,404   $5,799    $76,187                       $   248          $46,899
                                         ==========   ======    =======                       =======          =======
</TABLE>
<TABLE>
<CAPTION>
                                                 YEAR ENDED SEPTEMBER 30, 2003 AND
                                           SIX MONTHS ENDED MARCH 31, 2004 (UNAUDITED)
                                           -------------------------------------------
                                                  TREASURY STOCK
                                                 ------------------
                                                 SHARES      AMOUNT        TOTAL
                                                 ------      ------        -----
<S>                                            <C>         <C>            <C>
Balance-October 1, 2002..................      4,911,020   ($66,667)      $46,902

Issuance of additional stock by Delta
   Petroleum Corporation.................                                   1,167
Dividends declared ($.20 per share)                                        (1,321)
Comprehensive income (loss):
  Net income (loss)......................                                  (2,001)
  Other comprehensive income (loss):
     Unrealized gain (loss) on
      marketable securities, net of $375
      of income taxes....................                                     666
     Equity in other comprehensive
      income (loss) of Delta Petroleum
      Corporation, net of $129 tax
      benefit............................                                     230


                                               ---------   --------       -------
Balance - September 30,. 2003............      4,911,020    (66,667)       45,643


Options exercised........................                                     514
Tax benefit of options exercised                                               99
Issuance of additional stock by Delta
  Petroleum Corporation..................                                   7,089
Dividends declared ($.10 per share)                                          (664)
Comprehensive income (loss):
  Net income (loss)......................                                  10,920
  Other comprehensive income (loss):
     Reclassification adjustment, net of
     $649 tax............................                                  (1,153)
     Equity in other comprehensive
      income (loss) of Delta Petroleum
      Corporation, net of $40 tax
      benefit............................                                      18


                                               ---------   --------       -------
Balance - March 31, 2004.................      4,911,020   ($66,667)      $62,466
                                               =========   ========       =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       -6-

<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 six-month period ended March 31, 2004 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30, 2004
or for 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 and six-month periods ended March 31, 2004 and
2003 and for a fair statement of financial position at March 31, 2004.

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 incurred 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").

                                       -7-

<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.

                                       -8-

<PAGE>

                   CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


         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, 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 Company is awaiting a rescheduling of the presumptive trail
date for this case from the Federal District Court caused by the court's crowded
criminal docket. The Company expects to pursue motions for summary judgment
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 it may have generated,
any allocation to the Company and/or its subsidiaries might be further reduced.


                                       -9-

<PAGE>

                   CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


         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.


                                       -10-

<PAGE>

                   CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)



         The Company and its subsidiaries and the Long Trusts subsequently filed
notices of appeal, submitted legal briefs 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
$4,099 as of March 31, 2004. 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. The Company expects that all appeals will be
completed by June 30, 2004 and the certificate of deposit will be released by
then.

        The Long Trusts subsequently filed a petition for review with the
Supreme Court of Texas. On March 26, 2004, the Texas Supreme Court denied the
Long Trusts petition for review and the Long Trusts filed a petition for
rehearing with that court two weeks later. When this appeal process concludes,
certain breach of contract claims by the Long Trusts which were reversed and
remanded by the appellate court may be retried by the plaintiffs. Based on the
evidence at the initial trail coupled with the guidance to the trial court given
in the appellate decision, the Company believes that it will be able to prove
that there was no breach of contract, that Long Trusts suffered no damages, and
that such breach of contract claims, even if decided adversely to the Company,
will not result in a material loss to the Company. The award of damages to
Company upheld by the appellate court, estimated at $934, would have to be paid
by the Long Trusts prior to any potential retrial.

         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 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.

                                      -11-

<PAGE>

                   CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


         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 March 31, 2004 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.

         The Company has been made aware that an issue has arisen within the
industry regarding the application of the provisions of SFAS No. 142 and SFAS
No. 141 to companies in the extractive industries, including oil and gas
companies. The issue is whether SFAS No. 142 requires companies to reclassify
costs associated with mineral rights, including both proved and unproved
leasehold acquisition costs, as intangible assets in the balance sheet, apart
from other capitalized oil and gas property costs. Historically, the Company and
other oil and gas companies have included the cost of these oil and gas
leasehold interests as part of oil and gas properties. Also under consideration
is whether SFAS No. 142 requires registrants to provide the additional
disclosures prescribed by SFAS No. 142 for intangible assets for costs
associated with mineral rights.

