**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        DC 20549
 
 
 **FORM
        10-QSB**
 
 
 **x**
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
 
 For
        the
        quarterly period ended **September 30, 2007**
 
 **o**
              TRANSITION
                  REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
                  1934
 
 For
        the
        transition period from ________ to ________
 
 
 Commission
        file number: **000-51488**
 
 
 **PETROSEARCH
        ENERGY CORPORATION**
 (Exact
        name of small business issuer as specified in its charter)
 
 
 **NEVADA**
              
              **20-2033200**(State
                  or other jurisdiction of incorporation or organization)
              
              (IRS
                  Employer Identification No.)**675
                  Bering Drive, Suite 200****Houston,
                  TX 77057**(Address
                  of principal executive offices)**(713)
                  961-9337**(Issuer’s
                  telephone number)
 
 Indicate
        by check mark whether
        the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
        Act).     Yes o  No x
 
 Check
        whether the issuer: (i) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (ii) has been
        subject to such filing requirements for the past 90 days.   Yes
x  No
o
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common stock, as
        of the latest practicable date:  39,741,841 Shares of $0.001 par value
        Common Stock outstanding as of November 8, 2007
 
 
 Transitional
        Small Business Disclosure Format (check one): Yes  o**No****x**
  
 1
  **PETROSEARCH
        ENERGY CORPORATION**
 
 **FORM
        10-QSB**
 **For
        The Quarter Ended September 30, 2007**
 
 **INDEX**
 
 
 PagePART
                  I - FINANCIAL INFORMATIONITEM
                  1.
              FINANCIAL
                  STATEMENTS
              3ITEM
                  2.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATIONS
              13ITEM
                  3.
              CONTROLS
                  AND PROCEDURES
              21PART
                  II - OTHER INFORMATIONITEM
                  2.
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS
              22ITEM
                  6.
              EXHIBITS
              23SIGNATURES
              24
  2
 ***Index***
  **ITEM
                  1.**
              **FINANCIAL
                  STATEMENTS**
 **PETROSEARCH
        ENERGY CORPORATION**
 **CONSOLIDATED
        BALANCE SHEETS**
 **September
        30, 2007 and December 31, 2006**
 **ASSETS**
              
              **September30,**
                **2007**
                **(Unaudited)**
              
              
              **December
                  31, 2006**
                **(See
                  note)**Current
                  assets:Cash
              
              $
              3,187,341
              
              
              $
              3,715,618Accounts
                  receivable:Joint
                  owners-billed, net of allowance of $37,179 at September 30, 2007and
                  $83,073 at December 31, 2006
              
              
              172,946
              
              
              
              421,081Joint
                  owners-unbilled
              
              
              803
              
              
              
              15,213Oil
                  and gas production sales
              
              
              321,985
              
              
              
              146,408Prepaid
                  expenses and other current assets
              
              
              976,435
              
              
              
              829,104Total
                  current assets
              
              
              4,659,510
              
              
              
              5,127,424Property
                  and equipment:Oil
                  and gas properties, full cost method of accounting:Properties
                  subject to amortization
              
              
              29,270,852
              
              
              
              23,462,639Properties
                  not subject to amortization
              
              
              7,121,241
              
              
              
              6,309,169Other
                  property and equipment
              
              
              153,032
              
              
              
              149,348Total
              
              
              36,545,125
              
              
              
              29,921,156Less
                  accumulated depreciation, depletion and amortization
              
              
              (2,953,008
              )
              
              
              (2,357,347
              )Total
                  property and equipment, net
              
              
              33,592,117
              
              
              
              27,563,809Prepaid
                  oil and gas costs
              
              
              14,507
              
              
              
              14,507Other
                  assets
              
              
              695,103
              
              
              
              656,790Total
                  assets
              
              $
              38,961,237
              
              
              $
              33,362,530
 
 **LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Current
                  portion of long-term debt
              
              $
              2,530,378
              
              
              $
              1,863,531Current
                  portion of long-term debt - Kallina
              
              
              673,769
              
              
              
              298,806Trade
                  note payable
              
              
              42,724
              
              
              
              409,819Accounts
                  payable
              
              
              709,939
              
              
              
              1,062,679Accrued
                  liabilities for Barnett property costs
              
              
              332,719
              
              
              
              607,013Accrued
                  liabilities
              
              
              1,030,018
              
              
              
              925,183Warrant
                  liability
              
              
              427,551
              
              
              
              317,752Total
                  current liabilities
              
              
              5,747,098
              
              
              
              5,484,783Long-term
                  debt, net of current portion
              
              
              -
              
              
              
              2,066,074Long-term
                  debt, net of current portion – Kallina
              
              
              6,353,512
              
              
              
              6,963,694Convertible
                  debt
              
              
              5,986,518
              
              
              
              -Other
                  long-term obligations
              
              
              927,598
              
              
              
              906,996Total
                  liabilities
              
              
              19,014,726
              
              
              
              15,421,547Stockholders'
                  equity:Preferred
                  stock, par value $1.00 per share, 20,000,000 shares
                  authorized:Series
                  A  8% convertible preferred stock, 1,000,000 shares authorized;
                  483,416 shares issued and outstanding at September 30, 2007 and
                  December
                  31, 2006
              
              
              483,416
              
              
              
              483,416Series
                  B convertible preferred stock, 100,000 shares authorized; 43,000
                  shares
                  issued and outstanding at September 30, 2007 and December 31,
                  2006
              
              
              43,000
              
              
              
              43,000Common
                  stock, par value $0.001 per share, 100,000,000 shares Authorized;
                  39,556,789 and 37,927,070 shares issued and outstanding at September
                  30,
                  2007 and December 31, 2006, respectively
              
              
              39,556
              
              
              
              37,927Additional
                  paid-in capital
              
              
              31,140,043
              
              
              
              23,928,090Un-issued
                  common stock
              
              
              222,062
              
              
              
              771,429Accumulated
                  deficit
              
              
              (11,981,566
              )
              
              
              (7,322,879
              )Total
                  stockholders' equity
              
              
              19,946,511
              
              
              
              17,940,983Total
                  liabilities and stockholders' equity
              
              $
              38,961,237
              
              
              $
              33,362,530
 Note:  The
        balance sheet at December 31, 2006 has been derived from the audited financial
        statements at that date but does not include all of the information and
        footnotes required by generally accepted accounting principles for complete
        financial statements. See accompanying notes to unaudited condensed consolidated
        financial statements.
  3
 ***Index***
  **PETROSEARCH
        ENERGY CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **for
        the three months and  nine months ended September 30, 2007 and
        2006**
 
 **Three
                  Months Ended**
                **September
                  30**
              
              
              **Nine
                  Months Ended**
                **September
                  30****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Oil
                  and gas production revenues
              
              $
              426,931
              
              
              $
              335,711
              
              
              $
              1,163,451
              
              
              $
              827,311Operating
                  costs and expenses:Lease
                  operating and production taxes
              
              
              146,400
              
              
              
              240,977
              
              
              
              489,291
              
              
              
              658,859Depreciation,
                  depletion and amortization
              
              
              222,871
              
              
              
              79,614
              
              
              
              595,660
              
              
              
              214,242General
                  and administrative
              
              
              631,925
              
              
              
              550,075
              
              
              
              2,072,397
              
              
              
              1,845,396Total
                  costs and expenses
              
              
              1,001,196
              
              
              
              870,666
              
              
              
              3,157,348
              
              
              
              2,718,497Operating
                  loss
              
              
              (574,265
              )
              
              
              (534,955
              )
              
              
              (1,993,897
              )
              
              
              (1,891,186
              )Other
                  income (expense):Interest
                  income
              
              
              53,582
              
              
              
              18,775
              
              
              
              211,025
              
              
              
              51,858Interest
                  expense
              
              
              (492,850
              )
              
              
              (104,360
              )
              
              
              (1,391,870
              )
              
              
              (278,242
              )Amortization
                  of financing costsand
                  debt discount
              
              
              (507,327
              )
              
              
              (32,674
              )
              
              
              (1,374,146
              )
              
              
              (62,670
              )Change
                  in value of warrant liability
              
              
              94,812
              
              
              
              -
              
              
              
              (109,799
              )
              
              
              -Gain
                  on sale of investment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,000,000Total
                  other income (expense)
              
              
              (851,783
              )
              
              
              (118,259
              )
              
              
              (2,664,790
              )
              
              
              710,946Net
                  Income (Loss)
              
              $
              (1,426,048
              )
              
              $
              (653,214
              )
              
              $
              (4,658,687
              )
              
              $
              (1,180,240
              )Basic
                  and diluted net income (loss) per common share
              
              $
              (0.04
              )
              
              $
              (0.02
              )
              
              $
              (0.12
              )
              
              $
              (0.04
              )
 
 See
        accompanying notes to unaudited condensed consolidated
        financial statements
  4
 ***Index***
  **PETROSEARCH
        ENERGY CORPORATION**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY**
 **For
        the nine months ended September 30, 2007**
 
