UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D. C. 20549









FORM
10-K









þ ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934




For
the fiscal year ended December 31, 2009




Commission
file number 000-28015







SOUTHFIELD
ENERGY CORPORATION


(Name
of Small Business Issuer in Its Charter)





NEVADA
              20-5361270(State
      or other jurisdiction of incorporation or organization)
              (Employer
      Identification No.)





1240
Blalock Rd., Suite 150, Houston, TX 77055


(Address
of principal executive offices, including zip code.)





(713)
266-3700


(Registrant's
telephone number, including area code)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈ No þ




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈  
No þ




Indicate
by check mark 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 past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No  ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer   ̈
            Smaller
      reporting company þ(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes  ̈ No þ




State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity. We have not
listed our common equity for public quotation or trading, and therefore do not
currently have a market derived valuation for our common equity.




State the
number of shares outstanding of each of the registrant’s classes of common stock
as of December 31, 2009: 7,410,000




Documents
Incorporated by reference: None.












SOUTHFIELD ENERGY CORPORATION




FORM 10-K


For the Year Ended December 31,
2009


TABLE OF CONTENTS




PagePART
      1 – Financial Information
                                                                3Item
      1.Business
      Factors
                                                                3Item
      1A.Risk
      Factors
                                                                6Item
      1B.Unresolved
      Staff Comments
                                                                16Item
      2.Properties
                                                                16Item
      3.Legal
      Proceedings
                                                                21Item
      4.Submission
      of Matters to a Vote of Security
    Holders
                                                                21PART
      II -   Other
    Information
                                                                22Item
      5.Market
      for Common Equity and Related Stockholder
      Matters
                                                                22Item
      6.Selected
      Financial Data
                                                                23Item
      7.Management’s
      Discussion and Analysis and Plan of
      Operation
                                                                23Item
      7A.Quantitative
      and Qualitative Disclosures About Market
      Risk.
                                                                31Item
      8.Financial
      Statements and Supplemental
    Data
                                                                31Item
      9.Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
                                                                52Item
      9A.Controls
      and Procedures
                                                                52Item
      9B.Other
      Information
                                                                53PART
      III
                                                                54Item
      10.Directors,
      Executive Officers, Promoters and Control Persons and
      CorporateGovernance;
      Compliance with Section 16(a) Of The Exchange
      Act
                                                                54Item
      11.Executive
      Compensation
                                                                58Item
      12.Security
      Ownership of Certain Beneficial Owners and Management and
      RelatedStockholder
      Matters
                                                                60Item
      13.Certain
      Relationships and Related Transactions, and Director
      Independence
                                                                61Item
      14.Principal
      Accountant Fees and Services
                                                                62Item
      15.Exhibits,
      Financial Statement Schedules,
      Signatures
                                                                63SIGNATURES
                                                                64


2


PART
1 – Financial Information




Item
1.


Business
Factors




Information
Regarding Forward-Looking Statements




This
report contains forward-looking statements that involve risks and uncertainties.
We generally use words such as "believe," "may," "could," "will," "intend,"
"expect," "anticipate," "plan," and similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described below and elsewhere in this report. Although we believe the
expectations reflected in the forward-looking statements are reasonable, they
relate only to events as of the date on which the statements are made, and our
future results, levels of activity, performance or achievements may not meet
these expectations. We do not intend to update any of the forward-looking
statements after the date of this document to conform these statements to actual
results or to changes in our expectations, except as required by
law.




History




Southfield
Energy Corporation, (“Southfield”, “the Company”, “we”, or “us”) is an
independent energy company based in Houston, Texas that invests in the
exploration, development, and production of moderate risk, oil and gas wells in
the United States.   We focus on partnering alongside proven operators
with strong track records of success.  The Company’s core strategy is to
earn revenue from existing non-operated working interests while investing in new
opportunities to increase our oil and gas production and reserves; primarily
through acquisitions of existing production and working interest investments in
drilling programs of experienced and successful oil and gas operators active in
Texas, Louisiana and Oklahoma.




We
currently focus our efforts on our oil and natural gas properties on the Mary
King Estell lease in the Richard King Field of Nueces County, Texas.  We
intend on building our business by acquiring additional non-operated working
interests in productive oil and natural gas wells and other oil and gas
interests.  A non-operated working interest grants us a proportionate share
of the property’s oil and gas production, and requires us to pay a proportionate
share of the costs associated with drilling and production without acting as the
operator of the property’s wells.




We have a
non-operated working interest in five gas wells in the Richard King Field of
Nueces County, Texas.  Durango Resources Corporation is the operator of the
wells.




Our
Business




We were
incorporated in the State of Nevada on July 5, 2005 with the objective to own
and acquire producing oil and gas properties and to participate in the drilling
of new oil & gas wells.  Our principal office is located at 1240
Blalock Road, Suite 150, Houston, Texas 77055.  Our telephone number is
(713) 266-3700.  Information about us can be found at www.southfieldenergy.com. 
Information contained in our website does not constitute part of this
disclosure.




Government
Regulation




Proposals
and proceedings that might affect the oil and gas industry are periodically
presented to Congress, the Federal Energy Regulatory Commission (“FERC”), the
Minerals Management Service (“MMS”), state legislatures and commissions and the
courts. We cannot predict when or whether any such proposals may become
effective. The natural gas industry is heavily regulated. There is no assurance
that the regulatory approach currently pursued by various agencies will continue
indefinitely. Notwithstanding the foregoing, we currently do not anticipate that
compliance with existing federal, state and local laws, rules and regulations,
will have a material or significantly adverse effect upon our capital
expenditures, earnings or competitive position. No material portion of our
business is subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the federal government.


3


Although
we are not an operator of oil and gas properties, we are subject to various
types of regulation at the federal, state and local levels. This regulation
includes requiring permits for drilling wells, maintaining bonding requirements
in order to drill or operate wells and regulating the location of wells, the
method of drilling and casing of wells, the surface use and restoration of
properties upon which wells are drilled, the plugging and abandoning of wells
and the disposal of fluids used or generated in connection with operations. Our
operations are also subject to various conservation laws and regulations. These
include the regulation of the size of drilling and spacing units or proration
units and the density of wells which may be drilled and the unitization or
pooling of oil and natural gas properties. In addition, state conservation laws
sometimes establish maximum rates of production from oil and natural gas wells,
generally prohibit the venting or flaring of natural gas and impose certain
requirements regarding the ratability of production. The effect of these
regulations may limit the amount of oil and natural gas we can produce from our
wells in a given state and may limit the number of wells or the locations at
which we can drill.




Currently,
there are no federal, state or local laws that regulate the price for our sales
of natural gas, natural gas liquids, crude oil or condensate. However, the rates
charged and terms and conditions for the movement of gas in interstate commerce
through certain intrastate pipelines and production area hubs are subject to
regulation under the Natural Gas Policy Act of 1978, as amended. Pipeline and
hub construction activities are, to a limited extent, also subject to
regulations under the Natural Gas Act of 1938, as amended. While these controls
do not apply directly to us, their effect on natural gas markets can be
significant in terms of competition and cost of transportation services, which
in turn can have a substantial impact on our profitability and costs of doing
business. Additional proposals and proceedings that might affect the natural gas
and crude oil extraction industry are considered from time to time by Congress,
FERC, state regulatory bodies and the courts. We cannot predict when or if any
such proposals might become effective and their effect, if any, on our
operations. We do not believe that we will be affected by any action taken in
any materially different respect from other crude oil and natural gas producers,
gatherers and marketers with whom we compete.




State
regulation of gathering facilities generally includes various safety,
environmental and in some circumstances, nondiscriminatory take requirements.
This regulation has not generally been applied against producers and gatherers
of natural gas and crude oil to the same extent as processors, although natural
gas and crude oil gathering may receive greater regulatory scrutiny in the
future.




Our oil
and natural gas production and saltwater disposal operations and our processing,
handling and disposal of hazardous materials, such as hydrocarbons and naturally
occurring radioactive materials (“NORM”) are subject to stringent environmental
regulation. Compliance with environmental regulations is generally required as a
condition to obtaining drilling permits. State inspectors frequently inspect
regulated facilities and review records required to be maintained for document
compliance. We could incur significant costs, including cleanup costs resulting
from a release of hazardous material, third-party claims for property damage and
personal injuries, fines and sanctions, as a result of any violations or
liabilities under environmental or other laws. Changes in or more stringent
enforcement of environmental laws could also result in additional operating
costs and capital expenditures.


4


Various
federal, state and local laws regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment,
directly impact oil and natural gas exploration, development and production
operations, and consequently may impact our operations and costs. These
regulations include, among others, (i) regulations by the Environmental
Protection Agency (“EPA”), and various state agencies regarding approved methods
of disposal for certain hazardous and non-hazardous wastes; (ii) the
Comprehensive Environmental Response, Compensation and Liability Act, and
analogous state laws, which regulate the removal or remediation of previously
disposed wastes (including wastes disposed of or released by prior owners or
operators), property contamination (including groundwater contamination), and
remedial plugging operations to prevent future contamination; (iii) the Clean
Air Act and comparable state and local requirements, which may require certain
pollution controls with respect to air emissions from our operations; (iv) the
Oil Pollution Act of 1990, which contains numerous requirements relating to the
prevention of and response to oil spills into waters of the United States; (v)
the Resource Conservation and Recovery Act, which is the principal federal
statute governing the treatment, storage and disposal of hazardous wastes; and
(vi) state regulations and statutes governing the handling, treatment, storage
and disposal of NORM.




In the
course of our operators’ routine oil and natural gas operations, surface spills
and leaks, including casing leaks of oil or other materials may occur, and we
may incur our pro-rata costs for waste handling and environmental compliance. It
is also possible that our oil and natural gas operations may require us to
manage NORM. NORM are present in varying concentrations in sub-surface
formations, including hydrocarbon reservoirs, and may become concentrated in
scale, film and sludge in equipment that comes in contact with crude oil and
natural gas production and processing streams. Some states, including Michigan
and Texas, have enacted regulations governing the handling, treatment, storage
and disposal of NORM. Despite our lack of control over wells owned by us but
operated by others, the failure of the operator to comply with the applicable
environmental regulations may, in certain circumstances, be attributed to us
under applicable state, federal or local laws or regulations.




We are in
compliance with all currently applicable environmental laws and regulations.
Since these laws and regulations are periodically amended, however, we are
unable to predict the additional cost of compliance, if any. To our knowledge,
there are currently no material adverse environmental conditions that exist on
any of our properties and there are no current or threatened actions or claims
by any local, state or federal agency, or by any private landowner against us
pertaining to such a condition. Further, we are not aware of any currently
existing condition or circumstance that may give rise to such actions or claims
in the future.




Competition




We face
competition from other oil and natural gas companies in all aspects of our
business, including acquisition of producing properties and oil and natural gas
leases, marketing of oil and natural gas, and obtaining goods, services and
labor. Most of our competitors have substantially larger financial and other
resources than we have. Factors that affect our ability to acquire producing
properties include available funds, available information about prospective
properties and our limited number of employees. Competition is also presented by
alternative fuel sources, including heating oil and other fossil fuels.
Renewable energy sources may become more competitive in the future.




The
availability of a ready market for and the price of any hydrocarbons produced
will depend on many factors beyond our control including, but not limited to,
the amount of domestic production and imports of foreign oil and liquefied
natural gas, the marketing of competitive fuels, the proximity and capacity of
natural gas pipelines, the availability of transportation and other market
facilities, the demand for hydrocarbons, the effect of federal and state
regulation of allowable rates of production, taxation, the conduct of drilling
operations and federal regulation of crude oil and natural gas. In addition, the
restructuring of the natural gas pipeline industry virtually eliminated the gas
purchasing activity of traditional interstate gas transmission pipeline buyers.
Producers of natural gas have therefore been required to develop new markets
among gas marketing companies, end users of natural gas and local distribution
companies. All of these factors, together with economic factors in the marketing
arena, generally affect the supply of and/or demand for oil and natural gas and
thus the prices available for sales of oil and natural gas.


5


Employees




Southfield
Energy Corporation has three full-time employees and two part-time employees.
Our full-time employees are our CEO, Ben Roberts; our CFO, Chet Gutowsky; and
our COO, Tyson Rohde.




Item
1A.


Risk
Factors




An investment in our common stock or
debt involves a high degree of risk. You should carefully consider the following
risk factors, other information included in this annual report and information
in our other periodic reports filed with the SEC.The risk factors set forth below are
not the only risks that may affect our business. Our business could also be
impacted by additional risks not currently known to us or that we currently deem
to be immaterial.  If any of the following risks
actually occur, our business, financial condition or results of operations could
be materially and adversely affected,and you could lose part or all of
your investment.





Risks
Related to Our Business





We may not have
sufficient cash flow from operations to pay interest on debt
when due or to repay principal upon maturity. Reductions in cash flow from
operations could adversely affect holders of our debt or
equity.





Revenue
and profit from oil and gas is uncertain.  Prices may drop lower than they
are today.  We expect to invest in working interests in new oil and gas
wells.  These investments may not be profitable and we may lose our entire
investment.  Oil and gas properties are depleting assets and we will have
to successfully continue to find additional oil and gas to offset the natural
decline of producing wells in which we own an interest.  These
uncertainties are a material risk of investing in oil and gas and may materially
affect our ability to make interest payments when due and to repay principal
upon maturity. They may also cause a reduction in the value of our
equity.





The
amount of cash we actually generate will depend upon numerous factors related to
our business including, among other things:





•
            the amount of oil and gas our
      operators produce;





•
            the prices at which our operators
      sell our oil and gas
production;





•
            the level of our operating costs,
      including fees and reimbursement of expenses expended to operate the
      company and to compensate its management team, board of directors and
      employees;





•
            our ability to replace declining
      reserves;





•
            prevailing economic
      conditions;





•
            the level of competition we
      face;





•
            fuel conservation measures and
      alternate fuel
requirements; and


6




•
            government regulation and
      taxation.


In
addition, the actual amount of cash that we will have available to make payments
on the principal and interest on our debt will depend on other factors,
including:





•
            the level of our expenditures for
      acquisitions of additional oil and gas
  investments;





•
            our ability to make borrowings or
      to raise additional capital in the
  future;





•
            sources of cash used to fund
      acquisitions;





•
            debt service requirements
      of  our debt or future financing
  agreements;





•
            fluctuations in our working
      capital needs;





•
            general and administrative
      expenses;





•
            timing and collectability of any
      receivables; and





•
            the amount of cash reserves
      established by our management team for the proper conduct of our
      business.





All of
our current revenues are generated by our interest in the Richard King
Field.  Delays or interruptions in our interests in the Richard King Field
natural gas and production operations including, but not limited to, the failure
of third parties on which we rely to provide key services, could negatively
impact our revenues.





As of
December 31, 2009, 100% of our oil and natural gas properties were derived from
the Richard King Field. Should the production in this field decrease at a rate
faster than anticipated, our revenues and cash flow to make payments on our debt
could be adversely affected. In connection with the Richard King Field, we have
partnered with Durango Resources Corporation as operator.  The failure of
Durango Resources to perform its duties as operator in the Richard King Field
could prevent us from generating revenues.  In addition, events referred to
as force majeure, such as an act of God, act of a public enemy, fire, flood,
lightning, etc. could prevent us from generating revenues.





Effective
September 2009, we sold our assets located in the Aldwell Unit to Mariner
Energy, Inc., the operator, for approximately $300,000, excluding a six percent
sales commission.  The Aldwell Unit accounted for the remaining balance of
our oil and natural gas revenue for the year ended December 31, 2008 and the
nine months ended September 30, 2009.  As such, for the three months ending
December 31, 2009, our revenues were derived from our Richard King Field
properties.




Our
business may be harmed by failures of third party operators on which we
rely.





Our
ability to manage and mitigate the various risks associated with our operations
in Nueces County, Texas, is limited since we rely on third parties to operate
our projects. We are a non-operating interest owner in our properties. With
respect to our non-operated working interests, we have entered into agreements
with third party operators for the conduct and supervision of drilling,
completion and production operations.  In the event that commercial
quantities of oil and natural gas are discovered on one of our properties, the
success of the oil and natural gas operations on that property depends in large
measure on whether the operator of the property properly performs its
obligations.  The failure of such operators and their contractors to
perform their services in a proper manner could result in materially adverse
consequences to the owners of interests in that particular property, including
us.


7


We
cannot control activities on properties we do not operate. Our inability to fund
required capital expenditures with respect to non-operated properties may result
in a reduction or forfeiture of our interests in those properties.





Other
companies operated all of our production as of December 31, 2009. We have
limited ability to exercise influence over operations for these properties or
their associated costs. Our dependence on the operator and other working
interest owners for these projects and our limited ability to influence
operations and associated costs could prevent the realization of our targeted
returns on capital with respect to exploration, exploitation, development or
acquisition activities. The success and timing of exploration, exploitation and
development activities on properties operated by others depend upon a number of
factors determined by the operator, including:





•
            the timing and amount of capital
      expenditures;





•
            the operator's expertise and
      financial resources;





•
            approval of other participants in
      drilling wells; and





•
            selection of drilling, completion
      and production equipment.




Where we
are not the majority owner or operator of a particular oil and natural gas
project, we may have no control over the timing or amount of capital
expenditures associated with the project.  If we are not willing and able
to fund required capital expenditures relating to a project when required by the
majority owner or operator, our interests in the project may be reduced or
forfeited.





Because oil and
gas properties are depleting
assets we must
drill new
wells or make acquisitions
in order to maintain our production and reserves and sustain our payments of
principal and interest to our debt holders over time.
Failure to do this could adversely affect investments in our debt or
equity.





Producing
oil and gas reservoirs are characterized by declining production rates.
 Because our reserves and production decline continually over time, we will
need to drill additional wells or make acquisitions to sustain revenue over
time. We may be unable to accomplish this if:





•
            Sellers do not agree to sell any
      assets to us;





•
            we are unable to identify
      attractive drilling or acquisition opportunities in our area of
      operations;





•
            we are unable to agree on
      investment terms or a purchase price for assets that are attractive to us;
      or





•
            we are unable to obtain financing
      for acquisitions on economically acceptable
  terms.




8




We will require
substantial capital expenditures to replace our production and reserves, which
will reduce our available cash
for interest and principal payments. We may be unable
to obtain needed capital or financing due to our financial condition,
  which could
adversely affect our ability to replace our production and proved
reserves.


To fund
our projects, we will be required to use cash generated from our operations in
addition to cash raised in financing activities. We may engage in additional
borrowings or obtain financing from the issuance of additional equity interests
in the Company, or some combination thereof.  To the extent our production
declines faster than we anticipate, or the cost to acquire additional reserves
is greater than we anticipate, we will require a greater amount of capital to
maintain our production and proved reserves.  The use of cash generated
from operations to fund oil and gas investments will reduce cash available to
pay interest and principal on our debt.  Our ability to obtain bank
financing or to access the capital markets for future equity or debt offerings
may be limited by our financial condition at the time of any such financing or
offering, the covenants in our existing debt or future financing agreements,
adverse market conditions or other contingencies and uncertainties that are
beyond our control.  Our failure to obtain the funds necessary for future
oil and gas investments could materially affect our business, results of
operations, financial condition, the value of our equity and our ability to pay
interest and principal on our debt.





Any new wells in
which we participate are subject to
substantial risks that could reduce our ability to make profits from
operations.





