**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-KSB**





x 
ANNUAL
      REPORT
      PURSUANT TO SECTION 13 OR 15 (d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934





For
                the Fiscal Year Ended December 31, 2006
            Commission
                File Number 0-49837








**WESTSIDE
      ENERGY CORPORATION**


(Name
      of
      small business issuer in its charter)





Nevada


(State
      or
      other jurisdiction of incorporation or organization)





88-0349241


(I.R.S.
      Employer Identification No.)





3131
      Turtle Creek Blvd, Suite 1300


Dallas,
      TX 75219


214/522-8990


(Address,
      including zip code, and


telephone
      number, including area code, of


registrant's
      principal executive offices)





Securities
      registered pursuant to Section 12(b) of the Act:





Title
                of Each Class
            Name
                of Each Exchange on which RegisteredCommon
                Stock, $0.01 par value
            American
                Stock Exchange





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90 days. YES x NO o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o





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





The
      issuer's revenues for the fiscal year ended December 31, 2006 were $ 3,915,209 .





The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant on December 31, 2006 was approximately $16,432,063, based on the
      closing price of such stock on such date. The number of shares outstanding
      of
      the registrant's Common Stock, par value $.01 per share, as of April 4, 2007
      was 21,458,576.





Transitional
      Small Business Disclosure format (Check one): YES o NO x













**INDEX****Page
                Number****PART
                I.**Items
                1. & 2.
            Description
                of Business and  Properties.
            2Item
                3.
            Legal
                Proceedings.
            20Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders.
            20**PART
                II.**Item
                5.
            Market
                for Common Equity and Related Stockholder
                Matters.
            20Item
                6.
            Management's
                Discussion and Analysis.
            21Item
                7.
            Financial
                Statements.
            26Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure.
            26Item
                8A.
            Controls
                and Procedures.
            26Item
                8B.
            Other
                Information.
            27**PART
                III.**Item
                9.
            Directors,
                Executive Officers, Promoters, Control Persons and
                Corporate Governance; Compliance with Section 16(a) of the Exchange
                Act.
            27Item
                10.
            Executive
                Compensation.
            29Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters.
            32Item
                12.
            Certain
                Relationships and Related Transactions, and Director
                Independence.
            37Item
                13.
            Exhibits.
            38Item
                14.
            Principal
                Accountant Fees and Services.
            40





*Index*





**Forward-Looking
      Statements**





This
      Annual Report on Form 10-KSB contains forward-looking statements within the
      meaning of Section 24A of the Securities Act of 1933 and Section 21E of the
      Securities Exchange Act of 1934. These statements appear in a number of places
      including “ITEMS 1 AND 2 DESCRIPTION OF BUSINESS AND PROPERTIES." These
      statements regard:





*
            our
                belief that ourportfolio
                of large, predominantly undeveloped leasehold interests in the Barnett
                Shale positions us for significant long-term growth in proved natural
                gas
                and oil reserves and production;


*
            our
                belief that our remaining undeveloped acreage in the Barnett Shale
                has
                substantial current commercial potential, and our plan to exploit
                that
                potential through our drilling program;


*
            our
                belief that our risk assessments and due diligence reviews are consistent
                with industry practices;


*
            our
                belief that we are well-positioned to pursue selected acquisitions
                and
                attract industry joint venture partners due to our asset base and
                technical expertise;


*
            our
                beliefs regarding our key competitive
                strengths;


*
            our
                belief that the current royalty interests, liens and restrictions
                encumbering our properties do not materially interfere with the use
                of our
                properties in the operation of our
                business;


*
            our
                belief that we have satisfactory title to or rights in all of our
                producing properties;


*
            our
                belief that existing regulation or any expected regulatory changes
                will
                not affect us in a way that materially differs from the way it will
                affect
                our competitors;


*
            our
                belief that access to oil and natural gas pipeline services will
                generally
                be available to us to the same extent as to our
                competitors;


*
            our
                belief that we are in substantial compliance with current applicable
                laws
                and regulations and that continued compliance with existing requirements
                will not have a material adverse impact on our
                operations;


*
            our
                expectations regarding the increase in our reserves, production and
                cash
                flow based on continued drilling success within our acreage
                position;


*
            our
                expectations as to the sources of capital to finance our business
                and our
                ability to finance ourselves through any period of time by means
                of such
                sources;


*
            our
                plan to exploit our properties’ potential through our drilling program,
                and to pursue further acquisitions of natural gas and oil properties
                in
                the Barnett Shale;


*
            our
                belief that we will reduce unit costs by greater utilization of our
                existing infrastructure over a larger number of
                wells;


*
            our
                belief regarding our ability to sell all or most of our production
                in a
                manner consistent with industry practices at prevailing rates by
                means of
                long-term sales contracts and our ability to find additional sales
                opportunities;


*
            our
                belief regarding compliance with all applicable filing requirements
                of
                Section 16(a) of the Securities Exchange Act of 1934; and


*
            our
                belief regarding anticipated improved performance of our Audit Committee
                that would result from a greater number of members serving on such
                committee.





Such
      statements can be identified by the use of forward-looking terminology such
      as
      "believes," "expects," "may," "estimates," "will," "should," "plans" or
      "anticipates" or the negative thereof or other variations thereon or comparable
      terminology, or by discussions of strategy. Readers are cautioned that any
      such
      forward-looking statements are not guarantees of future performance and involve
      significant risks and uncertainties, and that actual results could differ
      materially from those projected in the forward-looking statements. Factors
      that
      could cause actual results to differ materially include, but are not limited
      to,
      those discussed under "RISK FACTORS" hereinbelow. As a result, these
      forward-looking statements represent our judgment as of the date of this Annual
      Report. We do not express any intent or obligation to update these
      forward-looking statements.





1
 *Index*





**ITEMS
      1 and 2. DESCRIPTION OF BUSINESS AND
      PROPERTIES.**





**OUR
      COMPANY**





We
      are an
      independent natural gas and oil exploration and production company based in
      Dallas, Texas with operations in the Barnett Shale in the Fort Worth Basin
      located in north central Texas. We have been successful in identifying and
      acquiring acreage positions where vertical and horizontal drilling, advanced
      fracture stimulation and enhanced recovery technologies create the
      possibility of economically developing and producing natural
      gas and oil reserves from the Barnett Shale. We have assembled a portfolio
      of
      large, predominantly undeveloped leasehold interests in the Barnett Shale,
      which
      we believe positions us for significant long-term growth in proved natural
      gas
      and oil reserves and production. As of December 31, 2006, we owned natural
      gas
      and oil leasehold interests in approximately 76,733 gross (67,184 net) acres,
      approximately 95% of which are undeveloped. In addition, we own working
      interests in 44 gross (14.3) net wells in the Barnett Shale.





As
      of
      December 31, 2006, we had estimated net proved reserves of 6.7 Bcfe, with a
      PV-10 value of $9.9 million (calculated using constant prices for natural gas
      and oil at December 31, 2006). Net proved reserves were 8.9 Bcfe as of March
      1,
      2007, with a PV-10 value of $16.9 million when calculated using NYMEX forward
      curve prices on February 28, 2007. We have identified approximately 500 drilling
      locations on our existing acreage. Our estimated net proved reserves are located
      on approximately 5% of our net acreage. Based on our drilling results to date
      and third-party results in adjacent areas, we believe that our remaining
      undeveloped acreage in the Barnett Shale has substantial commercial potential,
      and we plan to exploit that potential through our drilling program.





We
      were
      incorporated under Nevada law in November 1995 as "Eventemp Corporation," a
      company related to the automobile industry. Following several years of business
      inactivity, we entered the natural gas and oil industry in February 2004 and
      in
      the following month changed our name to "Westside Energy Corporation."





Our
      address is 3131 Turtle Creek Blvd., Suite 1300, Dallas, Texas 75219. Our
      telephone number is (214) 522-8990 and our website address is www.westsideenergy.com .





Certain
      terms used herein relating to the natural gas and oil industry are defined
      in
      "Glossary of Certain Natural Gas and Oil Terms" included as Appendix A hereto.





**RISK
      FACTORS**





An
      investment in shares of our common stock is highly speculative and involves
      a
      high degree of risk. You should carefully consider all of the risks discussed
      below, as well as the other information contained in this Annual Report. If
      any
      of the following risks develop into actual events, our business, financial
      condition or results of operations could be materially adversely affected and
      the trading price of our common stock could decline.





***Risks
      Related to Our Company***





**We
      are an early-stage company with limited proved reserves and may not become
      profitable.**





We
      are an
      early-stage company, having entered the natural gas and oil industry in February
      2004. Although we have acquired leases and undertaken exploratory and other
      activities on the properties covered by our leases, nearly all of our properties
      are undeveloped acreage. While we have had exploration success, to date we
      have
      established a limited volume of proved reserves on our properties. We have
      incurred net losses to date and do not expect to generate profits in the short
      term. To become profitable, we would need to be successful in our acquisition,
      exploration, development and production activities, all of which are subject
      to
      many risks beyond our control. Unless we sell sufficient volumes of natural
      gas
      and oil to cover our expenses, we will not become profitable. Even if we become
      profitable, we cannot assure you that our profitability will be sustainable
      or
      increase on a periodic basis.





2
 *Index*





**Our
      credit facility, which is secured by a large part of our assets, features
      limiting operating covenants and requires a substantial future payment, exposes
      us to certain risks and may adversely affect our ability to operate our
      business.**





During
      fiscal 2006, we entered into our first credit facility ,
      a $45
      million senior secured credit facility provided by GasRock
      Capital LLC (“GasRock”) .
      During
      March 2007, we entered into a new loan arrangement to replace the GasRock
      facility. The new loan arrangement was provided by four private investment
      funds
      managed by Wellington
      Management, LLC, which is the largest beneficial holder of our outstanding
      common stock. The
      new
      loan arrangement:





*
            provided$25
                million in funds, which were advanced in their entirety upon completion
                of
                the new loan arrangement;


*
            is
                secured by a first lien onall
                of the oil and gas properties comprisingour
                Southeast and Southwest Programs;


*
            grants
                to the lenders the right to receive a lienin
                any and all of the proceeds received upon the sale of a property
                comprising ourNorth
                Program or any subsequent property acquired with such proceeds;


*
            bears
                annual interest at10.0%,
                or (in the case of default) 12.0% annually;


*
            grants
                to the lendersa
                three percent (3.0%) overriding royalty interest(proportionately
                reduced to our working interest)in
                all oil and gas produced from the properties now comprising ourSoutheast
                and Southwest Programs;


*
            contains
                limiting operating covenants;


*
            contains
                events of default arising from failure to timely repay principal
                and
                interest or comply with certain covenants;
                and


*
            requires
                the repayment of the outstanding balance of the loan in March
                2009.





If
      we are
      unable to generate sufficient cash flow from operations, we may have difficulty
      in paying the outstanding balance of the loan (which could exceed $25 million)
      in March 2009 when it becomes due. If we were unable to pay this balance at
      that
      time, we would be forced to seek an extension to the loan, or alternative debt
      or equity financing. If we were unable to obtain such an extension or
      alternative financing, we could default on the loan. If we default on payment
      or
      other performance obligations under the loan, the lenders could foreclose on
      a
      large part of our assets and exercise other creditor rights, which could result
      in loss of all or nearly all of the value of our outstanding equity. We may
      also
      be required to obtain the lenders’ consent to certain events, such as sales of
      our assets, and any additional financing, which if secured by our assets would
      likely need to be junior to our senior lenders’ lien.





**Natural
      gas and oil reserves decline once a property becomes productive, and we may
      need
      to find new reserves to sustain revenue growth.**





Even
      if
      we add natural gas and oil reserves through our exploration activities, our
      reserves will decline as they are produced. We will be constantly challenged
      to
      add new reserves through further exploration or further development of our
      existing properties. There can be no assurance that our exploration and
      development activities will be successful in adding new reserves. If we fail
      to
      replace reserves, our level of production and cash flows will be adversely
      impacted.





**Our
      focus on exploration activities exposes us to greater risks than are generally
      encountered in later-stage natural gas and oil property development
      businesses.**





Much
      of
      our current activity involves drilling exploratory test wells on properties
      with
      no proved natural gas and oil reserves. While all drilling (whether
      developmental or exploratory) involves risks, exploratory drilling involves
      greater risks of dry holes or failure to find commercial quantities of natural
      gas and oil. The economic success of any project will depend on numerous
      factors, including the ability to estimate the volumes of recoverable reserves
      relating to the project, rates of future production, future commodity prices,
      investment and operating costs and possible environmental liabilities. All
      of
      these factors may impact whether a project will generate cash flows sufficient
      to provide a suitable return on investment. If we experience a series of failed
      drilling projects, our business, results of operations and financial condition
      could be materially adversely affected.





3
 *Index*





**We
      depend on our current management team, the loss of any member of which could
      delay the further implementation of our business plan or cause business failure.
      We do not carry key man life insurance and have not required non-competition
      agreements.**





We
      depend
      on the services of management to meet our business development objectives.
      As an
      early-stage company, we would expect to encounter difficulty replacing any
      of
      them. The loss of any person on our management team could materially adversely
      affect our business and operations. We do not carry key person life insurance
      for any member of our management team. We have not required that any employee
      enter into a non-competition agreement.





**We
      may rely on independent experts and technical or operational service providers
      over whom we may have limited control.**





We
      use
      independent contractors to assist us in identifying desirable natural gas and
      oil prospects to acquire and provide us with technical assistance and services.
      We also may rely upon the services of geologists, geophysicists, chemists,
      landmen, title attorneys, engineers and scientists to explore and analyze our
      prospects to determine a method in which the prospects may be developed in
      a
      cost-effective manner. In addition, we intend to rely on the owners and
      operators of oil rigs and drilling equipment, and on providers of oilfield
      services, to drill and develop our prospects to production. Moreover, if our
      properties hold commercial quantities of natural gas and oil, we would need
      to
      rely on third-party gathering or pipeline facilities to transport and purchase
      our production. Our limited control over the activities and business practices
      of these providers, any inability on our part to maintain satisfactory
      commercial relationships with them or their failure to provide quality services
      could materially and adversely affect our business, results of operations and
      financial condition.





**We
      do not always undertake a full title review of, or obtain title insurance on,
      our properties.**





Consistent
      with industry practice, rather than incur the expense of formal title
      examination on a natural gas or oil property to be placed under lease, we have
      relied on and plan to continue to rely on the judgment of natural gas and oil
      lease brokers or landmen who perform the field work in examining government
      records before placing a mineral interest under lease. Although an operator
      of a
      well customarily obtains a preliminary title review to avoid obvious title
      deficiencies prior to the drilling of a natural gas or oil well, we do not
      always engage counsel to examine title until just prior to drilling the well.
      This could result in our having to cure title defects that could affect
      marketability, which would increase costs. We may conclude from a title
      examination that a lease was purchased from someone other than the owner, in
      which case the lease would be worthless to us and prevent us from recovering
      our
      expenditures.





**Our
      review of properties cannot assure that all deficiencies or environmental risks
      may be identified or avoided.**





Although
      we undertake reviews that we believe are consistent with industry practice
      for
      our projects, these reviews are often limited in scope and may not reveal all
      existing or potential problems, or permit us to become sufficiently familiar
      with the related properties to assess their deficiencies and capabilities.
      Moreover, we do not perform an inspection on every well, and our inspections
      may
      not reveal all structural or environmental problems. Even if our inspections
      identify problems, the seller or lessor may be unwilling or unable to provide
      effective contractual protection. We generally do not receive indemnification
      for environmental liabilities and, accordingly, may have to pursue many projects
      on an "as is" basis, which could require us to make substantial expenditures
      to
      remediate environmental contamination on acquired properties. If a property
      deficiency or environmental problem cannot be satisfactorily remedied to warrant
      commencing drilling operations on a property, we could lose our entire
      investment in the property.





**Our
      properties may be subject to substantial impairment of their recorded
      value.**





The
      accounting rules for our properties that have proven reserves require us to
      review periodically their carrying value for possible impairment. If natural
      gas
      and oil prices decrease or if the recoverable reserves on a property are revised
      downward, we may be required to record impairment write-downs, which would
      result in a negative impact to our financial position. We also may be required
      to record impairment write-downs for properties lacking economic access to
      markets and must record impairment write-downs for leases as they expire, both
      of which could also negatively impact our financial position. We
      recorded $4.3 million of impairment charges in 2006 to reduce carrying values
      on
      developed properties with insufficient reserves to recover all of their
      remaining book value at constant year-end 2006 natural gas prices that were
      lower than year-end 2005 prices as well as on undeveloped properties that we
      expect to allow to expire undeveloped in 2007.





4
 *Index*





**Our
      recent acquisition of two related natural gas and oil companies could expose
      us
      to undisclosed liabilities.**





In
      March
      2006, we expanded our base of natural gas and oil producing properties through
      an acquisition of EBS Oil and Gas Partners Production Company, L.P. and an
      affiliated operations company that were engaged in the drilling and completion
      of natural gas and oil wells in Texas. Although we have largely integrated
      their
      activities into ours and assessed the quality of their properties, we may
      encounter risks, and possibly incur remediation costs, from existing or
      potential problems and liabilities that were not disclosed to us, or unknown
      to
      the acquired companies, when the transaction was completed.





**We
      have not insured and cannot fully insure against all risks related to our
      operations, which could result in substantial claims for which we are
      underinsured or uninsured.**





We
      have
      not insured and cannot fully insure against all risks and have not attempted
      to
      insure fully against risks where coverage is prohibitively expensive. Losses
      and
      liabilities arising from uninsured and underinsured events, which could arise
      from even one catastrophic accident, could materially and adversely affect
      our
      business, results of operations and financial condition. We do not carry
      business interruption insurance coverage. Our exploration, drilling and other
      activities are subject to risks such as:





*
            fires
                and explosions;


*
            environmental
                hazards, such as uncontrollable flows of natural gas, oil, brine,
                well
                fluids, toxic gas or other pollution into the environment, including
                groundwater contamination;


*
            abnormally
                pressured formations;


*
            mechanical
                failures of drilling equipment;


*
            personal
                injuries and death, including insufficient worker compensation coverage
                for third-party contractors who provide drilling services;
                and


*
            natural
                disasters, such as adverse weather
                conditions.





**Our
      commodity price risk management program, which is currently required by our
      senior credit facility, may cause us to forego additional future profits or
      result in our making cash payments.**





To
      reduce
      our exposure to changes in the prices of natural gas and oil and to comply
      with
      a requirement of the senior secured credit facility that was in effect during
      most of fiscal 2006, we have entered into, and expect in the future to enter
      into, commodity price risk management agreements for a portion of our natural
      gas and oil production. The agreements that we have entered into generally
      have
      the effect of providing us with a fixed price for a portion of our expected
      future natural gas and oil production over a fixed period of time. Commodity
      price risk management agreements expose us to the risk of financial loss and
      may
      limit our ability to benefit from increases in natural gas and oil prices in
      some circumstances, including the following:





*
            the
                counterparty to the commodity price risk management agreement may
                default
                on its contractual obligations to
                us;


*
            there
                may be a change in the expected differential between the underlying
                price
                in the commodity price risk management agreement and actual prices
                received; and


*
            market
                prices may exceed the prices which we are contracted to receive,
                resulting
                in our need to make significant cash
                payments.





Our
      commodity price risk management activities could have the effect of reducing
      our
      future revenues and the value of our common stock.





5
 *Index*





**Operational
      impediments may hinder our access to natural gas and oil markets or delay our
      production.**





The
      marketability of our production depends in part upon the availability, proximity
      and capacity of pipelines, natural gas gathering systems and processing
      facilities. For example, there are no existing pipelines in certain areas where
      we have acreage. Therefore, if drilling results are positive in these areas,
      new
      gathering systems would need to be built to deliver any natural gas and oil
      to
      markets. There can be no assurance that we would have sufficient liquidity
      to
      build such a system or that third parties would build a system that would allow
      for the economic development of any such production.