 **Series
                  A**
              
              
              **Series
                  B**
              
              
              **Additional**
              
              
              **Unissued**
              
              
              
              
              
              **Total
                  Stock-****Common
                  Stock**
              
              
              **Preferred
                  Stock**
              
              
              **Preferred
                  Stock**
              
              
              **Paid-In**
              
              
              **Common**
              
              
              **Accumulated**
              
              
              **Holders****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Stock**
              
              
              **Deficit**
              
              
              **Equity**Balance
                  at December 31, 2006
              
              
              37,927,070
              
              
              $
              37,927
              
              
              
              483,416
              
              
              $
              483,416
              
              
              
              43,000
              
              
              $
              43,000
              
              
              $
              23,928,090
              
              
              $
              771,429
              
              
              $
              (7,322,879
              )
              
              $
              17,940,983Issuance
                  of common stock committed, net of additional costs of raising
                  capital
              
              
              771,429
              
              
              
              771
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              751,315
              
              
              
              (771,429
              )
              
              
              
              
              
              
              (19,343
              )Common
                  stock issued for leasehold costs
              
              
              500,000
              
              
              
              500
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              644,500
              
              
              
              
              
              
              
              
              
              
              
              645,000Common
                  stock issued for employee compensation
              
              
              25,000
              
              
              
              25
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              20,725
              
              
              
              
              
              
              
              
              
              
              
              20,750Common
                  stock issued for services
              
              
              50,000
              
              
              
              50
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              61,926
              
              
              
              
              
              
              
              
              
              
              
              61,976Common
                  stock issued for interest expense
              
              
              252,256
              
              
              
              252
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              352,582
              
              
              
              
              
              
              
              
              
              
              
              352,834Common
                  stock issued for board compensation
              
              
              31,034
              
              
              
              31
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              44,969
              
              
              
              
              
              
              
              
              
              
              
              45,000Common
                  stock committed for interest expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              222,062
              
              
              
              
              
              
              
              222,062Issuance
                  of warrants with debt
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,667,968
              
              
              
              
              
              
              
              
              
              
              
              2,667,968Beneficial
                  conversion feature of convertible debt
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,667,968
              
              
              
              
              
              
              
              
              
              
              
              2,667,968Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,658,687
              )
              
              
              (4,658,687
              )Balance
                  atSeptember  30,
                  2007
              
              
              39,556,789
              
              
              $
              39,556
              
              
              
              483,416
              
              
              $
              483,416
              
              
              
              43,000
              
              
              $
              43,000
              
              
              $
              31,140,043
              
              
              $
              222,062
              
              
              $
              (11,981,566
              )
              
              $
              19,946,511
 
 See
        accompanying notes to unaudited condensed consolidated financial
        statements
  5
 ***Index***
  **PETROSEARCH
        ENERGY CORPORATION**
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
 **For
        the nine months ended September 30, 2007 and 2006**
 
 
 **2007**
              
              
              **2006****Cash
                  flows from operating activities:****Net
                  loss**
              
              $
              (4,658,687
              )
              
              $
              (1,180,240
              )**Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:**Depletion,
                  depreciation and amortization expense
              
              
              595,660
              
              
              
              214,242Stock-based
                  compensation and interest expense
              
              
              683,279
              
              
              
              1,923Amortization
                  of deferred rent
              
              
              (11,711
              )
              
              
              (3,680
              )Amortization
                  of debt discount
              
              
              269,141
              
              
              
              26,523Amortization
                  of beneficial conversion feature
              
              
              872,454
              
              
              
              -Amortization
                  of financing costs
              
              
              258,789
              
              
              
              36,147Accretion
                  of asset retirement obligation
              
              
              27,231
              
              
              
              22,717Change
                  in value of warrant liability
              
              
              109,799
              
              
              
              -Gain
                  on sale of securities
              
              
              -
              
              
              
              (1,000,000
              )**Changes
                  in operating assets and liabilities:**Accounts
                  receivable
              
              
              86,968
              
              
              
              461,417Trade
                  note receivable
              
              
              -
              
              
              
              (466,972
              )Prepaid
                  expenses and other assets
              
              
              (300,520
              )
              
              
              (184,174
              )Accounts
                  payable and accrued liabilities
              
              
              (83,601
              )
              
              
              915,955Trade
                  note payable
              
              
              (367,095
              )
              
              
              -**Net
                  cash used in operating activities**
              
              
              (2,518,293
              )
              
              
              (1,156,142
              )**Cash
                  flows from investing activities:**Capital
                  expenditures, including purchases and development of
                  properties
              
              
              (6,412,484
              )
              
              
              (6,233,269
              )Proceeds
                  from sale of securities
              
              
              -
              
              
              
              1,000,000**Net
                  cash used in investing activities**
              
              
              (6,412,484
              )
              
              
              (5,233,269
              )**Cash
                  flows from financing activities:**Proceeds
                  from the sale of common stock
              
              
              -
              
              
              
              2,540,625Proceeds
                  from exercise of warrants
              
              
              -
              
              
              
              174,669Proceeds
                  from convertible debt
              
              
              10,000,000
              
              
              
              -Proceeds
                  from notes payable
              
              
              -
              
              
              
              1,800,000Repayment
                  of notes payable
              
              
              (1,597,500
              )
              
              
              (587,500
              )**Net
                  cash provided by financing activities**
              
              
              8,402,500
              
              
              
              3,927,794**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              (528,277
              )
              
              
              (2,461,617
              )**Cash
                  and cash equivalents at beginning of period**
              
              
              3,715,618
              
              
              
              4,052,844**Cash
                  and cash equivalents at end of period**
              
              $
              3,187,341
              
              
              $
              1,591,227**Supplemental
                  disclosures of cash flow information:**Interest
                  paid
              
              $
              323,996
              
              
              $
              361,774Income
                  taxes paid
              
              $
              -
              
              
              $
              -
 
 See
        accompanying notes to unaudited condensed consolidated financial
        statements
  6
 ***Index***
  **PETROSEARCH
        ENERGY CORPORATION**
 **NOTES
        TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**
 
 **1.**
              **Interim
                  Financial Statements**
 
 The
        accompanying un-audited interim financial statements have been prepared without
        audit pursuant to the rules and regulations of the U.S. Securities and Exchange
        Commission.  Certain information and footnote disclosures normally
        included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States of America have been
        condensed or omitted, pursuant to such rules and regulations.  These
        unaudited consolidated condensed financial statements should be read in
        conjunction with the audited financial statements and notes thereto of
        Petrosearch Energy Corporation (the “Company”) for the year ended December 31,
        2006.  In the opinion of management, all adjustments (consisting of
        normal recurring adjustments) considered necessary for a fair presentation
        of
        financial position, results of operations and cash flows for the interim
        periods
        presented have been included.  Operating results for the interim
        periods are not necessarily indicative of the results that may be expected
        for
        the respective full year.
 
 **2.**
              **Income
                  Taxes**
 
 The
        Company uses the liability method in accounting for income taxes. Under this
        method, deferred tax assets and liabilities are determined based on differences
        between financial reporting and income tax carrying amounts of assets and
        liabilities and are measured using the enacted tax rates and laws that will
        be
        in effect when the differences are expected to reverse.  A valuation
        allowance, if necessary, is provided against deferred tax assets, based upon
        management's assessment as to their realization.
 
 The
        difference between the 35% federal statutory income tax rate and amounts
        shown
        in the accompanying interim financial statements is primarily attributable
        to
        the utilization of net operating loss carry-forwards and a valuation allowance
        recorded against net deferred tax assets.
 
 **3.**
              **Stock
                  Warrants**
 
 The
          Company has periodically issued incentive stock warrants to executives,
          officers, directors and employees to provide additional incentives to promote
          the success of the Company’s business and to enhance the ability to attract and
          retain the services of qualified persons.  Warrants have also been
          issued as part of capital financing transactions.  The issuances of
          such warrants are approved by the Board of Directors.  The exercise
          price of a warrant granted is determined by the fair market value of the
          stock
          on the date of grant.  The Company issues shares of authorized common
          stock upon the exercise of the warrant.
 
 In
          December 2004, the FASB issued SFAS 123(R), which is a revision of
          SFAS 123.  SFAS 123(R) requires all share-based payments to
          employees, including grants of employee stock warrants, to be recognized
          as
          stock-based compensation expense in the Company’s Consolidated Statements of
          Operations based on their fair values.  For purposes of determining
          compensation expense associated with stock warrants, the fair value of
          the
          Company’s stock was determined based upon the Black-Scholes option pricing
          model.
 