                                      -12-

<PAGE>

                   CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


         If it is ultimately determined that SFAS No. 142 requires the Company
to reclassify costs associated with mineral rights from property and equipment
to intangible assets, the amount that would be reclassified is approximately as
follows:


                                                                MARCH 31, 2004
                                                                --------------
         Intangible assets:
            Proved leasehold acquisition costs.............         $1,200
                                                                    ======


         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 costs 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 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 a material impact on the
Company's consolidated financial statements. The Company recorded an asset
retirement obligation of $222 in conjunction with its acquisition of interests
in gas wells on March 31, 2004 (see Note 11).

         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.

         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 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.

                                      -13-

<PAGE>

                   CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


Note 6 - Income Taxes
---------------------

         The Company's deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
                                                                                      MARCH 31, 2004         SEPTEMBER 30, 2003
                                                                                      --------------         ------------------
                                                                                        (UNAUDITED)

<S>                                                                                        <C>                      <C>
         Deferred tax assets - gross....................................                   $2,072                   $7,431
         Valuation allowance............................................                                            (6,417)
                                                                                           ------                   ------
         Deferred tax assets - net......................................                   $2,072                   $1,014
                                                                                           ------                   ------

         Deferred tax liability.........................................                   $1,483                   $  -
                                                                                           ======                   ======

         Income taxes payable...........................................                   $  258                   $  -
                                                                                           ======                   ======

</TABLE>
         The Company's gross deferred tax assets decreased from $7,431 at
September 30, 2003 to $2,072 at March 31, 2004 primarily because the Company
utilized most of its tax carryforwards to reduce its taxable income for the six
months ended March 31, 2004.

         At March 31, 2004, the Company determined that it was more likely than
not that the Company would generate future taxable income sufficient to utilize
all of its deferred tax assets. The Company's tax basis in the shares of Delta
stock that it owns is approximately $22,000 whereas the value of such Delta
stock, based upon the closing prices on May 6, 2004, was approximately $108,000
(see Note 9).

         The income taxes payable at March 31, 2004 relate to Federal
alternative minimum taxes. Although the Company has significant alternative
minimum tax carryforwards, it can only use 90% of such carryforwards to offset
related alternative minimum taxable income.

Note 7 - Restricted Cash
------------------------

         Restricted cash consists of the following:
<TABLE>
<CAPTION>
                                                                                          MARCH 31,             SEPTEMBER 30,
                                                                                            2004                     2003
                                                                                           ------                   ------
                                                                                         (UNAUDITED)
<S>                                                                                        <C>                      <C>
         Funds supporting bond for Long Trusts Lawsuit...................                  $4,099                   $4,075
         Funds supporting letters of credit for operating bonds..........                      95                      210
                                                                                           ------                   ------
                                                                                           $4,194                   $4,285
                                                                                           ======                   ======
</TABLE>
Note 8 - Accounts Receivable
----------------------------

         Accounts receivable consists of the following:
<TABLE>
<CAPTION>
                                                                                          MARCH 31,             SEPTEMBER 30,
                                                                                            2004                     2003
                                                                                           ------                   ------
                                                                                         (UNAUDITED)
<S>                                                                                        <C>                      <C>
         Prior years' oil/gas severance tax refund.......................                 $   293
         Estimated purchase price adjustment on purchase of
           Appalachian gas properties....................................                     526
         Other, net of allowance for doubtful accounts...................                      67                   $  152
                                                                                           ------                   ------
                                                                                          $   886                   $  152
                                                                                           ======                   ======
</TABLE>
                                      -14-
<PAGE>

                   CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


        Subsequent to March 31, 2004, $399 of the accounts receivable due at
March 31, 2004 was collected.