We
      deliver natural gas and oil through gathering systems and pipelines that we
      do
      not own. These facilities may not be available to us in the future. Our ability
      to produce and market natural gas and oil is affected and also may be harmed
      by:





*
            the
                lack of pipeline transmission facilities or carrying
                capacity;


*
            federal
                and state regulation of natural gas and oil production;
                and


*
            federal
                and state transportation, tax and energy
                policies.





Any
      significant change in our arrangements with gathering system or pipeline owners
      and operators or other market factors affecting the overall infrastructure
      facilities servicing our properties could adversely impact our ability to
      deliver the natural gas and oil we produce to markets in an efficient manner.
      In
      some cases, we may be required to shut in wells, at least temporarily, for
      lack
      of a market because of the inadequacy or unavailability of transportation
      facilities. If that were to occur, we would be unable to realize revenue from
      those wells until arrangements were made to deliver our production to market.





**We
      have limited control over activities on properties we do not operate, which
      could reduce our production and revenues.**





A
      substantial portion of our business activities is conducted through joint
      operating agreements under which we own partial interests in natural gas and
      oil
      properties. We do not operate all of the properties in which we have an interest
      and in some cases we do not have the ability to remove the operator in the
      event
      of poor performance. As a result, we may have a limited ability to exercise
      influence over normal operating procedures, expenditures or future development
      of underlying properties and their associated costs. The failure of an operator
      of our wells to adequately perform operations, or an operator's breach of the
      applicable agreements, could reduce our production and revenues. The success
      and
      timing of our drilling and development activities on properties operated by
      others therefore depend upon a number of factors outside of our and the
      operator's control, including:





*
            timing
                and amount of capital expenditures;


*
            expertise
                and financial resources; and


*
            inclusion
                of other participants.





**Unless
      we generate sufficient revenue, we will require additional capital, which may
      not be available on favorable terms or at all.**





If
      our
      cash flows from operations are insufficient to fund our expected capital needs,
      or our needs are greater than anticipated, we will need to raise additional
      capital through private or public sales of equity securities or the incurrence
      of additional indebtedness. Additional funding may not be available on favorable
      terms or at all. We may be required to raise additional capital to fund our
      operations for the foreseeable future. If we require but cannot secure outside
      financing, we could be forced to dispose of certain of our assets or curtail
      our
      operations substantially or cease business altogether, which could result in
      a
      substantial reduction or elimination of the value of our then-outstanding
      equity. If we raise additional funds through public or private sales of equity
      securities, the sales may be at prices below the market price of our stock,
      and
      our stockholders may suffer significant dilution.





**Our
      competitors include larger, better financed and more experienced
      companies.**





The
      natural gas and oil industry is intensely competitive and, as an early-stage
      company, we must compete against larger companies that may have greater
      financial and technical resources than we have and substantially more experience
      in our industry. These competitive advantages may better enable our competitors
      to sustain the impact of higher exploration and production costs, natural gas
      and oil price volatility, productivity variances among properties, overall
      industry cycles and other factors related to our industry. Their advantage
      may
      also negatively impact our ability to acquire prospective properties, develop
      reserves, attract and retain quality personnel and raise capital.





6
 *Index*





***Risks
      Related to the Natural Gas and Oil Business***





**Natural
      gas and oil are commodities subject to price volatility based on many factors
      outside the control of producers, and low prices may make properties uneconomic
      for future production.**





Natural
      gas and oil are commodities, and, therefore, their prices are subject to wide
      fluctuations in response to relatively minor changes in supply and demand.
      Historically, the markets for natural gas and oil have been volatile. These
      markets will likely continue to be volatile in the future. The prices a producer
      may expect and its level of production depend on numerous factors beyond its
      control, such as:





*
            changes
                in global supply and demand for natural gas and
                oil;


*
            the
                actions of the Organization of Petroleum Exporting Countries, or
                OPEC;


*
            the
                price and quantity of imports of foreign natural gas and
                oil;


*
            political
                conditions, including embargoes, in natural gas and oil producing
                regions;


*
            the
                level of global natural gas and oil
                inventories;


*
            weather
                conditions;


*
            technological
                advances affecting energy consumption;
                and


*
            the
                price and availability of alternative
                fuels.





Lower
      natural gas and oil prices may not only decrease revenues on a per unit basis,
      but also may reduce the amount of natural gas and oil that can be economically
      produced. Lower prices will also negatively impact the value of proved reserves.





**Natural
      gas and oil exploration and production present many risks that are difficult
      to
      manage.**





Our
      natural gas and oil exploration, development and production activities are
      subject to many risks that may be unpredictable and are difficult to manage.
      In
      addition, the cost and timing of drilling, completing and operating wells is
      often uncertain. In conducting exploration and development activities, the
      presence of unanticipated pressure or irregularities in formations,
      miscalculations or accidents may cause exploration, development and production
      activities to be unsuccessful. This could result in a total loss of our
      investment in a particular property. If exploration efforts are unsuccessful
      in
      establishing proved reserves and exploration activities cease, the amounts
      accumulated as unproved costs will be charged against earnings as
      impairments.





**Shortages
      of rigs, equipment, supplies and personnel could delay or otherwise adversely
      affect our cost of operations or our ability to operate according to our
      business plan.**





If
      domestic drilling activity increases, particularly in fields where we operate,
      a
      general shortage of drilling and completion rigs, field equipment and qualified
      personnel could develop. As a result, the costs and delivery times of rigs,
      equipment and personnel could be substantially greater than in previous years.
      From time to time, these costs have sharply increased and could do so again.
      The
      demand for and wage rates of qualified drilling rig crews generally rise in
      response to the increasing number of active rigs in service and could increase
      sharply in the event of a shortage. Shortages of drilling and completion rigs,
      field equipment or qualified personnel could delay, restrict or curtail our
      exploration and development operations, which could in turn adversely affect
      our
      results of operations.





**Conducting
      operations in the natural gas and oil industry subjects us to complex laws
      and
      regulations, including environmental regulations, that can have a material
      adverse effect on the cost, manner or feasibility of doing
      business.**





7
 *Index*





Companies
      that explore for and develop, produce and sell natural gas and oil in the United
      States are subject to extensive federal, state and local laws and regulations,
      including complex tax laws and environmental laws and regulations, and are
      required to obtain various permits and approvals from federal, state and local
      agencies. If these permits are not issued or unfavorable restrictions or
      conditions are imposed on our drilling activities, we may not be able to conduct
      our operations as planned. Alternatively, failure to comply with these laws
      and
      regulations, including the requirements to obtain any permits, may result in
      the
      suspension or termination of our operations and subject us to administrative,
      civil and criminal penalties. Compliance costs can be significant. Further,
      these laws and regulations could change in ways that substantially increase
      our
      costs and associated liabilities. We cannot be certain that existing laws or
      regulations, as currently interpreted or reinterpreted in the future, or future
      laws or regulations will not harm our business, results of operations and
      financial condition. For example, matters subject to regulation and the types
      of
      permits required include:





*
            water
                discharge and disposal permits for drilling
                operations;


*
            drilling
                permits;


*
            reclamation;


*
            spacing
                of wells;


*
            occupational
                safety and health;


*
            air
                quality, noise levels and related
                permits;


*
            rights-of-way
                and easements;


*
            calculation
                and payment of royalties;


*
            gathering,
                transportation and marketing of natural gas and
                oil;


*
            taxation;
                and


*
            waste
                disposal.





Under
      these laws and regulations, we could be liable for:





*
            personal
                injuries;


*
            property
                damage;


*
            oil
                spills;


*
            discharge
                of hazardous materials;


*
            remediation
                and clean-up costs;


*
            fines
                and penalties; and


*
            natural
                resource damages.





***Risks
      Related to Our Common Stock***





**Our
      management team members beneficially own a significant percentage of our common
      stock and can substantially influence corporate actions.**





As
      of
      April 12, 2007, our directors and executive officers own about 14% of our
      outstanding common stock. Their ownership would increase if they exercise the
      outstanding warrants they own or are issued incentive shares that we must issue
      if certain performance benchmarks are reached. As a result, our directors and
      executive officers are able to substantially influence all matters requiring
      stockholder approval, including the election of directors and approval of
      significant corporate transactions, such as a recapitalization or other
      fundamental corporate action. This concentration of ownership may have the
      effect of facilitating, delaying or preventing a change in control, which may
      be
      to the benefit of our directors and executive officers but not in the best
      interests of our other stockholders. The concentration of ownership could also
      significantly reduce the capacity of our stockholders to change the Board of
      Directors if stockholders are dissatisfied or disagree with the Board's
      oversight of management’s determination of business policy, or the business
      decisions of officers who are appointed by the Board. This lack of stockholder
      control could cause investors to lose all or part of their investment in
      us.





**Provisions
      in our articles of incorporation, our bylaws and Nevada law may make it more
      difficult to effect a change in control, which could adversely affect the price
      of our common stock.**





Provisions
      of our articles of incorporation, our bylaws and Nevada law could make it more
      difficult for a third party to acquire us, even if doing so would be beneficial
      to our stockholders. We may issue shares of preferred stock in the future
      without stockholder approval and upon such terms as our Board of Directors
      may
      determine. Our issuance of preferred stock could have the effect of making
      it
      more difficult for a third party to acquire, or of discouraging a third party
      from acquiring, a majority of our outstanding stock and potentially prevent
      the
      payment of a premium to our stockholders in an acquisition.





8
 *Index*





Our
      articles of incorporation and bylaws contain provisions that could delay, defer
      or prevent a change in control of us or our management. These provisions
      include:





*
            providing
                that special meetings of stockholders may only be called by the Board
                pursuant to a resolution adopted
                by:





(i)
            our
                President;


(ii)
            our
                Chairman, or


(iii)
            a
                majority of the members of the
                Board;





*
            prohibiting
                cumulative voting in the election of
                directors.





These
      provisions also could discourage proxy contests and make it more difficult
      for
      you and our other stockholders to elect directors and take other corporate
      actions. As a result, these provisions could make it more difficult for a third
      party to acquire us, even if doing so would benefit our stockholders, and may
      limit the price that potential investors are willing to pay in the future for
      shares of our common stock.





We
      are
      also subject to provisions of the Nevada corporation law that prohibit business
      combinations with persons owning 10% or more of the voting shares of a
      corporation's outstanding stock, unless the combination is approved by the
      Board
      of Directors prior to the person owning 10% or more of the stock, for a period
      of three years, after which the business combination would be subject to special
      stockholder approval requirements. This provision could deprive our stockholders
      of an opportunity to receive a premium for their common stock as part of a
      sale
      of our company or may otherwise discourage a potential acquiror from attempting
      to obtain control from us, which in turn could have a material adverse effect
      on
      the market price of our common stock.





**Our
      common stock has a limited trading history and may experience price
      volatility.**





Our
      common stock has been trading on the American Stock Exchange since June 2005,
      before which time our common stock was traded in the over-the-counter market
      on
      the OTC Electronic Bulletin Board. The volume of trading in our common stock
      varies greatly and may often be light, resulting in what is known as a
      "thinly-traded" stock. Until a larger secondary market for our common stock
      develops, the price of our common stock may fluctuate substantially. The price
      of our common stock may also be impacted by any of the following, some of which
      may have little or no relation to our company or industry:





*
            the
                breadth of our stockholder base and the extent to which securities
                professionals follow our common
                stock;


*
            investor
                perception of us and the natural gas and oil industry, including
                industry
                trends;


*
            domestic
                and international economic and capital market conditions, including
                fluctuations in commodity prices;


*
            responses
                to quarter-to-quarter variations in our results of
                operations;


*
            announcements
                of significant acquisitions, strategic alliances, joint ventures
                or
                capital commitments by us or our
                competitors;


*
            additions
                or departures of key personnel;


*
            sales
                or purchases of our common stock by large stockholders or our
                insiders;


*
            accounting
                pronouncements or changes in accounting rules that affect our financial
                reporting; and


*
            changes
                in legal and regulatory compliance unrelated to our
                performance.





**We
      have not paid cash dividends on our common stock and do not anticipate paying
      any dividends on our common stock in the foreseeable
      future.**





9
 *Index*





Under
      the
      terms of our outstanding loan arrangement, we may not pay dividends on our
      common stock. We anticipate that we will retain all future earnings and other
      cash resources for the operation and development of our business. Accordingly,
      we do not intend to declare or pay any cash dividends on our common stock in
      the
      foreseeable future. Payment of future dividends, if any, will be at the
      discretion of the Board of Directors after taking into account various factors,
      including our financial condition, results of operations, current and
      anticipated cash needs and plans for expansion.





**BUSINESS
      AND PROPERTIES**





**Overview**





We
      are an
      independent natural gas and oil exploration and production company based in
      Dallas, Texas with operations in the Barnett Shale in the Fort Worth Basin
      located in north central Texas. We have been successful in identifying and
      acquiring acreage positions where vertical and horizontal drilling, advanced
      fracture stimulation and enhanced recovery technologies create the possibility
      of economically developing and producing natural gas and oil reserves from
      the
      Barnett Shale. We have assembled a portfolio of large, predominantly undeveloped
      leasehold interests in the Barnett Shale, which we believe positions us for
      significant long-term growth in proved natural gas and oil reserves and
      production. As of December 31, 2006, we owned natural gas and oil leasehold
      interests in approximately 76,733 gross (67,184 net) acres, approximately 95%
      of
      which are undeveloped. In addition, we own working interests in 44 gross (14.3)
      net wells in the Barnett Shale. We were incorporated under Nevada law in
      November 1995 as "Eventemp Corporation," a company with activities related
      to
      the automotive industry. Following several years of business inactivity, we
      entered the natural gas and oil industry in February 2004 and in the following
      month changed our name to "Westside Energy Corporation."





**The
      Barnett Shale**





The
      Barnett Shale is one of the largest and most active domestic natural gas plays
      in the United States. The Barnett Shale formation, which can reach a thickness
      of up to approximately 1,000 feet, is located at depths of 6,500 to 9,000 feet
      and covers an area that spans approximately 20 counties in north central Texas.
      The shale formation is characterized by extremely low permeability requiring
      hydraulic fracturing to enable economic recovery of natural gas and oil
      reserves. Technological advances in fracturing techniques and horizontal
      drilling have allowed natural gas production from the Barnett Shale to grow
      to
      over 2.2 Bcf/d from more than 6,000 wells according to the Texas Railroad
      Commission.





**Significant
      Company Events in 2006**





The
      following is a brief description of our most significant events occurring in
      2006:





*****
            In
                January, we completed a private placement in which we sold 3,278,000
                shares of our common stock, at $3.15 per share, to 27 investors resulting
                in gross proceeds of approximately $10.3 million and net proceeds
                of
                approximately $9.5 million after placement-related
                costs.





*****
            In
                March, we completed the acquisition of EBS Oil and Gas Partners Production
                Company, L.P. and an affiliated operations company that were engaged
                in
                the drilling and completion of natural gas and oil wells in Texas.





*****
            In
                March, we entered into a $45 million senior secured revolving credit
                facility with GasRock Capital LLC. During March 2007, we entered
                into a
                new$25
                millionloan
                arrangement to replace the GasRock facility. The new loan arrangement
                was
                provided by four private investment funds managed byWellington
                Management, LLC, which is the largest beneficial holder of our outstanding
                common stock.





10
 *Index*





*
            In
                July, we entered into a joint exploration agreement with Forest Oil
                Corporation covering approximately 17,200 gross acres in Hill County,
                Texas. For more information regarding matters occurring as a result
                of
                this joint exploration agreement, see the discussion of our Southeast
                Program below.





*
            In
                November, we sold ourone-sixth
                interest in Tri-County Gathering, a pipeline system operated by Cimmarron
                Gathering, LP for an all-cash purchase price of approximately $5.0
                million.





**Our
      Properties**





The
      table
      below lists and summarizes our acreage by program as of December 31, 2006.
      This
      table excludes acreage in which our interests are limited to royalty and
      overriding royalty interests.





Program
            
            DevelopedAcreage
            
            Undeveloped
                Acreage
            
            Total
                Acreage
            
            Weighted
                Average Remaining Lease Term**Gross**
            
            **Net**
            
            **Gross**
            
            **Net**
            
            **Gross**
            
            **Net****North**
            
            
            2,180
            
            
            601
            
            
            6,576
            
            
            3,726
            
            
            8,756
            
            
            4,327
            
            
            1.75
                years***Southeast**
            
            
            ----
            
            
            ----
            
            
            15,355
            
            
            10,748
            
            
            15,355
            
            
            10,748
            
            
            2.67
                years**Southwest**
            
            
            640
            
            
            127
            
            
            51,982
            
            
            51,982
            
            
            52,622
            
            
            52,109
            
            
            8.24
                years**Total**
            
            
            **2,820**
            
            
            **728**
            
            
            **73,913**
            
            
            **66,456**
            
            
            **76,783**
            
            
            **67,184**





*
      Certain
      leases in the North Program area have drilling commitments that, if not met,
      could result in the loss of undrilled acreage.





**North
      Program**





The
      North
      Program is located in Cooke, Denton, Montague and Wise Counties in Texas and
      was
      the primary focus of our drilling and production activities during 2005 and
      2006. This
      region of the Barnett Shale (our North Program area) is defined by the following
      characteristics:




·
              **Our
                  Operated Wells:**
              35
                  gross /approximately 12 net completed4
                  gross / 2 net drilling and completing·
              **Our
                  Non-Operated Wells:**
              8
                  gross / approximately 1 net completed well (excludes overriding
                  royalty
                  interest wells)·
              **Barnett
                  Thickness:**
              1,000
                  feet·
              **Drilling
                  Depth:**
              7,500
                  to 9,000 feet·
              **Drilling
                  Method:**
              Vertical
                  and horizontal·
              **Production
                  Characteristics:**
              High
                  Btu natural gas and associated liquids·
              **Fracture
                  Stimulation:**
              3
                  to 5 stage, medium volume·
              **Key
                  Considerations:**
              Lower
                  risk drilling, multiple pay zones, high liquid content, operations
                  in high
                  Btu conditions and access to equipment and
                  services




11
 *Index*





**Southeast
      Program**





The
      Southeast Program is located in Hill and Ellis Counties in Texas. During fiscal
      2005, we completed the processing of a three-dimensional seismic survey of
      4.3
      square miles that includes property leased by us in northern Hill County (the
      “Survey”). Based on the Survey, we selected our first site for drilling on the
      property. During
      fiscal 2006, we entered into a joint exploration agreement with Forest Oil
      Corporation covering approximately 17,200 gross acres in Hill County, Texas.
      The
      agreement provides that we and Forest Oil will each assign a 50% interest in
      certain properties to each other. D uring
      February 2007, we completed our first well in Hill County, the Primula #1H
      well.
      This well tested at a gross initial rate of 2.1 million cubic feet per day
      from
      its 1,600' productive horizontal section. The original well design included
      a
      2,400' productive horizontal section, which was reduced due to unsatisfactory
      rig performance. We believe that the additional length would have enhanced
      the
      resulting test rate. We recently finished drilling our second well in Hill
      County, the Ellison Estate #1H. We plan to fracture stimulate the approximately
      2,300' horizontal section of this well in early May 2007. The next well to
      be
      drilled is the Primula #2H. Our 2007 budget is primarily focused on activities
      in Hill County and includes funds to drill 8 gross (3.5 net) wells plus acquire
      additional acreage and seismic data. The Hill
      and
      Ellis Counties region
      of
      the Barnett Shale (our Southeast Program area) is defined by the following
      characteristics:





·
            **Our
                Operated Wells:**
            1
                gross / 0.5 net drilling and completing·
            **Barnett
                Thickness:**
            200
                to 400 feet·
            **Drilling
                Depth:**
            7,000
                to 9,000 feet·
            **Drilling
                Method:**
            Horizontal·
            **Production
                Characteristics:**
            Natural
                gas·
            **Fracture
                Stimulation:**
            4
                to 6 stage, high volume·
            **Key
                Considerations:**
            Lower
                risk drilling, contiguous shale completion, three-dimensional seismic
                control, cost control and infrastructure
                access





**Southwest
      Program**





The
      Southwest Program is located in Comanche, Coryell, Hamilton, Mills and Lampasas
      Counties in Texas. Drilling in this area by others has been primarily vertical,
      although horizontal drilling technology has recently been utilized. The terms
      of
      the leases covering this area expire sufficiently far enough into the future
      (especially considering renewal options in our favor) that we are not
      constrained to drill in this area in the near future. **** This
      region of the Barnett Shale (our Southwest Program area) is defined by the
      following characteristics:





·
            **Barnett
                Thickness:**
            130
                to 220 feet·
            **Drilling
                Depth:**
            3,000
                to 4,000 feet·
            **Drilling
                Method:**
            Vertical
                and horizontal·
            **Production
                Characteristics:**
            Natural
                gas and oil·
            **Fracture
                Stimulation:**
            6
                to 8 stage, low volume·
            **Key
                Considerations:**
            Multiple
                pay zones, expansion area with limited production, associated water
                production and infrastructure
                access




12
 *Index*





**Our
      Business Strategy**





Our
      goal
      is to increase shareholder value by finding and developing natural gas and
      oil
      reserves at costs that provide an attractive rate of return on our investments.
      The principal elements of our business strategy are:





*
            *Develop
                Our Existing Properties*.
                We intend to create near-term reserve and production growth from
                numerous
                drilling locations identified on our Barnett Shale acreage. The structure
                and the continuous natural gas and oil accumulation of the Barnett
                Shale
                and the expected long-life production and reserves of these properties
                enhance our opportunities for long-term
                profitability.