Investments
that we believe will increase revenue may nevertheless result in losses.
 Any oil and gas investment involves potential risks, including, among
other things:





•
            the validity of our assumptions
      about reserves, future production, revenues and
    costs;





•
            a decrease in our liquidity by
      using a significant portion of our available cash to finance
      investments;





•
            a significant increase in our
      interest expense or financial leverage if we incur additional debt to
      finance investments;





•
            the diversion of management’s
      attention from other business concerns;
  and





•
            an inability to hire, train or
      retain qualified personnel to manage and operate our growing business and
      assets.





We
could lose our ownership interests in our properties due to a title defect of
which we are not presently aware.





As is
customary in the oil and gas industry, only a perfunctory title examination, if
any, is conducted at the time properties believed to be suitable for drilling
operations are first acquired. Before starting drilling operations, a more
thorough title examination is usually conducted and curative work is performed
on known significant title defects. We typically depend upon title opinions
prepared at the request of the operator of the property to be drilled. The
existence of a title defect on one or more of the properties in which we have an
interest could render it worthless and could result in a large expense to our
business. Industry standard forms of operating agreements usually provide that
the operator of an oil and natural gas property is not to be monetarily liable
for loss or impairment of title. The operating agreements to which we are a
party provide that, in the event of a monetary loss arising from title failure,
the loss shall be borne by all parties in proportion to their interest
owned.


9


The prices
of oil and
gas have
reached historic highs in
recent years and are highly
volatile. A sustained decline in these commodity prices would
cause a
decline in our cash flow from operations, which may adversely affect investments
in our debt or equity.





The oil
and gas markets are highly volatile, and future oil and gas prices are
uncertain. Prices for oil and gas may fluctuate widely in response to relatively
minor changes in the supply of and demand for oil and gas, market uncertainty
and a variety of additional factors, such as:





•
            domestic and foreign supply of
      and demand for oil and gas;





•
            weather
      conditions;





•
            overall domestic and global
      political and economic conditions, including those in the Middle East,
      Africa and South America;





•
            actions of the Organization of
      Petroleum Exporting Countries and other state-controlled oil companies
      relating to oil price and production
  controls;





•
            the impact of increasing
      liquefied natural gas, or LNG, deliveries to the United
      States;





•
            technological advances affecting
      energy consumption and energy
supply;





•
            domestic and foreign governmental
      regulations and taxation;





•
            the impact of energy conservation
      efforts;





•
            the capacity, cost and
      availability of oil and gas pipelines and other transportation facilities,
      and the proximity of these facilities to our wells;
    and





•
            the price and availability of
      alternative fuels.





Our
revenue, profitability and cash flow depend upon the prices and demand for oil
and gas, and a drop in prices can significantly affect our financial results,
impede our growth, and reduce the value of our equity. In addition, we may not
be able to sustain payments of principal and interest to our debt holders during
periods of lower commodity prices.





Future price
declines may result in another write-down of our asset carrying values, which
could adversely affect our results of operations, limit our ability to
make payments on the
principal and interest to our debt holders, and could adversely affect the value
of our equity.





Due to
low commodity prices for oil and gas at December 31, 2008, we were required to
impair our assets located in the Aldwell Unit. An impairment test was conducted
using data in a reserve report prepared by a reserve engineering firm. While
conducting the impairment test, management determined that the estimated
undiscounted future net cash flow provided in the reserve report was less that
the carrying value of the Aldwell Unit on the Company’s Balance Sheet on
December 31, 2008 and that the assets were subject to impairment. The assets
were subsequently impaired.


10


Further
declines in oil and gas prices may result in our having to make substantial
downward adjustments to our estimated proved reserves. If this occurs, or if our
estimates of production or economic factors change, accounting rules may require
us to write down, as a noncash expense, the carrying value of our oil and gas
properties for impairments. We are required to perform impairment tests on our
assets whenever events or changes in circumstances warrant a review of our
assets. To the extent such tests indicate a reduction of the estimated useful
life or estimated future cash flows of our assets, the carrying values may not
be recoverable and therefore require write-downs. We may incur further
impairment charges in the future, which could materially affect our results of
operations in the period incurred and our ability to raise capital, which in
turn may adversely affect our ability to generate revenues.





Our future
hedging
activities could result in financial losses or could reduce our income, which
may adversely affect the value of our equity or our ability to repay
interest
and principal on our debt when due.





To
achieve more predictable cash flow and to reduce our exposure to adverse
fluctuations in the prices of oil and gas, we may enter into derivative
arrangements covering a significant portion of our oil and gas production that
could result in both realized and unrealized hedging losses. These losses could
adversely affect investments in our debt or equity.





Our
estimated proved reserves are based on many assumptions that may prove to be
inaccurate. Any material inaccuracies in these reserve estimates or underlying
assumptions will materially affect the quantities and present value of our
proved reserves.





It is not
possible to measure underground accumulations of oil or gas in an exact way. Oil
and gas reserve engineering requires subjective estimates of underground
accumulations of oil and gas and assumptions concerning future oil, natural gas
and natural gas liquid (“NGL”) prices, production levels, and operating and
development costs. In estimating our level of proved oil and gas reserves, we
and our independent reservoir engineers make certain assumptions that may prove
to be incorrect, including assumptions relating to:





•
            a constant level of future oil,
      NGL and gas prices;





•
            future production
      levels;





•
            capital
      expenditures;





•
            operating and development
      costs;





•
            the effects of regulation;
      and





•
            Future availability of
      funds.







If these
assumptions prove to be incorrect, our estimates of proved reserves, the
economically recoverable quantities of oil, NGL and gas attributable to any
particular group of properties, the classifications of reserves based on risk of
recovery and our estimates of the future net cash flows from our proved reserves
could change significantly. Over time, we may make material changes to reserve
estimates to take into account changes in our assumptions and the results of
actual drilling and production.





The
present value of future net cash flows from our estimated proved reserves is not
necessarily the same as the current market value of our estimated proved oil and
gas reserves. We base the estimated discounted future net cash flows from our
estimated proved reserves on average prices and costs from the preceding year.
However, actual future net cash flows from our oil and gas properties also will
be affected by factors such as:


11


•
            the actual prices we receive for
      oil, NGL and gas;





•
            our actual operating costs in
      producing oil, NGL and gas;





•
            the amount and timing of actual
      production;





•
            the amount and timing of our
      capital expenditures;





•
            supply of and demand for oil, NGL
      and gas; and





•
            changes in governmental
      regulations or taxation.





The
timing of both our production and our incurrence of expenses in connection with
the production and development of oil and gas properties will affect the timing
of actual future net cash flows from proved reserves, and thus their actual
present value. In addition, the 10% discount factor we use when calculating
discounted future net cash flows in compliance with FASB standards may not be
the most appropriate discount factor based on interest rates in effect from time
to time and risks associated with us or the oil and gas industry in
general.





Producing oil and
gas involves numerous risks and uncertainties that could adversely affect our
financial condition or results of operations and, as a result, decrease the
value of our equity or limit our ability to
pay principal and
interest payments to our
debt
holders.





As
non-operated working interest owners we do not operate wells; however, we share
in the costs of production for these wells. The operating cost of a well
includes variable costs, and increases in these costs can adversely affect the
economics of a well. Furthermore, our producing operations may be curtailed or
delayed or become uneconomical as a result of other factors,
including:





•
            high costs, shortages or delivery
      delays of equipment, labor or other
  services;





•
            unexpected operational events
      and/or conditions;





•
            reductions in oil, NGL and gas
      prices;





•
            limitations in the market for
      oil, NGL and gas;





•
            adverse weather
      conditions;





•
            facility or equipment
      malfunctions;





•
            equipment failures or
      accidents;





•
            title
      problems;





•
            pipe or cement failures or casing
      collapses;


12


•
            compliance with environmental and
      other governmental
requirements;





•
            environmental hazards, such as
      gas leaks, oil spills, pipeline ruptures and discharges of toxic
      gases;





•
            lost or damaged oilfield work
      over and service tools;





•
            unusual or unexpected geological
      formations or pressure or irregularities in
    formations;





•
            fires;





•
            natural disasters;
      and





•
            uncontrollable flows of oil, gas
      or well fluids.





If any of
these factors were to occur with respect to a particular field, we could lose
all or a part of our investment in the field, or we could fail to realize the
expected benefits from the field, either of which could materially and adversely
affect our revenue and profitability.




We may incur debt
to enable us to pay our interest and
principal payments, which may negatively affect our ability to execute our
business plan.





If we use
borrowings under a credit facility to meet our current liability obligations
rather than toward funding future investments and other matters relating to our
operations, we may be unable to support or grow our business. Such a curtailment
of our business activities, combined with our payment of principal and interest
on our future indebtedness to pay these distributions, will reduce our cash
available to make payments of principal and interest on our debt and will
materially affect our business, financial condition and results of
operations.





Our
operations are subject to operational hazards and unforeseen interruptions for
which we may not be adequately insured.





Operators
of our wells are subject to a variety of operating risks in our wells, gathering
systems and associated facilities, such as leaks, explosions, mechanical
problems and natural disasters, all of which could cause substantial financial
losses. Any of these or other similar occurrences could result in the disruption
of our operations, substantial repair costs, personal injury or loss of human
life, significant damage to property, environmental pollution, impairment of our
operations and substantial revenue losses.





We
currently possess a Business Owners insurance policy which includes property,
business interruption and general liability insurance at levels we believe are
appropriate for an early stage company; however, insurance against all
operational risk is not available to us. We are not fully insured against all
risks. In addition, pollution and environmental risks generally are not fully
insurable.





Shortages of
drilling rigs, supplies, oilfield services, equipment and crews could delay our
operations and reduce our available
cash.





To the
extent that in the future we acquire and develop undeveloped properties, higher
commodity prices generally increase the demand for drilling rigs, supplies,
services, equipment and crews, and can lead to shortages of, and increasing
costs for, drilling equipment, services and personnel. Shortages of, or
increasing costs for, experienced drilling crews and equipment and services
could restrict our future ability to drill wells and conduct operations. Any
delay in the drilling of new wells or significant increase in drilling costs
could reduce our future revenues and cash available for
distribution.


13


The
third parties on whom we rely for gathering and transportation services are
subject to complex federal, state and other laws that could adversely affect the
cost, manner or feasibility of conducting our business.





The
operations of the third parties on whom we rely for gathering and transportation
services are subject to complex and stringent laws and regulations that require
obtaining and maintaining numerous permits, approvals and certifications from
various federal, state and local government authorities. These third parties may
incur substantial costs in order to comply with existing laws and regulation. If
existing laws and regulations governing such third party services are revised or
reinterpreted, or if new laws and regulations become applicable to their
operations, these changes may affect the costs that we pay for such services.
Similarly, a failure to comply with such laws and regulations by the third
parties on whom we rely could have a material adverse effect on our business,
financial condition, and results of operations.





If third-party
pipelines and other facilities interconnected to our gas pipelines and
processing facilities become partially or fully unavailable to transport gas,
our revenues from
operations could be
adversely affected.





We depend
upon third party pipelines and other facilities that provide delivery options to
and from pipelines and processing facilities that our operators utilize. If any
of these third-party pipelines and other facilities become partially or fully
unavailable to transport gas, or if the gas quality specifications for these
pipelines or facilities change so as to restrict our operators’ ability to
transport gas on these pipelines or facilities, our revenues and cash available
to make principal and interest payments to our debt holders could be adversely
affected, as well as the value of our equity.





Our
operations are subject to various litigation risks that could increase our
expenses, impact our profitability and lower the value of your investment in
us.





We are
not currently involved in any litigation; however, the nature of our operations
exposes us to possible future litigation claims. There is a risk that any claim
could be adversely decided against us, which could harm our financial condition
and results of operations. Similarly, the costs associated with defending
against any claim could dramatically increase our expenses, as litigation is
often very expensive. Possible litigation matters may include, but are not
limited to, environmental damage and remediation, insurance coverage, property
rights and easements and the maintenance of oil and gas leases. Should we become
involved in any litigation we will be forced to direct our limited resources to
defending against or prosecuting the claim(s), which could impact our
profitability and lower the value of your investment in us.





Our
business is subject to environmental legislation and any changes in such
legislation could prevent us from earning revenues.





The oil
and gas industry is subject to many laws and regulations that govern the
protection of the environment, health and safety and the management,
transportation and disposal of hazardous substances. These laws and regulations
may require the removal or remediation of pollutants and may impose civil and
criminal penalties for any violations thereof. Some of the laws and regulations
authorize the recovery of natural resource damages by the government, injunctive
relief and the imposition of stop, control, remediation and abandonment
orders.


14


Complying
with environmental and natural resource laws and regulations may increase our
operating costs as well as restrict the scope of our operations. Any regulatory
changes that impose additional environmental restrictions or requirements on us
could affect us in a similar manner. If the costs of such compliance or changes
exceed our budgeted costs, we may not be able to earn revenues.




We
may become an “investment company” as defined in the Investment Company Act of
1940.





Under the
Investment Company Act of 1940 (the “Act”), as amended, we may be deemed to be
an inadvertent investment company if it is determined that the value of
investments in other company’s securities accounts for more than 40% of the
total value of our assets, and no other exemption is available. If so, and if we
were to be deemed an inadvertent investment company, we believe that we may be
eligible for temporary relief from the application of the Act if we have a bona
fide intent to be engaged primarily, as soon as reasonably possible (in any
event within one year), in a business other than that of investing, reinvesting,
owning, holding or trading in securities. We do not have any current plans,
proposals or arrangements, written or otherwise, to invest in the securities of
any other company.





Investment
companies are subject to substantial regulation concerning management,
operations, transactions with affiliated persons, portfolio composition,
including restrictions with respect to diversification and industry
concentration and other restrictions, and, unless we complied with the Act, we
would be prohibited from engaging in transactions involving interstate commerce.
To comply, we would be required to significantly modify our operating structure
and file reports with the SEC regarding various aspects of our business. The
cost of such compliance would result in the Company incurring substantial
additional annual expenses. In addition, compliance with the Act may not be
consistent with the Company’s current business strategies.





Risks
Related to Financing Activities





We may issue
additional debt, including notes
that are
senior to our current debt,without your
approval.





The
amount of additional debt that can be raised by us is not limited. We may incur
an unlimited amount of indebtedness that is senior to our existing debt without
your approval.





Debt
Holders will not have the same rights to vote on matters submitted to the
shareholders for consideration and approval as the holders of common
shares.





Certain
matters, such as the appointment of directors, amendment of corporate documents,
etc. must be submitted to a vote of the shareholders for approval. Debt Holders
will not have voting rights on such matters as do the common
shareholders.




Debt
Holders will have very limited liquidity in their investments. We do not intend
nor expect to request that Southfield’s debt instruments be listed for trading
on any exchange.





The
Company does not intend nor expect to list its debt for trading on any exchange
or over-the-counter listing service. As a result, the Holders of our debt are
not expected to have any market liquidity in their investment and should be
prepared to hold our debt to Maturity.


15


As a result of
investing in our debt, you may
become subject to state and local taxes.




Interest
earned on our debt instruments will be taxed by the Federal and state
governments in accordance with current and future tax laws. You should expect to
pay taxes at your marginal rate for investments of this type.





Some
of our officers and directors have relationships with other companies in the oil
and natural gas industry that could result in conflicts of
interest.





Some of
our officers and directors serve as officers and directors of other companies
engaged in the oil and natural gas industry and may have other relationships
with such companies. For example, Chet Gutowsky and Tyson Rohde both serve as
officers and directors of Biotricity Corporation, an alternative energy company
located in Houston, Texas. To the extent those companies are involved in
ventures in which we may participate, or compete for acquisitions or financial
resources with us, the relevant director will face a conflict of interest. In
the event such a conflict arises, the relevant director will be required to
disclose the nature and extent of the conflict and abstain from voting for or
against any action of the board of directors that is or could be affected by the
conflict.




We
are dependent upon our key officers and employees and our inability to retain
and attract key personnel could significantly hinder our growth strategy and
cause our business to fail.





A loss of
one or more of our current directors, officers or key employees could severely
and negatively impact our operations and delay or preclude us from achieving our
business objectives. Our executive officers have a combined experience of
approximately 50 years in the oil and gas and related industries. We have not
entered into employment agreements with our officers, and we could suffer the
loss of key individuals for one reason or another at any time in the future.
There is no guarantee that we could attract or locate other individuals with
similar skills or experience to carry out our business objectives.





Our
directors and officers hold significant positions in our shares of common stock
and their interests may not always be aligned with those of our other
shareholders.





As of
December 31, 2009 our directors and officers beneficially own 18.9% of our
outstanding common stock. See “Security Ownership of Certain Beneficial Owners
and Management.” This shareholding level will allow the directors, officers and
certain beneficial owners to have a significant degree of influence on matters
that are required to be approved by shareholders, including the election of
directors and the approval of significant transactions. The short-term interests
of our directors, officers and certain beneficial owners may not always be
aligned with the long-term interests of our shareholders, and vice versa.
Because our directors, officers and certain beneficial owners have a significant
degree of influence on matters that are required to be approved by our
shareholders, they could influence the approval of transactions.





Item
1B.


Unresolved
Staff Comments




None.




Item
2.


Properties




Richard
King Field


16


We have
participated in the drilling and completion of five wells in Nueces County,
Texas in a prolific natural gas trend. Our lease is located on the Mary King
Estell lease in the Richard King Field. We participated in the drilling and
completion of the C-31 well in 2007, and the C-32 and C-33 wells in 2008, and
the C-34 and C-35 in 2009. All of the wells are commercially viable and generate
100% of our natural gas revenues. Each of the wells was drilled between 5,000
and 6,500 feet and encountered multiple layers of hydrocarbons in commercially
viable quantities.





The first
well that we invested in was the C-31 well. The well was connected to the
pipelines as a “Dual Completion” meaning we are producing natural gas from two
separate reservoirs. The other wells were each initially completed in one
reservoir. All of the wells have additional zones of oil and/or gas that the
operator can bring on line at a later date. Over time, perhaps five to seven
years, the currently producing reservoirs will deplete to a point
below which they are not economically viable to produce. When this happens, we
plan to complete the other zones of oil and/or natural gas that are behind pipe
in order to bring new production back on line in the existing
wells.





This
method of reentering wells and completing different zones for new production is
less costly than drilling a new well since the infrastructure is already in
place. All of these wells contain untapped resources that will provide us with
revenues in the future.





There are
also additional drilling opportunities on this lease that can be exploited in
the future. We expect to encounter multiple pay zones, as with the previous
wells, and anticipate the combined gross production from all five wells to
exceed 250,000 cubic feet of gas per day. This project has been our most
successful endeavor to date and still contains additional reserves.





Exploratory
and Developmental Acreage





Our
principal oil and gas property, in the Richard King Field, consists of
productive wells and reserves of oil and gas in place. The following table
indicates our interest in developed and undeveloped acreage as of December 31,
2009.





Developed Acreage
                    
                    
                    Undeveloped Acreage
                    
                    
                    TotalGross Acres
                    
                    
                    Net Acres
                    
                    
                    Gross Acres
                    
                    
                    Net Acres
                    
                    
                    Net AcresRichard
      King
                    
                    
                    160
                    
                    
                    
                    24
                    
                    
                    
                    32
                    
                    
                    
                    4.8
                    
                    
                    
                    28.8





Productive
Wells





The
following table sets forth our total gross and net productive wells, expressed
separately for oil and gas, as of December 31, 2009.