Note 9 - Investment in Delta Petroleum Corporation
--------------------------------------------------

        Condensed financial information concerning Delta Petroleum Corporation
("Delta") is as follows:

<TABLE>
<CAPTION>
                          CONDENSED BALANCE SHEET
                                                                                         MARCH 31,              SEPTEMBER 30,
                                                                                           2004                     2003
                                                                                         --------                 --------
                                                                                        (Unaudited)              (Unaudited)
      <S>                                                                               <C>                     <C>
                                  Assets

      Current assets......................................................               $ 37,935                 $  7,456
      Oil and gas properties, net.........................................                106,973                   93,198
      Other assets........................................................                  1,325                      195
                                                                                         --------                 --------
                                                                                         $146,233                 $100,849
                                                                                         ========                 ========

                   Liabilities and Stockholders' Equity

      Current liabilities, including current portion of long-term debt....               $ 17,415                 $ 18,029
      Long-term liabilities...............................................                 28,091                   27,555
      Stockholders' equity................................................                100,727                   55,265
                                                                                         --------                 --------
                                                                                         $146,233                 $100,849
                                                                                         ========                 ========
</TABLE>


<TABLE>
<CAPTION>
                                                                                           FOR THE THREE MONTHS ENDED
                                                                                                    MARCH 31,
                                                                                         ---------------------------------
                                                                                            2004                  2003
                                                                                            ----                  ----
                                                                                         (Unaudited)           (Unaudited)
      <S>                                                                                 <C>                   <C>
                     CONDENSED STATEMENT OF OPERATIONS

      Revenue:
        Oil and gas sales.................................................               $ 10,628                 $  7,717
        Other.............................................................                   (286)                    (742)
                                                                                         --------                 --------
                                                                                           10,342                    6,975
                                                                                         --------                 --------
      Expense:
        Lease operating expenses..........................................                  2,506                    2,556
        General and administrative........................................                  2,030                    1,068
        Depreciation, depletion and amortization..........................                  3,085                    1,428
        Other.............................................................                  1,908                      208
                                                                                         --------                 --------
                                                                                            9,529                    5,260
                                                                                         --------                 --------
      Other income (expense)..............................................                  1,452                     (408)
                                                                                         --------                 --------
      Discontinued operations.............................................                    189
                                                                                         --------
      Income (loss) before taxes..........................................                  2,454                    1,307
      Income taxes........................................................
                                                                                         --------                 --------
      Net income (loss)...................................................               $  2,454                 $  1,307
                                                                                         ========                 ========
</TABLE>







                                      -15-
<PAGE>

<TABLE>
<CAPTION>
                                     CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                       ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                                     (UNAUDITED)


                                                                                          FOR THE SIX MONTHS ENDED
                                                                                                 MARCH 31,
                                                                                         --------------------------
                                                                                          2004                2003
                                                                                          ----                ----
                                                                                                (Unaudited)
      <S>                                                                                <C>                <C>
                     CONDENSED STATEMENT OF OPERATIONS

      Revenue:
        Oil and gas sales.................................................               $18,702            $13,808

        Other.............................................................                  (354)            (1,129)
                                                                                         -------            -------
                                                                                          18,348             12,679
                                                                                         -------            -------
      Expense:
        Lease operating expenses..........................................                 4,847              5,123
        General and administrative........................................                 3,866              2,045
        Depreciation, depletion and amortization..........................                 5,391              2,620
        Other.............................................................                 2,223                326
                                                                                         -------            -------
                                                                                          16,327             10,114
                                                                                         -------            -------
      Other income (expense)..............................................                   891               (830)
                                                                                         -------            -------
      Discontinued operations.............................................                   194
                                                                                         -------
      Income (loss) before taxes..........................................                 3,106              1,735
                                                                                         -------            -------
      Income taxes........................................................
      Net income (loss)...................................................               $ 3,106            $ 1,735
                                                                                         =======            =======
</TABLE>

          At September 30, 2003, the Company owned 9,948,289 shares of Delta. In
March 2004, the Company sold 2,260,414 shares of Delta for net proceeds of
$20,914 and recognized a gain of $12,547 on the sale. The book value of the
shares sold was based upon the book value per share of the Company's investment
in Delta on the day of sale. At March 31, 2004, the Company owned 7,687,875
shares of Delta, representing approximately 25% of Delta's outstanding shares.

          The above condensed financial information has been compiled using
Delta's unaudited quarterly financial statements for the quarters ended March
31, 2004 and 2003, December 31, 2003 and 2002 and September 30, 2003.

          Delta's stock is traded on the Nasdaq stock market under the symbol
"DPTR." At May 6, 2004, the closing price of Delta's common stock was $14.07.

          At March 31, 2004, there were approximately 4,800,000 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 significantly less than the closing market price. The Company holds
none of these options and warrants. If all such options and warrants had been
exercised at March 31, 2004, the Company's percentage ownership of Delta would
have decreased from approximately 25% to approximately 22%.