*
            *Pursue
                Selective Acquisitions and Joint Ventures*.
                Due to our asset base and technical expertise, we believe we are
                well-positioned to pursue selected acquisitions and attract industry
                joint
                venture partners. We expect to pursue additional natural gas and
                oil
                properties in the Barnett Shale.


*
            *Reduce
                Unit Costs Through Economies of Scale and Efficient
                Operations*.
                As we continue to increase our natural gas and oil production and
                develop
                our existing properties, we expect that our unit cost structure will
                benefit from economies of scale. With respect to our operations in
                the
                Barnett Shale, we anticipate reducing unit costs by greater utilization
                of
                our existing infrastructure over a larger number of wells. We seek
                to
                exert control over costs and timing in our exploration, development
                and
                production activities through our operating activities and relationships
                with our joint venture partners.





**Our
      Competitive Strengths**





We
      believe that the key competitive strengths of our company include:





*
            *Significant
                Production Growth Opportunities*.
                We have acquired a large acreage position with very favorable lease
                terms
                in a region where drilling and production activities by other exploration
                and production companies continue to increase. Based on continued
                drilling
                success within our acreage position, we expect to increase our reserves,
                production and cash flow.


*
            *Experienced
                Management Team with Strong Technical Capability*.
                Our senior management team and Board of Directors have considerable
                public
                company experience, industry experience and technical expertise in
                engineering, geoscience and field operations, with an average of
                more than
                20 years of experience in the natural gas and oil industry. Our in-house
                technical personnel have extensive experience in the Barnett Shale,
                including horizontal drilling, completion and fracture stimulation
                techniques and technologies.


*
            *Incentivized
                Management Ownership*.
                The equity ownership of our directors and executive officers is strongly
                aligned with that of our stockholders. As of April 12, 2007, our
                directors
                and executive officers owned approximately 14% of our outstanding
                common
                stock. In addition, the compensation arrangements for our directors
                and
                executive officers are heavily weighted toward future performance
                based
                equity payments rather than cash.





**Drilling
      Activity**





The
      following table sets forth the results of our drilling activities during the
      fiscal years ended December 31, 2005 and 2006:





Drilling
                ActivityGross
                Wells
            
            
            
            Net
                WellsYear
            
            Total
            
            Producing
            
            Dry
            
            Total
            
            Producing
            
            Dry2005
                Exploratory
            
            
            5.0
            
            
            5.0
            
            
            --
            
            
            2.9
            
            
            2.9
            
            
            --2006
                Exploratory
            
            
            5.0
            
            
            5.0
            
            
            --
            
            
            2.8
            
            
            2.8
            
            
            --2005
                Development
            
            
            1.0
            
            
            1.0
            
            
            --
            
            
            0.5
            
            
            0.5
            
            
            --2006
                Development
            
            
            4.0
            
            
            4.0
            
            
            --
            
            
            2.0
            
            
            2.0
            
            
            --




13
 *Index*





**Production
      Information**





**Net
      Production, Average Sales Price and Average Production Costs
      (Lifting)**





The
      table
      below sets forth the net quantities of oil and gas production (net of all
      royalties, overriding royalties and production due to others) attributable
      to us
      for the fiscal years ended December 31, 2005 and 2006, and the average sales
      prices, average production costs and direct lifting costs per unit of
      production.




**Years
                Ended December 31,****2005**
            
            **2006****Net
                Production**Oil
                (MBbls)
            
            
            4
            
            
            23Gas
                (MMcf)
            
            
            47
            
            
            360**Average
                Sales Prices**Oil
                (per Bbl)
            
            $
            57.94
            
            $
            61.93Gas
                (per Mcf)
            
            $
            7.35
            
            $
            5.92**Average
                Production Cost (1)**Per
                equivalent (Bbl of oil)
            
            $
            33.35
            
            $
            84.92**Average
                Lifting Costs (2)**Per
                equivalent (Bbl of oil)
            
            $
            9.00
            
            $
            21.43




(1) Production
      costs include all operating expenses, depreciation, depletion and amortization,
      lease operating expenses and all associated taxes. Does not include impairment.





(2) Direct
      lifting costs do not include impairment expense or depreciation, depletion
      and
      amortization.





**Productive
      Wells and Acreage**





**Gross
      and Net Productive Gas Wells, Developed Acres, and Overriding Royalty
      Interests**





**Leasehold
      Interests - Productive Wells and Developed Acres:** The
      tables below sets forth our leasehold interests in productive and shut-in gas
      wells, and in developed acres, at December 31, 2006:





14
 *Index*





**Producing
                and Shut-In****Prospect**
            
            **Gross****Gas**
            
            **Net(1)
                Gas**Barnett
                Shale
            
            
            44
            
            
            14.3




(1)
            A
                net well is deemed to exist when the sum of fractional ownership
                working
                interests in gross wells equals one. The number of net wells is the
                sum of
                the fractional working interests owned in gross wells expressed as
                whole
                numbers and fractions thereof.





**Developed
                Acreage Table**
              **Developed
                Acres (1)****Prospect**
            
            **Gross
                (2)**
            
            **Net
                (3)**Barnett
                Shale
            
            
            2,820
            
            
            728




(1)
            Consists
                of acres spaced or assignable to productive
                wells.





(2)
            A
                gross acre is an acre in which a working interest is owned. The number
                of
                gross acres is the total number of acres in which a working interest
                is
                owned.





(3)
            A
                net acre is deemed to exist when the sum of fractional ownership
                working
                interests in gross acres equals one. The number of net acres is the
                sum of
                the fractional working interests owned in gross acres expressed as
                whole
                numbers and fractions thereof.





**Undeveloped
      Acreage**





**Leasehold
      Interests Undeveloped Acreage:** The
      following table sets forth our leasehold interest in undeveloped acreage at
      December 31, 2006:





**Undeveloped
                Acreage Table********Prospect**
            
            **Gross**
            
            **Net**Barnett
                Shale
            
            
            73,913
            
            
            66,456





**Gas
      Delivery Commitments**





None.





**Drilling
      Commitments**





We
      have
      an approved drilling budget of $12 million authorizing new projects for the
      period January 1, 2007 through December 31, 2007.





**Reserve
      Information - Oil and Gas Reserves:**





LaRoche
      Petroleum Consultants, Ltd. evaluated our oil and gas reserves attributable
      to
      our properties at December 31, 2006. Reserve calculations by independent
      petroleum engineers involve the estimation of future net recoverable reserves
      of
      oil and gas and the timing and amount of future net revenues to be received
      therefrom. Those estimates are
      made
      using sales prices estimated to be in effect as of the date of such reserve
      estimates and are held constant throughout the life of the properties (except
      to
      the extent a contract specifically provides for escalation). Estimated
      quantities of proved reserves and future net revenues therefrom are affected
      by
      oil and gas prices, which have fluctuated widely in recent years. Moreover,
      these estimates are
      based
      on numerous factors, many of which are variable, uncertain and beyond
      the control of the producer .
      Reserve
      estimators are required to make numerous, subjective judgments based upon
      professional training, experience and educational background. As a result,
      estimates of different engineers, including those used by us, may vary. The
      extent and significance of the judgments are sufficient to render reserve
      estimates inherently imprecise, since reserve revenues and operating expenses
      may not occur as estimated. Moreover, it is common for the actual production
      and
      revenues later received to vary from earlier estimates. Estimates made in the
      first few years of production from a property are generally not as reliable
      as
      later estimates based on a longer production history. Reserve estimates based
      upon volumetric analysis are inherently less reliable than those based on
      lengthy production history. Also, potentially productive gas wells may not
      generate revenue immediately due to lack of pipeline connections and potential
      development wells may have to be abandoned due to unsuccessful completion
      activities. Hence, reserve estimates may vary from year to year. Based on the
      preceding, the reserve
      data set forth in this Annual Report must be viewed only as estimates and not
      as
      exact information.





15
 *Index*





**Estimated
      Proved/Developed and Undeveloped Reserves:** The
      following tables set forth our estimated proved developed and proved undeveloped
      oil and gas reserves for the years ended December 31, 2005 and 2006. See Note
      14
      to the Consolidated Financial Statements and the above discussion.





**Developed
                and Undeveloped Reserves****Developed**
            
            **Undeveloped**
            
            **Total**Oil
                (Bbls)December
                31, 2005
            
            
            85,206
            
            
            11,200
            
            
            96,406December
                31, 2006
            
            
            85,385
            
            
            64,230
            
            
            149,615Gas
                (Mcf)December
                31, 2005
            
            
            1,191,699
            
            
            272,000
            
            
            1,463,699December
                31, 2006
            
            
            3,277,562
            
            
            2,557,473
            
            
            5,835,035





For
      information concerning the standardized measure of discounted future net cash
      flows, estimated future net cash flows and present values of such cash flows
      attributable to our proved oil and gas reserves as well as other reserve
      information, see Note 14 to the Consolidated Financial Statements.





**Oil
      and Gas Reserves Reported to Other Agencies:** We did
      not file any estimates of total proved net oil or gas reserves with, or include
      such information in reports to, any federal authority or agency since the
      beginning of the fiscal year ended December 31, 2006.




**Title
      to Properties**





Our
      properties are subject to customary royalty interests, liens under indebtedness,
      liens incident to operating agreements and liens for current taxes and other
      burdens, including mineral encumbrances and restrictions. Our current loan
      arrangement is also secured by a first lien on a large part of our assets.
      We do
      not believe that any of these burdens materially interferes with the use of
      our
      properties in the operation of our business.





We
      believe that we have satisfactory title to or rights in all of our producing
      properties. As is customary in the natural gas and oil industry, minimal
      investigation of title is made at the time of acquisition of undeveloped
      properties. In most cases, we investigate title and obtain title opinions from
      counsel or have title reviewed by certified landmen only when we acquire
      producing properties or before we begin drilling operations.





16
 *Index*





**Sale
      of Natural Gas and Oil**





We
      do not
      intend to refine our natural gas or oil production. We expect to sell all or
      most of our production to a small number of purchasers in a manner consistent
      with industry practices at prevailing rates by means of long-term sales
      contracts. We are developing a market with purchasers such as end-users, local
      distribution companies, and natural gas brokers. We have several long-term
      purchase contracts, and can readily find other purchasers, if needed. In areas
      where there is no practical access to pipelines, oil is trucked to storage
      facilities.





**Markets
      and Marketing**




The
      natural gas and oil industry has experienced rising prices in recent years.
      As a
      commodity, global natural gas and oil prices respond to macro-economic factors
      affecting supply and demand. In particular, world oil prices have risen in
      response to political unrest and supply uncertainty in Iraq, Venezuela, Nigeria
      and Iran, and increasing demand for energy in rapidly growing economies, notably
      India and China. Due to rising world prices and the consequential impact on
      supply, North American prospects have become more attractive. Escalating
      conflicts in the Middle East and the ability of OPEC to control supply and
      pricing are some of the factors negatively impacting the availability of global
      supply. In contrast, increased costs of steel and other products used to
      construct drilling rigs and pipeline infrastructure, as well as higher drilling
      and well-servicing rig rates, negatively impact domestic supply.





Our
      market is affected by many factors beyond our control, such as the availability
      of other domestic production, commodity prices, the proximity and capacity
      of
      natural gas and oil pipelines, and general fluctuations of global and domestic
      supply and demand. Although we have entered into few sales contracts at this
      time, we do not anticipate difficulty in finding additional sales
      opportunities.





Natural
      gas and oil sales prices are negotiated based on factors such as the spot price
      for gas or posted price for oil, price regulations, regional price variations,
      distances from wells to pipelines, well pressure, and estimated reserves. Many
      of these factors are outside our control. Natural gas and oil prices have
      historically experienced high volatility, related in part to ever-changing
      perceptions within the industry of future supply and demand.





**Competition**





The
      natural gas and oil industry is intensely competitive and, as an early-stage
      company, we must compete against larger companies that may have greater
      financial and technical resources than we and substantially more experience
      in
      our industry. These competitive advantages may better enable our competitors
      to
      sustain the impact of higher exploration and production costs, natural gas
      and
      oil price volatility, productivity variances between properties, overall
      industry cycles and other factors related to our industry. Their advantage
      may
      also negatively impact our ability to acquire prospective properties, develop
      reserves, attract and retain quality personnel and raise capital.





**Governmental
      Regulation**




***Natural
      Gas and Oil Regulation***





*Regulation
      of Transportation and Sale of Natural Gas* .
      Historically, the transportation and sale for resale of natural gas in
      interstate commerce have been regulated pursuant to the Natural Gas Act of
      1938,
      the Natural Gas Policy Act of 1978 and regulations issued under those Acts
      by
      the Federal Energy Regulatory Commission, or FERC. In the past, the federal
      government has regulated the prices at which natural gas could be sold. While
      sales by producers of natural gas can currently be made at uncontrolled market
      prices, Congress could reenact price controls in the future. Deregulation of
      wellhead natural gas sales began with the enactment of the Natural Gas Policy
      Act. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act. The
      Decontrol Act generally removed all Natural Gas Act and Natural Gas Policy
      Act
      price and non-price controls affecting wellhead sales of natural gas effective
      January 1, 1993.





Since
      the
      mid-1980s, the FERC has endeavored to make natural gas transportation more
      accessible to natural gas buyers and sellers on an open and non-discriminatory
      basis. The FERC has stated that open access policies are necessary to improve
      the competitive structure of the interstate natural gas pipeline industry and
      to
      create a regulatory framework that will put natural gas sellers into more direct
      contractual relations with natural gas buyers by, among other things, unbundling
      the sale of natural gas from the sale of transportation and storage services.
      Beginning in 1992, the FERC issued Order No. 636 and a series of related orders
      to implement its open access policies. As a result of the Order No. 636 program,
      the marketing and pricing of natural gas have been significantly altered. The
      interstate pipelines' traditional role as wholesalers of natural gas has been
      eliminated and replaced by a structure under which pipelines provide
      transportation and storage services on an open access basis to others who buy
      and sell natural gas. Although the FERC's orders do not directly regulate
      natural gas producers, they are intended to foster increased competition within
      all phases of the natural gas industry.





17
 *Index*





In
      2000,
      the FERC issued Order No. 637 and subsequent orders, which imposed a number
      of
      additional reforms designed to enhance competition in natural gas markets.
      Among
      other things, Order No. 637 changed FERC regulations relating to scheduling
      procedures, capacity segmentation, penalties, rights of first refusal and
      information reporting. We cannot accurately predict whether the FERC's actions
      will achieve the goal of increasing competition in markets in which our natural
      gas is sold. Additional proposals and proceedings that might affect the natural
      gas industry are pending before the FERC and the courts. Therefore, we cannot
      provide any assurance that the less stringent regulatory approach recently
      established by the FERC will continue. However, we do not believe that any
      action taken will affect us in a way that materially differs from the way it
      affects other natural gas producers.





Intrastate
      natural gas transportation and gathering of natural gas is subject to regulation
      by state regulatory agencies. The basis for intrastate regulation of natural
      gas
      transportation and gathering and the degree of regulatory oversight and scrutiny
      given to intrastate natural gas transportation and gathering rates and services
      varies from state to state. Insofar as such regulation within a particular
      state
      will generally affect all shippers on intrastate natural gas pipelines and
      gatherers within the state on a comparable basis, we believe that the regulation
      of similarly situated intrastate natural gas transportation and gathering in
      any
      state in which we operate and ship natural gas on an intrastate basis will
      not
      affect our operations in any way that is of material difference from those
      of
      our competitors.





*Regulation
      of Transportation and Sale of Oil* .
      Sales
      of oil, condensate and natural gas liquids are not currently regulated and
      are
      made at negotiated prices. Nevertheless, Congress could enact (or, in some
      cases, reenact) price controls in the future.




Our
      sales
      of oil are affected by the availability, terms and cost of transportation.
      The
      transportation of oil in common carrier pipelines is also subject to rate
      regulation. The FERC regulates interstate oil pipeline transportation rates
      under the Interstate Commerce Act. In general, interstate oil pipeline rates
      must be cost-based, although settlement rates agreed to by all shippers are
      permitted and market-based rates may be permitted in certain circumstances.
      Effective January 1, 1995, the FERC implemented regulations establishing an
      indexing system (based on inflation) for transportation rates for oil that
      allowed for an increase or decrease in the cost of transporting oil to the
      purchaser. A review of these regulations by the FERC in 2000 was successfully
      challenged on appeal by an association of oil pipelines. On remand, the FERC
      in
      February 2003 increased the index slightly, effective July 2001. Intrastate oil
      pipeline transportation rates are subject to regulation by state regulatory
      commissions. The basis for intrastate oil pipeline regulation, and the degree
      of
      regulatory oversight and scrutiny given to intrastate oil pipeline rates, varies
      from state to state. Insofar as effective interstate and intrastate rates are
      equally applicable to all comparable shippers, we believe that the regulation
      of
      oil transportation rates will not affect our operations in any way that is
      of
      material difference from those of our competitors.




Further,
      interstate and intrastate common carrier oil pipelines must provide service
      on a
      non-discriminatory basis. Under this open access standard, a common carrier
      must
      offer the same terms and rates to all similarly-situated shippers requesting
      service. When oil pipelines operate at full capacity, access is governed by
      prorationing provisions set forth in the pipelines' published tariffs.
      Accordingly, we believe that access to oil pipeline transportation services
      will
      generally be available to us to the same extent as to our
      competitors.





***Environmental
      Regulation***





We
      are
      subject to stringent federal, state and local laws, that, among other things,
      govern the issuance of permits to conduct exploration, drilling and production
      operations, the amounts and types of materials that may be released into the
      environment, the discharge and disposition of waste materials, the remediation
      of contaminated sites and the reclamation and abandonment of wells, sites and
      facilities. Numerous government departments issue rules and regulations to
      implement and enforce such laws, which are often difficult and costly to comply
      with and which carry substantial civil and even criminal penalties for failure
      to comply. Some laws, rules and regulations relating to protection of the
      environment may, in certain circumstances, impose strict liability for
      environmental contamination, rendering a person liable for environmental damages
      and cleanup costs without regard to negligence or fault on the part of such
      person. Other laws, rules and regulations may restrict the rate of oil and
      natural gas production below the rate that would otherwise exist or even
      prohibit exploration and production activities in sensitive areas. In addition,
      state laws often require various forms of remedial action to prevent pollution,
      such as closure of inactive pits and plugging of abandoned wells. The regulatory
      burden on the oil and natural gas industry increases our cost of doing business
      and consequently affects our profitability. These costs are considered a normal,
      recurring cost of our on-going operations. Our domestic competitors are
      generally subject to the same laws and regulations. We believe that we are
      in
      substantial compliance with current applicable environmental laws and
      regulations and that continued compliance with existing requirements will not
      have a material adverse impact on our operations.