 For
          warrants granted during 2007 and 2006, the fair value of such warrants
          was
          estimated at the date of grant using a Black-Scholes option-pricing model
          with
          the following assumptions:
 
 **2007**
              
              **2006**Dividend
                  yield
              -0-
              
              -0-Expected
                  volatility
              105%
              
              98%Risk
                  free interest
              4.52%
              
              3.00%Expected
                  lives
              4
                  years
              
              2-4
                  years
  7
 ***Index***
  The
        Black-Scholes option valuation model was developed for use in estimating
        fair
        value of traded options or warrants that have no vesting restrictions and
        are
        fully transferable.  In addition, option valuation models require the
        input of highly subjective assumptions including the expected stock price
        volatility.  Because the Company’s stock warrants have characteristics
        significantly different from those of traded options/warrants, and because
        changes in the subjective input assumptions can materially affect the fair
        value
        estimate, in management’s opinion, the existing models do not necessarily
        provide a reliable single measure of the fair value of its stock
        warrants.
 
 A
        summary
        of the Company’s stock warrant activity and related information for the nine
        months ended September 30, 2007 follows:
 
 **Weighted**
              
              
              **Total****Average**
              
              
              **Intrinsic****Number
                  of**
              
              
              
              
              
              **Weighted**
              
              
              **Grant**
              
              
              **Value****Shares**
              
              
              
              
              
              **Average**
              
              
              **Date
                  Fair**
              
              
              **Warrant****Under**
              
              
              **Exercise**
              
              
              **Exercise**
              
              
              **Value**
              
              
              **Exercises****Warrant**
              
              
              **Price**
              
              
              **Price**
              
              
              **($/share)
                  (2)**
              
              
              ****
              **(1**
              **)**Warrants
                  outstanding at December 31, 2006
              
              
              14,147,690
              
              
              $
              0.92-$9.75
              
              
              $
              1.88Issued
              
              
              5,225,000
              
              
              $
              1.40
              
              
              $
              1.40
              
              
              $
              0.51Expired
              
              
              (1,050,007
              )
              
              $
              4.88-$9.75
              
              
              $
              7.95Warrants
                  outstanding at September 30, 2007
              
              
              18,322,683
              
              
              $
              0.92-$2.00
              
              
              $
              1.40
 
 All
        outstanding stock warrants are exercisable at September 30, 2007.  A
        summary of outstanding stock warrants at September 30, 2007
        follows:
 
 **Weighted****Number
                  of**
              
              
              
              **Remaining**
              
              **Average**
              
              
              
              
              **Weighted****Common**
              
              
              
              **Contracted**
              
              **Remaining**
              
              
              
              
              **Average**
              
              **Aggregate****Stock**
              
              **Expiration**
              
              **Life**
              
              **Contractual**
              
              **Exercise**
              
              
              **Exercise**
              
              **Intrinsic****Equivalents**
              
              **Date**
              
              **(Years)**
              
              **Term
                  (Years)**
              
              **Price**
              
              
              **Price**
              
              **Value
                  (1)**150,000
              
              March
                  2008
              
              
              .50
              
              
              
              $
              1.95
              
              
              $
              1.9520,000
              
              August
                  2008
              
              
              .92
              
              
              
              $
              1.95
              
              
              $
              1.954,851,969
              
              November
                  2008
              
              
              1.17
              
              
              
              $
              0.98-$1.95
              
              
              $
              1.931,060,714
              
              February
                  2010
              
              
              2.42
              
              
              
              $
              2.00
              
              
              $
              2.005,225,000
              
              January
                  2011
              
              
              3.33
              
              
              
              $
              1.40
              
              
              $
              1.40575,000
              
              October
                  2011
              
              
              4.08
              
              
              
              $
              .92
              
              
              $
              .926,440,000
              
              December
                  2011
              
              
              4.25
              
              
              
              $
              .92
              
              
              $
              .9218,322,683
              
              
              
              
              
              
              3.03
              
              
              
              
              
              
              
              
              $1,964,200
 
 **(1)******The
        intrinsic value of a warrant is the amount by which the current market value
        of
        the underlying stock exceeds the exercise price of the warrant, or the market
        price at the end of the period less the exercise price.
 
 **(2)**The
        weighted average grant date fair value was determined by using the Black
        Scholes
        Option Pricing Model as described above.
 
 The
        following table provides a detail of stock-based compensation incurred during
        the nine months ended September 30, 2007, and 2006:
  8
 ***Index***
 
 **Nine
                  Months Ended****September
                  30,****2007**
              
              
              **2006**Restricted
                  stock – Interest Expense
              
              $
              352,834
              
              
              $
              -Restricted
                  stock – General and Administrative
              
              
              108,383
              
              
              
              -Restricted
                  stock – Property Costs
              
              
              645,000
              
              
              
              545,000Committed
                  restricted stock
              
              
              222,062
              
              
              
              23,075Total
                  stock-based compensation
              
              $
              1,328,279
              
              
              $
              568,075Less
                  amounts capitalized – Property Costs
              
              
              (645,000
              )
              
              
              (545,000
              )Stock
                  compensation expense, net of amounts capitalized
              
              $
              683,279
              
              
              $
              23,075
 
 The
        above
        table excludes common stock issued for cash, warrants issued in financing
        arrangements, debt discounts recorded in equity, and common stock issued
        for
        exercise of warrants.
 
 **4.**
              **Related
                  Party Transactions**
 
 During
        the three months and nine months ended September 30, 2007 there were no related
        party transactions.
 
 **5.**
              **Non-Cash
                  Investing and Financing
                  Activities**
 
 During
        the nine months ended September 30, 2007 and 2006, the Company engaged in
        non-cash financing and investing activities as follows:
 
 
 **Nine
                  Months Ended****September
                  30,****2007**
              
              
              **2006**Reduction
                  of prepaid drilling for development of oil and gas
                Properties
              
              
              -
              
              
              $
              24,846Issuance
                  of common stock for acquisition of property
              
              $
              645,000
              
              
              
              -Increase
                  in accounts payable and accrued liabilities for property
                  costs
              
              
              -
              
              
              $
              5,197,114Increase
                  in accounts payable for JIB receivable - Kallina
              
              
              -
              
              
              $
              4,925,289Beneficial
                  conversion feature on convertible debt
              
              $
              2,667,968
              
              
              
              -Issuance
                  of warrants with debt
              
              $
              2,667,968
              
              
              
              -Issuance
                  of convertible debt for financing costs
              
              $
              450,000
              
              
              ****
              **-**
 
 **6.**
              **Earnings
                  Per Share**
 
 The
        Company has adopted SFAS No. 128, which provides for calculation of "Basic"
        and
        "Diluted" earnings per share.  Basic earnings per share includes no
        dilution and is computed by dividing net income available to common shareholders
        by the weighted average common shares outstanding for the
        period.  Diluted earnings per share reflect the potential dilution of
        securities that could share in the earnings of an entity similar to fully
        diluted earnings per share. Following is a reconciliation of the numerators
        and
        denominators of the basic and diluted EPS computations for the three and
        nine
        months ended September 30, 2007 and 2006:
  9
 ***Index***
 
 Three
                  Months Ended
                September
                  30,
              
              
              Nine
                  Months Ended
                September
                  30,2007
              
              
              2006
              
              
              2007
              
              
              2006Basic
                  EPS:Net
                  income (loss)
              
              $
              (1,426,048
              )
              
              $
              (653,214
              )
              
              $
              (4,658,687
              )
              
              $
              (1,180,240
              )Less:
                  Preferred stock dividends
              
              
              (9,668
              )
              
              
              (9,668
              )
              
              
              (29,005
              )
              
              
              (29,005
              )Net
                  income (loss) available to common stockholders
              
              $
              (1,435,716
              )
              
              $
              (662,882
              )
              
              $
              (4,687,692
              )
              
              $
              (1,209,245
              )Weighted
                  average shares of common stock
              
              
              39,553,131
              
              
              
              31,115,168
              
              
              
              39,181,688
              
              
              
              30,527,998Basic
                  net income (loss) per share
              
              $
              (0.04
              )
              
              $
              (0.02
              )
              
              $
              (0.12
              )
              
              $
              (0.04
              )Diluted
                  EPS:Income
                  (loss) available to common stockholders
              
              $
              (1,435,716
              )
              
              $
              (662,882
              )
              
              $
              (4,687,692
              )
              
              $
              (1,209,245
              )Plus
                  assumed conversions
              
              
              9,668
              
              
              
              9,668
              
              
              
              29,005
              
              
              
              29,005Net
                  income (loss) used for diluted EPS
              
              $
              (1,426,048
              )
              
              $
              (653,214
              )
              
              $
              (4,658,687
              )
              
              $
              (1,180,240
              )Weighted
                  average shares used for Diluted EPS
              
              
              39,553,131
              
              
              
              31,115,168
              
              
              
              39,181,688
              
              
              
              30,527,998Diluted
                  net income (loss) per share
              
              $
              (0.04
              )
              
              $
              (0.02
              )
              
              $
              (0.12
              )
              
              $
              (0.04
              )
 
 For
        the
        three and nine month periods ended September 30, 2007 and 2006, potential
        dilutive securities had an anti-dilutive effect and were not included in
        the
        calculation of diluted net loss per common share.  For the nine month
        period ended September 30, 2006, these securities included in-the-money warrants
        for the purchase of 84,280 common shares and preferred stock convertible
        into
        94,218 common shares.    For the three month period ended
        September 30, 2006, these securities included preferred stock convertible
        into
        94,218 common shares.    For the three and nine months ended
        September 30, 2007, these securities included in-the-money warrants for the
        purchase of 1,954,346 and 2,013,511 common shares, respectively, and preferred
        stock convertible into 94,218 common shares.
 