Oil
                  
                  
                  GasGross
                  
                  
                  Net
                  
                  
                  Gross
                  
                  
                  NetRichard
      King
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5
                  
                  
                  
                  .75





Proved
Reserves





Netherland,
Sewell, and Associates, Inc. (“NSAI”) an independent reservoir engineering firm
that reports to our board of directors, provided a report related to its
estimates of reserves as of December 31, 2009. The service performed by NSAI
included the preparation of an independent estimate of proved natural gas and
oil reserves estimates for our properties in the Richard King Field. Based on
the amount of proved reserves determined by NSAI, we believe our reported
reserve amounts are reasonable.


17


There are
numerous uncertainties inherent in estimating quantities of proved reserves,
projecting future rates of production, and projecting the timing and costs of
development expenditures, including many factors beyond our control. Reservoir
engineering is a subjective process of estimating underground accumulations of
natural gas and oil that cannot be measured in an exact manner. The reserve data
represents only estimates which are often different from the quantities of
natural gas and oil that are ultimately recovered. The accuracy of any reserve
estimate is highly dependent on the quality of available data, the accuracy of
the assumptions on which they are based, and on engineering and geological
interpretations and judgment.





All
estimates of proved reserves are determined according to the rules currently
prescribed by the SEC. These rules indicate that the standard of “reasonable
certainty” be applied to proved reserve estimates. This concept of reasonable
certainty implies that as more technical data becomes available, a positive or
upward revision is more likely than a negative or downward revision. Estimates
are subject to revision based upon a number of factors, including reservoir
performance, prices, economic conditions and government restrictions. In
addition, results of drilling, testing and production subsequent to the date of
an estimate may justify revision of that estimate.





In
general, the volume of production from natural gas and oil properties declines
as reserves are depleted. Except to the extent we acquire additional
non-operated working interests in properties with proved reserves, our proved
reserves will decline as reserves are produced. Recovery of proved undeveloped
reserves requires significant capital expenditures and successful drilling
operations. The reserve data assumes that we can and will make these
expenditures and conduct these operations successfully, but future events,
including commodity price changes, may cause these assumptions to change. In
addition, estimates of proved undeveloped reserves and proved non-producing
reserves are subject to greater uncertainties than estimates of proved producing
reserves.





The
following table sets forth certain information regarding estimates of our oil
and gas reserves as of December 31, 2008 and December 31, 2009. All of our
reserves are located in the United States.





Summary
of oil and gas reserves as of Fiscal-Year End[1]





2009
                                  
                                  
                                  2008Reserves
                                    Category:
                                  
                                  Oil
                                    (mbbls)
                                  
                                  
                                  Natural
                                    Gas
                                    (mmcf)
                                  
                                  
                                  Total
                                    (BOE)[2]
                                  
                                  
                                  Oil
                                    (mbbls)
                                  
                                  
                                  Natural
                                    Gas
                                    (mmcf)
                                  
                                  
                                  Total
                                    (BOE)[2]PROVEDDeveloped:Aldwell
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,344
                                  
                                  
                                  
                                  10.8
                                  
                                  
                                  
                                  7,144MKE field[3]
                                  
                                  
                                  4,028
                                  
                                  
                                  
                                  312.78
                                  
                                  
                                  
                                  56,159
                                  
                                  
                                  
                                  169
                                  
                                  
                                  
                                  114.2
                                  
                                  
                                  
                                  19,202Undeveloped:Aldwell
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,809
                                  
                                  
                                  
                                  4.6
                                  
                                  
                                  
                                  2,576MKE field[3]
                                  
                                  
                                  131
                                  
                                  
                                  
                                  65.12
                                  
                                  
                                  
                                  10,984
                                  
                                  
                                  
                                  149
                                  
                                  
                                  
                                  87.8
                                  
                                  
                                  
                                  14,782TOTAL
      PROVED
                                  
                                  
                                  4,159
                                  
                                  
                                  
                                  377.90
                                  
                                  
                                  
                                  67,143
                                  
                                  
                                  
                                  7,471
                                  
                                  
                                  
                                  217.4
                                  
                                  
                                  
                                  43,704PROBABLEDeveloped:MKE field[3]
                                  
                                  
                                  264
                                  
                                  
                                  
                                  164.7
                                  
                                  
                                  
                                  27,723POSSIBLEDeveloped:MKE field[3]
                                  
                                  
                                  -
                                  
                                  
                                  
                                  76.66
                                  
                                  
                                  
                                  12,776UndevelopedMKE field[3]
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13.66
                                  
                                  
                                  
                                  2,276


18





[1]
            The
      summary of oil and gas reserves as of December 31, 2009 was based on
      average fiscal year prices, while the summary of oil and gas reserves as
      of December 31, 2008 was based on year-end prices. Additionally,
      disclosure of probable and possible reserves became optional under SEC
      guidelines for the year ended December 31, 2009; accordingly, no probable
      or possible reserves are included for the year ended December 31,
      2008.





[2]
            Barrels
      of oil equivalent (BOE) is a unit of energy that approximates the energy
      released by burning one barrel of oil. A BOE is typically 6,000 cubic feet
      of natural gas. BOE calculations are estimates due the variance of btu
      content amongst barrels of oil and cubic feet of natural gas. BOE’s in the
      above table are used as an approximation for measuring the total energy
      contained in oil or natural gas either produced or remaining as
      reserves.





[3]
            The
      Mary King Estell field has been abbreviated as “MKE field” in this
      table.





All of
Southfield’s properties are considered to contain proved reserves. Proved
reserves are those quantities of petroleum which, by analysis of geological and
engineering data, can be estimated with reasonable certainty to be commercially
recoverable, from a given date forward, from known reservoirs and under current
economic conditions, operating methods, and government regulations. Proved
reserves can be categorized as developed or undeveloped.





Developed
reserves are expected to be recovered from existing wells including reserves
behind pipe. Improved recovery reserves are considered developed only after the
necessary equipment has been installed, or when the costs to do so are
relatively minor.





Undeveloped
reserves are expected to be recovered: (1) from new wells on undrilled acreage,
(2) from deepening existing wells to a different reservoir, or (3) where a
relatively large expenditure is required to (a) recomplete an existing well or
(b) install production or transportation facilities for primary or improved
recovery projects.





Effective
September 2009, the Company sold its assets in the Aldwell Unit to Mariner
Energy.





Summary
of Production and Ratios as of Fiscal-Year End[1]





2009
                
                
                2008Annual
      Production (BOE)
                
                
                4,849
                
                
                
                7,127Reserve-to-Production
      Ratio (Years)[1]
                
                
                13.84
                
                
                
                6.12Estimated
      Production Decline Rate [2]
                
                
                7%
                
                
                
                14%





[1]
            This
      ratio estimates the number of years that it would require to produce our
      remaining reserves assuming that production rates remain
      constant.





[2]
            Estimated
      production decline measures the hydrocarbons produced as a percentage of
      total reserves remaining at the end of the period plus production in that
      period.


19


Oil
and Gas Production and Sales Price





2009
                
                
                2008
                
                
                2007Oil
      production (Bbls)[1]
                
                
                373
                
                
                
                550
                
                
                
                494Gas
      production (Mcf)
                
                
                25,576
                
                
                
                37,474
                
                
                
                4,498Total
      production (BOE)[2]
                
                
                4,636
                
                
                
                7,127
                
                
                
                1,550Average
      sales price per BOE ($)
                
                
                24.21
                
                
                
                55.49
                
                
                
                50.50Average
      cost of sales per BOE[3]($)
                
                
                21.24
                
                
                
                16.93
                
                
                
                12.96





[1]           Oil
production set forth in the table above includes the production of natural gas
liquids (NGLs)





[2]           Oil
and gas were combined by converting to a BOE equivalent on the basis of 6 Mcf of
gas to 1 Bbl of oil.





[3]           Production
costs include direct operating expenses, ad valorem taxes and production
taxes.





Drilling
Activities





The
following table sets forth our gross and net working interests in exploratory
and development wells drilled throughout each of the last three fiscal years
ended December 31[1]:





2009
                        
                        
                        2008
                        
                        
                        2007Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        Net
                        
                        
                        Gross
                        
                        
                        NetExploratoryProductiveOil
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Gas
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1
                        
                        
                        
                        .15Dry
      Holes
                        
                        
                        1
                        
                        
                        
                        .02
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
                        
                        
                        1
                        
                        
                        
                        .02
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1
                        
                        
                        
                        .15DevelopmentProductiveOil
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        27
                        
                        
                        
                        .05
                        
                        
                        
                        33
                        
                        
                        
                        .06Gas
                        
                        
                        2
                        
                        
                        
                        .45
                        
                        
                        
                        2
                        
                        
                        
                        .30
                        
                        
                        
                        -
                        
                        
                        
                        -Dry
      Holes
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
                        
                        
                        3
                        
                        
                        
                        .45
                        
                        
                        
                        29
                        
                        
                        
                        .35
                        
                        
                        
                        33
                        
                        
                        
                        .06





[1]
            Southfield’s
      working interest in the Aldwell Unit was .1749% and our working interest
      in the Mary King Estell Lease is
15%.





In 2009,
Durango Resources drilled the C-34 and the C-35 wells in which we own a 15%
working interest. Both wells resulted in successful gas wells. The five wells
that we have drilled with Durango Resources presently constitute 100% of our
natural gas revenues. Each of the wells was drilled between 5,000 and 6,500 feet
and encountered multiple layers of hydrocarbons in commercially viable
quantities.


20


On
November 11, 2008 the Company elected to invest in a non-operated working
interest in the McManus #2 well with Quatro D Exploration. BD Production, an
affiliate of Quatro D Exploration, was the operator of the well. The prospect
was located in Lavaca County, Texas and targeted multiple gas formations. We
agreed to pay the sum of the turnkey lease acquisition cost of $7,250 and the
dry hole cost of $23,683, which amounted to 2.416667% of the total costs through
the casing point. We funded our pro rata portion of the well of $30,933 in
November of 2008. A test well was drilled in March of 2009 to a terminal depth
of 10,300 feet and did not encounter commercially viable amounts of
hydrocarbons. The well resulted in a dry hole and was plugged and
abandoned.





Item
3.


Legal
Proceedings




We may be
involved from time to time in ordinary litigation, negotiation and settlement
matters that will not have a material effect on our operations or finances. We
are not a party to any legal proceedings, and are not aware of any pending or
threatened litigation against us or our officers and directors in their capacity
as such that may have a material impact on our operations or
finances.




Item
4.


Submission
of Matters to a Vote of Security Holders




There
were no matters submitted to the shareholders during the fourth quarter of
2009.




21





PART
II -   Other Information




Item
5.


Market
for Common Equity and Related Stockholder Matters Market
Information




Our
common stock is not traded on an exchange or quoted on an automated quotation
system.




On
December 31, 2009, there were 7,410,000 shares of our common stock issued
and outstanding.




Holders




As of
December 31, 2009, we had approximately 28 holders of record.




Dividends




We have
not declared or paid cash dividends on our common stock since inception and do
not anticipate paying such dividends in the foreseeable future. The payment of
dividends may be made at the discretion of the Board of Directors and will
depend upon, among other factors, our operations, capital requirements, and
overall financial condition.




Securities
Authorized for Issuance under Equity Compensation Plans




We do not
currently have any equity compensation plans or stock option plans under which
equity securities are authorized for issuance.




Recent
Sales of Unregistered Securities




As of
December 31, 2007, 2008 and 2009, the Company had issued $866,000, $1,482,000
and $1,874,000, respectively, of three-year 10% convertible debentures to
investors.  The investors may elect to have simple interest paid on a
monthly basis, or may have the interest compounded semiannually and paid at
maturity. The investors may convert the face value of the debenture to shares of
common stock in the Company at any time during the term of the debenture at a
conversion price of $5.00 per share. The Company has the right to call for the
conversion of the debentures when the common stock of the company trades on a
public market for 20 consecutive days at a price higher than $7.50 per share and
upon notice, unless the debenture holder elects not to accept the conversion
offer.





MMR
Investment Bankers, Inc. served as placement agent for these debentures
offerings and received a placement fee of eight percent of the gross proceeds
raised and a non-accountable expense allowance of three percent of the gross
proceeds. The issuance of the three-year 10% convertible debentures to the
aforementioned investors was exempt from the registration requirements of the
Securities Act under Reg. D, 506 and Section 4(2) of the Securities Act due to
the fact that it did not involve a public offering.  The Company has
made periodic filings of Form D that detail the classification of investors
subscribed to the private placement of Debentures. The Company used the net
proceeds from these debenture offerings to make oil and gas investments, and
fund the general operations of our business including general and administrative
and offering expenses.





Use
of Proceeds from Registered Securities





We filed
a registration statement for $10 million of 3 Year Notes that became effective
on February 11, 2010. The 3 Year Notes are not convertible and are being offered
directly through the company with the assistance of placement agents. The sales
process for the placement of 3 Year Notes has commenced, however no sales have
been made as of the date of this filing. The reason that sales have not been
made is because we are working to fulfill state regulatory requirements and
register the offering in certain states pursuant to Blue Sky
Laws.


22


Item
6.


Selected
Financial Data




A smaller
reporting company is not required to provide the information required by this
item.




Item
7.


Management’s
Discussion and Analysis and Plan of Operation




The following discussion and
analysis should be read in conjunction with the financial statements and related
notes thereto, and other financial information included elsewhere if this form
10-K. This report contains forward-looking statements that reflect our future
plans, estimates, beliefs and expected performance. The forward-looking
statements are dependent upon events, risks and uncertainties that may be
outside our control. Our actual results could differ materially from those
discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, the volatility
of oil, NGL and
gas prices, production timing
and volumes, estimates of proved reserves, operating costs and capital
expenditures, economic and
competitive conditions, regulatory changes and other uncertainties, as well as
those factors discussed below and elsewhere in form 10-K, particularly in “Risk
Factors” and “Cautionary Statement Regarding Forward-Looking
Statements,” all of which are difficult to predict. As a result of these risks,
uncertainties and assumptions, the forward-looking events discussed may not
occur.





Overview





Southfield
Energy Corporation, a Nevada corporation formed in July 2005, is a Houston,
Texas based company that invests in the exploration and development of moderate
risk, oil and gas wells in the United States.  The Company’s core
strategy is to earn revenue from existing non-operated working interests while
investing in new opportunities to increase our oil and gas production and
reserves; primarily through acquisitions of existing production and working
interest investments in drilling programs of experienced and successful oil and
gas operators active in Texas, Louisiana and Oklahoma.




Recent
Developments





Durango
Resources





Since
partnering with Durango Resources, we have participated in the drilling and
completion of five commercially viable oil and gas wells on the Mary King Estell
lease in the Richard King Field in Nueces County, Texas. All of the wells were
drilled to depths less than 6,500 feet, and are currently producing natural gas
at various rates. We have not made any unsuccessful investments in this field
and have thus far completed all of the wells that we have drilled. These wells
produce gas from the Frio formation and constitute all of our
revenues.  Our share of production from these wells was 5,970 barrels
of oil equivalent in 2008 and 4,057 barrels of oil equivalent in 2009. Durango
Resources has identified additional drilling locations that are adjacent to our
current producing wells and has plans for additional drilling over the next
twelve to twenty four months.  We anticipate investing in additional
wells with Durango should the opportunity arise.


23


Aldwell
Unit





Due to
low commodity prices for oil and gas at December 31, 2008, we were required to
impair our assets located in the Aldwell Unit. An impairment test was conducted
using data in a reserve report prepared by a reserve engineering firm. While
conducting the impairment test, management determined that the estimated
undiscounted future net cash flow provided in the reserve report was less that
the carrying value of the Aldwell Unit on the Company’s Balance Sheet on
December 31, 2008 and that the assets were subject to impairment. The assets
were subsequently impaired by taking the difference between the discounted
future net cash flow, using a 10% discount rate, which was estimated by the
reserve engineer and the carrying value of the assets on the Company’s Balance
Sheet. Management found the difference to be $116,553 and impaired the Aldwell
Unit by that amount.





From
January 1, 2009 through August 31, 2009 the pro rata portion of production net
to our working interest from the Aldwell Unit was 792 barrels of oil equivalent.
Effective September 2009, we sold our assets located in the Aldwell Unit to
Mariner Energy, Inc., the operator, for approximately $300,000, excluding a six
percent sales commission.  The Aldwell Unit accounted for
approximately 20% of our oil and natural gas revenue for the year ended December
31, 2008 and the nine months ended September 30, 2009.  As such, for
the three months ending December 31, 2009, our revenues were derived from our
Richard King Field properties.





Equity
Investment





In
September and October 2008, we purchased an aggregate of 350,000 shares of
common stock of Meridian Resources Corporation, an exploration and production
company whose shares trade on the New York Stock Exchange under the ticker
symbol “TMR.” As of December 31, 2008, we incurred an unrealized holding loss of
$325,465 on our investment. As of December 31, 2008, the net market value of our
TMR investment was $199,500, comprising approximately 22.2% of total assets. In
June 2009, we sold an aggregate of 100,000 shares of common stock of Meridian
Resources Corporation and realized a loss of $134,096. As of December 31, 2009
we determined the decline in value of the Meridian shares to be other than
temporary. Based on this determination the shares were adjusted to their market
value as of December 31, 2009 of $66,250. The difference between the cost and
market value of the shares was recorded as impairment expense for $243,095. On
January 4, 2010, we sold our remaining 250,000 shares of common stock in
Meridian Resources Corporation and realized an approximate loss of $654 based on
an average cost basis. We no longer have an equity investment in Meridian
Resources or any other corporation. We do not have any current plans, proposals
or arrangements, written or otherwise, to make any equity investment in Meridian
Resources Corporation or any other company.





Results
of Operations





Year
Ended December 31, 2009 Compared to December 31, 2008




Revenues and production. The following table illustrates the primary components of revenues,
production volumes and realized prices for the periods noted.





2008
                
                
                2009Production
                  (BOE)
                
                
                Avg. Price
                  per BOE ($)
                
                
                Total
                  Revenues ($)
                
                
                Production
                  (BOE)
                
                
                Avg. Price
                  per BOE ($)
                
                
                Total
                  Revenues ($)Aldwell
      Unit
                
                
                1,157
                
                
                
                73.62
                
                
                
                85,175
                
                
                
                792
                
                
                
                29.11
                
                
                
                23,056Richard
      King
                
                
                5,970
                
                
                
                51.98
                
                
                
                310,299
                
                
                
                4,057
                
                
                
                21.98
                
                
                
                89,181TOTAL
                
                
                7,127
                
                
                
                55.49
                
                
                
                395,474
                
                
                
                4,849
                
                
                
                25.50
                
                
                
                112,237


24


Revenues.
  Revenues from continuing operations decreased by $221,118 and
revenues from both continuing operations and discontinued operations decreased
by $283,236 for the year ended December 31, 2009, as compared to the year
ended December 31, 2008, due to a decrease in oil and gas prices and
decrease in production. Production realized from the Aldwell Unit decreased from
1,157 barrels of oil equivalent (BOE) to 792 BOE; and production in the Richard
King Field decreased from 5,970 BOE to 4,057 BOE. Additionally, the average
price per BOE decreased from $55.49 in 2008 to $24.21 in 2009.




Production.   Our
average monthly production decreased from 594 Barrels of Oil Equivalent (“BOE”)
in 2008 to 386 BOE in 2009. Most wells produce at higher initial rates and
their production declines as they deplete over time. Our monthly production
decreased for two reasons. First, our operator choked back the production from
the Mary King Estell Lease to retain some of our gas to sell at higher prices.
Second, we sold the Aldwell Unit for a profit to create additional liquidity for
operating expenses and debt service.