18
 *Index*





The
      Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
      imposes liability, without regard to fault, on certain classes of persons that
      are considered to be responsible for the release of a "hazardous substance"
      into
      the environment. These persons include the current or former owner or operator
      of the disposal site or sites where the release occurred and companies that
      disposed or arranged for the disposal of hazardous substances. Under CERCLA,
      such persons may be subject to joint and several liability for the cost of
      investigating and cleaning up hazardous substances that have been released
      into
      the environment, for damages to natural resources and for the cost of certain
      health studies. In addition, companies that incur liability frequently also
      confront third-party claims because it is not uncommon for neighboring
      landowners and other third parties to file claims for personal injury and
      property damage allegedly caused by hazardous substances or other pollutants
      released into the environment from a polluted site.




The
      Federal Solid Waste Disposal Act, as amended by the Resource Conservation and
      Recovery Act of 1976, or RCRA, regulates the generation, transportation,
      storage, treatment and disposal of hazardous wastes and can require cleanup
      of
      hazardous waste disposal sites. RCRA currently excludes drilling fluids,
      produced waters and other wastes associated with the exploration, development
      or
      production of oil and natural gas from regulation as "hazardous waste." Disposal
      of such non-hazardous natural gas and oil exploration, development and
      production wastes usually is regulated by state law. Other wastes handled at
      exploration and production sites or used in the course of providing well
      services may not fall within this exclusion. Moreover, stricter standards for
      waste handling and disposal may be imposed on the oil and natural gas industry
      in the future. From time to time, legislation is proposed in Congress that
      would
      revoke or alter the current exclusion of exploration, development and production
      wastes from the RCRA definition of "hazardous wastes," thereby potentially
      subjecting such wastes to more stringent handling, disposal and cleanup
      requirements. If such legislation were enacted, it could have a significant
      impact on our operating costs, as well as the oil and natural gas industry
      in
      general. The impact of future revisions to environmental laws and regulations
      cannot be predicted.




Our
      operations are also subject to the Clean Air Act, or CAA, and comparable state
      and local requirements. Amendments to the CAA were adopted in 1990 and contain
      provisions that may result in the gradual imposition of certain pollution
      control requirements with respect to air emissions from our operations. We
      may
      be required to incur certain capital expenditures in the future for air
      pollution control equipment in connection with obtaining and maintaining
      operating permits and approvals for air emissions. However, we believe our
      operations will not be materially adversely affected by any such requirements,
      and the requirements are not expected to be any more burdensome to us than
      to
      other similarly situated companies involved in oil and natural gas exploration
      and production activities.




The
      Federal Water Pollution Control Act of 1972, as amended, or the Clean Water
      Act,
      imposes restrictions and controls on the discharge of produced waters and other
      wastes into navigable waters. Permits must be obtained to discharge pollutants
      into state and federal waters and to conduct construction activities in waters
      and wetlands. Certain state regulations and the general permits issued under
      the
      Federal National Pollutant Discharge Elimination System program prohibit the
      discharge of produced waters and sand, drilling fluids, drill cuttings and
      certain other substances related to the oil and natural gas industry into
      certain coastal and offshore waters, unless otherwise authorized. Further,
      the
      EPA has adopted regulations requiring certain oil and natural gas exploration
      and production facilities to obtain permits for storm water discharges. Cost
      may
      be associated with the treatment of wastewater or developing and implementing
      storm water pollution prevention plans. The Clean Water Act and comparable
      state
      statutes provide for civil, criminal and administrative penalties for
      unauthorized discharges for oil and other pollutants and impose liability on
      parties responsible for those discharges for the cost of cleaning up any
      environmental damage caused by the release and for natural resource damages
      resulting from the release. We believe that our operations comply in all
      material respects with the requirements of the Clean Water Act and state
      statutes enacted to control water pollution.





19
 *Index*





Underground
      injection is the subsurface placement of fluid through a well, such as the
      reinjection of brine produced and separated from oil and natural gas production.
      The Safe Drinking Water Act of 1974, as amended, establishes a regulatory
      framework for underground injection, with the main goal being the protection
      of
      usable aquifers. The primary objective of injection well operating requirements
      is to ensure the mechanical integrity of the injection apparatus and to prevent
      migration of fluids from the injection zone into underground sources of drinking
      water. Hazardous-waste injection well operations are strictly controlled and
      certain wastes, absent an exemption, cannot be injected into underground
      injection control wells. In Texas, no underground injection may take place
      except as authorized by permit or rule.




Statutes
      that provide protection to animal and plant species and that may apply to our
      operations include the National Environmental Policy Act, the Oil Pollution
      Act,
      the Emergency Planning and Community Right-to-Know Act, Research and Sanctuaries
      Act, the Fish and Wildlife Coordination Act, the Fishery Conservation and
      Management Act, the Migratory Bird Treaty Act and the National Historic
      Preservation Act. These laws and regulations may require the acquisition of
      a
      permit or other authorization before construction or drilling commences and
      may
      limit or prohibit construction, drilling and other activities on certain lands
      lying within wilderness or wetlands and other protected areas and impose
      substantial liabilities for pollution resulting from our operations. The permits
      required for our various operations are subject to revocation, modification
      and
      renewal by issuing authorities.





**Employees**





As
      of
      April 12, 2007, we had seven full-time employees.




**Facilities**





Our
      principal executive offices are located in Dallas, Texas, where we lease
      approximately 5,000 square feet. This lease terminates in the first quarter
      of
      2008.





**ITEM
      3. LEGAL PROCEEDINGS**





We
      are not
      now a
      party to any material legal proceeding. In the future, we may become involved
      in
      various legal proceedings from time to time, either as a plaintiff or as a
      defendant, and either in or outside the normal course of business. We are not
      now in a position to determine when (if ever) such a legal proceeding may arise.
      If we ever become involved in a legal proceeding, our financial condition,
      operations, or cash flows could be materially and adversely affected, depending
      on the facts and circumstances relating to such proceeding.





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





None.





**PART
      II.**





**ITEM
      5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
      STOCKHOLDER MATTERS.**





Our
      common stock is listed and trades on the American Stock Exchange under the
      symbol “WHT.” As of April 4, 2007, we had 198 holders of record. Management
      believes that we have closer to 1,000 beneficial holders of our stock, although
      the exact number of these holders cannot be determined. The following table
      sets
      forth the high and low reported closing prices for our common stock for the
      completed quarters over the past two fiscal years. Such quotations represent
      inter-dealer prices, without retail markup, markdown or commission, and do
      not
      necessarily represent the prices of actual transactions for the fiscal quarters
      indicated.





20
 *Index*





**HIGH**
            
            **LOW****2006**Fourth
                Quarter
            
            $
            2.45
            
            $
            1.05Third
                Quarter
            
            
            3.18
            
            
            2.30Second
                Quarter
            
            
            3.80
            
            
            2.38First
                Quarter
            
            
            3.98
            
            
            2.94**2005**Fourth
                Quarter
            
            $
            4.30
            
            $
            3.30Third
                Quarter
            
            
            4.10
            
            
            3.35Second
                Quarter
            
            
            4.65
            
            
            3.53First
                Quarter
            
            
            5.50
            
            
            3.05





We
      h ave
      never
      paid cash dividends, and have no intentions of paying cash dividends in the
      foreseeable future.





**ITEM
      6.** **MANAGEMENT'S
      DISCUSSION AND ANALYSIS.**





The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our consolidated financial
      statements and related notes included elsewhere in this Annual Report. In
      addition to historical information, the discussion in this report contains
      forward-looking statements that involve risks and uncertainties. Actual results
      could differ materially from those anticipated by these forward-looking
      statements due to factors including, but not limited to, those factors set
      forth
      under "Risk Factors" and elsewhere in this Annual Report.





**Overview**





We
      are an
      independent natural gas and oil exploration and production company based in
      Dallas, Texas with operations in the Barnett Shale in the Fort Worth Basin
      located in north central Texas. We have been successful in identifying and
      acquiring acreage positions where vertical and horizontal drilling, advanced
      fracture stimulation and enhanced recovery technologies create the possibility
      of economically developing and producing natural gas and oil reserves from
      the
      Barnett Shale. We have assembled a portfolio of large, predominantly undeveloped
      leasehold interests in the Barnett Shale, which we believe positions us for
      significant long-term growth in proved natural gas and oil reserves and
      production. As of December 31, 2006, we owned natural gas and oil leasehold
      interests in approximately 76,733 gross (67,184 net) acres, approximately 95%
      of
      which are undeveloped. In addition, as of December 31, 2006, we owned working
      interests in 44 gross (14.3) net wells in the Barnett Shale.





As
      of
      December 31, 2006, we had estimated net proved reserves of 6.7 Bcfe, with a
      PV-10 value of $9.9 million (calculated using constant prices for natural gas
      and oil at December 31, 2006) .
      Net
      proved reserves were 8.9 Bcfe as of March 1, 2007, with a PV-10 value of $16.9
      million when calculated using NYMEX forward curve prices on February 28, 2007.
      We have identified approximately 500 drilling locations on our existing acreage. Our
      estimated net proved reserves are located on approximately 5% of our net
      acreage. Based on our drilling results to date and third-party results in
      adjacent areas, we believe that our remaining undeveloped acreage in the Barnett
      Shale has substantial current commercial potential, and we plan to exploit
      that
      potential through our drilling program.





**Recent
      Developments**





During
      the first few months of 2007, we have been active in both the initiation of
      our
      Hill County development activities and the continued development of our North
      Program area. In Hill County, we completed our first horizontal well, the
      Primula No. 1H, which came on at an initial rate in excess of 2.1 MMcfd. We
      recently finished drilling and casing our second well, the Ellison Estate #1H.
      We have scheduled the fracture stimulation of the approximately2,300’ horizontal
      section of this well for early May 2007. The drilling rig will be moved to
      our
      next location, the Primula #2H, and an additional drilling location is being
      prepared. With our new funding in place, we are now able to commit to a
      longer-term contract for a rig and consequently have obtained the services
      of an
      excellent rig and crew to carry out our drilling plans for the rest of the
      year.
      This, in conjunction with turning over the drilling portion of the operation
      to
      Forest Oil, our fifty percent partner, should help to eliminate the poor
      drilling performance we experienced on the Primula No. 1H as a result of one-off
      rigs and third party drilling contractors. The plans for the future locations
      will include drilling lateral sections in the 2,500 to 3,000 foot range.
      Although pleased with the Primula No. 1H results, we believe that future wells
      could produce at higher levels due to having longer lateral lengths and greater
      exposure to the fracture system. In addition to the drilling activity, we
      continue to work our land base in the area to high grade our position and ensure
      the maximum number of additional locations.





21
 *Index*





In
      our
      North Program area, we have been active both drilling new wells and completing
      those drilled prior to 2007. We have finished drilling our Fortenberry No.
      1H
      horizontal well in the area and recently completed and fracture stimulated
      the
      well. It will flow back frac fluid over the next few weeks followed by both
      oil
      and gas production into sales. A vertical well, the Hawk Littel No. 1, was
      drilled in 2005 by the former operator EBS and was recently tied into the gas
      sales line in order that it could be completed. Since then, it has been fracture
      stimulated and is waiting on a pump to begin unloading frac fluid. In addition,
      we have farmed out three additional horizontal locations, to an operator that
      is
      active in the area, which will be drilled in 2007. One has completed drilling
      operations and is waiting on completion and the other two will be drilled over
      the next few months. Finally, the Smith No. 2 vertical well will be tied into
      the main gas pipeline allowing us to complete it in the next couple of
      months.





Although
      some of this activity has been delayed due to rig issues and pipeline
      infrastructure delays, the current activity should bring on sufficient
      production to offset the natural declines from our activity in 2006 and allow
      for additional production growth in 2007.




**Critical
      Accounting Policies and Estimates**





Our
      discussion of our financial condition and results of operations is based on
      the
      information reported in our financial statements. The preparation of our
      financial statements requires us to make assumptions and estimates that affect
      the reported amounts of assets, liabilities, revenues and expenses as well
      as
      the disclosure of contingent assets and liabilities as of the date of our
      financial statements. We base our assumptions and estimates on historical
      experience and other sources that we believe to be reasonable at the time.
      Actual results may vary from our estimates due to changes in circumstances,
      weather, politics, global economics, mechanical problems, general business
      conditions and other factors. Our significant accounting policies are detailed
      in Note 1 to our financial statements included in this Annual Report. We have
      outlined below certain of these policies that have particular importance to
      the
      reporting of our financial condition and results of operations and that require
      the application of significant judgment by our management.





***Key
      Definitions***





Proved
      reserves, as defined by the SEC, are the estimated quantities of crude oil,
      condensate, natural gas and natural gas liquids that geological and engineering
      data demonstrate with reasonable certainty are recoverable in future years
      from
      known reservoirs under existing economic and operating conditions. Valuations
      include consideration of changes in existing prices provided only by contractual
      arrangements, but not on escalations based upon future conditions. Prices do
      not
      include the effect of derivative instruments, if any, entered into by
      us.





Proved
      developed reserves are those reserves expected to be recovered through existing
      equipment and operating methods. Additional oil and gas volumes expected to
      be
      obtained through the application of fluid injection or other improved recovery
      techniques for supplementing the natural forces and mechanisms of primary
      recovery are included as proved developed reserves only after testing of a
      pilot
      project or after the operation of an installed program has confirmed through
      production response that increased recovery will be achieved.





22
 *Index*





Proved
      undeveloped reserves are those reserves that are expected to be recovered from
      new wells on non-drilled acreage, or from existing wells where a relatively
      major expenditure is required for re-completion. Reserves on non-drilled acreage
      are limited to those drilling units offsetting productive units that are
      reasonably certain of production when drilled. Proved reserves for other
      non-drilled units are claimed only where it can be demonstrated with certainty
      that there is continuity of production from the existing productive
      formation.





***Estimation
      of Reserves***





Volumes
      of reserves are estimates that, by their nature, are subject to revision. The
      estimates are made using all available geological and reservoir data as well
      as
      production performance data. There are numerous uncertainties in estimating
      crude oil and natural gas reserve quantities, projecting future production
      rates
      and projecting the timing of future development expenditures. Natural gas and
      oil reserve engineering must be recognized as a subjective process of estimating
      underground accumulations of natural gas and oil that cannot be measured in
      an
      exact way. Estimates of independent engineers that we use may differ from those
      of other engineers. The accuracy of any reserve estimate is a function of the
      quantity and quality of available data and of engineering and geological
      interpretation and judgment. Accordingly, future estimates are subject to change
      as additional information becomes available.





***Revenue
      Recognition***





We
      record
      natural gas and oil revenues using the entitlement method of accounting for
      production, in which any excess amount received by us above our share of
      production is treated as a liability. If we receive less than our share of
      production, the underproduction is recorded as an asset. We did not have an
      imbalance position relative to volumes or values at December 31,
      2006.





***Successful
      Efforts Accounting***





We
      utilize the successful efforts method to account for our natural gas and oil
      operations. Under this method, all costs associated with natural gas and oil
      lease acquisitions, successful exploratory wells and all development wells
      are
      capitalized and amortized on a unit-of-production basis over the remaining
      life
      of proved developed reserves and proved reserves on a lease basis. Unproved
      leasehold costs are capitalized pending the results of exploration efforts.
      Exploration costs, including geological and geophysical expenses, exploratory
      dry holes and delay rentals, are expensed when incurred.





***Impairment
      of Properties***





We
      review
      our proved properties for potential impairment at the lease level when
      management determines that events or circumstances indicate that the recorded
      carrying value of any of the properties may not be recoverable. Such events
      include a projection of future natural gas and oil reserves that will be
      produced from a lease, the timing of this future production, future costs to
      produce the natural gas and oil, and future inflation levels. If the carrying
      amount of an asset exceeds the sum of the undiscounted estimated future net
      cash
      flows, we recognize impairment expense equal to the difference between the
      carrying value and the fair market value of the asset, which is estimated to
      be
      the expected present value of future net cash flows from proved reserves,
      without the application of any estimate of risk. We cannot predict the amount
      of
      impairment charges that may be recorded in the future. Unproved leasehold costs
      are reviewed periodically and a loss is recognized to the extent, if any, that
      the cost of the property has been impaired.





***Stock-Based
      Compensation***





Compensation
      expense has been recorded for common stock grants based on the fair value of
      the
      common stock on the measurement date. Statement of Financial Accounting
      Standards No. 123R, "Share-Based Payments," or "SFAS No. 123R," establishes
      standards for accounting for transactions in which an entity exchanges its
      equity instruments for goods and services. SFAS No. 123R focuses primarily
      on
      accounting for transactions in which an entity obtains employee services in
      share-based payment transactions. SFAS No. 123R requires that the fair value
      of
      such equity instruments be recognized as expense in the historical financial
      statements as services are performed. SFAS No. 123R was effective for us as
      of
      the beginning of 2006 and has had no impact on our financial statements, because
      the only equity compensation that we have previously made is in the form of
      grants of common stock, which are recorded at fair value.





23
 *Index*





**Results
      of Operations -** **Year
      ended December 31, 2006 compared to the year ended December 31,
      2005**





Financial
      results for the year ended December 31, 2006 are not directly comparable to
      financial results for the year ended December 31, 2005. During 2005, we had
      limited operations consisting of our first two operated wells (the Lucille
      Pruett #1 and #2H), two wells operated by EBS (the Kirby #1 and Mitchell #1)
      and
      three marginal non-operated wells that were sold in the fourth quarter of 2005.
      In the first quarter of 2006, we greatly expanded our operations as a result
      of
      acquiring EBS in March 2006. Other significant activities that increased
      operations in 2006 included drilling and completing two additional wells on
      the
      Lucille Pruett lease (the Lucille Pruett #3 and #4), drilling and/or completing
      several additional wells on acreage acquired in the EBS acquisition and
      commencing drilling operations on our first well in Hill County (the Primula
      #1H).





*Revenues.* Revenues
      from sales of oil and natural gas were $3,915,209 in 2006 as compared to
      $595,657 in 2005. This increase in revenues reflects the impact of higher sales
      volumes for both oil and gas and higher oil sales prices. Oil sales volumes
      increased from an average of 12 to 63 barrels per day, and average oil sales
      prices increased from $57.94 to $61.93 per barrel. Natural gas sales volumes
      increased from an average of 128 to 988 thousand cubic feet (MCF) per day while
      average natural gas sales prices decreased from $7.35 to $5.92 per MCF. Both
      oil
      and natural gas sales volume growth resulted from additional well interests
      acquired in the EBS transaction plus additional wells drilled in 2006. New
      wells
      that contributed significantly to this production increase include the Christian
      #1A and Lucille Pruett #4. The decrease in natural gas prices resulted from
      historically above average prices in 2005, reflecting the price impact of two
      severe hurricanes, followed by declining prices in 2006 resulting from a mild
      winter and below average hurricane activity.





*Expenses.* Operating expenses increased from $3,231,656 in 2005 to $17,096,540 in 2006.
      This significant increase reflects the impact of owning interests in a larger
      number of properties and wells that produced significantly higher volumes and
      adding staff and services to support this increased activity.





***  *Production* expense
      was $1,779,192 in 2006 as compared to $108,227 in 2005 reflecting increased
      production operations activity associated with the well count and produced
      volumes increases as well as higher oil and gas severance taxes due to both
      higher volumes and higher oil prices.





***  *Exploration* expense
      was $360,170 in 2005 reflecting the costs incurred for the three-dimensional
      seismic acquisition program conducted in Hill County. No exploration expense
      was
      incurred in 2006.




*** *General
      and Administrative* expenses
      increased from $1,782,184 in 2005 to $5,296,723 in 2006. Approximately 40%
      of
      this increase was the result of non-cash stock compensation expense recorded
      in
      2006. The remainder of the increase reflects salaries for additional staff
      and
      additional overhead costs resulting from a substantial increase in business
      support activities as a result of drilling and operating substantially more
      wells in 2006.




***  *Depreciation,
      Depletion and Amortization* expenses
      were $5,710,295 in 2006 versus $344,797 in 2005 reflecting higher produced
      volumes plus higher property carrying values as a result of additional drilling
      activities and the EBS acquisition transaction.