Note 10 - 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






                                    -16-

<PAGE>


                   CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


          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 11 - Purchases of Oil and Gas Properties
---------------------------------------------

          On March 31, 2004, the Company acquired interests in 138 western
Pennsylvania gas wells from Delta. The Company previously owned most of these
properties through May 31, 2002 when it sold all of its United States oil and
gas properties to Delta. The purchase price paid by the Company was $8,121
consisting of $8,000 for the agreed-upon purchase price as of January 1, 2004
plus $121 of net expenses paid by Delta applicable to the period January 1, 2004
to March 31, 2004. The effective date of the purchase was January 1, 2004. The
Company estimates that it will receive approximately $350 of purchase price
adjustments at a final accounting on or before June 30, 2004. Such purchase
price adjustments represent estimated cash flow from the properties from January
1, 2004 to March 31, 2004 excluding the $121 of net expenses during that period
already paid by Delta.

        The Company currently owns approximately 25% of Delta (see Note 9) and
three of the Company's directors are also directors of Delta. Prior to approving
the purchase, the Company appointed a committee of independent directors to
evaluate and make a recommendation to the Board of Directors with respect to the
proposed transaction. The Committee engaged an outside consultant to evaluate
the fairness of the proposed purchase. Based upon that consultant's
recommendation that the purchase price was reasonable and fair and the favorable
recommendation of the committee, the full Board of Directors of the Company
unanimously approved the transaction.

        At the same time the Company also purchased another owner's interests in
the same gas properties for $334 subject to similar final closing adjustments.
The other owner's interests in the properties were approximately four percent of
Delta's interests in the same properties. The Company estimates that it will
receive $16 of purchase price adjustments related to this interest.

        On March 30, 2004, the Company acquired interests in 28 western
Pennsylvania gas wells for $1,100 from five limited partnerships. That
transaction closed March 30, 2004 and the Company expects purchase price
adjustments of approximately $160 before final closing on or before June 30,
2004. The general partner of the five selling limited partnerships is also an
officer of the Company. As a result, the Company appointed a committee of
independent directors to evaluate and make recommendations to the Board with
respect to the proposed transaction. The committee engaged an outside consultant
to evaluate the fairness of the proposed purchase. Based upon that consultant's
opinion that the proposed purchase price was reasonable and fair and the
favorable recommendation of the committee, the full Board of Directors of the
Company unanimously approved the transaction.

        The Company's petroleum reservoir engineer has estimated the proved
reserves applicable to the three purchases to be approximately 8 billion cubic
feet of natural gas, of which approximately 87% represents proved producing
reserves, while the remaining 13% represents behind pipe and undeveloped
reserves. Approximately 130 of 166 wells in which the Company acquired interests
will be operated by the Company. The Company also entered into an operations
management agreement with Delta whereby Delta agreed to perform certain well
operations functions for the Company on a transitional basis for up to six
months commencing April 1, 2004.

        For accounting purposes the Company has allocated the entire purchase
price, including estimated purchase price adjustments and estimated asset
retirement obligations associated with the properties to proved oil and gas
properties. At March 31, 2004, the Company recorded the following investment in
proved oil and gas properties.




                                      -17-

<PAGE>

<TABLE>
<CAPTION>
                                         CASTLE ENERGY CORPORATION AND SUBSIDIARIES
                                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           ("$000'S" OMITTED EXCEPT SHARE AMOUNTS)
                                                         (UNAUDITED)



                                                                               ESTIMATED                            ESTIMATED
                                                                                 FINAL           ESTIMATED            FINAL
                                                              PAID             PURCHASE            ASSET            ADJUSTED
                                                               AT                PRICE           RETIREMENT         PURCHASE
                                                             CLOSING          ADJUSTMENTS        OBLIGATION          PRICE
                                                             -------          -----------        ----------          ------
        <S>                                                  <C>              <C>                <C>                 <C>
        Purchase of interests in 138 wells from
        Delta.......................................         $8,078              ($350)             $179             $7,907
        Purchase of interests in same 138 wells
        from an outside party.......................            334                (16)                7                325
        Purchase of interests in additional 28
        wells from five limited partnerships........          1,100               (160)               36                976
                                                             ------              -----              ----             ------
                                                             $9,512              ($526)             $222             $9,208
                                                             ======              =====              ====             ======
</TABLE>
        Although the Company has estimated the final purchase price adjustment
of $526 and asset retirement obligation of $222, the actual purchase price
adjustments and asset retirement obligations may differ significantly from the
Company's estimates as a result of changes in gas prices, production and other
factors. Subsequent changes in the adjusted purchase price and asset retirement
obligations will be recorded when they are determined.