Production costs.
  Production costs, which includes lease operating expenses and
excludes severance and ad valorem taxes, decreased from $28,556 to $24,827
during the years ended December 31, 2008 and 2009, respectively. As a
percentage of revenue, however, our production costs increased from 9% to 28%.
Because of decreases in oil and gas prices and our production rates, our
revenues decreased over the respective periods by more than the decrease in our
production costs, and therefore our production costs as a percentage of revenue
increased for the respective periods.





Depreciation, depletion and
amortization (“DD&A”) expense.   DD&A expense from
continuing operations decreased from $41,791 to $18,198 during the
years ended December 31, 2008 and 2009, respectively.  This was
due to a decrease in our capitalized expenses in proved properties and a lower
depletion rate of our production in 2009 as compared to 2008.




G&A expense.
  Our general and administrative expense was $273,143 for 2008 and
$665,392 for 2009. These expenses include rent, office expenses, travel
expenses, salaries for employees, consulting expenses, legal and accounting
expenses and benefits for employees. This increase can be attributed primarily
to increases in the following: legal and accounting expenses increased by
approximately $147,000; consulting expenses increased by $77,000; rent and
salaries increased by approximately $12,000 and $139,000, respectively due to
utilizing more office space and management retention incentives; and office
supplies, insurance premiums, utilities and miscellaneous expenses increased by
$16,000. Most of the above expenses increased in connection with filing a
registration statement with the Securities and Exchange Commission and becoming
a publicly reporting company.





Income taxes.
  Southfield experienced losses in 2008 and 2009 and was not subject
to federal income taxes.




During
May 2006, the State of Texas enacted legislation that changed the existing Texas
franchise tax from a tax based on net income or taxable capital to an income tax
based on a defined calculation of taxable margin (the Texas Margin tax). FASB
standards require that deferred tax balances be adjusted to reflect tax rate
changes during the periods in which the tax rate changes are
enacted.





Liquidity
and Capital Resources





Historically,
we have financed our operations through the sale of debt and equity securities
and cash generated from operations.  As of December 31, 2009 we had
$68,826 of cash and cash equivalents, a working capital deficit of $379,089 and
a total stockholders’ deficit of $1,607,759.  Our expenses exceeded
our revenues for the year ended December 31, 2009; thus, we incurred a net loss
of $1,212,227 for the year ended December 31, 2009.


25


We will
need to raise money through our registered offering of 3 Year Notes to fund our
business plan and support our operations after April
1, 2010.  The length of time we are able to operate is contingent
on the amount of money we raise through our Offering.  We offer no
assurance that we will be able to raise any amount of money through the
Offering.  To the extent we are able to raise an amount of money in
the Offering to cover our operating expenses; we plan to invest the proceeds in
additional working interests in existing oil and gas production as well as new
oil and gas wells.  Because our proved reserves and production decline
continually over time, we will need to make additional investments in oil and
gas projects to sustain our level of revenue. The report of our independent
auditors with regard to our financial statements for the fiscal year ended
December 31, 2009 includes a going concern qualification.  Although we
have successfully funded our operations to date by attracting investors to our
equity and debt, there is no assurance that our capital raising efforts will be
able to attract additional necessary capital for our operations.  If
we are unable to obtain additional funding for operations at any time now or in
the future, we may not be able to continue operations as proposed, requiring us
to modify our business plan, curtail various aspects of our operations, sell our
assets or cease operations.





The
accompanying financial statements have been prepared assuming that Southfield
will continue as a going concern. As shown in the accompanying financial
statements, we had negative cash flows from operations of $618,211 in 2009 and
$75,059 in 2008, and a working capital deficit of $379,089 at December 31,
2009. These conditions raise substantial doubt as to our ability to continue as
a going concern. The financial statements do not include any adjustments that
might be necessary if we are unable to continue as a going concern. Management
intends to finance these deficits by selling 3 Year Notes and seeking additional
outside financing through either debt or sales of its common stock.





From
September 2009 through the filing date of this 10-K, the Company provided
existing Debenture holders the option of extending the maturity dates on their
Debentures by either one or two years. The following table provides the dollar
amount of debentures due in the next five years as of December 31, 2009, after
taking into account the debenture extensions:




Maturities
of Convertible Notes over the next five years ended December 31,
2010:




2010
                                                  
                                                  
                                                  2011
                                                  
                                                  
                                                  2012
                                                  
                                                  
                                                  2013
                                                  
                                                  
                                                  2014Debenture
      Maturities
                                                  
                                                  190,000*
                                                  
                                                  
                                                  461,000
                                                  
                                                  
                                                  686,000
                                                  
                                                  
                                                  364,000
                                                  
                                                  
                                                  173,000





*As a
subsequent event to 12/31/2009, we repaid $29,000 of convertible debentures in
the first quarter of 2010.





Cash
Flows





Operating activities. Net
cash used in operating activities for the year ended December 31, 2009 as
compared to the year ended December 31, 2008 was $618,211 and $75,059,
respectively. We incurred a loss on the sale of available for sale securities of
$134,096; amortization of loan and debenture costs of $137,799; depreciation,
depletion and amortization costs from continuing operations of $18,198; an
impairment of available for sale securities of $279,345; an increase in accounts
payable of $44,823; a decrease in receivables of $48,720, and increases in
accrued interest and prepaid expenses of $89,662 and $30,933, respectively.
Accrued interest increased because of compounding interest that continued to
accrue to the benefit of those convertible debenture holders that elected to
receive that option. Prepaid expenses decreased as a result of the fact that in
2009 we did not advance unapplied drilling funds as we did in
2008.


26


Investing
activities.  Net cash provided / (used) in investing activities
for the year ended December 31, 2009 as compared to the year ended December 31,
2008 was $216,178 and $(667,839), respectively. Our capitalized investment in
proved leaseholds for the year ended December 31, 2009 was $123,311. The
primary reason for the increase in cash flows from investing activities was due
to the sale of our discontinued operations, the Aldwell Unit, which provided us
net cash flow from discontinued operations of $294,215. The sale of available
for sale securities in this period also accounted for an additional $45,274 of
cash provided by investing activities.





Financing
activities.  Net cash provided from financing activities for
the year ended December 31, 2009 as compared to the year ended December 31, 2008
was $347,755 and $512,890, respectively. This change was primarily due to a
decrease in debenture sales from $616,000 to $392,000 for the respective
periods.





Outlook





Significant
factors that may impact future commodity prices include developments in the
issues currently impacting the Middle East, Africa and South America in general;
the extent to which members of the Organization of Petroleum Exporting Countries
(“OPEC”) and other oil exporting nations are able to continue to manage oil
supply through export quotas; and overall North American gas supply and demand
fundamentals, including the impact of increasing liquefied natural gas (“LNG”)
deliveries to the United States and political and regulatory changes by the U.S.
government.  Generally, the prices for any commodity that we produce
will approximate market prices in the geographic region of the
production.





Our
future oil and gas reserves, production, cash flow and ability to make principal
and interest payments on our debt obligations depend on our success in producing
our current reserves efficiently and acquiring additional proved reserves
economically.  We expect to pursue acquisitions of producing oil and gas
properties, invest in working interests in new wells and to acquire lease rights
and royalty rights to oil and gas properties.





Off-Balance
Sheet Arrangements





We have
no significant off-balance sheet arrangements that have or are reasonably likely
to have a current or future affect on our financial condition, revenues or
expense, results of operations, liquidity, capital expenditures or capital
resources that are material to our stakeholders.




Contractual
Obligations





Payments Due By PeriodContractual Obligations
                      at December 31, 2009
                    
                    Total
                    
                    
                    Less than
                      1 year
                    
                    
                    1-3 years
                    
                    
                    3-5 years
                    
                    
                    More than
                      5 yearsConvertible
      Debentures
                    
                    $
                    1,874,000
                    
                    
                    $
                    190,000
                    
                    
                    $
                    1,511,000
                    
                    
                    $
                    173,000
                    
                    
                    $
                    0Total
                    
                    $
                    1,874,000
                    
                    
                    $
                    190,000
                    
                    
                    $
                    1,511,000
                    
                    
                    $
                    173,000
                    
                    
                    $
                    0




27


Critical
Accounting Estimates





We
prepared our financial statements in accordance with GAAP.  GAAP represents
a comprehensive set of accounting and disclosure rules and requirements, the
application of which requires management judgments and estimates including, in
certain circumstances, choices between acceptable GAAP alternatives. Following
is a discussion of our most critical accounting estimates, judgments and
uncertainties that are inherent in the application of GAAP.





Asset retirement obligations.
  We have obligations to remove tangible equipment and facilities and
to restore land at the end of oil and gas production operations. Our removal and
restoration obligations are primarily associated with plugging and abandoning
wells. Estimating the future restoration and removal costs is difficult and
requires management to make estimates and judgments because most of the removal
obligations are many years in the future and contracts and regulations often
have vague descriptions of what constitutes removal. Asset removal technologies
and costs are constantly changing, as are regulatory, political, environmental,
safety and public relations considerations.





Inherent
in the present value calculation are numerous assumptions and judgments
including the ultimate settlement amounts, inflation factors, credit adjusted
discount rates, timing of settlement and changes in the legal, regulatory,
environmental and political environments. Changes in any of these estimates can
result in revisions to the estimated asset retirement obligation. Revisions to
the estimated asset retirement obligation are recorded with an offsetting change
to the carrying amount of the related oil and gas properties, resulting in
prospective changes to depletion and accretion expense. Because of the
subjectivity of assumptions and the relatively long life of most of our oil and
gas properties, the costs to ultimately retire these assets may vary
significantly from our estimates. Based on our calculation as of December 31,
2009 the asset retirement obligation liability was immaterial to the financial
statements. We will continually evaluate this liability and record it, if and
when it becomes material.





Successful efforts method of
accounting.   We utilize the successful efforts method of
accounting for oil and gas producing activities as opposed to the full cost
method. The critical difference between the successful efforts method of
accounting and the full cost method is as follows: under the successful efforts
method, exploratory dry holes and geological and geophysical exploration costs
are charged against earnings during the periods in which they occur, whereas,
under the full cost method of accounting, such costs and expenses are
capitalized as assets, pooled with the costs of successful wells and charged
against the earnings of future periods as a component of depletion
expense.





Proved reserve estimates.
  Estimates of our proved reserves included in this prospectus are
prepared in accordance with GAAP and SEC guidelines. The accuracy of a reserve
estimate is a function of:





•
            The quality and quantity of
      available data;





•
            The interpretation of that
      data;





•
            The accuracy of various mandated
      economic
assumptions; and





•
            the judgment of the persons
      preparing the estimate.


28


Proved
reserve information included in this 10-K was prepared by the independent
engineering firms Netherland, Sewell & Associates and Huddleston and Company
as of December 31, 2009 and December 31, 2008, respectively. Estimates prepared
by these engineering firms may be higher or lower than actual reserves. 
Because these estimates depend on many assumptions, all of which may
substantially differ from future actual results, reserve estimates will be
different from the quantities of oil and gas that are ultimately recovered. In
addition, results of drilling, testing and production after the date of an
estimate may justify, positively or negatively, material revisions to the
estimate of proved reserves.





It should
not be assumed that the standardized measure included in this 10-K as of
December 31, 2009 is the current market value of our estimated proved
reserves. In accordance with SEC requirements, we based the standardized measure
on prices and costs on the date of the estimate. Actual future prices and costs
may be materially higher or lower than the prices and costs as of the date of
the estimate.





Our
estimates of proved reserves materially impact depletion expense. If the
estimates of proved reserves decline, the rate at which we recognize depletion
expense will increase, reducing future net income. Such a decline may result
from lower market prices, which may make it uneconomical to drill for and
produce higher cost fields. In addition, a decline in proved reserve estimates
may impact the outcome of our assessment of our proved properties for
impairment.





Impairment of proved oil and gas
properties.   We review our proved properties to be held and
used whenever management determines that events or circumstances indicate that
the recorded carrying value of the properties may not be recoverable. Management
assesses whether or not an impairment provision is necessary based upon its
outlook of future commodity prices and net cash flows that may be generated by
the properties and if a significant downward revision has occurred to the
estimated proved reserves. If the sum of the undiscounted future net cash flows
of a proved producing property is less than the carrying value of the proved
producing property, then an impairment is made to reduce the value at which
those assets are carried on our balance sheet.




Environmental contingencies.
  Our management makes judgments and estimates in recording
liabilities for ongoing environmental remediation. Actual costs can vary from
such estimates for a variety of reasons. Environmental remediation liabilities
are subject to change because of changes in laws and regulations, developing
information relating to the extent and nature of site contamination and
improvements in technology. Under GAAP, a liability is recorded for these
types of contingencies if we determine the loss to be both probable and
reasonably estimable.





New
Accounting Pronouncements




We
adopted the Financial Accounting Standards Board’s (FASB) Standard related to
fair value measurement at inception. The standard defines fair value,
establishes a framework for measuring fair value and expands disclosure of fair
value measurements. The standard applies under other accounting pronouncements
that require or permit fair value measurements and accordingly, does not require
any new fair value measurements. The standard clarifies that fair value is an
exit price, representing the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions, the standard
established a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as follows.


29





•
            Level 1. Observable inputs such
      as quoted prices in active
markets;





•
            Level 2. Inputs, other than the
      quoted prices in active markets, that are observable either directly or
      indirectly; and





•
            Level 3. Unobservable inputs in
      which there is little or no market data, which require the reporting
      entity to develop its own
assumptions.




Recently
Issued Accounting Pronouncements




On
January 1, 2009, the FASB issued a new accounting standard related to the
disclosure of derivative instruments and hedging activities.  This
standard expanded the disclosure requirements about an entity’s derivative
financial instruments and hedging activities including qualitative disclosures
about objectives and strategies for issuing derivatives, quantitative
disclosures about fair value amounts of any gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative instruments. Southfield had no instruments that fell within the scope
of this pronouncement as of December 31, 2009.





Effective
January 1, 2009, a new accounting standard was issued related to determining
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which would qualify as a scope exception from hedge
accounting.  Southfield had no instruments that fell within the scope
of this pronouncement as of December 31, 2009.





In August
2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are recognized or disclosed at fair value on a
recurring basis.  This standard clarifies how a company should measure
the fair value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard.  This standard is effective on
October 1, 2009.  Southfield had no instruments that fall within the
scope of this pronouncement as of December 31, 2009.


In
October 2009, the FASB issued an amendment to the accounting standards related
to the accounting for revenue in arrangements with multiple deliverables
including how the arrangement consideration is allocated among delivered and
undelivered items of the arrangement.  Among the amendments, this
standard eliminates the use of the residual method for allocating arrangement
consideration and requires an entity to allocate the overall consideration to
each deliverable based on an estimated selling price of each individual
deliverable in the arrangement in the absence of having vendor-specific
objective evidence or other third party evidence of fair value of the
undelivered items.  This standard also provides further guidance on
how to determine a separate unit of accounting in a multiple-deliverable revenue
arrangement and expands the disclosure requirements about the judgments made in
applying the estimated selling price method and how those judgments affect the
timing or amount of revenue recognition.  This standard, which
Southfield is currently assessing the impact of, will become effective for the
Company on January 1, 2011.





30




In
October 2009, the FASB issued an amendment to the accounting standards related
to certain revenue arrangements that include software elements. This standard
clarifies the existing accounting guidance such that tangible products that
contain both software and non-software components that function together to
deliver the product’s essential functionality, shall be excluded from the scope
of the software revenue recognition accounting standards. Accordingly, sales of
these products may fall within the scope of other revenue recognition accounting
standards or may now be within the scope of this standard and may require an
allocation of the arrangement consideration for each element of the arrangement.
This standard, which Southfield is currently assessing the impact of, will
become effective for the Company on January 1, 2011.





In
May 2008, the FASB issued an amendment to the accounting standards related
to the hierarchy of GAAP. The standard identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (“GAAP”)
in the United States (the GAAP hierarchy). The standard becomes effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board (“PCAOB”) amendment to AU Section 411, “The Meaning of Present Fairly
in Conformity With Generally Accepted Accounting Principles” and is not expected
to have a significant impact on our financial statements.




Plan
of Operation




Over the
next twelve months we intend to develop the following initiatives:




Financing




We
anticipate raising $10 million in debt financing over the next 12-24 months
through the sale of 3 Year Notes as described in our S-1 filing. In addition to
the sale of 3 Year Notes, we anticipate raising additional equity capital
provided that the terms and conditions for the placement of such funding is
based upon an equity valuation and underwriting fees that are amenable to our
board of directors.




Revenue
Generation




We intend
to invest the predominance of the gross proceeds from the issuance of the $10
million in 3 Year Notes into oil and gas projects. We expect these to include a
combination of acquisitions of proved producing properties with drilling or
recompletion upside and investment in exploratory and development drilling
programs. After the deployment of this capital, we expect our production,
reserves, revenues and cash flow to increase substantially.




Item
7A.


Quantitative
and Qualitative Disclosures About Market Risk.




A smaller
reporting company is not required to provide the information required by this
item.




Item
8.


Financial
Statements and Supplemental Data




INDEX TO FINANCIAL STATEMENTS




Report
      of Independent Registered Public Accounting Firm
                  32Balance
      Sheets – December 31, 2009 and 2008
                  33Results
      of Operations for the years ended December 31, 2009 and
      2008
                  34Statements
      of Cash Flows for the years ended December 31, 2009 and
      2008
                  35Statement
      of Changes in Stockholders’ Equity from December 31, 2007 to
      December 31, 2009
                  36Notes
      to Financial Statements
                  37




31


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Southfield
Energy Corporation


Houston,
Texas




We have
audited the accompanying balance sheets of Southfield Energy Corporation (the
“Company”) as of December 31, 2009 and 2008, and the related statements of
operations, changes in stockholders’ deficit, and cash flows for the years ended
December 31, 2009 and 2008. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Southfield Energy Corporation as of
December 31, 2009 and 2008 and the results of its operations and cash flows for
the periods described above in conformity with accounting principles
generally accepted in the United States of America.




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 4 to the financial
statements, the Company has experienced losses and incurred negative cash flows
from operations since inception, which raises substantial doubt about its
ability to continue as a going concern. Management’s plans regarding those
matters also are described in Note 4. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.