***  *Impairment* charges
      of $636,278 were taken against three producing leases in 2005. In 2006,
      impairment charges of $4,085,234 were taken against twelve producing leases
      and
      $225,096 against undeveloped leases. Impairment tests are conducted on a
      lease-by-lease basis.




*Operating
      Loss.* As a
      result of the above described revenues and expenses, we incurred an operating
      loss in 2006 of $13,181,331 as compared to an operating loss of $2,635,999
      in
      2005.





24
 *Index*





*Other
      Income (Expense).* Other
      expense of $730,581 in 2006 included $956,000 of interest expense partially
      offset by $225,619 of interest income. Other income of $696,677 in 2005 included
      $359,490 of interest income and $339,355 of gain from the sale of our interest
      in three marginal wells and 467 undeveloped acres. Interest income decreased
      in
      2006 due to lower average cash balances and interest expense increased
      significantly as a result of three cash draws against the GasRock Credit
      Facility commencing in March 2006.





*Net
      Loss.* We
      incurred a net loss of $13,911,912, or $.66 per share, for the year ended
      December 31, 2006 as compared to a net loss of $1,939,322, or $.11 per share,
      for the year ended December 31, 2005.





**Liquidity
      and Capital Resources**





*Sales
      of Equity* .
      In
      January 2006, we completed a private placement in which we sold 3,278,000 shares
      of our common stock, at $3.15 per share, to 27 investors resulting in gross
      proceeds of approximately $10.3 million and net proceeds of approximately $9.5
      million after placement-related costs. In May through July 2006, we raised
      approximately $1.3 million from the sale of approximately 290,000 shares issued
      upon exercise of warrants by 16 warrant holders at $2.50 per share and the
      sale
      of approximately 180,000 shares to two of our executives at $3.15 per
      share..





*Cash
      and Cash Equivalents* .
      As of
      December 31, 2006, we had cash, cash equivalents and marketable securities
      of
      approximately $5.5 million, representing an increase of $3.8 million from
      December 31, 2005.





*Hedging* .
      Under
      our senior secured credit facility that was in effect during most of fiscal
      2006, we were required to hedge a substantial portion of our reserves. As of
      December 31, 2006, we had entered into swap contracts covering 75% of our
      projected production through March 2008 from our proved developed producing
      reserves estimated as of December 31, 2005 based on a report prepared by LaRoche
      Petroleum Consultants, Ltd., a third-party engineering firm. The prices stated
      in the swap contracts were $8.05 per MMBtu for natural gas and $66.15 per barrel
      for oil. In
      the
      first quarter of 2007, we added additional gas hedges, extending from February
      2007 to December 2008. The price in these swap contracts was $7.45
      per
      MMBtu of natural gas.





*Senior
      Secured Financing* .
      In
      March 2006, we entered into a $45 million senior secured revolving credit
      facility with GasRock Capital LLC (“GasRock”). In connection with our
      acquisition of EBS Oil and Gas Partners Production Company L.P. and its
      affiliated operations company, we borrowed approximately $5.3 million under
      the
      GasRock credit facility for payments at closing, approximately $1.6 million
      to
      discharge certain of the acquired companies' indebtedness, and amounts for
      reimbursement of costs related to previous drilling and future development
      drilling. Subsequently, we borrowed an additional amount of approximately $10
      million under the GasRock credit facility. During March 2007, we entered into
      a
      new loan arrangement to replace the GasRock facility, which was paid off and
      terminated. The new loan arrangement was provided by four private investment
      funds managed by Wellington
      Management, LLC, which is the largest beneficial holder of our outstanding
      common stock. The
      new
      loan arrangement:





*
            provided$25
                million in funds, which were advanced in their entirety upon completion
                of
                the new loan arrangement;


*
            is
                secured by a first lien onall
                of the oil and gas properties comprisingour
                Southeast and Southwest Programs;


*
            grants
                to the lenders the right to receive a lienin
                any and all of the proceeds received upon the sale of a property
                comprising ourNorth
                Program or any subsequent property acquired with such
                proceeds;


*
            bears
                annual interest at10.0%,
                or (in the case of default) 12.0%
                annually;


*
            grants
                to the lendersa
                three percent (3.0%) overriding royalty interest(proportionately
                reduced to our working interest)in
                all oil and gas produced from the properties now comprising ourSoutheast
                and Southwest Programs;


*
            contains
                limiting operating covenants;


*
            contains
                events of default arising from failure to timely repay principal
                and
                interest or comply with certain covenants;
                and


*
            requires
                the repayment of the outstanding balance of the loan in March
                2009.




25
 *Index*





We
      continually evaluate our capital needs and compare them to our capital
      resources. Our budgeted project expenditures for 2007 are approximately $15.0
      million and are to be used primarily for drilling and development of our
      properties. We expect to fund these expenditures from available cash and revenue
      generated during 2007 and, if necessary, from additional borrowings. The level
      of project expenditures is largely discretionary and the amount of funds devoted
      to any activity may increase or decrease depending on available opportunities,
      commodity prices, cash flows, development results and other considerations.





We
      believe that our available cash will be sufficient to enable us to pursue our
      business plans for the next 12 months.





**ITEM
      7. FINANCIAL STATEMENTS.**




The
      report of our Independent Auditors appears at Page F-1 hereof, and our Financial
      Statements appear at Page F-2 through F-20 hereof.





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND
      FINANCIAL DISCLOSURE.**





Not
      applicable.





**ITEM
      8A. CONTROLS AND PROCEDURES.**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Exchange Act reports is recorded,
      processed, summarized and reported within the time periods specified in the
      SEC's rules and forms, and that such information is accumulated and communicated
      to our management, including our Chief Executive Officer and Chief Financial
      Officer, as appropriate, to allow timely decisions regarding required disclosure
      based closely on the definition of "disclosure controls and procedures" in
      Rule
      13a-14(c). In designing and evaluating the disclosure controls and procedures,
      management recognized that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving the
      desired control objectives, and management necessarily was required to apply
      its
      judgment in evaluating the cost-benefit relationship of possible controls and
      procedures..





We
      conducted an evaluation, under the supervision and with the participation of
      the
      Chief Executive Officer and Chief Financial Officer, of the effectiveness of
      our
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934 as amended (the "Exchange Act")).
      Based on this evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that our disclosure controls and procedures as of the end
      of
      the fiscal year covered by this Annual Report on Form 10-KSB were effective
      at a
      reasonable assurance level to ensure that information required to be disclosed
      by us in reports that we file or submit under the Exchange Act is recorded,
      processed, summarized and reported within the time periods specified in
      Securities and Exchange Commission rules and forms. Our internal controls over
      financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the
      Exchange Act) have improved significantly during the last 21 months. The
      improvements include the expansion of the Board of Director's on March 31,
      2005
      to include three independent directors, each of whom was appointed a member
      of
      the Audit Committee, and the addition to staff of a Chief Financial Officer
      /Principal Accounting Officer and a Controller. Systems improvements include
      the
      installation of a more robust accounting system specifically designed to meet
      the needs of an oil and gas company. The Audit Committee members were actively
      involved in reviews of the financial statements for each of the quarters in
      2005
      and in 2006. The Chairman of the Audit Committee met with our independent
      auditors in May 2005, and the independent auditors met with the full Audit
      Committee on March 29, 2006. The addition of a Chief Financial Officer has
      allowed us to enhance controls over the authorization, recording, processing
      and
      reporting of transactions. Additional accounting staff, including a Controller,
      joined us as a result of the EBS transaction, enhancing our ability to segregate
      duties and improve internal controls. Management does not expect that our
      controls and procedures will prevent or detect all errors or fraud. Any control
      system, no matter how well designed and operated, is based upon certain
      assumptions and can provide only reasonable, but not absolute, assurance that
      its objectives will be met. Further, no evaluation of controls can provide
      absolute assurance that misstatements due to error or fraud will not
      occur.





26
 *Index*





There
      have been no significant changes in our internal controls or in other factors
      that could significantly affect the internal controls subsequent to the date
      that we completed our evaluation.





**ITEM
      8B. OTHER INFORMATION**





Not
      applicable.





**PART
      III.**





**ITEM
      9.** **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT**





**DIRECTORS
      AND OFFICERS**





Our
      Board
      of Directors has five members. Each director serves a one-year term that expires
      at the following annual meeting of stockholders. Executive officers are
      appointed by the Board of Directors and serve until their successors are
      appointed. There are no family relationships among our directors or executive
      officers.




The
      members of the Audit Committee of our Board of Directors are Herbert C.
      Williamson, Keith D. Spickelmier and John T. Raymond. Our Board of Directors
      has
      determined that each member of this committee qualifies as an “audit committee
      financial expert,” as defined by SEC rules.




Our
      directors, executive officers and control persons are listed below with
      information about their respective backgrounds:




Name
            
            Age
            
            PositionsKeith
                D. Spickelmier
            
            45
            
            Chairman
                of the BoardDouglas
                G. Manner
            
            51
            
            Chief
                Executive Officer, President, Chief Operating Officer and
                DirectorSean
                J. Austin
            
            54
            
            Vice
                President and Chief Financial OfficerCraig
                S. Glick
            
            47
            
            DirectorJohn
                T. Raymond
            
            36
            
            DirectorHerbert
                C. Williamson
            
            58
            
            Director


______________________





The
      backgrounds of our directors, executive officers and control persons are as
      follows:




***Keith
      D. Spickelmier - Chairman of the Board.***  Mr.
      Spickelmier is a Director and has served as Chairman of the Board since May
      2002, and was President, Treasurer and Secretary until February 2004. Prior
      to
      joining Westside Energy, he was a partner with the law firm Verner, Liipfert,
      Bernhard, McPherson and Hand. From April 2001 through July 2003, Mr. Spickelmier
      was of counsel with the law firm Haynes and Boone, LLP. Mr. Spickelmier holds
      a
      B.A. from the University of Nebraska at Kearney and a J.D. from the University
      of Houston. Mr. Spickelmier is also a Director of JK Acquisition
      Corp.





27
 *Index*





***Douglas
      G. Manner - Chief Executive Officer, President, Chief Operating Officer and
      Director.***  Mr.
      Manner has been a Director since March 2005. In June 2006 became our Chief
      Executive Officer, and in April 2007 he became our President and resumed his
      former duties as Chief Operating Officer. >From January 2006 to May 2006, he
      was our Chief Operating Officer. From January 2004 to December 2005, Mr. Manner
      was Senior Vice President and Chief Operating Officer of Kosmos Energy, LLC,
      a
      private energy company engaged in oil and gas exploration offshore West Africa.
      From August 2002 through December 2003, he was President and Chief Operating
      Officer of White Stone Energy, LLC, a Houston-based oil and gas advisory firm.
      From May 2001 to June 2002, Mr. Manner was Chairman and Chief Executive Officer
      of Mission Resources Corporation, a Houston-based oil and gas exploration
      company. He was Chief Executive Officer and President of Bellwether Exploration,
      a Houston-based oil and gas exploration company, from June 2000 until May 2001
      and became its Chairman of the Board in December 2000. From July 1998 until
      May
      2000, Mr. Manner was Vice President and Chief Operating Officer of Gulf Canada
      Resources Limited. Mr. Manner began his career with Amoco Petroleum Company
      in
      1977, and from 1981 to 1998, was a reservoir engineering consultant with Ryder
      Scott Petroleum Engineers, an international reservoir engineering firm. Mr.
      Manner received a B.S. in mechanical engineering from Rice University in 1977,
      and is a professional engineer certified by the Texas Board of Professional
      Engineers and a member of the Society of Petroleum Engineers. Mr. Manner was
      previously a member of the Board of Directors of Gulf Midstream Service, ROC
      Oil
      and Petrovera Energy Company and is currently a member of the Board of Directors
      of Cordero Energy Inc., Irvine Energy PLC, and Rio Vista Energy Partners,
      L.P.




***Sean
      J. Austin - Vice President and Chief Financial Officer*** **.** Mr.
      Austin became our Chief Financial Officer in June 2006 and, since May 2005,
      has
      served as our Vice President and Corporate Controller. Prior to joining us,
      he
      was employed by Hess Corporation (formerly known as Amerada Hess) for 23 years,
      holding senior management positions in the company’s New York and Houston
      offices. From 1995 to 1999, he was Vice President and Corporate Controller
      in
      the New York office of Hess and, from 1999 until 2004, was Vice President of
      Finance and Administration, Exploration and Production in the Houston office
      of
      Hess. Mr. Austin served as an officer in the United States Navy from 1974 to
      1979. Mr. Austin received a B.B.A. in accounting from the University of Notre
      Dame and an M.B.A. from the Amos Tuck School of Business at Dartmouth
      College.




***Craig
      S. Glick - Director*** .
      Mr.
      Glick has been a Director since January 2006. Since November 2006, Mr. Glick
      has
      served as Managing Director and General Counsel of NGP Midstream &
Resources. From August 2006 to November 2006, he served as our Executive Vice
      President and General Counsel. Mr. Glick co-founded Kosmos Energy, LLC in 2003
      and was a partner at Kosmos Energy. From 1999 to 2003, he was President of
      Hunt
      Resources, Inc. and Senior Vice President of Hunt Oil Company. Mr. Glick was
      General Counsel and Chief Financial Officer of Gulf Canada Resources Ltd. from
      1994 to 1999. Mr. Glick was in charge of acquisitions for Torch Energy Advisers
      in 1994. Previously, Mr. Glick was an attorney with Vinson & Elkins, LLP,
      where he became a partner in 1993. Mr. Glick received a B.A. in political
      science from Tulane University and holds a J.D. from the University of Texas
      School of Law.




***John
      T. Raymond - Director*** **.** Mr.
      Raymond became a Director in March 2005 and is Chairman of the Nominating
      Committee of the Board of Directors. He has been a Director of Vulcan Energy
      Corporation since July 2004 and was its Chief Executive Officer from July 2004
      to April 2005. From December 2002 to March 2004, he was President and Chief
      Operating Officer of Plains Exploration and Production Company. From June 2001
      to April 2005, Mr. Raymond was a Director of Plains All American Pipeline,
      LP.
      He was Executive Vice President and Chief Operating Officer of Plains Resources
      Inc. from May 2001 to November 2001 and its President and Chief Operating
      Officer from November 2001 to April 2005. From January 2000 to May 2001, he
      was
      Director of Corporate Development for Kinder Morgan, Inc. He was Vice President
      of Corporate Development for Ocean Energy, Inc. from April 1998 to January
      2000
      and was a Vice President with Howard Weil Labouisse Friedrichs, Inc. from 1992
      to April 1998. He currently manages various investments through Lynx Holdings,
      a
      company he owns. Mr. Raymond received a B.A. in management from the A.B. Freeman
      School of Business at Tulane University.




***Herbert
      C. Williamson - Director*** . Mr.
      Williamson became a Director in March 2005 and is Chairman of the Audit and
      Compensation Committees of the Board of Directors. From September 2000 through
      March 2003, he was a Director of Southwest Royalties, Inc. and chaired the
      independent directors committee for its acquisition by Clayton Williams Energy.
      From April 1997 to February 2002, Mr. Williamson was a Director of Pure
      Resources, Inc. and its predecessor, and served as Chairman of the special
      committee in connection with the tender offer for Pure Resources made by Unocal.
      Mr. Williamson was an investment banker with Petrie Parkman & Company from
      1995 through May 1999, was Chief Financial Officer for Seven Seas Petroleum
      Incorporated from October 1998 to April 1999 and was Vice Chairman and Executive
      Vice President for Parker & Parsley Petroleum Company (now Pioneer Natural
      Resources Company) from April 1985 to April 1995. Since November 2002, Mr.
      Williamson has served as a Director in the energy group at CS First Boston,
      and
      is currently a Director of JK Acquisition Corp. Since 1996, Mr. Williamson
      has
      been a Director of Merlon Petroleum Company, a privately owned oil and gas
      company engaged in the exploration and production of oil reserves in East Texas
      and Egypt, where for a period he was also its Chief Financial Officer. He has
      over 30 years of experience in the oil and gas industry and investment banking
      business. Mr. Williamson holds a B.A. from Ohio Wesleyan University and an
      M.B.A. from Harvard University.





28
 *Index*





**CODE
      OF ETHICS**





On
      March
      31, 2004, we adopted a Code of Ethics that applies to our principal executive
      officer, principal financial officer and principal accounting officer, as well
      as others working on our behalf. The
      Code
      of Ethics is posted on our website, and anyone can
      obtain a copy of the Code of Ethics by contacting us at the following address:
      3131 Turtle Creek Blvd, Suite 1300, Dallas, Texas 75219, attention: Chief
      Executive Officer, telephone: (214) 522-8990. The first such copy will be
      provided without charge. We will post on our website any amendments to the
      Code
      of Ethics, as well as any waivers that are required to be disclosed by the
      rules
      of either the Securities and Exchange Commission or the National Association
      of
      Securities Dealers.





**SECTION
      16(A) OF THE EXCHANGE ACT**





Section
      16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
      requires that our officers and directors, and persons who own more than ten
      percent of a registered class of our equity securities, file reports of
      ownership and changes in ownership with the Securities and Exchange Commission
      and furnish us with copies of all such Section 16(a) forms. **** Each
      of
      Keith D. Spickelmier, Chairman of our Board of Directors, and Westside
      Resources, L.P. (formerly known as Westside Energy, L.P.), which is wholly-owned
      by Jimmy D. Wright, formerly a Director and President and Chief Operating
      Officer, filed several weeks late a Form 4 regarding their separate exercises
      of
      warrants to purchase 37,500 shares each, for an aggregate of 75,000 shares.
      We
      believe that, during fiscal 2005, each of our officers, directors and greater
      than ten percent stockholders otherwise complied with all applicable filing
      requirements of Section 16(a). ****





**ITEM
      10. EXECUTIVE COMPENSATION.**





**Summary
      Compensation Table**




The
      following table sets forth the compensation we paid during the fiscal years
      ended December 31, 2006 and 2005 to our executive officers whose total
      compensation exceeded $100,000. For the purpose of this Annual Report, the
      executive officers listed in the table below are referred to as the “Named
      Executive Officers.”




**SUMMARY
      COMPENSATION TABLE (1)**


**Name
                  and principal position**
                **(a)**
              
              **Year**
                **(b)**
              
              **Salary
                  ($)**
                **(c)**
              
              **Bonus
                  ($)**
                **(d)**
              
              **Stock
                  Awards ($)**
                **(e)**
              
              **Total
                  ($)**
                **(j)**Douglas
                  G. Manner,
                Chief
                  Executive Officer (2)
              
              
              2006
              
              $
              175,000
              
              $
              262,500(3)
              
              $
              525,000(4)
              
              $
              962,500Jimmy
                  D. Wright,
              
              
              2005
              
              $
              150,000
              
              
              0
              
              
              0
              
              $
              150,000President
                  & Chief Operating Officer (5)
              
              
              2006
              
              $
              163,123
              
              
              0
              
              
              0
              
              $
              163,123Sean
                  J. Austin,
              
              
              2006
              
              $
              154,500
              
              
              0
              
              
              0
              
              $
              154,500Vice
                  President &
                Chief
                  Financial Officer
              
              
              2005
                  (6)
              
              $
              92,167
              
              $
              20,000(7)
              
              $
              80,000(8)
              
              $
              192,167




29
 *Index*





(1)
            The
                Columns designated by the Securities and Exchange Commission for
                the
                reporting of certain option awards, non-equity incentive plan
                compensation, nonqualified deferred compensation earnings or all
                other
                compensationhave
                been eliminated as no such awards, compensation or earnings were
                made to,
                earned by, or paid to or with respect to any person named in the
                table
                during any fiscal year covered by the
                table.


(2)
            Mr.
                Manner assumed the office of Chief Executive Officer effective June
                1,
                2006. Prior to that time, he had served as Chief Operating Officer
                since
                January 1, 2006.


(3)
            Represents
                75,000 shares granted as an employment sign-on bonus and valued at
                $3.50
                per share based on the closing price of our stock just prior to the
                date
                of grant.