 **7.**
              **Convertible
                  Debt**
 
 The
        Company evaluates and accounts for conversion options embedded in its
        convertible instruments in accordance with SFAS No. 133 “Accounting
        for Derivative Instruments and Hedging Activities” (“SFAS 133”) and EITF
        00-19 “Accounting for Derivative Financial Instruments Indexed to, and
        Potentially Settled in, a Company’s Own Stock” (“ EITF 00-19”).
 
 SFAS 133
        generally provides three criteria that, if met, require companies to bifurcate
        conversion options from their host instruments and account for them as free
        standing derivative financial instruments in accordance with EITF 00-19.
        These
        three criteria include circumstances in which (a) the economic
        characteristics and risks of the embedded derivative instrument are not clearly
        and closely related to the economic characteristics and risks of the host
        contract, (b) the hybrid instrument that embodies both the embedded
        derivative instrument and the host contract is not remeasured at fair value
        under otherwise applicable generally accepted accounting principles with
        changes
        in fair value reported in earnings as they occur and (c) a separate
        instrument with the same terms as the embedded derivative instrument would
        be
        considered a derivative instrument subject to the requirements of SFAS 133.
        SFAS 133 and EITF 00-19 also provide an exception to this rule when the
        host instrument is deemed to be conventional (as that term is described in
        the
        implementation guidance to SFAS 133 and further clarified in EITF 05-2 “The
        Meaning of “Conventional Convertible Debt Instrument” in Issue
        No. 00-19).
  10
 ***Index***
  The
        Company accounts for convertible instruments (when it has determined that
        the
        embedded conversion options should not be bifurcated from their host
        instruments) in accordance with the provisions of EITF 98-5 “Accounting for
        Convertible Securities with Beneficial Conversion Features,” (“EITF 98-5”) and
        EITF 00-27 “Application of EITF 98-5 to Certain Convertible Instruments.”
Accordingly, the Company records when necessary discounts to convertible
        notes
        for the intrinsic value of conversion options embedded in debt instruments
        based
        upon the differences between the fair value of the underlying common stock
        at
        the commitment date of the note transaction and the effective conversion
        price
        embedded in the note. Debt discounts associated with beneficial conversion
        features under these arrangements are amortized over the term of the related
        debt.
 
 On
        February 1, 2007 the Company executed a Note and Warrant Purchase Agreement
        with
        an Institutional Investor for the sale of a $10,000,000, 8% Senior Secured
        Convertible Promissory Note and a four-year warrant to purchase 5,000,000
        shares
        of common stock at an exercise price of $1.40 per share for total proceeds
        of
        $10,000,000.  At the option of the investor, the three-year
        Convertible Note will be convertible into shares of common stock at a price
        of
        $1.00 per share after the earlier of one year from the closing of the
        transaction or three months after a registration statement relating to this
        transaction becomes effective.  The Warrant is exercisable one year
        after the closing of the transaction.
 
 The
        Company  may  elect  to redeem part or all of the
        outstanding Convertible Note at the later  of  (i) such time
        as RCH Petro
        Investors, L.P. (RCH) has the right to convert; and (ii) twelve months
        from  the  date  of  closing, at
        one-hundred ten percent (110%) of the principal amount of the Convertible
        Note,
        provided however that such redemption right only
        applies  if,  upon  receiving notice of
        redemption, the lender has the right to convert
        all  the  shares  the Company intends to redeem at
        the applicable conversion price and the applicable  registration
        statement for the resale of such shares of common stock
        is  effective.
 
 The
        Convertible Note is collateralized by a security interest in twenty five
        percent
        of the membership interest of the Company’s wholly owned subsidiary, Exploration
        Holding Co., LLC, which owns one-hundred percent of Barnett Petrosearch,
        LLC.  Barnett Petrosearch is the subsidiary which owns a 5.54%
        interest in DDJET, Ltd, LLP, and participates in the Barnett Shale
        Project.
 
 The
        Convertible Note meets the definition of conventional convertible debt in
        EITF
        Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed
        to, and Potentially Settled in, a Company’s Own Stock. We have evaluated each of
        the features of the Convertible Note and concluded that none of these features
        constitute embedded derivatives that must be bifurcated from the host contract
        and accounted for as derivatives in accordance with SFAS 133, Accounting
        for
        Derivative Instruments and Hedging Activities.
 
 The
        Company allocated the debt proceeds to the warrants and the debt based on
        the
        relative fair value of each. In accordance with EITF 98-5 and EITF 00-27,
        the
        Company recorded a discount of $2.7 million to the convertible note for the
        intrinsic value of conversion options embedded in debt instruments based
        upon
        the differences between the fair value of the underlying common stock at
        the
        commitment date of the note transaction and the effective conversion price
        embedded in the note. The fair value assigned to the warrants of $2.7 million
        was also recorded as a debt discount.
  11
 ***Index***
  **8.**
              **Legal
                  Proceedings**
 
 The
        Company is subject to certain legal proceedings and claims which arose in
        the
        ordinary course of its business. In the opinion of management, the amount
        of
        ultimate liability with respect to these actions will not materially affect
        the
        Company’s financial position, results of operations or cash flows.
 
 **9.**
              **Subsequent
                  Events**
 
 **Convertible
        Debt Agreement**
 
 On
        November 9, 2007, we executed a Note and Warrant Purchase Agreement with
        several
        institutional investors and high net worth individuals for the sale of a
        series
        of 8% Senior Secured Convertible Promissory Notes and three year warrants
        to
        purchase an aggregate of 1,928,575 shares of our common stock at an exercise
        price of $1.50 per share for total gross proceeds to us of
        $8,100,000   We completed the transaction and received funding on
        November 13, 2007.  Upon closing, we issued the Convertible Notes and
        the Warrants.  As part of the transaction, we executed a Pledge and
        Security Agreement and a Registration Rights Agreement.  At closing,
        we paid Scarsdale Equities, LLC a placement agent fee equal to
        $461,500.
 
 The
        Convertible Notes will mature three years from the date of issuance and will
        accrue interest payable quarterly in arrears in cash or common stock, at
        our
        option, at the rate of eight percent per annum if paid in cash, or eight
        and
        one-half percent if paid in common stock of the Company (subject to certain
        equity conditions being met).  At the option of the Purchasers, the
        Convertible Notes are convertible into shares of our common stock at a price
        per
        share of $1.05 at any time and from time to time after the original issue
        date.    The Convertible Note is collateralized by a
        security interest in five percent of the membership interest of our wholly
        owned
        subsidiary, Exploration Holding Co., LLC, which owns one-hundred percent
        of
        Barnett Petrosearch, LLC.  Barnett Petrosearch is our subsidiary which
        owns a 5.54% interest in DDJET, Limited, LLP.
  12
 ***Index***
  **Item
        2.Management’s Discussion and
        Analysis or Plan of Operation**
 
 **FORWARD
        LOOKING STATEMENTS**
  Statements
        contained herein and the information incorporated by reference herein may
        be
        forward-looking statements within the meaning of Section 21E of the Securities
        Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements can
        be
        identified by the use of forward-looking terminology such as, but not limited
        to, "may," "will," "expect," "anticipate," "estimate," "would be," "believe,"
        or
        "continue" or the negative or other variations of comparable
        terminology.  We intend such forward-looking statements to be covered
        by the safe harbor provisions applicable to forward-looking statements contained
        in Section 21E of the Exchange Act. Such statements (none of which is intended
        as a guarantee of performance) are subject to certain assumptions, risks
        and
        uncertainties, which could cause our actual future results, achievements
        or
        transactions to differ materially from those projected or anticipated. Such
        risks and uncertainties are set forth herein.
 
 Forward-looking
        statements include statements concerning plans, objectives, goals, strategies,
        future events, or performance and underlying assumptions and other statements,
        which are other than statements of historical facts. These statements are
        subject to uncertainties and risks including, but not limited to, product
        and
        service demands and acceptance, changes in technology, economic conditions,
        the
        impact of competition and pricing, and government regulation and approvals.
        Petrosearch cautions that assumptions, expectations, projections, intentions,
        or
        beliefs about future events may, and often do, vary from actual results and
        the
        differences can be material. Some of the key factors which could cause actual
        results to vary from those Petrosearch expects include changes in natural
        gas
        and oil prices, the timing of planned capital expenditures, availability
        of
        acquisitions, uncertainties in estimating proved reserves and forecasting
        production results, operational factors affecting the commencement or
        maintenance of producing wells, the condition of the capital markets generally,
        as well as our ability to access them, and uncertainties regarding environmental
        regulations or litigation and other legal or regulatory developments affecting
        our business.
 