/s/
M&K CPAS, PLLC




www.mkacpas.com


Houston,
Texas


April 5,
2010


32


SOUTHFIELD
ENERGY CORPORATION


BALANCE
SHEETS


As of
December 31, 2009 and 2008





December
                            
                            
                            December31,
      2009
                            
                            
                            
                            31,
      2008(Restated)ASSETSCurrent
      Assets:Cash
                            
                            $
                            68,826
                            
                            
                            $
                            123,104Accounts
      Receivable
                            
                            
                            13,006
                            
                            
                            
                            49,068Accounts
      Receivable - Related Party
                            
                            
                            -
                            
                            
                            
                            2,000Prepaid
      Expenses
                            
                            
                            -
                            
                            
                            
                            30,933Current
      assets of discontinued operations
                            
                            
                            -
                            
                            
                            
                            10,658TOTAL
      CURRENT ASSETS
                            
                            
                            81,832
                            
                            
                            
                            215,763Property
      & Equipment:Oil
      & Gas, on the basis of successful efforts accountingGross
      Proved Properties
                            
                            
                            346,199
                            
                            
                            
                            222,888Less:
      Accumulated Depletion and Depreciation
                            
                            
                            (85,179
                            )
                            
                            
                            (66,981
                            )Net
      Proved Properties
                            
                            
                            261,020
                            
                            
                            
                            155,907Office
      Equipment
                            
                            
                            -
                            
                            
                            
                            427Other
      Long Term Assets:Gross
      Capitalized Loan and Debenture Costs
                            
                            
                            413,002
                            
                            
                            
                            370,353Less:
      Accumulated Amortization
                            
                            
                            (284,942
                            )
                            
                            
                            (148,739
                            )Net
      Capitalized Loan and Debenture Costs
                            
                            
                            128,060
                            
                            
                            
                            221,614Available
      for Sale Securities
                            
                            
                            345,595
                            
                            
                            
                            524,965Less:
      Valuation Allowance
                            
                            
                            (279,345
                            )
                            
                            
                            (325,465
                            )Net
      (market value)
                            
                            
                            66,250
                            
                            
                            
                            199,500Long
      term assets of discontinued operations
                            
                            
                            -
                            
                            
                            
                            104,228TOTAL
      ASSETS
                            
                            $
                            537,162
                            
                            
                            $
                            897,439LIABILITIES
      AND STOCKHOLDERS' EQUITYLIABILITIES:Current
      Liabilities:Accounts
      Payable
                            
                            $
                            72,272
                            
                            
                            $
                            11,944Accrued
      interest on Debentures
                            
                            
                            198,649
                            
                            
                            
                            108,987Current
      portion of Debentures Payable
                            
                            
                            190,000
                            
                            
                            
                            304,000Current
      liabilities of discontinued operations
                            
                            
                            -
                            
                            
                            
                            15,505TOTAL
      CURRENT LIABILITIES
                            
                            
                            460,921
                            
                            
                            
                            440,436Long
      Term Liabilities:Convertible
      Debentures Payable
                            
                            
                            1,684,000
                            
                            
                            
                            1,178,000TOTAL
      LONG TERM LIABILITIES
                            
                            
                            1,684,000
                            
                            
                            
                            1,178,000TOTAL
      LIABILITIES
                            
                            
                            2,144,921
                            
                            
                            
                            1,618,436STOCKHOLDERS'
      DEFICIT:Common
      stock, $0.001 par value; 50,000,000 shares  authorized,
      7,410,000 issued and outstanding at 12/31/09 and
    12/31/08
                            
                            
                            7,410
                            
                            
                            
                            7,410Additional
      Paid-in Capital
                            
                            
                            99,373
                            
                            
                            
                            99,373Deficit
      accumulated during the development stage
                            
                            
                            (24,718
                            )
                            
                            
                            (24,718
                            )Accumulated
      deficit
                            
                            
                            (1,689,824
                            )
                            
                            
                            (477,597
                            )Accumulated
      other comprehensive income (loss)
                            
                            
                            -
                            
                            
                            
                            (325,465
                            )TOTAL
      STOCKHOLDERS' DEFICIT
                            
                            
                            (1,607,759
                            )
                            
                            
                            (720,997
                            )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                            
                            $
                            537,162
                            
                            
                            $
                            897,439





*See
accompanying notes to the financial statements.


33


SOUTHFIELD
ENERGY CORPORATION


STATEMENTS
OF OPERATIONS


For the
years ended December 31, 2009 and 2008





December
                                
                                
                                December31,
      2009
                                
                                
                                31,
      2008(Restated)REVENUES:Oil
      and Gas Production
                                
                                $
                                89,181
                                
                                
                                $
                                310,299EXPENSES:Production
      Costs
                                
                                
                                24,827
                                
                                
                                
                                28,556Severance
      & Ad Valorem
                                
                                
                                9,758
                                
                                
                                
                                24,017DD&A
                                
                                
                                18,198
                                
                                
                                
                                41,791Unsuccessful
      Exploration Costs
                                
                                
                                30,933
                                
                                
                                
                                -Amortization
      of Loan and Debenture Costs
                                
                                
                                137,799
                                
                                
                                
                                98,827General
      and Administrative Expenses
                                
                                
                                665,392
                                
                                
                                
                                273,143TOTAL
      OPERATING EXPENSES
                                
                                
                                886,907
                                
                                
                                
                                466,334OPERATING
      LOSS
                                
                                
                                (797,726
                                )
                                
                                
                                (156,035
                                )Other
      Income (Expense)Interest
      Income
                                
                                
                                119
                                
                                
                                
                                3,870Gain
      (Loss) on Sale of Securities
                                
                                
                                (134,096
                                )
                                
                                
                                14,479Interest
      Expense
                                
                                
                                (177,751
                                )
                                
                                
                                (128,431
                                )Impairment
      on AFS Securities
                                
                                
                                (279,345
                                )
                                
                                
                                -Other
      Expense
                                
                                
                                (6,525
                                )
                                
                                
                                -Total
      Other Expenses
                                
                                
                                (597,598
                                )
                                
                                
                                (110,082
                                )Net
      loss from continuing operations
                                
                                $
                                (1,395,324
                                )
                                
                                $
                                (266,117
                                )Net
      income/(loss) from discontinued operations
                                
                                $
                                183,097
                                
                                
                                $
                                (57,700
                                )Net
      Loss
                                
                                $
                                (1,212,227
                                )
                                
                                $
                                (323,817
                                )Other
      Comprehensive Loss:Unrealized
      loss on available for sale securities
                                
                                
                                -
                                
                                
                                
                                (325,465
                                )Total
      Comprehensive Loss
                                
                                $
                                (1,212,227
                                )
                                
                                $
                                (649,282
                                )Weighted
      average common shares outstanding
                                
                                
                                7,410,000
                                
                                
                                
                                7,363,005Net
      Loss per common share from continuingoperations
      (Basic & Diluted)
                                
                                $
                                (0.19
                                )
                                
                                $
                                (0.04
                                )Net
      Income/Loss per common share from discontinuedoperations
      (Basic & Diluted)
                                
                                $
                                0.02
                                
                                
                                $
                                (0.01
                                )Basic
      and diluted net loss per common share
                                
                                $
                                (0.16
                                )
                                
                                $
                                (0.05
                                )





*See
accompanying notes to the financial statements.


34


SOUTHFIELD
ENERGY CORPORATION
 STATEMENTS
OF CASH FLOWS
 For the
years ended December 31, 2009 and 2008
 
 December
                      
                      
                      December31,
      2009
                      
                      
                      31,
      2008(Restated)Cash
      Flows From Operating ActivitiesNet
      loss from continuing operations
                      
                      $
                      (1,395,324
                      )
                      
                      $
                      (266,117
                      )Net
      income/(loss) from discontinued operations
                      
                      
                      183,097
                      
                      
                      
                      (57,700
                      )Net
      loss
                      
                      
                      (1,212,227
                      )
                      
                      
                      (323,817
                      )Adjustments
      to reconcile net loss to net cash used by by operating
      activitiesStock
      based consulting expense
                      
                      
                      -
                      
                      
                      
                      5,000Gain
      on trading securities
                      
                      
                      -
                      
                      
                      
                      (14,479
                      )Loss
      on sale of AFS - Securities
                      
                      
                      134,096
                      
                      
                      
                      -Amortization
      of Loan & Debenture Costs
                      
                      
                      137,799
                      
                      
                      
                      98,827Depreciation,
      Depletion and Amortization
                      
                      
                      18,198
                      
                      
                      
                      55,700Impairment
      of AFS-Securities
                      
                      
                      279,345
                      
                      
                      
                      -Changes
      in operating assets and liabilities:Payables
                      
                      
                      44,823
                      
                      
                      
                      (20,574
                      )Accrued
      Interest
                      
                      
                      89,662
                      
                      
                      
                      60,260Receivables
                      
                      
                      48,720
                      
                      
                      
                      (34,854
                      )Prepaid
      Expenses
                      
                      
                      30,933
                      
                      
                      
                      (30,933
                      )Net
      cash flows from discontinued operations
                      
                      
                      (189,560
                      )
                      
                      
                      129,811Net
      cash used by operating activities
                      
                      $
                      (618,211
                      )
                      
                      $
                      (75,059
                      )Cash
      Flows From Investing ActivitiesCapitalized
      Investment in Proved Leaseholds
                      
                      
                      (123,311
                      )
                      
                      
                      (126,264
                      )Purchase
      of AFS - Securities
                      
                      
                      -
                      
                      
                      
                      (510,486
                      )Sale
      of AFS - Securities
                      
                      
                      45,274
                      
                      
                      
                      -Purchase
      of fixed assets
                      
                      
                      -
                      
                      
                      
                      (427
                      )Net
      cash flows from discontinued operations
                      
                      
                      294,215
                      
                      
                      
                      (30,662
                      )Net
      cash (used) provided by investing activities
                      
                      $
                      216,178
                      
                      
                      $
                      (667,839
                      )Cash
      Flows From Financing ActivitiesDeferred
      financing costs
                      
                      
                      (44,245
                      )
                      
                      
                      (103,110
                      )Debentures
      Payable
                      
                      
                      392,000
                      
                      
                      
                      616,000Net
      cash provided from financing activities
                      
                      $
                      347,755
                      
                      
                      $
                      512,890Net
      decrease in cash
                      
                      
                      (54,278
                      )
                      
                      
                      (230,008
                      )Cash,
      beginning of period
                      
                      
                      123,104
                      
                      
                      
                      353,112Cash,
      end of period
                      
                      $
                      68,826
                      
                      
                      $
                      123,104Supplemental
      disclosure of non-cash items:Unrealized
      loss on available for sale securities
                      
                      $
                      -
                      
                      
                      $
                      (325,465
                      )Income
      taxes paid in cash
                      
                      $
                      -
                      
                      
                      $
                      -Interest
      expense paid in cash
                      
                      $
                      88,622
                      
                      
                      $
                      68,171
 
 *See
accompanying notes to the financial statements.
  35
 
 SOUTHFIELD
ENERGY CORPORATION
 STATEMENT
OF CHANGES IN STOCKHOLDERS' DEFICIT
 For
the years ended December 31, 2009 and 2008
 
 DeficitAccumulated
                                                
                                                
                                                
                                                
                                                
                                                AccumulatedDuring
                                                
                                                
                                                
                                                
                                                
                                                OtherCommon
      Stock
                                                
                                                
                                                
                                                
                                                
                                                Development
                                                
                                                
                                                Accumulated
                                                
                                                
                                                ComprehensiveShares
                                                
                                                
                                                Amount
                                                
                                                
                                                APIC
                                                
                                                
                                                Stage
                                                
                                                
                                                Deficit
                                                
                                                
                                                Income
                                                
                                                
                                                TotalBalance
      December 31, 2007
                                                
                                                
                                                7,360,000
                                                
                                                
                                                $
                                                7,360
                                                
                                                
                                                $
                                                94,423
                                                
                                                
                                                $
                                                (24,718
                                                )
                                                
                                                $
                                                (153,780
                                                )
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                (76,715
                                                )Issuance
      of commonstock
      at $0.10 toJohn
      Brewster onDecember
      10, 2008
                                                
                                                
                                                50,000
                                                
                                                
                                                
                                                50
                                                
                                                
                                                
                                                4,950
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                5,000Net
      Loss
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (323,817
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (323,817
                                                )Unrealized
      loss onavailable
      for salesecurities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (325,465
                                                )
                                                
                                                
                                                (325,465
                                                )Balance
      December 31, 2008
                                                
                                                
                                                7,410,000
                                                
                                                
                                                $
                                                7,410
                                                
                                                
                                                $
                                                99,373
                                                
                                                
                                                $
                                                (24,718
                                                )
                                                
                                                $
                                                (477,597
                                                )
                                                
                                                $
                                                (325,465
                                                )
                                                
                                                $
                                                (720,997
                                                )Sale
      of available for sale securities
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                134,096
                                                
                                                
                                                
                                                134,096Impairment
      of available for sale securities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                191,369
                                                
                                                
                                                
                                                191,369Net
      Loss
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,212,227
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,212,227
                                                )Balance
      December 31, 2009
                                                
                                                
                                                7,410,000
                                                
                                                
                                                $
                                                7,410
                                                
                                                
                                                $
                                                99,373
                                                
                                                
                                                $
                                                (24,718
                                                )
                                                
                                                $
                                                (1,689,824
                                                )
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                (1,607,759
                                                )
 
 *See
accompanying notes to the financial statements.
 
 36
  SOUTHFIELD
ENERGY CORPORATION
 NOTES
TO FINANCIAL STATEMENTS
 For
the years ended December 31, 2009 and 2008
  NOTE
1 – Nature of Operations
 
 SOUTHFIELD
ENERGY CORPORATION (the "Company" or “Southfield”), is an oil and gas investment
company.  It invests in the exploration, development, and production
of oil & gas in the United States.  The focus of its activity is
in Texas, Louisiana, and Oklahoma. The Company intends to invest its funds
primarily as a working interest owner, royalty interest owner or mineral lease
owner. Generally, the Company will be a minority owner in each well. The Company
expects most of its investments to range from 5-25% of the total investment
required for any given project, and anticipates that its investment in each
project will range from $50,000 to $250,000.
  37





NOTE
2 – Basis of Presentation
 
 The
accompanying audited financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission,
and U.S. GAAP. The information furnished in the December 31, 2009 end of year
financial statements includes normal recurring adjustments and reflects all
adjustments which, in the opinion of management, are necessary for a fair
presentation of such financial statements.
 
 Because
the Aldwell Unit was sold with an effective date of September 1, 2009, the
accompanying audited financial statements for the years ended December 31, 2009
and 2008 have been presented with the financial results from the Aldwell Unit in
discontinued operations. All of the revenues and expenses associated with the
Aldwell Unit prior to September 1, 2009 were part of our continuing operations
at the time. However, subsequent to the sale, we separated the financial results
of the Aldwell Unit from the continuing operations in 2008 and 2009 and
reclassified them into discontinued operations so that the impact of the sale of
the Aldwell Unit can be compared across periods. Also, all assets and
liabilities of the Aldwell Unit have been segregated from continuing operations
on the balance sheet as of December 31, 2008.
  The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on its results of operation,
financial position or cash flow.
  NOTE
3 – Reclassification
 
 Certain
items from the December 31, 2008 statements of operations have been reclassified
to conform with the year ended December 31, 2009 financial statement
presentation. There is no effect on net income, cash flows or stockholders’
equity as a result of these reclassifications.
 
 NOTE
4 – Going Concern
 
 These
financial statements have been prepared on a going concern basis and do not
include any adjustments to the measurement and classification of the recorded
asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company has
experienced losses and incurred negative cash flows from operations since
inception. The Company’s ability to realize its assets and discharge its
liabilities in the normal course of business is dependent upon continued
support. The Company is currently attempting to obtain additional financing
through its offering of three year notes to continue its operations. However,
there can be no assurance that the Company will obtain sufficient additional
funds from these sources.
 
 These
conditions cause substantial doubt about the Company’s ability to continue as a
going concern. A failure to continue as a going concern would require that
stated amounts of assets and liabilities be reflected on a liquidation basis
that could differ from the going concern basis.
 
 NOTE
5 - Summary of Significant Accounting Policies
 
 Oil and Gas Properties (Successful
Efforts): The Company follows the successful efforts method of accounting
for oil and gas property acquisition, exploration, development and production
activities.
  38
  Capitalization Policies: Oil
and gas property acquisition costs, exploration well costs, and development
costs are capitalized as incurred. Net capitalized costs of unproved property
and exploration well costs are reclassified as proved property and well costs
when related proved reserves are found. If an exploration well is unsuccessful
in finding proved reserves, the capitalized well costs are charged to
exploration expense. Other exploration costs, including geological and
geophysical costs and the costs of carrying unproved property are charged to
exploration expense as incurred. Costs to operate and maintain wells and field
equipment are expensed as incurred.
 
 Sales and Retirement
Policies: Gains and losses on the sale or abandonment of oil and gas
properties are generally reflected in income. Costs of retired equipment, net of
salvage value, are usually charged to accumulated amortization. As of December
31, 2009 and 2008, management has determined that the asset retirement
obligation related to the plugging and abandonment of wells is immaterial
individually and to the financial statements taken as a whole.  As
such, no asset retirement obligation is recorded in the statements
presented.  Management will review the potential obligation on an
on-going basis and will record the obligation in the period it becomes material,
either individually or in aggregate, to the financial statements.
 
 Impairment Policies:
Long-lived assets used in operations are assessed for impairment whenever
changes in facts and circumstances indicate a possible significant deterioration
in the future cash flows expected to be generated by an asset group. Oil and gas
producing assets are evaluated for impairment at least annually at the end of
every year. If, upon review, the sum of the undiscounted pretax cash flows are
less than the carrying value of the asset group, the carrying value is written
down to the estimated fair value. Individual assets are grouped for impairment
purposes at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets – generally
on a field-by-field basis. The fair value of impaired assets is determined based
on quoted market prices in active markets, if available, or upon the present
values of the expected future cash flows using discount rates commensurate with
the risks involved in the asset group. Long-lived assets committed by management
for disposal are accounted for at the lower of amortized cost or fair value less
cost to sell.
 
 Earnings Per Share:
Southfield’s net
income/loss per share has been calculated by dividing the net income/
loss for the period by the weighted average number of shares
outstanding. Since all potentially dilutive securities would be considered
anti-dilutive, the basic loss per share equals the fully diluted loss per
share.  Earnings per share from discontinued operations for the twelve
months ended December 31, 2009 is $.02 and earnings per share from continuing
operations for the twelve months ended December 31, 2009 is
($.19).  For the twelve months ended December 31, 2008, earnings per
share for discontinued operations and from continuing operations were ($0.01)
and ($0.04), respectively.
 
 Deferred Financing Costs:
Southfield incurred deferred financing costs in connection with raising capital
through the sale of debentures. The costs have been capitalized as incurred and
amortized over the three year life of the debentures using the effective
interest method.  The net costs capitalized as of 12/31/09 year ended
are $128,060 and the net costs capitalized as of 12/31/08 year ended were
$221,614.
 
 Stock Based Compensation: On
January 1, 2006, the Company adopted the FASB standard which requires the
measurement and recognition of compensation expense for all share-based awards
made to employees and directors, including employee stock options and shares
issued through its employee stock purchase plan, based on estimated fair values.
In March 2005, the Securities and Exchange Commission issued a bulletin related
to the aforementioned FASB standard.  The Company’s financial
statements as of and for the years ended December 31, 2009 and 2008 reflect the
impact of this standard.
  39
  Fair Value of Financial
Instruments: Southfield includes fair value information in the Notes to
the Financial Statements when the fair value of its financial instruments can be
determined and is different from the carrying amounts reflected in the
accompanying statements. Southfield generally assumes that the carrying amounts
of cash, short-term debt and long-term debt approximate fair value. For
non-current financial instruments, Southfield uses quoted market prices or, to
the extent that there are no available quoted market prices, market prices for
similar instruments. Management believes that the carrying amounts of the
financial instruments are fairly represented in the financial
statements.
 
 We
adopted the Financial Accounting Standards Board’s (FASB) standard on fair value
measurements at inception. The standard defines fair value, establishes a
framework for measuring fair value and expands disclosure of fair value
measurements. The standard applies under other accounting pronouncements that
require or permit fair value measurements and accordingly, does not require any
new fair value measurements. It clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, the standard established
a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value as follows.
   ̈
                Level 1. Observable inputs such
      as quoted prices in active
markets;
 
  ̈
                Level 2. Inputs, other than the
      quoted prices in active markets, that are observable either directly or
      indirectly; and
   ̈
                Level 3. Unobservable inputs in
      which there is little or no market data, which require the reporting
      entity to develop its own
assumptions.
 