(4)
            Represents
                150,000 restricted shares valued at $3.50 per share based on the
                closing
                price of our stock on the date of grant, 75,000 of which have not
                vested.
                Based on the $1.45 value per share of our common stock at the close
                of our
                last fiscal year, the value of Mr. Manner’s 150,000 restricted shares was
                $217,500 on December 31, 2006.


(5)
            Mr.
                Wright served as Chief Executive Officer throughout all of fiscal
                2005 and
                from January 1, 2006 until June 1, 2006. Effective June 1, 2006,
                he began
                serving as Chief Operating Officer. Mr. Wright served as President
                throughout all of fiscal 2005 and fiscal 2006. Mr. Wright resigned
                from
                all of his offices with us in April 2007.


(6)
            Mr.
                Austin’s employment began in May
                2005.


(7)
            Represents
                5,000 shares granted as an employment sign-on bonus and valued at
                $4.00
                per share based on the closing price of our stock just prior to the
                date
                of grant.


(8)
            Represents
                20,000 restricted shares valued at $4.00 per share based on the closing
                price of our stock on the date of grant, 10,000 of which have not
                vested.
                Based on the $1.45 value per share of our common stock at the close
                of our
                last fiscal year, the value of Mr. Austin’s 20,000 restricted shares was
                $29,000 on December 31, 2006.





**Outstanding
      Equity Awards**





The
      table
      below set forth information pertaining to outstanding stock awards granted
      to
      the Named Executive Officers as of December 31, 2006. No options of any kind
      have been granted; accordingly, the Columns designated by the Securities and
      Exchange Commission for the reporting of certain option awards, non-equity
      incentive plan compensation, nonqualified deferred compensation earnings or
      all
      other compensation have been eliminated.





30
 *Index*





**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**





**STOCK
      AWARDS**





**Name**
              **(a)**
            
            **Number
                of Shares or Units of Stock That Have Not Vested**
              **(#)**
              **(g)**
            
            **Market
                Value of Shares or Units of Stock That Have Not
                Vested**
              **($)**
              **(h)**
            
            **Equity
                Incentive Plan Awards: Number of Unearned Shares, Units or Other
                Rights
                That Have Not Vested**
              **(#)**
              **(i)**
            
            **Equity
                Incentive Plan Awards: Market or Payout Value of Unearned Shares,
                Units or
                Other Rights That Have Not Vested**
              **(#)**
              **(j)**Douglas
                G. Manner,
              Chief
                Executive Officer
            
            
            150,000
                (1)
            
            $
            217,500
                (2)
            
            
            600,000
            
            $
            870,000
                (2)Sean
                J. Austin,
              Vice
                President &
              Chief
                Financial Officer
            
            
            10,000
            
            $
            14,500
                (2)
            
            
            120,000
            
            $
            174,000
                (2)





(1)
            Of
                these shares, 75,000 vested on January 1, 2007.


(2)
            Based
                on the $1.45 per-share market price of our common stock at the close
                of
                our last fiscal year





**Compensation
      Agreements with Key Personnel**




We
      have a
      two-year employment agreement with Douglas G. Manner, our Chief Executive
      Officer, President and Chief Operating Officer, that became effective on January
      1, 2006 and may be terminated before January 1, 2008 upon a change of control
      of
      the company. The agreement (as amended) currently provides for an annual salary
      of $275,000 and a sign-on bonus payable in our shares, the number of which,
      up
      to a maximum of 225,000 shares (and subject to vesting by thirds), equals 150%
      of the number of our shares that he purchased from us in cash before June 1,
      2006. Mr. Manner timely purchased 150,000 shares and, accordingly, one-third
      or
      75,000 of the bonus shares immediately vested, 75,000 of which vested on January
      1, 2007, and 75,000 of the bonus shares are deemed restricted shares and shall
      vest on January 1, 2008 if he is then employed by us. The agreement also
      provides for grants of incentive shares in increments of 100,000 shares of
      our
      common stock (for a total of 600,000 shares) each time that the 30-day trailing
      average of our stock’s closing price equals or exceeds in succession $5.00,
      $6.00, $7.00, $8.00, $9.00 and $10.00 for the first time. If a change of control
      of the company occurs, Mr. Manner has the right to terminate his employment,
      in
      which case (or upon termination by us) Mr. Manner’s right to all of the
      remaining incentive shares shall immediately vest. Provided he meets eligibility
      criteria, Mr. Manner may also participate in any employee benefit plans that
      we
      have or later establish for our employees.




We
      have
      an employment agreement, effective as of May 4, 2005, with Sean J. Austin,
      our
      Chief Financial Officer. Mr. Austin’s employment agreement does not have a
      stated term. His agreement (as amended) currently provides for an annual salary
      of $200,000, subject to annual review, and a grant of 25,000 shares of our
      common stock, 5,000 of which vested on signing, 10,000 of which vested on May
      4,
      2006 and 10,000 of which are deemed restricted shares and shall vest on May
      4,
      2007 if he is then employed by us. The agreement also provides for grants of
      incentive shares in increments of 20,000 shares of our common stock (for a
      total
      of 120,000 shares) each time that the 30-day trailing average of our common
      stock’s closing price equals or exceeds in succession $5.00, $6.00, $7.00,
      $8.00, $9.00 and $10.00 for the first time. If a change of control of the
      company occurs, Mr. Austin has the right to terminate his employment, in which
      case (or upon termination by us) Mr. Austin’s right to all of the remaining
      incentive shares shall immediately vest. Provided he meets eligibility criteria,
      Mr. Austin may also participate in any employee benefit plans that we have
      or
      later establish for our employees.





31
 *Index*





**Director
      Compensation**




Each
      member of our Board of Directors who is not employed by us receives an annual
      fee of $7,500 for service on the Board and $1,000 for each meeting attended.
      In
      lieu of any cash or equity compensation, we pay the Chairman of the Board a
      $6,000 monthly fee for his services. We pay the Chairman of the Audit Committee
      of the Board an additional $3,750 annually for service as committee chair,
      and
      we pay $1,875 annually to each other member of this committee. We pay the
      Chairman of the Compensation Committee an annual fee of $2,500 for service
      as
      chair of this committee. We also reimburse our non-employee directors for their
      reasonable expenses to attend Board and committee meetings.




Each
      non-employee director, other than the Chairman, is eligible for awards of our
      common stock under our 2005 Director Stock Plan. We award each non-employee
      director 12,666 shares of our common stock when he or she first becomes a
      director. The initial award is comprised of 4,222 unrestricted shares and 8,444
      restricted shares of our common, one-half of which will vest, if the director
      is
      then a member of the Board, on each of the first and second anniversaries of
      the
      award date. We also award each non-employee director 2,650 shares of our common
      stock for annual service on the Board, of which 884 shares are unrestricted,
      and
      1,766 are restricted, one-half of which will vest, if the director is then
      a
      member of the Board, on the first and second anniversaries of the award
      date.





The
      following table sets forth the compensation we paid during the fiscal year
      ended
      December 31, 2006 to our directors.





**DIRECTOR
      COMPENSATION (1)**





Name
              (a)
            
            Fees
                Earned or
              Paid
                in Cash
              ($)
              (b)
            
            Stock
                Awards ($)
              (c)
            
            Total
                ($)
              (j)Keith
                D. Spickelmier
            
            $
            72,000
            
            
            -0-
            
            $
            72,000Craig
                S. Glick
            
            $
            16,250
            
            $
            47,497
                (2
            )
            $
            63,747John
                T. Raymond
            
            $
            17,875
            
            $
            9,355
                (3
            )
            $
            27,230Herbert
                C. Williamson
            
            $
            16,375
            
            $
            9,355
                (3
            )
            $
            25,730





(1)
            The
                Columns designated by the Securities and Exchange Commission for
                the
                reporting of certain option awards, non-equity incentive plan
                compensation, nonqualified deferred compensation earnings or all
                other
                compensationhave
                been eliminated as no such awards, compensation or earnings were
                made to,
                earned by, or paid to or with respect to any person named in the
                table
                during fiscal 2006.


(2)
            Represents
                the aggregate grant date fair value of12,666
                shares,computed
                in accordance with FAS 123R. As of December 31, 2006, Mr. Glick had
                been
                granted an aggregate of12,666
                shares for his services as a director.


(3)
            Represents
                the aggregate grant date fair value of2,650
                shares,computed
                in accordance with FAS 123R. As of December 31, 2006, each of Messrs.
                Raymond and Williamson had been granted an aggregate of15,316
                shares for their services as directors.





**ITEM
      11.** **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED
      STOCKHOLDER MATTERS.**





32
 *Index*





The
      following table sets forth, as of April 5, 2007, the number of shares of our
      common stock beneficially owned by (i) each director and each executive officer;
      (ii) each person known to us to own beneficially more than 5% of the outstanding
      shares of our common stock; and (iii) all directors and executive officers
      as a
      group. Unless otherwise indicated, each person has sole voting and dispositive
      power over such shares. Shares not outstanding but deemed beneficially owned
      by
      virtue of the right of a person or member of a group to acquire them within
      60
      days of April 5, 2007 are treated as outstanding only for determination of
      the
      amount and percent owned by such group or person. Unless otherwise indicated,
      the address for each person named in the table is care of our company, 3131
      Turtle Creek Boulevard, Suite 1300, Dallas, Texas 75219.




**Shares
                of**
              **Common
                Stock**
              **Beneficially
                Owned****Name
                and Address of Beneficial Owner****Directors
                and Executive Officers**
            
            **Number**
            
            **Percent**Keith
                D. Spickelmier
            
            
            2,626,443(1)
            
            
            12.1
            %Douglas
                G. Manner
            
            
            437,666
            
            
            2.0
            %John
                T. Raymond
            
            
            65,316
            
            
            *Herbert
                C. Williamson
            
            
            15,316
            
            
            *Craig
                S. Glick
            
            
            42,666
            
            
            *Sean
                J. Austin
            
            
            54,972
            
            
            *All
                directors and executive officers as a group (6 persons)
            
            
            3,242,379(2)
            
            
            14.9
            %**Non-management
                5% Stockholders**Wellington
                Management Company, LLP
            
            
            3,971,380(3)
            
            
            18.5
            %Jimmy
                D. Wright
            
            
            3,435,693(4)
            
            
            15.8
            %Westside
                Resources, L.P.
            
            
            3,435,693(5)
            
            
            15.8
            %Spindrift
                Investors (Bermuda) L.P.
            
            
            1,616,480(6)
            
            
            7.5
            %Spindrift
                Partners, L.P.
            
            
            1,376,200(7)
            
            
            6.4
            %Dynamis
                Advisors, LLC
            
            
            1,788,480(8)
            
            
            8.3
            %Dynamis
                Fund, LP
            
            
            1,451,921(8)
            
            
            6.8
            %


**_______________________________________**


* Represents less than one percent. ****


(1)
            Includes2,360,051shares
                held directly and 266,392 shares underlying currently exercisable
                warrants. Excludes 95,000 shares held by his wife and 70,300 shares
                held
                by two family trusts as to which Mr. Spickelmier disclaims
                ownership.


(2)
            Includes
                266,392 shares underlying currently exercisable
                warrants


(3)
            Wellington
                Management, LLC, or WML, in its capacity as investment adviser to
                Spindrift Partners, L.P., Spindrift Investors (Bermuda) L.P. and
                Wellington Trust Company, NA may be deemed to beneficially own an
                aggregate of 3,971,380 shares, which are held of record by such clients.
                The address for WML is 75 State Street, Boston, Massachusetts 02109.
                .


(4)
            Represents
                shares held by Westside Resources, L.P., which is controlled by Mr.
                Wright
                who has sole voting and investment power over these
                shares.


(5)
            Includes3,182,085shares
                held directly and indirectly and 253,608 shares underlying currently
                exercisable warrants. Jimmy D. Wright has sole voting and investment
                power
                over these shares.


(6)
            Wellington
                Hedge Management, LLC, or WHML, is the sole general partner of Spindrift
                Partners, L.P. and Wellington Hedge Management, Inc., or WHMI, is
                the
                managing member of WHML. Each of WHML and WHMI share voting and
                dispositive power over the shares held by Spindrift Partners, L.P.
                The
                address for each of Spindrift Partners, L.P., WHML, and WHMI is c/o
                Wellington Management, LLC, 75 State Street, Boston, Massachusetts
                02109.


(7)
            Wellington
                Global Holdings, Ltd. is the investment general partner of Spindrift
                Investors (Bermuda) L.P., and has the power to vote and dispose of
                the
                shares held by Spindrift Investors (Bermuda) L.P. The address for
                each of
                Spindrift Investors (Bermuda) L.P. and Wellington Global Holdings,
                Ltd. is
                c/o Wellington Management, LLC, 75 State Street, Boston, Massachusetts
                02109.


(8)
            Dynamis
                Advisors, LLC is the general partner of Dynamis Fund, LP and thus
                has
                voting power and shared investment power over the 1,451,921 shares
                owned
                by Dynamis Fund, LP. Dynamis Advisors, LLC is also the investment
                advisor
                of Dynamis Energy Fund Ltd and thus has voting power and shared investment
                power over the 296,559 shares owned by Dynamis Energy Fund Ltd. We
                have
                been advised that Alex Bocock, Frederic Bocock and John H. Bocock
                have
                shared voting power and shared investment power over these shares.
                Frederic S. Bocock, a Member/General Partner and control person of
                Dynamis
                Advisors, LLC, owns outright 40,000 of the shares disclosed in the
                table
                as being beneficially owned by Dynamis Advisors, LLC. He has sole
                voting
                power and sole investment power over these 40,000 shares. The address
                for
                each of Dynamis Advisors, LLC and Dynamis Fund, LP is 310 Fourth
                Street
                NE, Suite 101, Charlottesville, Virginia 22902.




33
 *Index*





**EQUITY
      COMPENSATION PLANS**





We
      have
      two equity
      compensation plans for our directors and consultants pursuant to which options,
      rights or shares may be granted or issued. These plans include our 2004
      Consultant Compensation Plan (the “Consultant Plan”) and our 2005 Director Stock
      Plan (the “Director Plan”) .
      In
      accordance with requirements of the U.S. Securities and Exchange Commission,
      further information on the material terms of the Consultant Compensation is
      given below.





The
      following table provides information as of December 31, 2006 with respect to
      our
      compensation plans (including individual compensation arrangements), under
      which
      securities are authorized for issuance aggregated as to (i) compensation plans
      previously approved by stockholders, and (ii) compensation plans not previously
      approved by stockholders:





**Equity
      Compensation Plan Information**





**Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average
                exercise price of outstanding options,warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))****Plan
                category**
            
            **(a)**
            
            **(b)**
            
            **(c)**Equity
                compensation plans approved by security holders
            
            
            -0-
            
            
            -0-
            
            
            -0-Equity
                compensation plans not approved by security holders
            
            
            -0-
            
            
            -0-
            
            
            3,035,875**Total**
            
            
            -0-
            
            
            -0-
            
            
            3,035,875
                (1)


(1)
              Of
                  these shares, 2,591,839 shares and 444,036 sharesremain
                  available for issuance under our 2004 Consultant Compensation Plan
                  and our
                  2005 Director Stock Plan, respectively.


34
 *Index*




**Our
      2004 Consultant Compensation Plan**





The
      following is a description of the material features of the Consultant
      Plan





**General** .
      On
      April 14, 2004, our Board of Directors approved the Consultant Plan. The
      Consultant Plan provides for the grant of shares of our Common Stock to certain
      outside consultants of ours who assist in the development and success of our
      business to reward them for their services and to encourage them to continue
      to
      provide services to us.





**Administration** .
      Our
      Board of Directors administers the Consultant Plan.





**Eligibility** .
      The
      Board of Directors has substantial discretion pursuant to the Consultant Plan
      to
      determine the persons to whom shares of Common Stock are awarded and the amounts
      and restrictions imposed in connection therewith. Under the Consultant Plan,
      awards may be made only to individuals who are outside consultants, or
      directors, officers, partners or employees of outside consultants, of us or
      a
      subsidiary. The number of consultants employed by us varies.





**Shares
      Subject to the Consultant Plan** .
      Three
      million (3,000,000) shares of Common Stock are authorized to be awarded pursuant
      to the Consultant Plan, 500,000 of which were registered with the Securities
      and
      Exchange Commission. Any shares awarded and later forfeited are again subject
      to
      award or sale under the Consultant Plan. Awards may be made pursuant to the
      Consultant Plan until no further shares are available for issuance or until April
      15,
      2014 ,
      whichever occurs first.





**Previous
      Awards** .
      We have
      awarded 408,161 shares of Common Stock pursuant to the Consultant Plan as of
      December 31, 2006.





**Restrictions** .
      The
      Board may, in its discretion, place restrictions and conditions in connection
      with any particular award of shares pursuant to the Consultant Plan. Shares
      awarded subject to a condition are, in general, non-assignable until the
      condition is satisfied.





**Anti-dilution** .
      The
      Consultant Plan carries certain anti-dilution provisions concerning stock
      dividends, stock splits, consolidations, mergers, recapitalizations and
      reorganizations.





**Amendment
      and Termination** .
      Our
      Board of Directors may terminate or amend the Consultant Plan in any respect
      at
      any time, except no action of our Board of Directors, or our stockholders,
      may,
      without the consent of a participant, alter or impair such participant's rights
      under any restricted shares previously granted.





**Term** .
      The
      Consultant Plan shall expire on April
      15,
      2014 unless
      sooner terminated except as to restricted share grants outstanding on that
      date.





**Federal
      Income Tax Consequences** .
      The
      following brief summary of the principal Federal income tax consequences of
      transactions under the Consultant Plan is based on current Federal income tax
      laws. This summary is not intended to constitute tax advice and, among other
      things, does not address possible state or local tax consequences. Accordingly,
      a participant in the Consultant Plan should consult a tax advisor with respect
      to the tax aspects of transactions under the Consultant Plan.





**Unrestricted
      Stock Grants** .
      The tax
      consequences of unrestricted stock awards will depend on the specific terms
      of
      each award.





35
 *Index*





**Restricted
      Stock Grants** .
      Upon
      receipt of restricted stock, a participant generally will recognize taxable
      ordinary income when the shares cease to be subject to restrictions in an amount
      equal to the fair market value of the shares at such time. However, no later
      than 30 days after a participant receives the restricted stock, the participant
      may elect to recognize taxable ordinary income in an amount equal to the fair
      market value of the shares at the time of receipt. Provided that the election
      is
      made in a timely manner, when the restrictions on the shares lapse, the
      participant will not recognize any additional income. If the participant
      forfeits the shares to us (e.g., upon the participant's termination prior to
      expiration of the restriction period), the participant may not claim a deduction
      with respect to the income recognized as a result of the election. Dividends
      paid with respect to shares of restricted stock generally will be taxable as
      ordinary income to the participant at the time the dividends are received.





**Tax
      Consequences to Us** .
      We
      generally will be entitled to a deduction at the same time and in the same
      amount as a participant recognizes ordinary income, subject to the limitations
      imposed under Section 162(m).





**Tax
      Withholding** .
      We have
      the right to deduct withholding taxes from any payments made pursuant to the
      Consultant Plan or to make such other provisions as it deems necessary or
      appropriate to satisfy our obligations to withhold federal, state or local
      income or other taxes incurred by reason of payment or the issuance of Common
      Stock under the Consultant Plan or the lapse of restrictions on grants upon
      which restrictions have been placed.





**Our
      2005 Director Stock Plan**





The
      following is a description of the material features of the Director
      Plan.





**General.** Effective
      March 30, 2005, our Board of Directors adopted the Director Plan. The Director
      Plan provides for the grant of shares of our Common Stock to non-employee
      members of the Board of Directors to provide them with incentives to work hard
      for our success. ****





**Administration.** Our
      Board
      of Directors administers the Director Plan.





**Eligibility.** Under
      the
      Director Plan, awards may be made only to members of our Board of Directors
      who
      are not employees of us or any of our affiliates (“ Non-Employee
      Directors”) . ****





**Shares
      Subject to the Director Plan.** Five
      hundred thousand (500,000) shares of Common Stock are authorized to be awarded
      pursuant to the Director Plan. **** Awards
      may be made pursuant to the Director Plan until no further shares are available
      for issuance or until March 30, 2015, whichever occurs first.