 Our
        expectations, beliefs and projections are expressed in good faith and are
        believed to have a reasonable basis, including without limitation, our
        examination of historical operating trends, data contained in our records
        and
        other data available from third parties. There can be no assurance, however,
        that our expectations, beliefs or projections will result, be achieved, or
        be
        accomplished. Readers are cautioned not to place undue reliance on these
        forward-looking statements, which speak only as of the date
        hereof.  We undertake no duty to update these forward-looking
        statements.
 
 **OVERVIEW
        – CORPORATE STRATEGY**
 
 In
        the
        third quarter of 2007 we have continued to make significant progress in ramping
        up the development of our high quality portfolio of oil and gas assets,
        particularly the Barnett Shale Project. Gas production from the Barnett Shale
        Project, which began in the first quarter of 2007, averaged approximately
        233
        million cubic feet per month in the third quarter which is over 10 million
        cubic
        feet per month net to our share. In addition, we have continued to increase
        our
        acreage position in the project (now approximately 26,300 acres).  As
        disclosed in previous filings, in March 2007, Metroplex Barnett Shale, LLC
        (“Metroplex” - wholly owned subsidiary of Exxon Mobil Corporation) completed the
        final transition as Operator of our Barnett Shale Project from the previous
        Operator, taking control and responsibility of drilling operations, completion
        operations and gathering system operations for the project. Also, in July,
        2007
        we added a second deep drilling rig and one shallow rig to the Barnett Shale
        Project with a third deep rig planned for early next year.  (See
“Barnett Shale Project” below)
 
 We
        have
        continued to evaluate the financing options for the initiation of the
        development of our North Texas Panhandle Water Flood Project (“Water Flood”) as
        well as financings for future capital needs in our Barnett Shale
        Project.   We are in late stage negotiations to obtain a joint
        venture partner in the Water Flood Project which would add capital resources
        and
        technical expertise to that Project.  We are also close to finalizing
        an agreement for a secure source of salt water which requires limited capital
        input from us.
  13
 ***Index***
  We
        believe our high quality oil and gas projects will allow us to have multiple
        year growth and allow us to effectively align our financing needs with the
        capital needs of each project.  Our core assets are resource plays,
        which allow us to re-invest our capital into our projects to enhance the
        rates
        of return, revenue growth and reserve growth.  Our interest in the
        Barnett Shale Partnership is unique in that it is, in effect, an interest
        in an
        integrated natural gas company.  The Barnett Shale Partnership owns
        the mineral leases, the gas wells, the pipeline gathering system that brings
        the
        natural gas to the market and has access to multiple drilling
        rigs.  Rigs will be added to the project based on leasing requirements
        and drilling location availability.
 
 Management
        continues to believe that the development of our core assets should have
        a
        significant impact on our production, revenues and cash flows throughout
        the
        remainder of 2007.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 Since
        inception, we have primarily financed our operating and investing cash flow
        needs through private offerings of equity securities, sales of crude oil
        and
        natural gas, and the use of debt instruments such as convertible notes and
        revolving credit facilities.  The proceeds from, and the utilization
        of, all these methods have been, and Management believes will continue to
        be,
        sufficient to keep the operations funded and the business plan moving
        forward.  We plan to continue to utilize these methods to access
        capital in order to implement our business plan, which we believe will be
        an
        effective vehicle to carry out our business plan.
 
 ***Convertible
        Securities***
 
 On
        November 9, 2007 we executed a series of Notes and Warrant Purchase Agreements
        with several Institutional Investors and high net worth individuals for the
        sale
        of $8,100,000, 8% Senior Secured Convertible Promissory Notes and 3 year
        warrants to purchase 1,928,575 shares of common stock at an exercise price
        of
        $1.50 per share for total proceeds of $8,100,000.  At the option of
        the investor, the three-year Convertible Notes will be convertible into shares
        of common stock at a price of $1.05 per share. We completed the transaction
        and
        received funding on November 13, 2007.
 
 On
        February 1, 2007, we executed a Note and Warrant Purchase Agreement for the
        sale
        of a $10,000,000 8% Senior Secured Convertible Promissory Note and a 4 year
        warrant to purchase 5,000,000 shares of our common stock at an exercise price
        of
        $1.40 per share for total gross proceeds to us of
        $10,000,000.   We completed the transaction and received funding
        on February 7, 2007.  Upon closing, we issued the Convertible Note and
        the Warrant, and executed a Pledge and Security Agreement and a Registration
        Rights Agreement.  We subsequently filed the required initial
        registration statement that became effective on August 1, 2007.
 
 ***Private
        Equity Placements***
 
 In
        December 2006, we completed sales of $3.2 million of our common stock in
        a
        private offering.  We received net proceeds of approximately $3.0
        million which were used for general corporate purposes.
 
 In
        February 2006, we completed sales of $2.7 million of our common stock in
        a
        private offering.  We received net proceeds of approximately $2.56
        million which were used for general corporate purposes, including the drilling
        of projects in our prospect inventory.
 
 ***Project
        Financings***
 
 In
        November 2006, we signed a Securities Purchase Agreement and Secured Term
        Note
        with Laurus Master Fund, Ltd to provide financing for the drilling of our
        Kallina 46 #1 well and payment of the future completion costs for the Kallina
        46
        #1 well.   We formed a subsidiary, Garwood Petrosearch Inc.
        (“Garwood”), to hold our interest in the Kallina Lease and the Kallina 46 #1
        well.  Also, as a part of the financing arrangement,
        Garwood  issued Laurus a Warrant to acquire, upon payout of the Note
        indebtedness, 45% of Garwood’s outstanding common stock such that upon exercise
        of the Warrant, Garwood would be owned 55% by us and 45% by
        Laurus.  The collateral for this financing is recourse to the Kallina
        46 #1 well and the associated lease acreage only.
  14
 ***Index***
  ***Revolving
        Credit Agreement***
 
 On
        October 16, 2006, we amended our existing revolving credit facility with
        Fortuna
        Energy, LP (“Fortuna”).   The principal available under the
        revolving borrowing base remains $10,000,000, with a current outstanding
        balance
        of $2,312,500 as of November 10, 2007.  Under the terms of the
        transaction, Fortuna advanced us $780,000 for the purpose of paying amounts
        due
        for the Barnett Shale Project.  As part of the financing, we provided
        Fortuna additional collateral.  In addition, we agreed to issue to
        Fortuna 475,000 five year warrants with a strike price of $0.92 per
        share.  The Warrants contain a “put” provision which allows Fortuna to
“put” the warrants to the Company at a price of $0.65 per share for two (2)
        years, which “put” period commenced 180 days after the issuance of the
        amendment. Additionally, as part of the transaction, we agreed to issue 100,000
        new warrants, which expire five years from the date of issue, at a price
        of
        $0.92 per share to replace 100,000 warrants previously issued to Fortuna
        at a
        price of $2.00 per share, which were previously set to expire on November
        1,
        2007.  We do not intend to draw down any more funds from this credit
        facility.
  ***Joint
        Ventures***
 
 We
        continue to strive to develop relationships with institutional investors
        and
        venture partners to participate in our prospects.  Management believes
        this will reduce our capital risk and increase the diversity of the projects
        in
        which we use our own capital.  We intend to establish these joint
        venture relationships with terms that are standard in the oil and gas
        industry.
 
 **CURRENT
        PROJECTS AND CAPITAL REQUIREMENTS**
 
 **Barnett
        Shale Project** - Our Barnett Shale**Project is part of the
        Barnett Shale natural gas play in the Fort Worth Basin, which is arguably
        one of
        the most exciting plays to emerge in the lower 48 in the past decade. In
        December 2006, through our wholly owned subsidiary, Barnett Petrosearch LLC,
        we
        joined in the formation of a partnership, DDJET Limited LLP (“Partnership), for
        the development of the integrated venture. We own a 5.54% interest in the
        Partnership along with partners Metroplex Barnett Shale LLC (“Metroplex” - a
        wholly owned subsidiary of Exxon Mobil Corporation), which is directing
        operations, and Cinco County Barnett Shale LLC (a privately held Dallas-based
        company).
 
 The
        Partnership’s assets include all leases acquired to-date within a contract area
        that includes parts of eight counties, comprising approximately two million
        acres. Partnership assets also include associated facilities that include
        nearly
        100 miles of pipeline, 100 miles of additional pipeline rights of way and
        an
        option on a separate 80 mile pipeline right-of-way. Approximately 80 miles
        of
        pipeline facilities have been completed and are operational. We believe the
        Partnership’s ownership of these pipeline assets is a decided strategic
        advantage in this urban area.  An aggressive leasing program within
        the contract area and a multi-rig drilling program are in progress for 2007,
        2008 and beyond.
 