 The
Company valued the Aldwell Unit Proved Properties at their fair value in
accordance with the applicable FASB standard due to the impairment indicators
prevalent as of December 31, 2008. The inputs that were used in determining the
fair value of these assets were Level 3 inputs. These inputs consist of but are
not limited to the following: estimates of reserve quantities, estimates of
future production costs and taxes, estimates of consistent pricing of
commodities, 10% discount rate, etc. Impairment expense of $116,553 was recorded
on this asset based on the adjustment to fair value during the year ended
December 31, 2008. No oil and gas assets were valued at fair value as of
December 31, 2009 as no impairment was noted in the Company’s annual
evaluation.
  40
  The
following table presents assets that are measured and recognized at fair value
as of December 31, 2009 and for the twelve months then ended on a recurring
basis:
  12/31/2009
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    TotalRealized (Loss
                                      due
      to
                                    
                                    
                                    Total
                                        UnrealizedDescription
                                    
                                    Level 1
                                    
                                    
                                    Level 2
                                    
                                    
                                    Level 3
                                    
                                    
                                    valuation)
                                    
                                    
                                    (Loss)Available
      for Sale Securities
                                    
                                    $
                                    66,250
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (279,345
                                    )
                                    
                                    $
                                    -Totals
                                    
                                    $
                                    66,250
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (279,345
                                    )
                                    
                                    $
                                    -
 
 12/31/2008
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  TotalRealized (Loss
                                  
                                  
                                  TotalDescription
                                  
                                  Level 1
                                  
                                  
                                  Level 2
                                  
                                  
                                  Level 3
                                  
                                  
                                  due
      to
                                    valuation)
                                  
                                  
                                  Unrealized
                                      (Loss)Available
      for Sale Securities
                                  
                                  $
                                  199,500
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (325,465
                                  )Totals
                                  
                                  $
                                  199,500
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (325,465
                                  )
 
 The
following table presents all assets that were measured and recognized at fair
value as of December 31, 2008 and for the twelve months then ended on a
non-recurring basis. No assets were valued at fair value on a non-recurring
basis as of December 31, 2009. The asset shown below was presented at fair value
due to the impairment analysis indicating an estimated fair value below cost for
the Aldwell Unit. All other proved properties were presented at cost due to
their estimated fair values exceeding cost in the impairment analyses conducted
at December 31, 2009 and 2008:
 
 TotalRealized (Loss
                                  
                                  
                                  TotalDescription
                                  
                                  Level 1
                                  
                                  
                                  Level 2
                                  
                                  Level 3
                                  
                                  
                                  due
      to
                                    valuation)
                                  
                                  
                                  Unrealized
                                      (Loss)Proved
      Properties (Aldwell Unit) (net)
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  104,228
                                  
                                  
                                  $
                                  116,553
                                  
                                  
                                  $
                                  -Totals
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  104,228
                                  
                                  
                                  $
                                  116,553
                                  
                                  
                                  $
                                  -
 
 Use of Estimates: The
preparation of financial statements in conformity with accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Southfield’s most significant
financial estimates are based on the valuation of remaining proved oil and gas
reserves, impairment of its long-lived assets, valuation of its assets using
successful efforts accounting, and revenue recognition. Because of the nature of
these estimates and the nature of exploration, development and production of oil
and gas reserves, actual results could differ from these estimates and losses
and reductions in value could occur. These possible losses and reductions in
values which have not been reflected in the accompanying financial statements
could be material to the Company’s revenues/earnings or losses and stockholders’
equity (deficit). Due to the nature of the Company’s business plan to acquire
additional properties to explore for oil and gas reserves, additional losses and
reductions in value of the Company may occur in the future both related to
properties currently being developed and new properties not yet acquired and
those amounts could be substantial with respect to the Company’s financial
position and operations. To be successful, the Company must acquire properties
that result in significant amounts of recoverable amounts of oil and gas
reserves and be successful in the marketing of those reserves over a long period
of time in order to pay its acquisition, development, production and operating
costs, to cover its credit and debt obligations, and to provide a return to its
shareholders.
  41
  Income Taxes:The Company has
incurred losses since inception and, therefore, has not been subject to federal
income taxes. As of December 31, 2009 and December 31, 2008, the Company
estimates an accumulated net operating loss (“NOL”) carryforward of
approximately $1,470,127 and $493,000, respectively, resulting in deferred tax
assets before valuation allowances of approximately $514,544 and $172,550,
respectively. The company also estimates current deferred tax assets before
valuation allowances related to temporary differences between tax and financial
accounting of $82,285 and $0 for the years ended December 31, 2009, and December
31, 2008, respectively. These differences are primarily related to the
differences in accounting for de-valuations in investments held as available for
sale securities, and differences related to deferred financing costs. The NOL
carryforwards begin to expire in 2026 if not previously utilized. Because U.S.
tax laws limit the time during which NOL and tax credit carryforwards may be
applied against future taxable income and tax liabilities, the Company may not
be able to take full advantage of its NOL and tax credits for federal income tax
purposes. Because the Company determined that it will not likely realize any of
the deferred tax assets, a full valuation allowance has been taken to reduce the
deferred tax asset to zero as of December 31, 2009, and 2008,
respectively.
 
 Concentrations of Credit
Risk: Financial instruments that may potentially subject the Company to
concentration of risk in the future consist primarily of cash which will be
placed with high credit quality financial institutions at amounts that may at
times exceed FDIC limits.
 
 Accounts Receivable: Accounts
receivable represent the amounts due from the sale of oil and gas. Based on
collections history and review of accounts receivable aging, management does not
believe that any allowance for doubtful accounts is necessary as of December 31,
2008 or December 31, 2009.
 
 Revenue Recognition:
Southfield recognizes oil, gas and natural gas condensate revenue in the period
of delivery. Settlement for oil sales occurs 30 days after the oil has been
sold; and settlement for gas sales occurs 60 days after the gas has been sold.
Southfield recognizes revenue when an arrangement exists, the product or service
has been provided, the sales price is fixed or determinable, and collectability
is reasonably assured.
 
 Cash and Cash Equivalents:
Southfield considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents at December 31, 2008 and December 31, 2009 were $123,104 and
$68,826, respectively.
 
 Investments: We account for
securities available for sale in accordance with Financial Accounting Standards
Board (“FASB”) guidance regarding accounting for certain investments in debt and
equity securities, which requires that available-for-sale and trading securities
be carried at fair value. Unrealized gains and losses deemed to be temporary on
available-for-sale securities are reported as other comprehensive income (“OCI”)
within shareholders’ investment. Realized gains and losses and decline in value
deemed to be other than temporary on available-for-sale securities are included
in “(Gain) loss on short- and long-term investments” and “Other income” on our
consolidated statements of operations. Trading gains and losses also are
included in “(Gain) loss on short- and long-term investments.” Fair value of the
securities is based upon quoted market prices in active markets or estimated
fair value when quoted market prices are not available. The cost basis for
realized gains and losses on available-for-sale securities is determined on a
specific identification basis. We classify our securities available-for-sale as
short- or long-term based upon management’s intent and ability to hold these
investments. In addition, throughout 2009, the FASB issued various authoritative
guidance and enhanced disclosures regarding fair value measurements and
impairments of securities which helps in determining fair value when the volume
and level of activity for the asset or liability have significantly decreased
and identifying transactions that are not orderly.
  42
  Recent
Accounting Pronouncements
 
 On
January 1, 2009, the FASB issued a new accounting standard related to the
disclosure of derivative instruments and hedging activities.  This
standard expanded the disclosure requirements about an entity’s derivative
financial instruments and hedging activities including qualitative disclosures
about objectives and strategies for issuing derivatives, quantitative
disclosures about fair value amounts of any gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
instruments. Southfield had no instruments that fell within the scope of this
pronouncement as of December 31, 2009.
 
 Effective
January 1, 2009, a new accounting standard was issued related to determining
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which would qualify as a scope exception from hedge
accounting.  Southfield had no instruments that fell within the scope
of this pronouncement as of December 31, 2009.
 
 In August
2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are recognized or disclosed at fair value on a
recurring basis.  This standard clarifies how a company should measure
the fair value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard.  This standard is effective on
October 1, 2009.  Southfield had no instruments that fell within the
scope of this pronouncement as of December 31, 2009.
 
 In
October 2009, the FASB issued an amendment to the accounting standards related
to the accounting for revenue in arrangements with multiple deliverables
including how the arrangement consideration is allocated among delivered and
undelivered items of the arrangement.  Among the amendments, this
standard eliminates the use of the residual method for allocating arrangement
consideration and requires an entity to allocate the overall consideration to
each deliverable based on an estimated selling price of each individual
deliverable in the arrangement in the absence of having vendor-specific
objective evidence or other third party evidence of fair value of the
undelivered items.  This standard also provides further guidance on
how to determine a separate unit of accounting in a multiple-deliverable revenue
arrangement and expands the disclosure requirements about the judgments made in
applying the estimated selling price method and how those judgments affect the
timing or amount of revenue recognition.  This standard, which
Southfield is currently assessing the impact of, will become effective for the
Company on January 1, 2011.
 
 In
October 2009, the FASB issued an amendment to the accounting standards related
to certain revenue arrangements that include software elements. This standard
clarifies the existing accounting guidance such that tangible products that
contain both software and non-software components that function together to
deliver the product’s essential functionality, shall be excluded from the scope
of the software revenue recognition accounting standards. Accordingly, sales of
these products may fall within the scope of other revenue recognition accounting
standards or may now be within the scope of this standard and may require an
allocation of the arrangement consideration for each element of the arrangement.
This standard, which Southfield is currently assessing the impact of, will
become effective for the Company on January 1, 2011.
  43
  NOTE
6 - Related Party Transactions
 
 In the
first half of 2008, Southfield used 50% of its office space 100% of the time and
paid roughly $1,500 per month. For the second half of 2008, Southfield used 100%
of the office space 100% of the time and therefore paid the entire rent of
approximately $3,100 per month. The company that manages the administration of
the office rent granted a waiver for the rent due in the month of August and,
therefore Southfield did not pay rent for the month of August. The total rent
expense for the twelve months ended December 31, 2008 was $24,483. The total
rent expense for the twelve months ended December 31, 2009 was $36,814. After
taking into account comparable rents in the immediate area, the rent paid by
Southfield is a fair market value.
 
 NOTE 7 – Convertible Debentures Payable
 
 We have
retained the services of MMR Investment Bankers, Inc. to represent the Company
in a Debenture offering of $10 million. We also engaged Sunflower
Management Group, a third party administrator for interest payments and
technical compliance with the repayment requirements of the Debentures that have
been sold.
 
 MMR
Investment Bankers, Inc. has created an account to reserve from the gross
offering proceeds the first six months of interest payments due to any investor.
Sunflower Management Group is managing the interest reserve account and is
responsible for accruing and funding interest to investors as it becomes due. As
of December 31, 2008 and December 31, 2009, the Company has issued $1,482,000
and $1,874,000 of three-year convertible Debentures to investors, respectively.
The Debentures bear interest at a rate of 10% and mature three years from the
date of purchase.
 
 The
investors may elect to have simple interest paid on a monthly basis, or may have
the interest compounded semiannually and paid at maturity. The investors may
convert the face value of the Debenture to common stock in the Company at any
time during the term of the Debenture at a conversion price of $5.00 per
share.  The company has the right to call for the conversion of the
Debentures when the common stock of the Company trades on a public market for
twenty (20) consecutive days at a price higher than $7.50 per share and upon
notice, unless the Debenture holder elects not to accept the conversion
offer.
 
 The
Company reviewed accounting literature related to embedded derivatives and
beneficial conversion features and its application to the Company’s convertible
debentures. The Company concluded that there is not a derivative or beneficial
conversion option associated with the debentures that is in-the-money and
therefore the Company is not required to calculate the intrinsic value of such
conversion option.
 
 Maturities
of the notes over the next five years ending September 30 are as
follows:
  2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          2014$
                          190,000
                          
                          
                          $
                          461,000
                          
                          
                          $
                          686,000
                          
                          
                          $
                          364,000
                          
                          
                          $
                          173,000
  44
  NOTE
8 – Acquisitions & Capital Investments
 
 In 2008
the Company invested $156,926 in oil and gas exploration and production
projects. The Company successfully drilled the C-32 and C-33 wells located on
the Mary King Estell Lease and spent approximately $61,000 and $65,000,
respectively. The remainder of the capital investment in proved leaseholds was
in the Aldwell Unit for roughly $31,000. This capital investment was used to
drill and complete new wells and to recomplete existing production wells to
enhance production in the field.
 
 In 2009,
the Company successfully drilled the C-34 and C-35 wells located on the Mary
King Estell Lease and invested approximately $61,395 and $61,916, respectively.
The remainder of the capital investment in proved leaseholds was in the Aldwell
Unit for roughly $5,785. This capital investment was used to drill and complete
new wells and to recomplete existing production wells to enhance production in
the field.
 
 Note
9 – Available for Sale Securities
 
 In 2008
the Company invested approximately $510,000 in the common stock of Meridian
Resources, a publicly traded exploration and production company on the New York
Stock Exchange listed under the symbol TMR. As of December 31, 2008 the value of
the stock declined significantly consistent with the overall stock market at
that time. As of December 31, 2009, the Company determined the decline in the
value of the stock to be other than temporary according to the applicable SEC
Staff Accounting Bulletin. Due to this determination, the difference between the
cost of the securities and the market value was recorded as a loss on the income
statement for the twelve months ended December 31, 2009, rather than in other
comprehensive income. The impairment expense was $279,345 for the twelve months
ended December 31, 2009.
 
 Note
10 – Discontinued Operations
 
 On August
12, 2009, the Company sold its interest in the Aldwell Unit to the operator of
the unit, Mariner Energy Inc., for $300,000.  Southfield divested the
asset through an intermediary that charged the company 6% of the sales price to
list the property, find qualified buyers and execute the sale. The effective
date of the sale is September 1, 2009.  The carrying amount of the
Aldwell Unit at the time of the sale was $132,012 less depreciation, depletion,
and amortization of $6,146. The realized gain on the sale was 193,134.
Commissions and fees of $18,389 were paid related to the sale.  Prior
to the sale, the Aldwell Unit had revenues of $85,175 and $23,056 for the twelve
months ended December 31, 2008 and 2009. Net loss related to the Aldwell unit
was $57,700 for the twelve months ended December 31, 2008. Accounts receivable
from the Aldwell Unit from that same period were $10,658; and as of December 31,
2008, the carrying value of the Aldwell Unit after its impairment was $104,228.
Net income for the twelve months ended December 31, 2009 from the Aldwell Unit
was $183,097.
 
 NOTE
11 – Non-cash Compensation
 
 John
Brewster was issued 50,000 shares on December 10, 2008 for providing consulting
services to the Company. The equity that was issued in 2008 was valued by the
Company at $0.10 per share based upon management’s discounted cash flow
analysis. There have been no additional issuances of equity for the twelve
months ended December 31, 2009
  45
  NOTE
12 – Depletion and Depreciation
 
 DD&A expense
from continuing operations decreased from $41,791 to $18,198 during the years
ended December 31, 2008 and 2009, respectively. This was due to a decrease in
our capitalized expenses in proved properties and a lower depletion rate of our
production in 2009 as compared to 2008. Depreciation, depletion and
amortization have been calculated using the units of production
method.
 
 NOTE
13 – Capitalized Expenses
 
 The
Company is capitalizing expenses related to the Debenture Offering and
amortizing them over the three year life of the Debentures according to the
effective interest method. The gross capitalized loan and debenture costs were
$370,353 and $413,002 as of December 31, 2008 and December 31, 2009,
respectively. The accumulated amortization was $148,739 and $284,942; and the
net capitalized loan and debenture costs were $221,614 and $128,060 for the same
periods respectively.
 
 NOTE
14 – Impairment of Proved Properties
 
 Due to
the low commodity prices for oil and gas at December 31, 2008, the Company was
required to impair its assets located in the Aldwell Unit. An impairment test
was conducted using data in a reserve report compiled by Huddleston and Company,
a Houston based petroleum engineering company. While conducting the impairment
test, management determined that the estimated undiscounted future net cash flow
provided in the reserve report was less that the carrying value of the Aldwell
Unit on the Company’s Balance Sheet on December 31, 2008 and that the assets
were subject to impairment.
 
 The
assets were subsequently impaired by taking the difference between the
discounted future net cash flow, using a 10% discount rate, which was estimated
by Huddleston and Company, and the carrying value of the assets on our Balance
Sheet. Management found the difference to be $116,553 and impaired the Aldwell
Unit by that amount. The remaining unimpaired balance of the property has been
included in discontinued operations on the balance sheet as of December 31, 2008
due to the disposal of the property in September of 2009. The Company analyzed
its remaining proved oil and gas properties located in the Mary King Estell
lease as of December 31, 2009. The estimated undiscounted net cash flows
provided in the December 31, 2009 reserve report was greater than the carrying
value of the assets, therefore no impairment was necessary.
 
 NOTE
15 – Commitments and Contingencies
 
 Litigation
 
 In the
normal course of business, the Company may become subject to lawsuits and other
claims and proceedings. Such matters are subject to uncertainty and outcomes are
not predictable with assurance. Management is not aware of any pending or
threatened lawsuits or proceedings which would have a material effect on the
Company’s financial position, liquidity, or results of operations.
 
 Concentrations
 
 The
Company’s sales are dependent upon the performance of its producing wells and
our ability to successfully partner with high quality oil and gas operators; any
impacts to this industry could have a significant impact to the Company. For the
year ended December 31, 2008, two leases represented 100% of the total revenues
of the Company and 100% of the accounts receivable. After September 1, 2009,
100% of the Company’s revenues were derived from the Mary King Estell lease. The
Company generally does not require collateral to support accounts receivable or
financial instruments subject to credit risk.
  46
  NOTE
16 – Oil and Gas Properties
 
 As of the
date of this report and as of December 31, 2009, the Company owned non-operated
working interests in five wells in the Mary King Estell Lease which is operated
by Durango Resources. As of December 31, 2008 the company owned an interest in
approximately 200 wells, most of which were located in the Aldwell Unit.
According to the reserve report prepared by Huddleston and Company, and the
Company’s estimate of future income taxes, as of December 31, 2008 the Company
had proved reserves with estimated discounted net cash flows after taxes of
$609,427. Estimated future net cash flows of the properties were discounted at
10% consistent with FASB standards. According to the reserve analysis conducted
by Netherland, Sewell and Associates, Inc., and the Company’s estimate of future
income taxes, the estimated discounted net cash flow after taxes was $457,500
for the twelve months ended December 31, 2009. Because of our significant net
loss carryforward, we do not expect to pay any federal income taxes on future
net revenues provided from our Mary King Estell production, and therefore the
pre-tax and after-tax estimate of discounted future net cash flows are both
$457,000.
 
 NOTE
17 – Supplementary Financial Information on Oil and Natural Gas Exploration,
Development and Production Activities (unaudited).
 
 Summary
of general presentation and assumptions used in our Reserve
Analysis
 
 Netherland,
Sewell & Associates, Inc. (NSAI) estimated the proved, probable, and
possible reserves and future revenue, as of December 31, 2009, to our interest
in certain oil and gas properties located in the Mary King Estell lease, Richard
King Field, Nueces County, Texas. The full report can be found as an Exhibit to
Form 10-K. The proved reserves in this report constitute all of the proved
reserves owned by us. The estimates prepared by NSAI have been prepared in
accordance with the definitions and guidelines of the U.S. Securities and
Exchange Commission (SEC) and, with the exception of future income taxes,
conform to the FASB Accounting Codification Topic 932, Extractive Activities-Oil
and Gas.
 