**Awards.** Each
      Non-Employee Director receives an award of 12,666 shares of Common Stock when
      he
      or she first becomes a director. Of these shares, 4,222 are unrestricted, and
      the remaining 8,444 shares are restricted, with one-half of them vesting one
      year after the award and with one-half of them vesting two years after the
      award, provided, in both cases, that the related person is still a director
      of
      ours on the vesting dates. In addition to the initial grant, each Non-Employee
      Director receives an annual award of 2,650 shares of our Common Stock. Of these
      shares, 884 are unrestricted, and the remaining 1,766 are restricted, with
      one-half of them vesting one year after the award and with one-half of them
      vesting two years after the award, provided, in both cases, that the related
      person is still a director of ours on the vesting dates. We have awarded 55,964
      shares of Common Stock pursuant to the Director Plan as of December 31,
      2006.





**Restrictions.** The
      restricted shares comprising a grant are non-assignable until such shares are
      vested and no longer subject to forfeiture. ****





**Anti-dilution.** The
      Director Plan carries certain anti-dilution provisions concerning stock
      dividends, stock splits, consolidations, mergers, recapitalizations and
      reorganizations. ****





**Amendment
      and Termination.** Our
      Board
      of Directors may terminate or amend the Director Plan in any respect at any
      time, provided that no alteration or amendment may be made without the approval
      of stockholders if such approval is required by applicable law or stock exchange
      rule.





36
 *Index*





**Term.** The
      Director Plan shall expire on March 30, 2015 unless sooner terminated except
      as
      to restricted share grants outstanding on that date. ****





**Federal
      Income Tax Consequences.** The
      following brief summary of the principal Federal income tax consequences of
      transactions under the Director Plan is based on current Federal income tax
      laws. This summary is not intended to constitute tax advice and, among other
      things, does not address possible state or local tax consequences. Accordingly,
      a participant in the Director Plan should consult a tax advisor with respect
      to
      the tax aspects of transactions under the Director Plan.





**Unrestricted
      Stock Grants.** The
      tax
      consequences of the unrestricted shares comprising a grant will depend on the
      specific terms of each award. ****





**Restricted
      Stock Grants.** With
      regard to the restricted shares, a participant generally will recognize taxable
      ordinary income when the shares cease to be subject to restrictions in an amount
      equal to the fair market value of the shares at such time. However, no later
      than 30 days after a participant receives the restricted shares, the participant
      may elect to recognize taxable ordinary income in an amount equal to the fair
      market value of the shares at the time of receipt. Provided that the election
      is
      made in a timely manner, when the restrictions on the shares lapse, the
      participant will not recognize any additional income. If the participant
      forfeits the shares (e.g., upon the participant's termination prior to
      expiration of the restriction period), the participant may not claim a deduction
      with respect to the income recognized as a result of the election. Dividends
      paid with respect to shares of restricted shares generally will be taxable
      as
      ordinary income to the participant at the time the dividends are
      received. ****





**Tax
      Consequences to Us.** We
      generally will be entitled to a deduction at the same time and in the same
      amount as a participant recognizes ordinary income, subject to the limitations
      imposed under Section 162(m).





**Tax
      Withholding.** We **** have
      the
      right to deduct withholding taxes from any payments made pursuant to the
      Director Plan or to make such other provisions as it deems necessary or
      appropriate to satisfy our obligations to withhold federal, state or local
      income or other taxes incurred by reason of payment or the issuance of Common
      Stock under the Director Plan or the lapse of restrictions on grants upon which
      restrictions have been place.





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.**





**CERTAIN
      RELATED TRANSACTIONS**





In
      March
      2007, we entered into a $25 million two-year Credit Agreement with a syndicate
      of four private investment funds including Spindrift Partners, L.P., Spindrift
      Investors (Bermuda) L.P., Placer Creek Partners, L.P. and Placer Creek Investors
      (Bermuda) L.P.  Wellington Management, LLC (“Wellington”), which
      beneficially owns approximately 18.5% of our outstanding common stock, serves
      as
      the investment adviser to each of these lenders, and arranged for the loan.
      At
      the time of the loan, Spindrift Investors (Bermuda) L.P. beneficially owned
      approximately 7.5% of our outstanding common stock, while Spindrift Partners,
      L.P. beneficially owned approximately 6.4% of our outstanding common stock
      (all
      of the shares comprising these preceding two percentage figures below are
      attributed to Wellington in computing its 18.5% ownership percentage). For
      more
      information regarding this loan transaction, see "ITEM 6. MANAGEMENT'S
      DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - *Senior
      Secured Financing* ."
      In
      addition, in January 2006, we privately sold 3,278,000 shares of our common
      stock at a price of $3.15 per share to 27 investors. In this private placement,
      Spindrift Partners, L.P. acquired 402,500 shares for $1,267,875, while Spindrift
      Investors (Bermuda) L.P. acquired 469,300 shares for $1,478,295. ****





In
      the
      January 2006 private placement described above, one investor was the wife of
      Keith D. Spickelmier, Chairman of our Board of Directors, who acquired 95,000
      shares for $299,250, and two of the investors were trusts for the benefit of
      his
      wife’s sons, which together acquired 46,000 shares for $144,900.





37
 *Index*





In
      May
      2006, we sold 150,000 shares of our common stock at $3.15 per share to Douglas
      G. Manner, a Director and our Chief Executive Officer, and 29,972 shares at
      $3.15 per share to Sean J. Austin, our Chief Financial Officer.




In
      June
      2006, each of Mr. Spickelmier and Westside Resources, L.P. (formerly known
      as
      Westside Energy, L.P.), which is wholly-owned by Jimmy D. Wright, at the time
      a
      Director and our President and Chief Operating Officer, exercised warrants
      to
      purchase 37,500 shares of our common stock at a per share price of
      $2.50.





**DIRECTOR
      INDEPENDENCE**





Our
      common stock is listed for trading on the American Stock Exchange (the “AMEX”).
      Accordingly, we use the standards established by the AMEX for determining
      whether or not each of our directors is “independent.” We have determined that,
      as of March 31, 2007, each of Keith D. Spickelmier, John T. Raymond and Herbert
      C. Williamson are “independent” directors in accordance with the AMEX
      independence standards, although Mr. Spickelmier did not meet these standards
      of
      independence during any portion of fiscal 2006. The AMEX rules generally require
      that a listed company’s Board of Directors be composed of a majority of
      independent directors. However, these rules provide that a “small business
      issuer” need only maintain a Board of Directors comprised of at least 50%
      independent directors. Based on our current “small business issuer” status and
      the preceding exemption, we maintained a Board of Directors comprised of 50%
      independent directors, until the time that Jimmy D. Wright resigned from his
      seat on the Board in April 2007. Since the time of Mr. Wright’s resignation, we
      have maintained a Board of Directors comprised of a majority of independent
      directors.





Mr.
      Spickelmier also served on our Audit Committee during a portion of fiscal 2006
      at a time when he did not meet the AMEX independence standards. The AMEX rules
      generally require that a listed company’s Audit Committee be composed of at
      least three members, each of whom must be independent. However, these rules
      provide that one director who is not independent but meets certain other
      requirements may be appointed to the Audit Committee, if the Board of Directors,
      under exceptional and limited circumstances, determines that membership on
      the
      committee by the individual is required by the best interests of the issuer
      and
      its stockholders. Mr. Spickelmier was appointed to our Audit Committee on the
      basis of the preceding exemption. In determining that Mr. Spickelmier’s
      appointment to our Audit Committee was required by our and our stockholders’
best interests, the Board of Directors considered Mr. Spickelmier's background
      and expertise, the fact that Mr. Spickelmier would soon again meet the AMEX’s
      standards of independence, and the anticipated improved performance of our
      Audit
      Committee that would result from a greater number of members serving on such
      committee.





In
      addressing the question as to Mr. Spickelmier’s independence in view of AMEX
      standards, the Board of Directors considered the $72,000 in annual fees paid
      to
      Mr. Spickelmier for serving as our Chairman of the Board, and the Board of
      Directors determined that such fees did not create a material relationship
      that
      would interfere with Mr. Spickelmier’s exercise of independent judgment.








**PART
      IV.**





**ITEM
      13. EXHIBITS.**





The
      following exhibits are filed with this Annual Report or are incorporated herein
      by reference:





Exhibit
                No.
            Description3.01
            Our
                Restated Articles of Incorporation is incorporated herein by reference
                from our Quarterly Report on Form 10-QSB for the quarter ended June
                30,
                2004 (SEC File No. 0-49837), Exhibit 3.01.3.02
            Our
                Amended and Restated Bylaws are incorporated herein by reference
                from our
                Form 10-SB (SEC File No. 0-49837) filed with the SEC on May 28, 2002,
                Part
                III, Item 1, Exhibit 3.02.3.03
            First
                Amendment to our Amended and Restated Bylaws is incorporated herein
                by
                reference from our Form 10-QSB (SEC File No. 0-49837) filed with
                the SEC
                on August 21, 2006, Part II, Item 6, Exhibit 3.01.3.04
            Article
                of Merger of Westside Energy Subsidiary Corporation with and into
                us,
                whereby we changed our corporate name to "Westside Energy Corporation"
                is
                incorporated herein by reference from our Annual Report on Form 10-KSB
                for
                the year ended December 31, 2003 (SEC File No. 0-49837), Exhibit
                3.04




38
 *Index*





4.01
            Specimen
                Common Stock Certificate is incorporated herein by reference from
                Pre-effective Amendment No. 1 to our Registration Statement on Form
                SB-2
                (SEC File No. 333-120659) filed December 23, 2004, Exhibit
                4.01.10.01
            Warrant
                to Purchase our common stock issued in the name of Westside Energy,
                L.P.
                is incorporated herein by reference from our Current Report on Form
                8-K
                (SEC File No. 0-49837) filed with the SEC on March 1, 2004, Exhibit
                10.0310.02
            Warrant
                to Purchase our common stock issued in the name of Keith D. Spickelmier
                is
                incorporated herein by reference from our Current Report on Form
                8-K (SEC
                File No. 0-49837) filed with the SEC on March 1, 2004, Exhibit
                10.0410.03
            Warrant
                to Purchase our common stock issued in the name of Westside Resources,
                L.P. is incorporated herein by reference from our Registration Statement
                on Form SB-2 (SEC File No. 333-120659) filed November 22, 2004, Exhibit
                10.09.10.04
            Warrant
                to Purchase our common stock issued in the name of Keith D. Spickelmier
                is
                incorporated herein by reference from our Registration Statement
                on Form
                SB-2 (SEC File No. 333-120659) filed November 22, 2004, Exhibit
                10.10.10.05
            Warrant
                to Purchase our common stock issued in the name of Sterne, Agee &
                Leach, Inc. is incorporated herein by reference from our Registration
                Statement on Form SB-2 (SEC File No. 333-120659) filed November 22,
                2004,
                Exhibit 10.16.10.06
            Agreement
                dated April 12, 2005 between us and EBS Oil and Gas Partners Production
                Company, L.P.is
                incorporated herein by reference from our Current Report on Form
                8-K (SEC
                File No. 0-49837) filed with the SEC on April 22, 2005, Exhibit
                10.0110.07
            Agreement
                dated May 3, 2005 between us and Sean J. Austinis
                incorporated herein by reference from our Current Report on Form
                8-K (SEC
                File No. 0-49837) filed with the SEC on May 19, 2005, Exhibit
                10.0110.08
            Employment
                Agreement dated December 8, 2005 between us and Douglas G. Manneris
                incorporated herein by reference from our Current Report on Form
                8-K (SEC
                File No. 0-49837) filed with the SEC onDecember
                8,2005,
                Exhibit 10.0110.09
            FirstAmendment
                datedeffective
                January 1, 2006to
                Employment Agreement with Sean J. Austin10.10
            Form
                of Indemnification Agreements separately entered into by us, on the
                one
                hand, and Keith D. Spickelmier, Douglas G. Manner, Craig S. Glick,
                John T.
                Raymond, Herbert C. Williamson and Sean J. Austin, on the other
                hand10.11
            Purchase
                and Sale Agreement dated November 30, 2005 between us, on the one
                hand,
                and Kelly K. Buster, James I. Staley, Enexco, Inc., the Class B Limited
                Partners of EBS, and EBS Oil & Gas Partners Production GP, LLC, on the
                other hand10.12
            Omitted10.13
            Advancing
                Term Credit Agreement date March 15, 2006 between us, Westside Energy
                Production Company, LP, and Westside Energy Operating Company, LP,
                on the
                one hand, and GasRock Capital LLC, on the other hand10.14
            Joint
                Exploration Agreement dated June 26, 2006 between us and Forest Oil
                Corporation10.15
            Purchase
                and Sale Agreement datedNovember
                9, 2006,
                between Westside Energy Production Company, L.P. and Cimmarron Gathering,
                LP10.16
            SecondAmendment
                dated April 4, 2007 buteffective
                as of January 1, 2007to
                Employment Agreement with Douglas G. Manner10.17
            ThirdAmendment
                dated April 4, 2007 buteffective
                as of January 1, 2007to
                Employment Agreement with Sean J. Austin10.18
            Letter
                Amendment dated April 4, 2007 to Joint Exploration Agreement with
                Forest
                Oil Corporation10.19
            Consulting

                Agreement datedApril
                4, 2007 buteffective
                as of May 1, 2007 between us and Jimmy D.
                Wright




39
 *Index*





23.01
            Consent
                of Malone & Bailey, PC - filed herewith23.02
            Consent
                of LaRoche Petroleum Consultants, Ltd. - filed herewith31.1
            Sarbanes
                Oxley Section 302 Certifications32.1
            Sarbanes
                Oxley Section 906 Certifications99.01
            Our
                2004 Consultant Compensation Plan (filed as Exhibit 4.1 to our
                Registration Statement on Form S-8 (SEC File No. 333-114686) filed
                April
                21, 2004.99.02
            Our
                2005 Director Stock Plan (filed as Exhibit 4.2 to our Registration
                Statement on Form S-8 (SEC File No. 333-124890) filed May 13,
                2005.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**




During
      2006 and 2005, the aggregate fees that we paid to Malone & Bailey, PC, our
      independent auditors, for professional services were as follows:


Year
                Ended December 31,2006
            
            2005Audit
                Fees (1)
            
            $
            115,485
            
            $
            51,267Audit-Related
                Fees (2)
            
            $
            41,681
            
            
            N/ATax
                Fees (3)
            
            $
            6,580
            
            
            N/AAll
                Other Fees
            
            
            N/A
            
            
            N/A





(1)
            Fees
                for audit services include fees associated with the annual audit
                and the
                review of our quarterly reports on Form
                10-QSB.




(2)
            Fees
                for the audits in connection with the acquisition of EBS Oil and
                Gas
                Partners Production Company, L.P. and EBS Oil and Gas Partners Operating
                Company, L.P.




(3)
            Consist
                primarily of professional services rendered for tax compliance, tax
                advice
                and tax planning.




**Audit
      Committee Pre-Approval of Audit and Permissible**


**Non-Audit
      Services of Independent Registered Public Accounting Firm.**





The
      Audit
      Committee pre-approves the engagement of Malone & Bailey, PC for all audit
      and permissible non-audit services. The Audit Committee annually reviews the
      audit and permissible non-audit services performed by Malone & Bailey, PC,
      and reviews and approves the fees charged by Malone & Bailey, PC. The Audit
      Committee has considered the role of Malone & Bailey, PC in providing tax
      and audit services and other permissible non-audit services to us and has
      concluded that the provision of such services was compatible with the
      maintenance of Malone & Bailey, PC’s independence in the conduct of its
      auditing functions.




40
 *Index*


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors
 Westside
        Energy Corporation, Inc.
 Dallas,
        Texas
 
 We
        have
        audited the accompanying consolidated balance sheets of Westside Energy
        Corporation, Inc. (“Westside”) and its subsidiaries as of December 31, 2006 and
        2005 and the related consolidated statements of operations, cash flows and
        changes in stockholders’ equity for the two year period then ended. These
        financial statements are the responsibility of Westside’s management. Our
        responsibility is to express an opinion on these financial statements based
        on
        our audit.
 
 We
        conducted our audits in accordance with standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Westside as of December
        31,
        2006 and 2005 and the results of its operations and its cash flows for the
        periods described in conformity with accounting principles generally accepted
        in
        the United States of America.
  
 /s/
        Malone & Bailey, PC
 Malone
        & Bailey, PC
 www.malone-bailey.com
 Houston,
        Texas
 
 April
        16,
        2007
  F-1
 
 WESTSIDE
                    ENERGY COPORATIONCONSOLIDATED
                    BALANCE SHEETSDecember
                    31,
                
                December
                    31,2006
                
                2005ASSETSCurrent
                    AssetsCash
                    and cash equivalents
                
                $
                5,003,803
                
                $
                604,411Certificate
                    of deposit and escrow account
                
                
                27,887
                
                
                27,693Marketable
                    securities
                
                
                425,000
                
                
                1,050,000Accounts
                    receivable
                
                
                5,189,504
                
                
                492,349Derivative
                    asset
                
                
                169,885
                
                
                -Prepaid
                    assets
                
                
                122,914
                
                
                1,770Deferred
                    acquisition charges
                
                
                -
                
                
                289,367Total
                    current assets
                
                
                10,938,993
                
                
                2,465,590Oil
                    & gas properties, using successful efforts accountingProved
                    properties
                
                
                23,681,084
                
                
                8,513,598Unproved
                    properties
                
                
                10,319,150
                
                
                4,282,036Accumulated
                    depreciation, depletion, amortization & impairment
                
                
                (10,851,176
                )
                
                (1,293,895
                )Net
                    oil & gas properties
                
                
                23,149,058
                
                
                11,501,739Deferred
                    financing costs, net of accumulated amortization of
                    $66,593
                
                
                265,907
                
                
                -Loan
                    receivable from EBS
                
                
                -
                
                
                4,100,000Property
                    and equipment, net of accumulated depreciation of $92,656
                
                
                150,322
                
                
                -TOTAL
                    ASSETS
                
                $
                34,504,280
                
                $
                18,067,329LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    liabilitiesAccounts
                    payable and accrued expenses
                
                $
                7,171,069
                
                $
                529,446Current
                    portion of long-term debt
                
                
                3,997,500
                
                
                -Total
                    current liabilities
                
                
                11,168,569
                
                
                529,446Non-current
                    liabilitiesAsset
                    retirement obligations
                
                
                153,487
                
                
                27,880Long-term
                    portion of debt
                
                
                7,609,057
                
                
                -TOTAL
                    LIABILITIES
                
                
                18,931,113
                
                
                557,326STOCKHOLDERS’
                    EQUITYPreferred
                    stock, $.01 par value, 10,000,000 shares authorized, none issued
                    and
                    outstanding
                
                
                -
                
                
                -Common
                    stock, $.01 par value, 50,000,000 shares authorized, 21,461,909
                    and
                    17,376,745 shares issued and outstanding
                
                
                214,619
                
                
                173,767Additional
                    paid in capital
                
                
                34,501,241
                
                
                22,736,902Accumulated
                    other comprehensive income
                
                
                169,885
                
                
                -Accumulated
                    deficit
                
                
                (19,312,578
                )
                
                (5,400,666
                )TOTAL
                    STOCKHOLDERS’ EQUITY
                
                
                15,573,167
                
                
                17,510,003TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                34,504,280
                
                $
                18,067,329
 See
        accompanying notes to consolidated financial statements.
  F-2
  
 WESTSIDE
                  ENERGY CORPORATIONCONSOLIDATED
                  STATEMENTS OF OPERATIONSYears
                  Ended December 31, 2006 and 20052006
              
              2005RevenuesOil
                  and gas sales
              
              $
              3,915,209
              
              $
              595,657ExpensesProduction
              
              
              1,779,192
              
              
              108,227Exploration
              
              
              -
              
              
              360,170General
                  and administrative
              
              
              5,296,723
              
              
              1,782,184Depreciation,
                  depletion and amortization
              
              
              5,710,295
              
              
              344,797Impairment
              
              
              4,310,330
              
              
              636,278Total
                  Expenses
              
              
              17,096,540
              
              
              3,231,656Loss
                  from Operations
              
              
              (13,181,331
              )
              