 Through
        the end of October 2007, the Partnership holds leases covering
        approximately  26,300 net acres, and has drilled, or is in the process
        of drilling sixteen wells. There are currently two deep rigs running in the
        drilling program and one shallow rig that is being utilized to drill and
        set the
        surface casing on the wells in an effort to reduce costs on the upper section
        of
        the wells.  A third deep rig is planned for early
        2008.  Also, there have been  30 drilling permits obtained
        to date for Partnership wells,  16 of which have been or are being
        drilled.
 
 **Status**
              
              **Well
                  Count**Producing
              
              
              6Awaiting
                  Completion / Testing
              
              
              4Drilling
              
              
              2Under
                  Evaluation
              
              
              1Abandoned
              
              
              2**Total**
              
              ****
              **15**
  15
 ***Index***
  As
        of  October 31, 2007  six Partnership wells, in Ellis and
        Tarrant Counties, have been completed and are selling gas through the
        Partnership-owned pipeline. The average peak daily volume for
        these  six wells exceeded 4.0 MMcfpd per well.  An
        additional five wells in Ellis and Tarrant Counties have been drilled;
        completion of  four of these wells is expected  by the end
        of the fourth quarter of 2007;  one well  is being evaluated
        after poor post-stimulation testing results that we believe were caused by
        the
        proximity of a previously unrecognized fault; and two wells with mechanical
        difficulties were drilled prior to Metroplex taking over as operator of the
        project and have been abandoned due to mechanical difficulties; (one after
        an
        unsuccessful attempt was made to repair parted casing and one that experienced
        mechanical problems while drilling and did not reach the Barnett formation
        and
        is currently being re-drilled).  These results have reinforced our
        interest in this area of the Barnett Shale and we are continuing nearby
        development activities.
 
 **North
        Texas/Panhandle Water flood Project -**In November 2005, we acquired a
        100% working interest in 1,755 acres in the Quinduno Field in Roberts County,
        Texas, in the Anadarko Basin. The project is focused on infill drilling and
        the
        implementation of a water flood on the property. Our leases at Quinduno have
        a
        large established resource base of over 30 million barrels of original oil
        in place.  Since its discovery in 1953, approximately 5.1 million
        barrels have been produced using primary production.
 
 One
        infill well has been drilled to date. We have had a program to enter each
        of the
        20 existing wells that have not been plugged. So far, we have entered seven
        of
        these older wells to determine their mechanical status and establish potential
        productivity. Two of these wells have been equipped and are now capable of
        producing although the reservoir has insufficient pressure to produce until
        the
        water flood is installed. As of December 31, 2006, our independent engineers,
        Ryder Scott, have estimated our share of proved oil reserves recoverable
        by
        water flood at 1.6 million barrels of oil equivalent.  Slightly deeper
        than the water flood target zone, the Moore County Lime formation has undrilled
        exploration potential that may be tested in a future well.
 
 To
        provide adequate water for injection, in November, 2006 we executed a water
        supply agreement with a landowner in the leasehold, which allows us to draw
        fresh water from the aquifer underlying the landowner’s property.. In that same
        month, we received approval from the Panhandle Groundwater Authority District
        (“PGAD”) to produce up to 5,000 barrels per day from the aquifer for use in the
        flood.  We received the approval from the PGAD over the protest filed
        with the PGAD by the Colorado River Municipal Water Authority (“CRMWA”)
        attempting to preserve the freshwater for local municipal use only in the
        area
        in which we own the rights to the fresh water.  We also applied to the
        Texas Railroad Commission to amend a previously granted saltwater injection
        permit to include fresh water injection.. On January 5, 2007 we received
        a
        letter from the Texas Railroad Commission (“TRRC”) informing us of a protest by
        CRMWA contesting our application for fresh water injection in the Quinduno
        Field
        water flood.   However, as of November 7, 2007, CRMWA has
        withdrawn their protest and request for hearing as part of an agreement with
        CRMWA that addresses their concerns with our use of fresh water for enhanced
        oil
        recovery.
 
 At
        present, we are close to finalizing our negotiations with an international
        oilfield service company for them to install a water treatment facility on
        the
        leasehold that will provide us with a secure, continuous, economical source
        of
        at least 5,000 barrels per day of treated and filtered produced water from
        third
        parties that we can use for injection.  This will alleviate the need
        to use fresh water as our primary source of injection fluids although fresh
        water will remain available as a back-up source to be used as
        needed.  The facility will also treat our own produced water later in
        the life of the flood.  Our capital investment in the facility would
        be minimal.  At present we are also in late stage negotiations with a
        potential industry venture partner to allow for the commencement of
        the flood to begin before the end of the year.
 
 **SW
        Garwood, Colorado County, Texas -**The Wilcox Trend,
        SW******Garwood field has had three wells drilled with
        one of these in the process of being completed.  Two additional
        locations are on current leases.   The initial well on this
        prospect, the Pintail #1, completed in the Upper Wilcox in December 2004,
        paid
        out in April of 2006.  As of payout, we began participating in the
        production from the well with a 16% working interest.   In
        October 2007, the well produced an average of 363 Mcfpd and  5
        bopd.
 
 The
        second well, the Pintail Flats #1, was completed and fracture stimulated
        in May
        2005 from 15,950 feet to 16,010 feet in the Lower Wilcox.  In July
        2006 we re-completed and fracture stimulated an up-hole zone at 15,135 feet.
        The
        well flowed back frac fluids with a 2000 Mcfpd gas rate into the sales line
        in
        August 2006. In October, 2007, the well flowed an average of 134 Mcfpd. We
        are
        continuing to analyze several options to improve well performance. We have
        a 16%
        working interest in the well after payout. The well has four additional
        potentially productive zones in the Lower Wilcox and five additional potentially
        productive zones in the Upper Wilcox.
  16
 ***Index***
  A
        third
        well, the Kallina 46 #1 began drilling in June 2006 and reached its targeted
        depth of 16,230 feet in August 2006. Data available while drilling and from
        open-hole logs indicated several potentially productive Wilcox sands from
        10,400
        feet to 16,100 feet. Gross prospective interval was believed to exceed 250
        feet
        of pay. We have tested and abandoned as non-commercial, several zones up
        to the
        top of the Lower Wilcox at 13,456’.  We are finalizing plans to
        perforate and test a good gas show during drilling in a Middle Wilcox sand
        package from 12,135’ to 12,185’.  We have an 87.5% working interest in
        the Kallina lease and the Kallina 46 #1 well before payout and a 75.5% interest
        after payout.
 
 In
        order
        to finance the Kallina 46 #1 well and future wells on the Kallina lease,
        we
        signed a Securities Purchase Agreement and Secured Term Note with Laurus
        Master
        Fund, Ltd.  (“Laurus”) for Laurus to provide financing for the
        drilling of the Kallina 46 #1 well and payment of the future completion costs
        for the  Kallina 46 #1 well which is in process of being
        completed.   We formed a subsidiary, Garwood Petrosearch Inc.,
        (“Garwood”) to hold our interest in the Kallina Lease and the Kallina 46 #1
        well.  Also, as a part of the financing arrangement,
        Garwood  issued Laurus a Warrant to acquire, upon payout of the Note
        indebtedness, 45% of Garwood’s outstanding common stock such that upon exercise
        of the Warrant, Garwood would be owned 55% by us and 45% by Laurus and the
        sole
        asset is the Kallina lease.
 
 In
        the SW
        Garwood Project, in addition to the working interest in the wells noted above,
        we currently own a 16% after payout working interest in 960 acres of undeveloped
        leases; and an 87.5% before payout and 75.5% after payout working interest
        in
        438 acres.
 
 *OTHER
        PROJECT AREAS:*
 
 **Gruman
        Prospect, Stark County, North Dakota –**In April 2006 we reached a total
        depth of 9,890 feet on the Gruman 18-3 well.  This well was completed
        as an injection well.
 
 In
        October 2006, we undertook certain remedial work on the Gruman 18-1 which
        initially improved the production from the well. We have continually experienced
        “down hole” production problems which have resulted in producing 76%, 41% and
        47% of the days in the first, second and third quarters of 2007,
        respectively.  The production problems have been caused by mechanical
        problems with the down-hole submersible pump, and what appears to be erratic
        reservoir pressure, that has hindered achieving stabilized production from
        the
        well.  In late August 2007, we again pulled and replaced the three
        tandem submersible pumps, lowered the pumps 180’ closer to the producing open
        hole interval, and changed out several surface control modules. Since that
        work,
        and with more frequent chemical/fresh water treatments to control down hole
        salt
        build up, the well has produced with much less downtime. In October 2007,
        production averaged 127 boepd on and 394 bwpd on producing days, with only
        three
        days down during the month.
 