 The oil
reserves shown include crude oil and condensate. Oil volumes are expressed in
barrels that are equivalent to 42 United States gallons. Gas volumes are
expressed in thousands of cubic feet (MCF) at standard temperature and pressure
bases.
 
 The
estimates shown in the NSAI report include proved, probable, and possible
reserves. However, only proved reserves are disclosed in the tables within this
footnote.  This report does not include any value that could be
attributed to interests in undeveloped acreage beyond those tracts for which
undeveloped reserves have been estimated. Reserves categorization conveys the
relative degree of certainty; reserves sub-categorization is based on
development and production status. The estimates of reserves and future revenue
included herein have not been adjusted for risk.
 
 Future
gross revenue to our interest is presented prior to deducting state production
taxes and ad valorem taxes. Future net revenue is calculated after deductions
for these taxes, future capital costs, and operating expenses but before
consideration of federal income taxes. The future net revenue has been
discounted at an annual rate of 10 percent to determine its present worth. The
present worth is shown to indicate the effect of time on the value of money and
should not be construed as being the fair market value of the
properties.
  47
  Prices
used in this report are based on the 12-month un-weighted arithmetic average of
the first-day-of-the-month price for the period January through December 2009.
For oil volumes, the average Wall Street Journal NYMEX West Texas Intermediate
(WTI) of $61.18 per barrel is adjusted by lease for transportation fees and
regional price differentials. For gas volumes, the average Wall Street Journal
NYMEX Henry Hub price of $4.189 per MMBTU is adjusted by lease for energy
content, transportation fees, and regional price differentials. As a reference,
for the same time period the average Plains Marketing, L.P. WTI posted price was
$57.65 per barrel and the average Platts Gas Daily Henry Hub spot price was
$3.866 per MMBTU. All prices are held constant throughout the lives of the
properties.
 
 Leases
and well operating costs used in the NSAI report are based on operating expense
records of Durango Resources Corporation (Durango), the operator of the
properties. These costs include the per-well overhead expenses allowed under
joint operating agreements along with estimates of costs to be incurred at and
below the district and field levels. No headquarters general and administrative
overhead expenses of Southfield or Durango are included. Lease and well
operating costs are held constant through the lives of the production equipment.
The future capital costs are held constant to the date of
expenditure.
 
 The
reserves shown in the NSAI report and in this filing are estimates only and
should not be construed as exact quantities. Proved reserves are those
quantities of oil and gas which, by analysis of engineering and geosciences
data, can be estimated with reasonable certainty to be economically producible;
probable and possible reserves are those additional reserves which are
sequentially less certain to be recovered than proved reserves. If the reserves
are recovered, the revenues there from and the costs related thereto could be
more or less than the estimated amounts. Because of governmental policies and
uncertainties of supply and demand, the sales rates, prices received for the
reserves, and costs incurred in recovering such reserves may vary from
assumptions made while preparing this report. Estimates of reserves may increase
or decrease as a result of future operations, market conditions, or changes in
regulations.
 
 For the
purposes of this report, NSAI used technical and economic data including, but
not limited to, well logs, geologic maps, well test data, production data,
historical price and cost information, and property ownership interests. The
reserves in the NSAI report have been estimated using deterministic methods;
these estimates have been prepared in accordance with generally accepted
petroleum engineering and evaluation principals. NSAI used standard engineering
and geoscience methods, or a combination of methods, such as performance
analysis, volumetric analysis, and analogy that it considered to be
appropriate and necessary to establish reserves quantities and reserves
categorization that conform to SEC definitions and guidelines. A substantial
portion of these reserves are for behind-pipe zones, non-producing zones, and
undeveloped locations. Therefore, these reserves are based on estimates of
reservoir volumes and recovery efficiencies along with analogy to properties
with similar geologic and reservoir characteristics.
 
 In
evaluating our reserves, NSAI excluded from its consideration all matters as to
which the controlling interpretation may be legal or accounting, rather that
engineering or geoscience. As in all aspects of oil and gas evaluation, there
are uncertainties inherent in the interpretation of engineering and geoscience
data; therefore, NSAI’s conclusions necessarily represent only informed
professional judgment.
  48
  The
technical persons responsible for preparing the reserves estimates
presented in the NSAI report meet the requirements regarding
qualifications, independence, objectivity, and confidentiality set forth in the
Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves
Information promulgated by the Society of Petroleum Engineers. NSAI is a
firm of independent petroleum engineers, geologists, geophysicists, and
petrophysicists; and do not own an interest in our properties and are not
employed on a contingent basis.
 
 Standardized
Measure
 The
standardized measure of discounted future net cash flows relating to the
Company’s ownership interests in proved oil and natural gas reserves for the
years ended December 31 are shown below:
 
 As of December 31,2009
                  
                  
                  2008Future
      cash inflows
                  
                  $
                  1,693,500
                  
                  
                  $
                  1,549,473Future
      production costs
                  
                  
                  (525,800
                  )
                  
                  
                  (431,453
                  )Future
      development costs
                  
                  
                  (96,200
                  )
                  
                  
                  (165,765
                  )Future
      income tax expenses
                  
                  
                  -
                  
                  
                  
                  (62,340
                  )Future
      net cash flows
                  
                  
                  1,071,500
                  
                  
                  
                  889,91510%
      annual discount for estimated timing of cash flows
                  
                  
                  (614,000
                  )
                  
                  
                  (280,488
                  )Standardized
      measure of discounted future net cash flows
                  
                  $
                  457,500
                  
                  
                  $
                  609,427
 
 Year-end and average oil and gas price
      information
                      
                      2009
                      
                      
                      2008Year-end
      oil price per barrel
                      
                      
                      N/A
                      
                      
                      $
                      44.60Average
      oil price per barrel
                      
                      $
                      61.18
                      
                      
                      
                      N/AYear-end
      gas price per mcf
                      
                      
                      N/A
                      
                      
                      $
                      5.66Average
      gas price per mcf
                      
                      $
                      4.19
                      
                      
                      
                      N/A
 
 From 2008
to 2009, the PV10 value was reduced primarily as a result of the low average
pricing of oil and natural gas.  Based on the SEC’s amended rules,
2009 reserve calculations are computed by applying an average of historical
prices of oil and natural gas over the twelve months in 2009 to future estimates
of quantities of proved oil and natural gas production. The year-end price used
to compute 2008 future cash flow was $44.60 for oil and $5.66 for natural
gas.  The average price used to compute 2009 future cash flow is
$61.18 for oil and $4.19 for natural gas.  Future operating expenses
and development costs were estimated by engineers from Netherland, Sewell &
Associates, Inc., a Dallas based petroleum engineering company based on a twelve
month averaging of oil and gas prices and economic conditions. Future income tax
expense, estimated by management, is based on year end statutory rates adjusted
for tax basis of oil and natural gas properties.  A discount factor of
10% was used to reflect the timing of future net cash flows. The standardized
measure of discounted future net cash flows is not intended to represent the
replacement cost or fair market value of the Company’s oil and gas
properties.  An estimate of fair value may also take into account the
recovery of reserves not presently classified as proved, anticipated changes in
future prices and costs, and may require a discount factor more representative
of the time value of money and the risks inherent in reserve
estimates.
  49
  Changes
in Standard Measure of Discounted Future Net Cash Flows
 As
      of December 31,2009
                  
                  
                  2008Beginning
      Balance
                  
                  $
                  609,427
                  
                  
                  $
                  988,653Accretion
      of Discount
                  
                  
                  60,943
                  
                  
                  
                  98,865Sales
      of oil and gas net of production costs
                  
                  
                  (13,767
                  )
                  
                  
                  (341,256
                  )Development
      cost changes
                  
                  
                  29,702
                  
                  
                  
                  25,901Previously
      estimated development costs incurred during period
                  
                  
                  129,096
                  
                  
                  
                  40,373Revisions
      in previous price estimates
                  
                  
                  (948,046
                  )
                  
                  
                  (893,457
                  )Revisions
      in quantity estimates
                  
                  
                  916,074
                  
                  
                  
                  266,753Net
      changes in production costs
                  
                  
                  (63,001
                  )
                  
                  
                  191,713Changes
      in estimated future severance, ad valorem taxes, & income
      tax
                  
                  
                  (6,119
                  )
                  
                  
                  89,210Sales
      of minerals in place
                  
                  
                  (207,676
                  )
                  
                  
                  -Other-unspecified
                  
                  
                  (49,133
                  )
                  
                  
                  142,672Net
      change in standardized measure of discounted cash flows
                  
                  
                  (151,927
                  )
                  
                  
                  (379,226
                  )Ending
      Balance
                  
                  $
                  457,500
                  
                  
                  $
                  609,427
 
 Costs
Incurred in Oil and Gas Property Acquisition, Exploration, and Development
Activities
 
 As
      of December 31,2009
                    
                    
                    2008Acquisitions
      of proved properties
                    
                    
                    -
                    
                    
                    
                    -Exploration
      Costs
                    
                    
                    30,933
                    
                    
                    
                    -Development
      costs
                    
                    
                    129,096
                    
                    
                    
                    156,926
 
 Capitalized
Costs Related to Oil Producing Activities
 As
      of December 31,2009
                    
                    
                    2008Proved
      Oil and Gas
                    
                    $
                    346,199
                    
                    
                    $
                    453,052Accumulated
      depreciation, depletion, & amortization, and valuation
      allowances
                    
                    
                    (85,179
                    )
                    
                    
                    (192,917
                    )Net
      capitalized costs
                    
                    $
                    261,020
                    
                    
                    $
                    260,135
 
 Results
of Operation
 As
      of December 31,2009
                      
                      
                      2008Sales
      of oil and gas
                      
                      $
                      112,237
                      
                      
                      $
                      395,474Production
      costs
                      
                      
                      (42,576
                      )
                      
                      
                      (54,218
                      )Depreciation,
      depletion and amortization
                      
                      
                      (24,961
                      )
                      
                      
                      (66,468
                      )Unsuccessful
      Exploration Costs
                      
                      
                      (30,933
                      )
                      
                      
                      -Results
      of producing activities
                      
                      $
                      13,767
                      
                      
                      $
                      274,788
  50
  Supplemental
Reserve Information
 
 2009
                                        
                                        
                                        2008Oil (bbl)[1]
                                        
                                        
                                        Gas
      Mcf)
                                        
                                        
                                        Oil (bbl)[1]
                                        
                                        
                                        Gas
      Mcf)Proved
      developed and undeveloped reservesBeginning
      of year
                                        
                                        
                                        7,470
                                        
                                        
                                        
                                        217,360
                                        
                                        
                                        
                                        15,768
                                        
                                        
                                        
                                        174,510Revision
      in previous estimates
                                        
                                        
                                        2,434
                                        
                                        
                                        
                                        21,519
                                        
                                        
                                        
                                        (7,417
                                        )
                                        
                                        
                                        -Sales
      of Minerals in Place
                                        
                                        
                                        (5,372
                                        )
                                        
                                        
                                        (15,420
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Extensions
      and discoveries
                                        
                                        
                                        -
                                        
                                        
                                        
                                        180,022
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        79,091Production
                                        
                                        
                                        (373
                                        )
                                        
                                        
                                        (25,576
                                        )
                                        
                                        
                                        (881
                                        )
                                        
                                        
                                        (36,241
                                        )End
      of year
                                        
                                        
                                        4,159
                                        
                                        
                                        
                                        377,905
                                        
                                        
                                        
                                        7,470
                                        
                                        
                                        
                                        217,360Proved
      developed reservesBeginning
      of year
                                        
                                        
                                        5,512
                                        
                                        
                                        
                                        125,110
                                        
                                        
                                        
                                        12,059
                                        
                                        
                                        
                                        77,550End
      of year
                                        
                                        
                                        4,028
                                        
                                        
                                        
                                        312,784
                                        
                                        
                                        
                                        5,512
                                        
                                        
                                        
                                        125,010
 
 [1]
              Includes
      natural gas liquids expressed in
bbls.
 
 NOTE
18 – Subsequent Events
 
 On
January 4, 2010, we sold our remaining 250,000 shares of common stock in
Meridian Resources Corporation and realized an approximate loss of $654 based on
an average cost basis. We no longer have an equity investment in Meridian
Resources or any other corporation. We do not have any current plans, proposals
or arrangements, written or otherwise, to make any equity investment in Meridian
Resources Corporation or any other company.
 
 On
February 11, 2010, the SEC approved the S1 filing submitted by Southfield Energy
Corporation to become a fully public reporting company.  The initial
public offering by Southfield Energy Corporation in the public domain is in the
amount of $10,000,000.
 
 On March
24, 2010, Ben Roberts, Tyson Rohde, and Goldbridge Consulting each made loans to
the Company for $1,300. The loans have been evidenced by short terms notes due
in 90 days with no accompanying interest. The loans are general obligations of
the Company and do not contain any first liens on the Company’s assets or
liquidation preferences.
 
 The
Company evaluated all subsequent events through the audit report date. No
material events came to our attention from the report date to the date these
financial statements were issued.
  51





Item
9.
 Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure




None.




Item
9A.
 Controls
and Procedures




Evaluation
of Disclosure Controls and Procedures




We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon that evaluation, our principal executive officer and principal financial
officer concluded that, as of the end of the period covered in this report, our
disclosure controls and procedures were not effective to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the required time
periods and is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.




Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. To address the material weaknesses, we performed
additional analysis and other post-closing procedures in an effort to ensure our
consolidated financial statements included in this annual report have been
prepared in accordance with generally accepted accounting principles.
Accordingly, management believes that the financial statements included in this
report fairly present in all material respects our financial condition, results
of operations and cash flows for the periods presented.




Management’s
Report on Internal Control over Financial Reporting.




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act, as amended. Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2009.
In making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control-Integrated Framework. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the
company's annual or interim financial statements will not be prevented or
detected on a timely basis. We have identified the following material
weaknesses.




1.) As of
December 31, 2009, we did not maintain effective controls over the control
environment. Specifically we have not developed and effectively communicated to
our employees its accounting policies and procedures. This has resulted in
inconsistent practices. Further, the Board of Directors does not currently have
any independent members and no director qualifies as an audit committee
financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since
these entity level programs have a pervasive effect across the organization,
management has determined that these circumstances constitute a material
weakness.





2.) As of
December 31, 2009, we did not maintain effective controls over financial
statement disclosure. Specifically, controls were not designed and in place to
ensure that all disclosures required were originally addressed in our financial
statements. Accordingly, management has determined that this control deficiency
constitutes a material weakness.




Because
of these material weaknesses, management has concluded that the Company did not
maintain effective internal control over financial reporting as of
December 31, 2009, based on the criteria established in "Internal
Control-Integrated Framework" issued by the COSO.


52




Change
In Internal Control Over Financial Reporting




There
were no changes in our internal control over financial reporting that occurred
during our last fiscal year that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.




Attestation
Report of the Registered Public Accounting Firm




This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this annual report.




Item
9B.
 Other
Information


53


PART
III




Item
10.
 Directors,
Executive Officers, Promoters and Control Persons and Corporate Governance;
Compliance with Section 16(a) Of The Exchange Act




As of
December 31, 2009, the directors and executive officers and their
positions, are as follows:




Name
                
                Age
                
                PositionBen
      Roberts
                
                64
                
                President,
      CEO and DirectorChet
      Gutowsky
                
                63
                
                CFO
      and DirectorTyson
      Rohde
                
                29
                
                COO,
      Director and Secretary




None of
our directors or executive officers is currently a director of any company that
files reports with the SEC, except as described below. None of our directors
have been involved in any bankruptcy or criminal proceeding (excluding traffic
and other minor offenses), nor has been enjoined from engaging in any business.
Our directors are elected at the annual meeting of stockholders and hold office
until their successors are duly elected and qualified. Officers are appointed by
our Board of Directors and serve at the pleasure of the Board and are subject to
employment agreements, if any, approved and ratified by the Board.




Ben L.
Roberts.  Mr. Roberts has served as our Chief Executive Officer and
as a director since our inception in July 2005.  He has been instrumental
in developing high-level relationships with oil and gas operators and
originating investment opportunities for Southfield.  Mr. Roberts served as
a principal of Goldbridge Capital, LLC from 2001 until co-founding Southfield in
July 2005.  Goldbridge Capital is a boutique investment advisory firm that
provides financial consulting and business development services to private and
small public companies. Mr. Roberts has over 26 years of experience in energy
and related businesses which includes 17 years oil & gas exploration and
production as well as nine years in oil services and petrochemicals.  Over
half of his experience has been in senior management positions. Mr. Roberts
holds an M.B.A. from the University of Texas in Austin and a B.S. in Physics and
Mathematics from Baylor University.  Mr. Roberts is a Certified Public
Accountant licensed in the State of Texas.





Chet
Gutowsky.   Mr. Gutowsky has served as our Chief Financial Officer
and as a director since our inception in July 2005.  His primary role at
Southfield is to facilitate the capitalization of our operations, review
potential oil and gas investments and assist in the preparation of our financial
reporting.  Mr. Gutowsky has also served as the Chief Financial
Officer and director of Biotricity Corporation, an alternative energy
company, since December 2008.  From September 2004 to July 2005, Mr.
Gutowsky served as a principal of Brewer Capital Group, LLC, a boutique business
that focused on mergers and acquisitions, and the Chief Financial
Officer of Mobil Steel International, a steel products manufacturer.  At
Brewer Capital Group, Mr. Gutowsky provided financial consulting and advisory
services related to mergers, acquisitions and small business development. Since
May 2005, Mr. Gutowsky has been a managing member in Goldbridge Energy Partners,
LLC a boutique investment advisory firm that facilitates capital formation
and provides financial consulting to the energy sector. Goldbridge Energy
Partners, LLC is not affiliated with Goldbridge Capital. Mr. Gutowsky holds an
M.B.A. from the University of Texas and a B.A. in Economics from Southwestern
University.  Mr. Gutowsky is a Chartered Financial Analyst.





Tyson
Rohde.  Mr.
Rohde has served as our Chief Operating Officer and as a director since our
inception in July 2005.  His primary role at Southfield is to assist with
the origination and management of oil and gas investments. Mr. Rohde has
also been the Chief Executive Officer and director of Biotricity
Corporation since December of 2008 where he oversees technological and business
development activities.  From February 2005 to July 2005, Mr. Rohde joined
the executive management team of Mobil Steel International where he assisted in
restarting operations and facilitated business development.  Mr. Rohde has
also been a managing member of Goldbridge Energy Partners, LLC since May
2005.  Mr. Rohde holds a B.A. in Economics from the University of
Texas.


54





Composition
of the Board of Directors





The board
of directors has responsibility for establishing broad corporate policies and
reviewing our overall performance rather than day-to-day operations.  The
primary responsibility of our board of directors is to oversee the general
direction and management of our Company and, in doing so, serve the best
interests of the Company and our shareholders.  The board of directors
selects, evaluates and provides for the succession of executive officers and,
subject to shareholder election, directors.  It reviews and approves
corporate objectives and strategies, and evaluates significant policies and
proposed major commitments of corporate resources.  Our board of directors
also participates in decisions that have a potential major economic impact on
our company.  Management keeps the directors informed of Company activity
through regular communication.





Our board
of directors currently consists of three members:  Messrs. Ben Roberts,
Chet Gutowsky and Tyson Rohde.  Each of our directors is elected annually
at our annual meeting.  All board action requires the approval of a
majority of the directors in attendance at a meeting at which a quorum is
present.  We will increase the size of our board of directors as we deem
necessary to accommodate the growth of our business.