        In addition, $43 was allocated to trucks acquired in the Delta purchase.

Note 12 - Subsequent Events
---------------------------

          Subsequent to March 31, 2004, an officer of one the Company's
subsidiaries exercised options for 32,000 shares of the Company's common stock,
increasing the number of outstanding shares to 6,717,384. Proceeds from such
option exercises were $184.

Note 13 - Restatement
---------------------

          As previously disclosed in 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 six months ended March 31, 2003:
<TABLE>
<CAPTION>
                                                                                    SIX MONTHS ENDED MARCH 31,
                                                                                               2003
                                                                                    --------------------------
                                                                                    PREVIOUSLY
                                                                                     REPORTED      AS RESTATED
                                                                                     --------      -----------
      <S>                                                                           <C>            <C>
      General and administrative expenses................................             $1,307          $1,565
      Operating income (loss)............................................            ($1,336)        ($1,594)
      Net income (loss) before provision for (benefit of) income taxes...            ($  518)        ($  776)
      Net income (loss)..................................................            ($  411)        ($  669)
      Net income (loss) per share:
        Basic............................................................            ($  .06)        ($  .10)
        Diluted..........................................................            ($  .06)        ($  .10)
</TABLE>






                                      -18-

<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 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 another company 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 have been the case if no
shares had been repurchased.

        General and administrative expenses increased $859 or 55% from the six
months ended March 31, 2003 to the six months ended March 31, 2004. The increase
resulted primarily from increased legal costs related to the ChevronTexaco
lawsuit. In addition, the Company recorded a bad debt provision of $86 for the
six months ended March 31, 2004 because of delays and uncertainties in the
collection of estimated accounts receivable that were then over eighteen months
old. No similar bad debt provision was recorded for the six months ended March
31, 2003.

        The Company recorded no gain or loss in the value of the option it
granted to Delta for the six months ended March 31, 2004 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 25% of Delta.

        The Company recorded no portion of the loss of Networked Energy LLC
("Network") for the six months ended March 31, 2004 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
fund Network's future losses. For the six months ended March 31, 2004, Network's
loss was $14. The Company owns 45% of Network.

        The Company's equity in Delta's net income decreased $244 or 33% from
the six months ended March 31, 2003 to the six months ended March 31, 2004,
During this period, the Company's percentage ownership of Delta decreased from
approximately 39% to 25%. The decrease was also caused by Delta's decreased net
income, excluding the $1,782 gain recorded by Delta on its sale of its
Appalachian properties to the Company (see Note 11). The Company did not record
any portion of Delta's gain on that sale because of the Company's equity
ownership of Delta (see Note 9).

        During the three months ended March 31, 2004, the Company sold all of
its holding in Penn Octane Corporation ("Penn Octane"), constituting 1,343,600
shares of common stock of Penn Octane, for $2,809 resulting in a gain on the
sale of $538. As a result of the sale the Company's only remaining marketable
securities consisted of 177 shares of ChevronTexaco which had a market value of
$15 at March 31, 2004. In addition, the Company sold 2,260,414 shares



                                      -19-

<PAGE>



of Delta for $20,914, resulting in a gain of $12,547 (see Note 9). There were no
such sales during the six months ended March 31, 2003.

        For the six months ended March 31, 2004, the Company recorded a tax
provision of $742 or 6.4% of pre-tax book income for the period. This provision
was significantly less than that which would be obtained using the Company's
blended tax rate (Federal and state taxes combined) at 36% because the Company
was able to utilize much of its tax carryforwards to offset such pre-tax income.

        The $107 tax benefit for the six-months ended March 31, 2003 resulted
primarily because of changes in the Company's expectations concerning future
taxable income. The Company increased its valuation allowance from September 30,
2002 to March 31, 2003 by $198 resulting in a deferred tax asset of $901.