 On
        February 1, 2007, we began injecting produced water into the Gruman 18-3
        well.
        The result has been to reduce the cost of operating the Gruman 18-1 by
        eliminating the need to truck produced water to a disposal facility. Disposing
        produced water into the Lodgepole formation will assist pressure maintenance
        in
        the mound  making flow from the reservoir more consistent
        and  improving the run time of the pump. We have established that the
        Gruman 18-3 is in pressure communication with the Gruman 18-1.
 
 Proved
        developed reserves in the prospect to our share of the well as of December
        31,
        2006, were 252 Mbo and 54.4 MMcf of natural gas, as estimated by a third
        party
        engineering firm, McCartney Engineering, LLC.
 
 **Mississippi
        Tuscaloosa Prospects --**We have identified five Tuscaloosa oil
        prospects in the Mississippi Inland Salt Basin, in Yazoo County, comprising
        a
        maximum of 2,295 acres and up to 18 potential drilling locations.  The
        company currently holds approximately 725 net acres and we are in initial
        discussions with a potential industry partner to co-develop these
        prospects.   We plan to initially drill 8 locations, ranging from
        6,150 feet to 7,500 feet in depth. Seismic data on the prospects has been
        reprocessed and confirmed our original geological analysis. We currently
        own
        100% of the prospect.
  17
 ***Index***
  **Rodney
        Island, Tensas Parish, Louisiana -**In October 2005, we took over
        operations of the Harper Z-1 well on the Rodney Island prospect from the
        previous operator after casing was set and cemented. Down hole mechanical
        difficulties hindered our attempt to complete the well, which was directionally
        drilled to a measured depth of 11,701 feet (vertical depth = 9,373 feet)
        and
        logged approximately 19 feet of oil pay in the Tuscaloosa Massive
        Sand.
  As
        the
        operator, and with the agreement of the other working interest owners, we
        initiated litigation in February 2006 against the previous operator for
        non-payment of their share of drilling and completion costs.  We had
        made the decision, along with all the other working interest owners, to allow
        the leases associated with this project to expire in May 2007 and pursue
        the
        lawsuit against the previous operator.
 
 
 **RESULTS
        OF OPERATIONS**
 
 The
        following discussion and analysis of our financial condition and results
        of
        operations should be read in conjunction with the financial statements and
        accompanying notes and the other financial information appearing elsewhere
        in
        this filing.
 
 The
        factors that most significantly affect our results of operations are: (i)
        the
        sale prices of crude oil and natural gas; (ii) the amount of production sales;
        and (iii) the amount of lease operating expenses. Sales of production and
        level
        of borrowings are significantly impacted by our ability to maintain or increase
        production and reserves from existing oil and gas properties through exploration
        and development activities.
 
 **For
        the three months ended September 30, 2007 Compared to the three months ended
        September 30, 2006**
 
 ***Revenues***
 
 Consolidated
        oil and gas production revenue for the three months ended September 30, 2007
        was
        $426,931 versus $335,711 for the three months ended September 30,
        2006.  This represented a 27% increase in revenue in the third quarter
        of 2007 over the third quarter of 2006.  As expected, this increase is
        the result of $179,000 of revenue from the 4 producing wells in the Barnett
        Shale.  The effects of this increase were partially offset by a
        decline in revenue from our Gruman North Dakota well of approximately $30,000
        or
        16%.  We continue to work on improving the reliability of the daily
        production for our North Dakota well, and expect to continue to grow revenues
        for our Barnett Shale Project in the fourth quarter of 2007.
 
 See
        below
        for revenue detail from the third quarter of 2006 compared to the third quarter
        of 2007.
 
 
 **2007**
              
              
              **%
                  of**
              
              
              **2006**
              
              
              **%
                  of****3rd
                  Qtr**
              
              
              **Total**
              
              
              **3rd
                  Qtr**
              
              
              **Total**Barnett
                  Shale
              
              $
              179,161
              
              
              
              42
              %
              
              $
              -
              
              
              
              0
              %Gruman
                  - North Dakota
              
              
              160,963
              
              
              
              38
              %
              
              
              190,616
              
              
              
              57
              %SW
                  Garwood
              
              
              40,037
              
              
              
              9
              %
              
              
              51,453
              
              
              
              15
              %Panhandle
                  - Water Flood
              
              
              1,573
              
              
              
              0
              %
              
              
              28,024
              
              
              
              8
              %Oklahoma
              
              
              36,766
              
              
              
              9
              %
              
              
              34,412
              
              
              
              10
              %Other
              
              
              8,431
              
              
              
              2
              %
              
              
              31,206
              
              
              
              9
              %**Total**
              
              **$**
              **426,931**
              
              
              ****
              **100**
              **%**
              
              **$**
              **335,711**
              
              
              ****
              **100**
              **%**
  18
 ***Index***
  ***Lease
        Operating and Production Tax Expense***
  Lease
        operating and production tax expenses for the quarters ended September 30,
        2007
        and 2006 were $146,400 and $240,977, respectively.  These expenses
        relate to the costs that are incurred to operate and maintain our wells and
        related production equipment, including the costs applicable to the operating
        costs of support equipment and facilities.  Although there was a
        significant increase in production from the three months ended September
        30,
        2006 to the three months ended September 30, 2007, the lease operating expenses
        decreased because in November 2005 we added approximately 30 existing wells
        associated with our Quinduno Field Prospect, Roberts County, Texas that required
        significant lease operating costs to be incurred in 2006 even though the
        wells
        had minimal production.  These lease operating expenses incurred in
        2006 were not necessary in 2007.  The costs expended in 2006 for the
        existing, but non-productive wells were necessary for the planning of a
        successful development plan of the waterflood project that will be needed
        to
        realize the reserves in the Quinduno Field.
 
 ***Depletion,
        Depreciation and Amortization***
 
 Costs
        for
        depletion, depreciation and amortization for the quarters ended September
        30,
        2007, and 2006, were $222,871 and $79,614, respectively.  The
        significant increase is mainly due to a significant increase in the amortizable
        costs at September 30, 2007 as compared to the same period in 2006 as well
        as an
        increase in production.  Given the fact that depletion is calculated
        by multiplying the net amortizable costs times the units of production in
        the
        related period relative to the total proved reserves, the depletion amount
        for
        the third quarter of 2007 was significantly higher than the depletion for
        the
        same period in 2006.
 
 ***General
        and Administrative Expenses***
 
 General
        and administrative expenses for the quarters ended September 30, 2007 and
        2006,
        were $631,925 and $550,075, respectively.  The difference of $81,850
        is mainly related an increase in legal fees, professional fees attributed
        to a
        special project related to our land department, an increase in third party
        investor relations consulting, and an increase in expenditures for reserve
        engineer studies.   A summary listing of general and
        administrative expenses is provided below.
 
 **3rd
                  Quarter**
              
              
              **3rd
                  Quarter****2007**
              
              
              **2006**Personnel
                  Costs
              
              $
              273,498
              
              
              $
              265,005Travel,
                  Meals, and Entertainment
              
              
              1,503
              
              
              
              15,843Corporate
                  Expenses
              
              
              81,165
              
              
              
              45,117Accounting,
                  Legal, and Professional Fees
              
              
              143,379
              
              
              
              112,554Third
                  Party Consultants and Contractors
              
              
              71,955
              
              
              
              46,695Office
                  Expenses
              
              
              40,272
              
              
              
              48,582Other
              
              
              20,153
              
              
              
              16,279**Total
                  General and Administrative**
              
              **$**
              **631,925**
              
              
              **$**
              **550,075**
 
 
 ***Net
        Operating Loss***
 
 We
        generated a net operating loss of $(574,265) or $(0.01) per share, for the
        quarter ended September 30, 2007, compared to a net operating loss of $(534,955)
        or $(0.02) per share, for the quarter ended September 30, 2006.  The
        $39,310 variance is related mainly to an increase in DD&A expense and
        general and administrative expenses for the quarter ended September 30, 2007
        as
        compared to the quarter ended September 30, 2006.  The effect of these
        increased expenses on net operating loss was mostly offset by an increase
        in
        revenue and a decrease in lease operating expense in the third quarter of
        2007.
  19
 ***Index***
  ***Other
        Income (Expense)***
 
 The
        $733,524 increase from $118,259 in Other Expense for the quarter ended September
        30, 2006 to $851,783 in Other Expense for the quarter ended Sepember 30,
        2007 is
        due to a significant increase in interest expense and amortization of debt
        discount related to 1) the non-recourse financing with Laurus Master Fund
        Ltd
        for the Kallina #46-1 well, and 2) the $10 million Convertible note with
        RCH
        Petro Investors.
 