Independence





As of the
date hereof, the Company has not adopted a standard of independence nor does it
have a policy with respect to independence requirements for its board members or
that a majority of its board be comprised of “independent directors.”  As
of the date hereof, none of our directors would qualify as “independent” under
any recognized standards of independence.





Board
Committees





We do not
currently have a standing audit, nominating or compensation committee of the
board of directors, or any committee performing similar functions.  Our
board of directors performs the functions of audit, nominating and compensation
committees.  As of the date of this filing, no member of our board of
directors qualifies as an “audit committee financial expert” as defined in
Item 407(d)(5) of Regulation S-K promulgated under the Securities
Act of 1933, as amended.  Since the board of directors currently consists
of three members, it does not believe that establishing separate audit,
nominating or compensation committees are necessary for effective
governance.





Shareholder
Communications





Shareholders
who wish to communicate with any or all members of the board of directors may
write to them in care of the Corporate Secretary, Southfield Energy Corporation,
1240 Blalock Road, Suite 150, Houston, Texas 77055. All such communications
which raise issues of significant interest to all shareholders generally, as
determined by the Company in consultation with counsel when appropriate, will be
referred to the appropriate director or directors as specified in the
communication.


55





Section 16(a)
Beneficial Ownership Reporting Compliance




Section 16(a)
of the Securities Exchange Act of 1934 and the rules there under require our
officers and directors, and persons who beneficially own more than
ten percent of our common stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and to furnish us with
copies. To our knowledge, no person required to file such a report failed to
file a required report with respect to the fiscal year covered by this
report.




Code
of Ethics




The
Company has adopted a code of ethics applicable to our Chief Executive Officer,
Chief Financial Officer, controller, our other employees, and our
suppliers. This code is intended to promote honest and ethical conduct,
including the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships; full, fair, accurate, timely,
and understandable disclosure in reports and documents that we file with, or
submit to the SEC and in other public communications that we make; compliance
with applicable governmental laws, rules and regulations; the prompt internal
reporting of violations of the code to an appropriate person or persons
identified in the code; and accountability for adherence to the code. A copy of
our code of ethics is included as an exhibit to this Form 10-K.  The
Company will provide a copy of our code of ethics, without charge, to any person
who requests it. In order to request a copy of our code of ethics, please
contact our headquarters and speak with our investor relations
department.





Procedure
for Nominating Directors




We have
not made any material changes to the procedures by which security holders may
recommend nominees to our board of directors.




The board
does not have a written policy or charter regarding how director candidates are
evaluated or nominated for the board. Additionally, the board has not created
particular qualifications or minimum standards that candidates for the board
must meet. Instead, the board considers how a candidate could contribute to the
Company's business and meet the needs of the Company and the board.




The board
will consider candidates for director recommended by our shareholders.
Candidates recommended by shareholders are evaluated with the same methodology
as candidates recommended by management or members of the board. To refer a
candidate for director, please send a resume or detailed description of the
candidate's background and experience with a letter describing the candidate's
interest in the Company to 1240 Blalock Rd., Suite 150, Houston, TX 77055. All
candidate referrals are reviewed by at least one current board
member.




Significant
Employees




Jonathan Gilchrist. Mr.
Gilchrist is a co-founder and former Chairman of Southfield Energy. On June 16,
2007 Mr. Gilchrist resigned as Chairman and has been providing business
development and financial services to the Company since his resignation as
Chairman. For the last five years Mr. Gilchrist has served as a principal for
Goldbridge Capital, LLC.




Family
Relationships





There are
no family relationships among our directors, executive officers or persons
nominated to become executive officers or directors.





Involvement
in Certain Legal Proceedings





During
the past five (5) years, none of our directors, persons nominated to become
directors, executive officers, promoters or control persons:


56





·
            was a general partner or
      executive officer of any business against which any bankruptcy petition
      was filed, either at the time of the bankruptcy or two (2) years prior to
      that time;





·
            was convicted in a criminal
      proceeding or named subject to a pending criminal proceeding (excluding
      traffic violations and other minor
  offenses);





·
            was subject to any order,
      judgment or decree, not subsequently reversed, suspended or vacated, of
      any court of competent jurisdiction, permanently or temporarily enjoining,
      barring, suspending or otherwise limiting his involvement in any type of
      business, securities or banking activities;
  or





·
            was found by a court of competent
      jurisdiction (civil action), the SEC or the Commodity Futures Trading
      Commission to have violated a federal or state securities or commodities
      law, and the judgment has not been reversed, suspended or
      vacated.





Arrangements





There are
no arrangements or understandings between an executive officer, director or
nominee and any other person pursuant to which he was or is to be selected as an
executive officer or director.


57


Item
11.
 Executive
Compensation




DIRECTOR
AND EXECUTIVE OFFICER COMPENSATION





Summary
Compensation Table




NAME AND
                                        PRINCIPAL
                                        POSITION
                                      
                                      FISCAL
                                        YEAR
                                      
                                      SALARY
                                        ($)
                                      
                                      BONUS
                                        ($)
                                      
                                      STOCK
                                        AWARDS
                                        ($)
                                      
                                      ALL OTHER
                                        COMPENSA
                                        TION
                                        ($)(1)
                                      
                                      
                                      TOTAL
                                        ($)Ben
      Roberts
                                      
                                      2009
                                      
                                      $
                                      24,000
                                      
                                      $
                                      —
                                      
                                      $
                                      —
                                      
                                      $
                                      4,540
                                      
                                      
                                      $
                                      28,540Chief
      Executive Officer and
                                      
                                      2008
                                      
                                      
                                      12,000
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      2,327
                                      (2)
                                      
                                      
                                      14,327Director
                                      
                                      2007
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —Chet
      Gutowsky
                                      
                                      2009
                                      
                                      $
                                      84,000
                                      
                                      $
                                      3,000
                                      
                                      $
                                      —
                                      
                                      $
                                      4,531
                                      
                                      
                                      $
                                      91,531Chief
      Financial Officer and
                                      
                                      2008
                                      
                                      
                                      66,000
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      2,318
                                      (2)
                                      
                                      
                                      68,318Director
                                      
                                      2007
                                      
                                      
                                      14,600
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      
                                      14,600Tyson
      Rohde
                                      
                                      2009
                                      
                                      $
                                      84,000
                                      
                                      $
                                      3,000
                                      
                                      $
                                      —
                                      
                                      $
                                      4,723
                                      
                                      
                                      $
                                      91,723Chief
      Operating Officer,
                                      
                                      2008
                                      
                                      
                                      66,000
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      2,497
                                      (2)
                                      
                                      
                                      68,497Director
      and Secretary
                                      
                                      2007
                                      
                                      
                                      14,600
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      —
                                      
                                      
                                      
                                      14,600




(1)
              Represents
      payments of health, dental, vision, disability and life insurance premiums
      and other ancillary
benefits.


(2)
              Above
      benefits were administered commencing July
    2008.


(3)
              One-time
      bonuses of $3,000 were paid to Mr. Gutowsky and Mr. Rohde for outstanding
      business development efforts.





Incentive
Plans





No
deferred compensation or long-term incentive plan awards were issued or granted
to our management during the last three fiscal years.  We do not have a
stock option plan, but we intend on adopting one in the near
future.





Option
Grants in Last Fiscal Year





We have
never granted options to purchase our common stock to our executive officers or
directors.





Employment





None of
our executive officers are subject to employment agreements, but we may enter
into such agreements with them in the future.


58





Director
Compensation





We
reimburse our directors for all reasonable ordinary and necessary business
related expenses, but we did not pay director's fees or other
cash compensation for services rendered as a director in the year ended
December 31, 2009.  We have no standard arrangement pursuant to which our
directors are compensated for their services in their capacity as
directors.  We expect to pay fees for services rendered as a director
when and if additional directors are appointed to the board of
directors.





Compensation
Discussion and Analysis





Our
compensation approach is necessarily tied to our stage of development. 
During the initial stages of the Company’s business, the duties of the executive
officers will not require their full-time attention.  While it is expected
that they will devote such time and attention to their duties as is appropriate
to discharge their duties fully and properly, it is also expected that they may
undertake duties to other entities, so long as such duties do not conflict with
or otherwise impede their performance of their duties to the Company. 
Therefore, our compensation program currently consists solely of cash
compensation for the services provided.





The
entire board of directors performs the functions that would be performed by a
compensation committee.  Chet Gutowsky is the Chief Financial Officer and a
director of Southfield.  He is also the Chief Financial Officer and a
director of Biotricity Corporation.  Tyson Rohde is the Chief Operating
Officer and a director of Southfield.  He is also the Chief Executive
Officer and director of Biotricity Corporation.  Each Mr. Rohde and Mr.
Gutowsky spend approximately 30 hours per week working for Southfield. Mr.
Roberts does not maintain employment outside of Southfield Energy. All of the
directors participate in deliberations concerning the compensation paid to
executive officers, including Messrs. Gutowsky and Rohde. The
directors of Southfield determine the compensation of its executives by
assessing the value of each of its executives and collectively determining the
amounts of compensation required to retain the services of the company’s
executives.





The
Company paid each Messrs. Gutowsky and Rohde a one-time $3,000 bonus in 2009 for
outstanding efforts related to business development. Aside from these bonuses,
the Company does not currently have or provide, and does not currently have any
plans to adopt or provide in the future, any bonus or other cash incentive
awards, equity-based compensation, or retirement or other executive benefits or
perquisites, other than health benefits. The board of directors, which
consists of our executive officers, will review and approve the compensation of
our named executive officers and consultants and oversee and administer our
executive compensation programs and initiatives.  As we gain experience as
a public company, we expect that the specific direction, emphasis and components
of executive compensation programs will continue to evolve. Factors that may
influence our decision to change our compensation policies include the hiring of
full-time employees, our future revenue growth and profitability, the
implementation of our business plan and strategy and increasing complexity of
our business.





In
approving compensation necessary to attract and retain our present executive
officers, the board of directors concluded that the present annual salaries
provided for Messrs. Roberts, Rohde and Gutowsky are reasonable considering
management’s experience and unique skill sets. The objective of the executive
compensation plan is to provide our executives with competitive remuneration for
their skills such that we can retain our personnel for an extended period of
time. Southfield’s board of directors will review its executive compensation
plans from time to time and take Company performance as well as general labor
market conditions into account when implementing executive compensation
plans.


59





Director
Compensation


The
following table sets forth a summary of the compensation earned by our directors
and/or paid to certain of our directors in 2009:




Director
Compensation Table (2009)




Name
                                      
                                      Fees
                                        Earned
                                        or paid in
                                        cash
                                      
                                      Stock
                                        awards
                                      
                                      Option
                                        Awards
                                      
                                      Non-equity
                                        Deferred
                                        comp.
                                        earnings
                                      
                                      Non-qualified
                                        Deferred
                                        comp.
                                        earnings
                                      
                                      All other
                                      
                                      TotalBen
      Roberts
                                      
                                      $
                                      ––
                                      
                                      $
                                      ––
                                      
                                      $
                                      ––
                                      
                                      $
                                      ––
                                      
                                      $
                                      ––
                                      
                                      $
                                      ––
                                      
                                      $
                                      ––Chet
      Gutowsky
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––Tyson
      Rohde
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––
                                      
                                      
                                      ––





Our board
of directors is comprised of Ben Roberts, Chet Gutowsky and Tyson Rohde who also
serve as officers of the Company. None of our directors has a compensation
arrangement with the Company and have not been compensated since the Company’s
inception in 2005.




Compensation
Committee Interlocks and Insider Participation





The
entire board of directors performs the functions that would be performed by a
compensation committee.  Chet Gutowsky is the Chief Financial Officer and a
director of Southfield.  He is also the Chief Financial Officer and a
director of Biotricity Corporation.  Tyson Rohde is the Chief Operating
Officer and a director of Southfield.  He is also the Chief Executive
Officer and director of Biotricity Corporation.  Both Mr. Gutowsky and Mr.
Rohde participated in deliberations concerning the compensation paid to
executive officers during the year 2009, including Messrs. Gutowsky and
Rohde.





Item
12.


Security
Ownership of Certain Beneficial Owners and Management




The
following table sets forth, as of December 31, 2009, the number and percentage
of outstanding shares of our common stock owned by: (a) each person who is known
by us to be the beneficial owner of more than 5% of our outstanding shares of
common stock; (b) each of our directors; (c) the named executive officers as
defined in Item 402 of Regulation S-K; and (d) all current directors and
executive officers, as a group.  As of December 31, 2009, there were
7,410,000 shares of Company common stock issued and outstanding.




Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act.  Under this rule, certain shares may be deemed to be beneficially
owned by more than one person (if, for example, persons share the power to vote
or the power to dispose of the shares).  In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire shares (for example, upon exercise of an option or warrant) within sixty
days of the date as of which the information is provided.  In
computing the percentage ownership of any person, the amount of shares is deemed
to include the amount of shares beneficially owned by such person by reason of
such acquisition rights.  As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person's actual voting power at any particular date.





To our
knowledge, except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them.  Unless otherwise indicated, the business
address of the individuals listed is 1240 Blalock Rd., Suite 150, Houston, Texas
77055.


60





Name and Address of Beneficial Owner
                        
                        Number of Shares of
                          Common Stock
                          Beneficially Owned
                        
                        Percentage
                          Of Class
                          (%)Beneficial Owners of more than 5%
      :Oklahoma
      Ventures, Inc. (1)
                        
                        
                        2,025,000
                        
                        27.33Amyclare
      Gutowsky (2)
                        
                        
                        600,000
                        
                        8.10Mary
      E. Gutowsky (2)
                        
                        
                        600,000
                        
                        8.10Carew
      Rohde (3)
                        
                        
                        600,000
                        
                        8.10Drexel
      Rohde (3)
                        
                        
                        600,000
                        
                        8.10Officers and Directors :Chet
      Gutowsky
                        
                        
                        600,000
                        
                        8.10Ben
      Roberts
                        
                        
                        200,000
                        
                        2.70Tyson
      Rohde
                        
                        
                        600,000
                        
                        8.10All
      named directors & executive officers as a group
      (3 persons)
                        
                        
                        1,400,000
                        
                        18.89
                        %









(1)
            The mailing address is Centro
      Commercial Bal Harbour - M-38, Panama City,
  Panama


(2)
            The mailing address is 302
      Pinesap Drive, Houston, Texas
77079.


(3)
            The mailing address is 7508 Chevy
      Chase Drive, Houston, Texas
77063.




Item
13.


Certain
Relationships and Related Transactions, and Director Independence




Transactions
with Officers and Directors





From July
2005 to present, we shared office space with Goldbridge Energy Partners, LLC,
whose principals include our officers and directors.  Goldbridge Energy
Partners is an investment advisory and consulting group that facilitates
financing and assists with business development for companies in the energy
sector.  We paid approximately $36,814 and $25,000 in rent expense for
2009 and 2008, respectively, for our portion of the office
space.  Other than the sharing of office space, there have been no
material transactions between us and Goldbridge Energy Partners.





On
September 4, 2008 the Company loaned $2,000 to one of its
officers.  The loan was repaid in full on October 30,
2009.








Transactions
with our Founders





On August
14, 2006 The Internet Business Factory, one of our founders, loaned to us
$20,000 evidenced by a promissory note bearing interest at an annual rate of six
percent.  As partial consideration for the promissory note, we agreed
to issue The Internet Business Factory 300,000 shares of our common
stock.  In November 2006, the promissory note was paid in
full.


61





Director
Independence





During
the year ended December 31, 2009, Ben Roberts, Chet Gutowsky, and Tyson
Rohde served as our directors.




As our
common stock is not currently traded on an exchange or quoted on an automated
quotation system, we are not subject to the rules of any national securities
exchange which require that a majority of a listed company’s directors and
specified committees of the board of directors meet independence standards
prescribed by such rules.




Item
14.


Audit
Fees




We paid
M&K CPAS, PLLC audit and review fees of $34,000 for 2009 related to the
audit and review of our financial statements and registration statement. For
2008, we paid approximately $25,000 for audit and audit-related
fees.




Audit-Related
Fees.




None.




Tax
Fees.




We paid
M&K CPAS, PLLC $800 for professional services related to tax preparation,
filing and compliance for the tax year 2008. We have not incurred any fees for
services related to 2009 tax filings as of the date of this report.




All
Other Fees.




None.




Audit Committee pre-approval policies
and procedures.The entire Board of Directors, which acts as our audit
committee, approved the engagement of M&K, CPAS, PLLC.


62




Item
15.


Exhibits,
Financial Statement Schedules, Signatures




Exhibit No.
              
              Description of Exhibit3.1
              
              Articles
      of Incorporation, as filed July 05, 2005 (included as
      Exhibit 3.1 to the Form S-1 filed September 19, 2009, and
      incorporated herein by reference).3.2
              
              Bylaws
      (included as Exhibit 3.2 to the Form S-1 filed September 19,
      2009, and incorporated herein by reference).4.1
              
              Southfield
      Trust Indenture (included as Exhibit 4.1 to the Form S-1A filed December
      17, 2009, and incorporated herein by reference)4.2
              
              Book
      Entry Specimen 3 Year 10% Note (included as Exhibit 4.2 to the
      Form S-1A filed November 2, 2009, and incorporated herein by
      reference).10.1
              
              Mary
      King Estell Lease Assignment (included as Exhibit 10.1 to the
      Form S-1A filed November 2, 2009, and incorporated herein by
      reference).10.2
              
              Durango
      Letter Agreement (included as Exhibit 10.2 to the Form S-1A
      filed November 2, 2009, and incorporated herein by
    reference).10.3
              
              B D
      Production Co., Inc. Letter Agreement (included as Exhibit 10.3 to
      the Form S-1A filed November 2, 2009, and incorporated herein by
      reference).10.4
              
              Aldwell
      Unit Purchase Letter Agreement and Assignment (included as
      Exhibit 10.4 to the Form S-1A filed November 2, 2009, and
      incorporated herein by reference).10.5
              
              Listing
      Agreement with Oil & Gas Asset Clearinghouse and Assignment (included
      as Exhibit 10.5 to the Form S-1A filed November 2, 2009, and
      incorporated herein by reference).10.6
              
              Form
      of Subscription Agreement (included as Exhibit 10.6 to the
      Form S-1A filed December 17, 2009, and incorporated herein by
      reference).14.1
              
              Corporate
      Code of Ethics (filed herewith).23.1
              
              Consent
      of Netherland, Sewell & Associates (filed herewith)31.1
              
              Certification
      of President and Chief Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002 (filed herewith).31.2
              
              Certification
      of Chief Financial Officer and Treasurer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002 (filed herewith).32.1
              
              Certification
      of President and Chief Executive Officer pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (filed herewith).32.2
              
              Certification
      of Chief Financial Officer and Treasurer pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (filed herewith).99.1
              
              Engineering
      Report Summary Letter of Netherland, Sewell & Associates, Inc. (filed
      herewith)




63




SIGNATURES




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




Southfield
      Energy Corp.Date:
      April 8, 2010
              By:
              /s/Ben RobertsBen
      RobertsPresident
      and Chief Executive Officer




In
accordance with the Exchange Act, this report has been duly signed by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.




/s/Ben RobertsBen
      Roberts
              
              Date:
      April 8, 2010Director/s/Chet GutowskyChet
      Gutowsky
              
              Date:
      April 8, 2010Director/s/Tyson RohdeTyson
      Rohde
              
              Date:
      April 8, 2010Director




64