LIQUIDITY AND CAPITAL RESOURCES

        During the six months ended March 31, 2004, the Company used $2,195 in
operating activities. During the same period the Company paid $9,555 for oil and
gas properties and vehicles and $659 for dividends to stockholders. At March 31,
2004, the Company had $22,443 of unrestricted cash, $26,455 of working capital
and no long-term debt. During the same period the Company received $20,914 in
proceeds from the sale of part of its investment in Delta Petroleum Corporation
and $2,809 in proceeds from the sale of marketable securities.

        At the present time, the Company's anticipated future cash expenditures
are primarily recurring general and administrative costs, including substantial
legal costs related to the ChevronTexaco litigation (see Note 4), recurring
dividends and lease operating costs related to the Appalachian gas properties
acquired by the Company (see Note 11). In addition, the Company continues to
review possible future acquisitions of oil and gas properties and, if the
Company is successful in such pursuits, additional expenditures would be
required. To the extent that such anticipated expenditures cannot be funded from
cash flow from the Company's oil and gas operations, the Company can fund such
expenditures using its available cash. If the Company were to make another
substantial acquisition in excess of its current cash and other liquid working
capital, the Company believes it could fund such acquisitions by selling
additional shares of Delta or by renewing its previous oil and gas borrowing
arrangements with an energy bank and using the related loan proceeds for the
acquisition. In addition, as explained in Note 4, the Company anticipates that
most of its restricted cash will be released in the near future and those funds
could also be used to fund future acquisitions.

        The Company's future operations are subject to the following risks:

        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, the Company could incur significant liabilities if
             it ultimately is judged to be liable in these lawsuits. 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. ChevronTexaco could also conceivably sue
             larger stockholders of the Company after a distribution had been
             made.

        b.   Exploration and Production Price Risk - The Company has not hedged
             any of its anticipated future gas production because the cost to do
             so appears excessive when compared to the risk involved. As a
             result, the Company remains exposed to future gas price changes
             with respect to all of its anticipated future gas production. Such
             exposure could be significant given the volatility of gas prices.
             For example, natural gas prices have increased over 50% from 2002
             to 2003 and could either increase or decrease a similar percentage
             in the future. When the Company acquired its gas properties in
             March 2004, the prices being received for natural gas were $5.00 to
             $6.00 per mcf sold. The Company paid for its gas reserve
             acquisitions using such pricing. If natural gas prices decrease in
             the future, the decrease will directly impact the Company's gas
             sales, operating income and net income. In addition, if gas prices
             are low at the end of the Company's quarterly and annual reporting
             periods, the value of the Company's gas reserves may decrease such
             that the Company would be forced to record an impairment provision
             - see "Critical Accounting Policies": below.

        c.   Exploration and Production Operating Risk - All of the Company's
             current gas properties are onshore properties with relatively low
             operating risk. Nevertheless, the Company faces the risks
             encountered from operating approximately 130 gas wells - including
             the risk of oil and gas spills, resulting environmental



                                      -20-

<PAGE>



             damage, third party liability claims related to operations,
             including claims by landowners where the operated wells are
             located, as well as general operating risks.

        d.   Public Market for the Company's Stock - Although there presently
             exists a market for the Company's stock, such market is volatile
             and the Company's stock is thinly traded. Such volatility may
             adversely affect the market price and liquidity of the Company's
             common stock.

        e.   Other Risks - In addition to the specific risks noted above, the
             Company is subject to general business risks, including insurance
             claims in excess of insurance coverage, tax liabilities resulting
             from tax audits and the risks associated with the increased
             litigation that appear to affect most corporations.

        f.   Future of the Company- Although the Company has recently acquired
             interests in 166 gas wells in Pennsylvania (see Note 11), the
             Company is smaller than many of its competitors which benefit from
             better fixed cost efficiencies than the Company given their larger
             sizes and revenues. The Company's fixed costs (computer system,
             technical skills, field offices, public company compliance costs,
             etc.) are expected to consume a greater percentage of the Company's
             oil and gas revenues than do those of many of its larger
             competitors unless the Company is able to make additional future
             acquisitions at favorable prices. Upon resolution of the Company's
             outstanding litigation - whether by settlement or judgement - the
             Company's directors many consider options to liquidate the Company
             or merge the Company into another public company to maximize
             shareholder value. If such were the case, the Company would face
             risks concerning the value of the Delta shares it owns, tax risks
             and risks in the liquidation of its assets. Such risks are more
             fully described in Form 10-K for the year ended September 30, 2003.