 **For
        the nine months Ended Sepember 30, 2007 Compared to the nine months Ended
        September 30, 2006**
 
 ***Revenues***
 
 Consolidated
        oil and gas production revenue for the nine months ended September 30, 2007
        was
        $1,163,451 versus $827,311 for the nine months ended September 30,
        2006.   The increase in revenue is from the Barnett Shale Project
        which did not account for any of the revenue for the nine months ended September
        30, 2006 and accounted for approximately 36% of the revenue for the nine
        months
        ended September 30, 2007.  In addition, our 16% reversionary interest
        in one SW Garwood wells was in effect for all of the nine month period ended
        September 30, 2007, and only a portion of the same period in the prior
        year.  The increase in revenue from the Barnett producing properties
        and our reversionary interest in one of the SW Garwood wells was partially
        offset by decreased production from our Gruman North Dakota well.  See
        below for revenue detail from the nine months ended September 30, 2006 compared
        to the same period in 2007.
 
 **9/30/2007**
              
              
              **%
                  of**
              
              
              **9/30/2006**
              
              
              **%
                  of****YTD**
              
              
              **Total**
              
              
              **YTD**
              
              
              **Total**Barnett
                  Shale
              
              $
              414,862
              
              
              
              36
              %
              
              $
              -
              
              
              
              0
              %Gruman
                  - North Dakota
              
              
              404,889
              
              
              
              35
              %
              
              
              503,547
              
              
              
              61
              %SW
                  Garwood
              
              
              179,689
              
              
              
              15
              %
              
              
              65,858
              
              
              
              8
              %Panhandle
                  - Water Flood
              
              
              9,145
              
              
              
              1
              %
              
              
              66,774
              
              
              
              8
              %Oklahoma
              
              
              102,654
              
              
              
              9
              %
              
              
              114,627
              
              
              
              14
              %Other
              
              
              52,212
              
              
              
              4
              %
              
              
              76,505
              
              
              
              9
              %**Total**
              
              **$**
              **1,163,451**
              
              
              ****
              **100**
              **%**
              
              **$**
              **827,311**
              
              
              ****
              **100**
              **%**
 
 
 ***Lease
        Operating and Production Tax Expense***
  Lease
        operating and production tax expenses for the nine months ended September
        30,
        2007 and 2006 were $489,291 and $658,859, respectively.  These
        expenses relate to the costs that are incurred to operate and maintain our
        wells
        and related production equipment, including the costs applicable to the
        operating costs of support equipment and facilities.  Although there
        was a significant increase in production from the nine months ended September
        30, 2006 to the nine months ended September 30, 2007, the lease operating
        expenses decreased because in November 2005 we added approximately 30 existing
        wells associated with our Quinduno Field Prospect, Roberts County, Texas
        that
        required significant lease operating costs to be incurred in 2006 even though
        the wells had minimal production.  These lease operating expenses
        incurred in 2006 were not necessary in 2007.  The costs expended in
        2006 for the existing, but non-productive wells were necessary for the planning
        of a successful development plan of the waterflood project that will be needed
        to realize the reserves in the Quinduno Field.
 
 ***Depletion,
        Depreciation and Amortization***
 
 Costs
        for
        depletion, depreciation and amortization for the nine months ended September
        30,
        2007, and 2006, were $595,660 and $214,242, respectively.  This
        increase is mainly due to a significant increase in the amortizable costs
        at
        September 30, 2007 as compared to the same period in 2006 as well as an increase
        in production.  Given the fact that depletion is calculated by
        multiplying the net amortizable costs times the units of production in the
        related period relative to the total proved reserves, the depletion amount
        for
        the nine months ended September 30, 2007 was significantly higher than the
        depletion for the same period in 2006.
  20
 ***Index***
  ***General
        and Administrative Expenses***
 
 General
        and administrative expenses for the nine months ended September 30, 2007
        and
        2006, were $2,072,397 and $1,845,396, respectively.  The difference of
        $227,001 is mainly related an increase in legal fees, professional fees
        attributed to a special project related to our land department, an increase
        in
        third party investor relations consulting, and an increase in expenditures
        for
        reserve engineer studies.   A summary listing of general and
        administrative expenses is provided below.
 
 **YTD
                  September 30,**
              
              
              **YTD
                  September 30,****2007**
              
              
              **2006**Personnel
                  Costs
              
              $
              957,870
              
              
              $
              940,794Travel,
                  Meals, and Entertainment
              
              
              38,091
              
              
              
              81,500Corporate
                  Expenses
              
              
              241,908
              
              
              
              166,718Accounting,
                  Legal, and Professional Fees
              
              
              414,261
              
              
              
              320,315Third
                  Party Consultants and Contractors
              
              
              210,453
              
              
              
              158,540Office
                  Expenses
              
              
              148,560
              
              
              
              152,255Other
              
              
              61,254
              
              
              
              25,274**Total
                  General and Administrative**
              
              **$**
              **2,072,397**
              
              
              **$**
              **1,845,396**
 
 
 ***Net
        Operating Loss***
 
 We
        generated a net operating loss of $(1,993,897) or $(0.05) per share, for
        the
        nine months ended September 30, 2007, compared to a net operating loss of
        $(1,891,186) or $(0.06) per share, for the nine months ended September 30,
        2006.  The $102,711 variance is related mainly to an increase in
        DD&A and general and administrative expenses, offset partially with an
        increase in revenues and a decrease in lease operating expenses.
 
 ***Other
        Income (Expense)***
 
 The
        $3,375,736 change from $710,946 in Other Income for the nine months ended
        September 30, 2006 versus ($2,664,790) in Other Expense for the nine months
        ended September 30, 2007 is due to the significant increase in interest expense
        and amortization of debt discount and change in warrant liability related
        to 1)
        the non-recourse financing with Laurus Master Fund Ltd for the Kallina #46-1
        well; 2) the $10 million Convertible note with RCH Petro Investors; and 3)
        the
        change in liability related to warrants issued to Fortuna Energy with a put
        option related to the revolving credit facility.  The significant
        difference also relates to $1,000,000 in other income related to the sale
        of
        securities in the nine months ending September 30, 2006 that did not occur
        in
        the nine months ending September 30, 2007.
 
 
 **Off-Balance
        Sheet Arrangements**
 
 We
        had no
        off-balance sheet arrangements during the fiscal quarter ended September
        30,
        2007.
 
 
 **Item
        3.Controls and
        Procedures**
 
 Richard
        D. Dole, our Chief Executive Officer, and David J. Collins, our Chief Financial
        Officer, have concluded that our disclosure controls and procedures are
        appropriate and effective.  They have evaluated these controls and
        procedures as of September 30, 2007.  During the last fiscal quarter
        there have been no changes in our internal control over financial reporting
        that
        have materially affected, or are reasonably likely to materially affect,
        our
        internal control over financial reporting.
  21
 ***Index***
  **PART
        II--OTHER INFORMATION**
 
 **Item
        2.Unregistered Sales of
        Equity
        Securities and Use of Proceeds**
 
 During
        the three months ended September 30, 2007, we completed the following
        transactions in reliance upon exemptions from registration under the Securities
        Act of 1933, as amended (the "Act") as provided in Section 4(2) thereof.
        All
        certificates issued in connection with these transactions were endorsed with
        a
        restrictive legend confirming that the securities could not be resold without
        registration under the Act or an applicable exemption from the registration
        requirements of the Act. We believe that each person was a “qualified” investor
        within the meaning of the Act and had knowledge and experience in financial
        and
        business matters, which allowed them to evaluate the merits and risks of
        our
        securities.  We believe each person was knowledgeable about our
        operations and financial condition.
 
 On
        July
        3, 2007 we issued 157,407 restricted common shares to RCH Petro Investors,
        the
        Holder of our $10 million convertible note, as an interest payment for the
        second quarter of 2007 related to the convertible note.
 
 On
        July
        3, 2007 we issued 10,863 restricted common shares to William O’Malley, the
        Holder of our $450,000 convertible note (previously issued to Scarsdale Equities
        LLC), as an interest payment for the first and second quarter of 2007 related
        to
        the convertible note.
  22
 ***Index***
  **Item
        6.Exhibits**
 
 
 **Exhibit
                    Number**
              **Description
                    of Exhibit**31.1
              Rule
                  13a-14(a) Certification of Chief Executive Officer31.2
              Rule
                  13a-14(a) Certification of Chief Financial Officer32.1
              Section
                  1350 Certification of Chief Executive Officer32.2
              Section
                  1350 Certification of Chief Financial
                  Officer
  23
 ***Index***
  **SIGNATURES**
 
  In
        accordance with the requirements of the Securities and Exchange Act of 1934,
        the
        Registrant has duly caused this report to be signed on its behalf by the
        undersigned, thereunto duly authorized.
  
 **Petrosearch
        Energy Corporation**
 
 Date:   **November
        13, 2007**
 
 
 By:
              /s/
                  Richard Dole**Richard
                  Dole****Chief
                  Executive Officer, President and Chairman**By:
              /s/
                  David Collins**David
                  Collins****Chief
                  Financial Officer and Principal Financial Officer**