CRITICAL ACCOUNTING POLICIES:

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

EQUITY METHOD OF ACCOUNTING

        At March 31, 2004, the Company owned approximately 25% of Delta and
accounted 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 $3,600 at March 31, 2004. 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 March 31, 2004, the Company had recorded net refining liabilities
retained of $2,406. 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
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 $2,406. 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.


                                      -21-

<PAGE>


VALUATION ALLOWANCE FOR DEFERRED INCOME TAX ASSET

        At March 31, 2004, the Company recorded no valuation allowance
offsetting its gross deferred tax asset of $2,072 at that date. Recording no
valuation allowance is based upon the Company's assessment that the Company will
generate future taxable income to utilize all of its gross deferred tax assets
at March 31, 2004. If circumstances change such that the Company no longer
expects future taxable income or expects less future taxable income, the Company
will revise its valuation allowance, which could result in tax expense.

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 7, 2004. 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.

FULL COST METHOD OF ACCOUNTING FOR OIL AND GAS PROPERTIES

        The Company follows the full-cost method of accounting for oil and gas
properties and equipment costs. Under this method of accounting net capitalized
costs, less related deferred income taxes, in excess of the present value of net
future cash inflows (oil and gas sales less production expenses) from proved
reserves, tax effected and discounted at 10% and the cost of properties not
being amortized, if any, are charged to expense (full cost ceiling test). If at
a future reporting date oil and gas prices decline, it is possible that the
Company's book value will exceed the allowable full cost ceiling and the Company
would have to write down its oil and gas properties. Even if oil and gas prices
subsequently increase, the write down would not be restored under the full cost
method of accounting.











                                      -22-

<PAGE>



ITEM 3.      QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

        On March 30 and 31, 2004, the Company acquired interests in Pennsylvania
gas wells (see Note 11). The Company has not hedged its share of the expected
natural gas production from these wells. As a result, the Company remains at
risk with respect to such unhedged expected production. If oil and gas market
prices increase, oil and gas sales applicable to the unhedged production will
increase. If oil and gas market prices decrease, oil and gas sales and the gross
margin related to such unhedged production will decrease.

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 March 31, 2004
are as follows:

       a)  They have concluded that the Company's disclosure controls and
           procedures are effective in ensuring that information required to be
           disclosed by the Company in the report it files or submits under the
           Securities Exchange Act of 1934, as amended, is recorded, processed,
           summarized and reported within the time periods specified in the
           rules and forms of the SEC.

       b)  There were no significant changes in the Company's internal controls
           or in other factors that could affect such controls during the
           quarter ended March 31, 2004 or that materially affected, or are
           reasonably likely to materially affect the Company's internal control
           in the future.

       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 March 31, 2004 consolidated financial
statements included in Part I.

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

        The Annual Meeting of Stockholders was held on February 26, 2004.
Proxies were solicited pursuant to the Notice of Annual Meeting of Stockholders,
dated January 20, 2004. A total of 5,778,769 shares (representing approximately
88% of outstanding shares) were present in person or by proxy.

        Messrs. Joseph L. Castle II and Sidney F. Wentz were elected to serve as
directors until the 2007 Annual Meeting. The number of votes cast with respect
to Messrs. Castle and Wentz were as follows:

                                                          FOR         WITHHELD
                                                       ---------      --------
                     Joseph L. Castle II               5,769,379        9,390
                     Sidney F. Wentz                   5,756,879       21,890

       At the Annual Meeting, the stockholders also approved the appointment of
KPMG LLP as the Company's independent accountants for the fiscal year ending
September 30, 2004 by a vote of 5,730,912 votes for such appointment, 40,350
against and 7,507 abstentions.

       In addition to the above, John P. Keller, Martin R. Hoffmann, Russell S.
Lewis and Richard E. Staedtler continued on the Board of Directors.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

           (A)   Exhibits:

                    Exhibit 10.148       Purchase and Sale Agreement between
                                         Delta Petroleum Corporation and Castle
                                         Exploration Company, Inc., dated March
                                         30, 2004.
                    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:    Form 8-K concerning the Company's
                                         acquisition of gas properties from
                                         Delta was filed April 13, 2004.



                                      -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:      May 13, 2004                        CASTLE ENERGY CORPORATION



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















                                      -25-