              (2,635,999
              )Other
                  Income (Expense)Interest
                  income
              
              
              225,619
              
              
              359,490Interest
                  expense
              
              
              (956,200
              )
              
              (2,070
              )Gain
                  (loss) on marketable securities
              
              
              -
              
              
              (98
              )Gain
                  (loss) on sale of oil and gas properties
              
              
              -
              
              
              339,355Total
                  Other Income (Expense)
              
              
              (730,581
              )
              
              696,677NET
                  LOSS
              
              $
              (13,911,912
              )
              $
              (1,939,322
              )Basic
                  and diluted loss per common share
              
              $
              (0.66
              )
              $
              (0.11
              )Weighted
                  average common shares outstanding
              
              
              21,041,220
              
              
              17,273,205
  See
        accompanying notes to consolidated financial statements.
  F-3
 
 WESTSIDE
                  ENERGY CORPORATIONCONSOLIDATED
                  STATEMENTS OF CASH FLOWSYears
                  Ended December 31, 2006 and 20052006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (13,911,912
              )
              $
              (1,939,322
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock
                  for services
              
              
              764,985
              
              
              243,646Impairment
              
              
              4,310,330
              
              
              636,278Depreciation,
                  depletion and amortization
              
              
              5,710,295
              
              
              344,797Amortization
                  of discount on note payable
              
              
              82,076
              
              
              -Amortization
                  of deferred financing costs
              
              
              66,593
              
              
              -Gain
                  on sale of properties
              
              
              -
              
              
              (339,355
              )Loss
                  on marketable securities
              
              
              -
              
              
              98Changes
                  in:Accounts
                  receivable
              
              
              2,439,095
              
              
              (377,414
              )Prepaid
                  assets and other
              
              
              (553,330
              )
              
              28,505Deferred
                  acquisition charges
              
              
              -
              
              
              (289,367
              )Accounts
                  payable and accrued expenses
              
              
              (6,418,551
              )
              
              111,924NET
                  CASH USED IN OPERATING ACTIVITIES
              
              
              (7,510,419
              )
              
              (1,580,210
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESAcquisition
                  of EBS, net of cash acquired
              
              
              955,574
              
              
              -Purchase
                  of marketable securities
              
              
              -
              
              
              (3,575,000
              )Proceeds
                  from sale of marketable securities
              
              
              625,000
              
              
              2,524,902Purchase
                  of certificate of deposit
              
              
              -
              
              
              (27,500
              )Purchase
                  of office equipment
              
              
              (75,938
              )
              
              (27,220
              )Advances
                  to EBS
              
              
              (3,644,754
              )
              
              (4,100,000
              )Capital
                  expenditures for oil and gas properties
              
              
              (13,306,243
              )
              
              (9,277,131
              )Proceeds
                  from sale of properties
              
              
              4,941,985
              
              
              448,000NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              (10,504,376
              )
              
              (14,033,949
              )CASH
                  FLOWS FROM FINANCING ACTIVIIESProceeds
                  from notes payable, net of financing costs
              
              
              14,887,500
              
              
              -Payments
                  for fundraising
              
              
              -
              
              
              (2,121
              )Proceeds
                  from exercise of warrants
              
              
              813,750
              
              
              225,000Proceeds
                  from sale of common stock, net
              
              
              10,226,456
              
              
              -Payments
                  on notes
              
              
              (3,513,519
              )
              
              -NET
                  CASH PROVIDED FROM FINANCING ACTIVITIES
              
              
              22,414,187
              
              
              222,879NET
                  CHANGE IN CASH
              
              
              4,399,392
              
              
              (15,391,280
              )CASH
                  BALANCESBeginning
                  of period
              
              
              604,411
              
              
              15,995,691End
                  of period
              
              $
              5,003,803
              
              $
              604,411
  See accompanying notes to
        consolidated financial statements.
  F-4
 
 WESTSIDE
                  ENERGY CORPORATIONCONSOLIDATED
                  STATEMENTS OF CASH FLOWSYears
                  Ended December 31, 2006 and 20052006
              
              2005SUPPLEMENTAL
                  CASH FLOW DISCLOSURES:Interest
                  paid
              
              $
              956,200
              
              $
              -Taxes
                  paid
              
              $
              -
              
              $
              -NON-CASH
                  DISCLOSURES:Discount
                  on note payable
              
              $
              182,000
              
              $
              -Change
                  in derivative asset
              
              $
              169,885
              
              $
              -Amortized
                  loss on marketable securities
              
              $
              -
              
              $
              81
  See
        accompanying notes to consolidated financial statements.
  F-5
  Westside
        Energy Corporation
 Consolidated
        Statements of Changes in Stockholders' Equity
 Years
        Ended December 31, 2005 and 2006
 
 Common
                  StockShares
              
              Par
                  Value
              
              Additional
                  Paid-in Capital
              
              Retained
                  Deficit
              
              Other
                  Comprehensive Income
              
              TotalBalance
                  at December 31, 2004
              
              
              17,048,331
              
              $
              170,483
              
              $
              22,273,661
              
              $
              (3,461,344
              )
              $
              -
              
              $
              18,982,800Stock
                  issued for warrants exercised
              
              
              218,000
              
              
              2,180
              
              
              222,820
              
              
              -
              
              
              -
              
              
              225,000Fundraising
                  costs
              
              
              -
              
              
              -
              
              
              (2,121
              )
              
              -
              
              
              -
              
              
              (2,121
              )Stock
                  issued for services
              
              
              33,972
              
              
              340
              
              
              128,138
              
              
              -
              
              
              -
              
              
              128,478Deferred
                  compensation
              
              
              76,442
              
              
              764
              
              
              (764
              )
              
              -
              
              
              -
              
              
              -Amortization
                  of deferred compensation
              
              
              -
              
              
              -
              
              
              115,168
              
              
              -
              
              
              -
              
              
              115,168Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              (1,939,322
              )
              
              
              
              
              (1,939,322
              )Balance
                  at December 31, 2005
              
              
              17,376,745
              
              
              173,767
              
              
              22,736,902
              
              
              (5,400,666
              )
              
              -
              
              
              17,510,003Stock
                  issued for warrants exercised
              
              
              357,500
              
              
              3,575
              
              
              810,175
              
              
              -
              
              
              -
              
              
              813,750Stock
                  issued for services
              
              
              94,384
              
              
              944
              
              
              326,204
              
              
              -
              
              
              -
              
              
              327,148Shares
                  sold for cash
              
              
              3,457,972
              
              
              34,580
              
              
              10,191,876
              
              
              -
              
              
              -
              
              
              10,226,456Deferred
                  compensation
              
              
              175,308
              
              
              1,753
              
              
              (1,753
              )
              
              -
              
              
              -
              
              
              -Amortization
                  of deferred compensation
              
              
              -
              
              
              -
              
              
              437,837
              
              
              -
              
              
              -
              
              
              437,837Unrealized
                  gain on derivative instruments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              169,885
              
              
              169,885Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (13,911,912
              )
              
              -
              
              
              (13,911,912
              )Balance
                  at December 31, 2006
              
              
              21,461,909
              
              $
              214,619
              
              $
              34,501,241
              
              $
              (19,312,578
              )
              $
              169,885
              
              $
              15,573,167
  See
        notes
        to consolidated financial statements.
  F-6
 
 WESTSIDE
        ENERGY CORPORATION
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
        1 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature
        of
        operations and organization
 
 Westside
        Energy Corporation ("Westside") (formerly EvenTemp Corporation) was incorporated
        in Nevada on November 30, 1995. EvenTemp operated an auto repair and accessory
        business. This business ceased operating in August 1999. The name of the
        company
        was changed to Westside Energy Corporation in March 2004.
 
 Westside
        is engaged primarily in the acquisition, exploration, development, production,
        and sales of, oil, gas and natural gas liquids. Westside sells its oil and
        gas
        products primarily to domestic natural gas pipelines and crude oil
        marketers.
  Principles
        of Consolidation
  Westside’s
        consolidated financial statements include the accounts of Westside and its
        wholly and majority owned subsidiaries. All significant intercompany accounts
        and transactions have been eliminated in consolidation.
  Use
        of
        estimates
 
 The
        preparation of these financial statements in conformity with accounting
        principles generally accepted in the United States of America requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the financial statements and the reported amounts of revenues
        and
        expenses during the reporting period. Actual results could differ from those
        estimates.
 
 Revenue
        recognition
 
 Westside
        records oil and gas revenues following the entitlement method of accounting
        for
        production, in which any excess amount received above Westside's share is
        treated as a liability. If less than Westside's share is received, the
        underproduction is recorded as an asset. Westside did not have an imbalance
        position in terms of volumes or values at December 31, 2006.
 
 Oil
        and
        gas properties
 
 Westside
        uses the successful efforts method of accounting for oil and gas producing
        activities. Costs to acquire mineral interests in oil and gas properties,
        to
        drill and equip exploratory wells that find proved reserves, to drill and
        equip
        development wells and related asset retirement costs are capitalized. Costs
        to
        drill exploratory wells that do not find proved reserves, geological and
        geophysical costs, and costs of carrying and retaining unproved properties
        are
        expensed.
  F-7
  Unproved
        oil and gas properties that are individually significant are periodically
        assessed for impairment of value, and a loss is recognized at the time of
        the
        impairment by providing an impairment allowance. Capitalized costs of producing
        oil and gas properties, after considering estimated residual salvage values,
        are
        depreciated and depleted by the unit-of-production method. Support equipment
        and
        other property and equipment are depreciated over their estimated useful
        lives.
 
 On
        the
        sale or retirement of a complete unit of proved property, the cost and related
        accumulated depreciation, depletion, and amortization are eliminated from
        the
        property accounts, and the resultant gain or loss is recognized. On the
        retirement or sale of a partial unit of proved property, the cost is charged
        to
        accumulated depreciation, depletion, and amortization with a resulting gain
        or
        loss recognized in income.
 
 On
        the
        sale of an entire interest in an unproved property for cash or cash equivalent,
        gain or loss on the sale is recognized, taking into consideration the amount
        of
        any recorded impairment if the property had been assessed individually. If
        a
        partial interest in an unproved property is sold, the amount received is
        treated
        as a reduction of the cost of the interest retained.
 
 Seismic
        costs
 
 Management
        considers 3-D seismic surveys over acreage with proved reserves assigned
        to be
        development activities. For development projects, the Company uses its 3-D
        seismic database to select drill sites, assess recompletion opportunities
        and
        production issues, quantify reservoir size and determine probable extensions
        and/or drainage areas for existing fields. Westside amortizes the cost of
        its
        capitalized developmental 3-D seismic survey costs using the unit-of-production
        method. Costs for 3-D seismic surveys over unproven acreage are defined as
        related to exploration activities and are expensed in the period
        incurred.
 
 Cash
        and
        cash equivalents
 
 Cash
        and
        cash equivalents include cash in banks and certificates of deposit which
        mature
        within three months of the date of purchase.
 
 Marketable
        Securities
 
 Westside
        classifies its investments as available-for-sale which are reported at estimated
        fair value with unrealized gains and losses included in other comprehensive
        income, net of applicable deferred income taxes. The annual amortization
        or
        accretion is recorded as a charge or credit to interest income. Realized
        gains
        and losses on sales are recognized in net income on the specific identification
        basis. The estimated fair values of investments are based on quoted market
        prices or dealer quotes.
 
 Accounts
        Receivable
 
 WestSide
        uses the allowance method of accounting for doubtful accounts. The year-end
        balance is based on historical collections and management’s review of the
        current status of existing receivables and estimate as to their collectibility.
        Westside provides reserves for accounts receivable when they become
        uncollectible, and payments subsequently received on such receivables are
        credited to the allowance for doubtful accounts. At December 31, 2006 and
        2005,
        Westside has determined that no allowance for doubtful accounts is
        necessary.
  F-8
  Debt
        Issuance Costs
 
 Debt
        issuance costs are deferred and recognized, using the effective interest
        method,
        over the expected term of the related debt.
 
 Property
        and equipment
 
 Property
        and equipment are valued at cost. Additions are capitalized and maintenance
        and
        repairs are charged to expense as incurred. Gains and losses on dispositions
        of
        equipment are reflected in other income and expense.
 
 Long-lived
        assets
 
 Long-lived
        assets to be held and used or disposed of other than by sale are reviewed
        for
        impairment whenever events or changes in circumstances indicate that the
        carrying amount may not be recoverable. When required, impairment losses
        on
        assets to be held and used or disposed of other than by sale are recognized
        based on the fair value of the asset. Long-lived assets to be disposed of
        by
        sale are reported at the lower of the asset's carrying amount or fair value
        less
        cost to sell.
 
 Stock-based
        compensation
 
 On
        January 1, 2006, Westside adopted SFAS No. 123(R), "Share Based Payment".
        SFAS
        123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R)
        requires all share−based payments to employees, including grants of employee
        stock options, to be recognized in the financial statements based on their
        fair
        values. The pro forma disclosures previously permitted under SFAS 123 are
        no
        longer an alternative to financial statement recognition. Westside adopted
        SFAS
        123(R) using the modified prospective method which requires the application
        of
        the accounting standard as of January 1, 2006.
 
 Prior
        to
        2006, Westside began issuing common stock to employees as compensation. Westside
        recorded as compensation expense the fair value of such shares as calculated
        pursuant to Statement of Financial Accounting Standard No. 123, Accounting
        for
        Stock−Based Compensation, recognized over the related service period. Westside
        has no option plans for its employees. Westside accounts for stock−based
        compensation issued to non−employees in accordance with the provisions of SFAS
        No. 123 and EITF No. 96−18, "Accounting for Equity Investments That Are Issued
        to Non−Employees for Acquiring, or in Conjunction with Selling Goods or
        Services". For expensing purposes, the value of common stock issued to
        non−employees and consultants is determined based on the fair value of the
        services received or the fair value of the equity instruments issued, whichever
        value is more reliably measurable.
 
 Income
        taxes
 
 Westside
        recognizes deferred tax assets and liabilities based on differences between
        the
        financial reporting and tax basis of assets and liabilities using the enacted
        tax rates and laws that are expected to be in effect when the differences
        are
        expected to be recovered. Westside provides a valuation allowance for deferred
        tax assets for which it does not consider realization of such assets to be
        more
        likely than not.
 
 Loss
        per
        share
  F-9
  Basic
        and
        diluted net loss per share calculations are calculated on the basis of the
        weighted average number of common shares outstanding during the year. The
        per
        share amounts include the dilutive effect of common stock equivalents in
        years
        with net income. Westside had losses in 2006 and 2005. Basic and diluted
        loss
        per share is the same due to the absence of common stock equivalents as the
        effect of our potential common stock equivalents would be
        anti-dilutive.
 
 Derivatives
 
 All
        derivative instruments are recorded on the balance sheet at their fair value.
        Changes in the fair value of each derivative is recorded each period in current
        earnings or other comprehensive income, depending on whether the derivative
        is
        designated as part of a hedge transaction and, if it is, the type of hedge
        transaction. To make this determination, management formally documents the
        hedging relationship and its risk−management objective and strategy for
        undertaking the hedge, the hedging instrument, the item, the nature of the
        risk
        being hedged, how the hedging instrument's effectiveness in offsetting the
        hedged risk will be assessed, and a description of the method of measuring
        ineffectiveness. This process includes linking all derivatives that are
        designated as cash−flow hedges to specific cash flows associated with assets and
        liabilities on the balance sheet or to specific forecasted
        transactions.
 
 Westside
        also formally assesses, both at the hedge's inception and on an ongoing basis,
        whether the derivatives that are used in hedging transactions are highly
        effective in offsetting cash flows of hedged items. A derivative that is
        highly
        effective and that is designated and qualifies as a cash−flow hedge has its
        changes in fair value recorded in other comprehensive income to the extent
        that
        the derivative is effective as a hedge. Any other changes determined to be
        ineffective do not qualify for cash−flow hedge accounting and are reported
        currently in earnings.
 
 Westside
        discontinues cash−flow hedge accounting when it is determined that the
        derivative is no longer effective in offsetting cash flows of the hedged
        item,
        the derivative expires or is sold, terminated, or exercised, the derivative
        is
        redesignated as a non−hedging instrument because it is unlikely that a
        forecasted transaction will occur, or management determines that designation
        of
        the derivative as a cash−flow hedge instrument is no longer appropriate. In
        situations in which cash−flow hedge accounting is discontinued, Westside
        continues to carry the derivative at its fair value on the balance sheet
        and
        recognizes any subsequent changes in its fair value in earnings.
 
 When
        the
        criteria for cash−flow hedge accounting are not met, realized gains and losses
        (i.e., cash settlements) are recorded in other income and expense in the
        Statements of Operations. Similarly, changes in the fair value of the derivative
        instruments are recorded as unrealized gains or losses in the Statements
        of
        Operations. In contrast, cash settlements for derivative instruments that
        qualify for hedge accounting are recorded as additions to or reductions of
        oil
        and gas revenues while changes in fair value of cash flow hedges are recognized,
        to the extent the hedge is effective, in other comprehensive income until
        the
        hedged item is recognized in earnings.
  New
        accounting standards
 
 Westside
        does not expect the adoption of any recently issued accounting pronouncements
        to
        have a significant impact on its results of operations, financial position
        or
        cash flows.
  F-10
  Note
        2 -
        Marketable securities
 
 The
        aggregate amortized cost, gross unrealized gains, gross unrealized losses,
        and
        estimated fair value, for available-for -sale
        securities by major security type at December 31, 2006 and 2005, are as
        follows:
 2006Gross
                
                
                
                Gross
                
                EstimatedAmortized
                
                Unrealized
                
                Unrealized
                
                FairCost
                
                Gains
                
                Losses
                
                ValueCorporate
                    Bonds
                
                $
                425,000
                
                $
                -
                
                $
                -
                
                $
                425,000Total
                
                $
                425,000
                
                $
                -
                
                $
                -
                
                $
                425,000
 
 2005Gross
                
                
                
                Gross
                
                EstimatedAmortized
                
                Unrealized
                
                Unrealized
                
                FairCost
                
                Gains
                
                Losses
                
                ValueCorporate
                    bonds
                
                $
                1,050,000
                
                $
                -
                
                $
                -
                
                $
                1,050,000Total
                
                $
                1,050,000
                
                $
                -
                
                $
                -
                
                $
                1,050,000
  The
        amortized cost and estimated fair value of debt securities at December 31,
        2006
        by contractual maturity, are shown below. Expected maturities may differ
        from
        contractual maturities because borrowers may have the right to call or prepay
        obligations with or without call or prepayment penalties.
 
 Amortized
              
              EstimatedCost
              
              Fair
                  ValueDue
                  in one year or less
              
              $
              -
              
              $
              -Due
                  after one year through five years
              
              
              425,000
              
              
              425,000$
              425,000
              
              $
              425,000
 
 NOTE
        3 -
        Notes Payable
 
 On
        March
        15, 2006, Westside entered into a $45 million three year Advancing
        Term
 Credit
        Agreement with GasRock Capital, LLC (“GasRock”). This agreement was paid in full
        in March 2007 (see note 13) and a new credit agreement was created with a
        related party lender. The GasRock agreement provided for the
        following:
 
 1.
        Up to
        $9.5 million to be used for closing costs pertaining to the purchase of EBS
        for
        approved drilling and for pipeline expansion.
  F-11
  2.
        Up to
        $7.5 million to be used for the cash portion of an earn−out agreement entered
        into in connection with Westside's acquisition of all of the outstanding
        equity
        interests (the "Equity Interests") in EBS Oil and Gas Partners Production
        Company, L.P. and EBS Oil and Gas Partners Operating Company, L.P. (collectively
        "EBS"), provided that any amount advanced for payment of the earn−out agreement
        will reduce dollar−for−dollar the amount available for the uses described in
        purpose 4 below.
 
 3.
        Up to
        $1.5 million to be used in certain circumstances for Westside's
        overhead.
 
 4.
        Up to
        an additional $34.0 million made available at later dates (subject to GasRock's
        approval) for additional exploitation of proved developed non−producing
        reserves, additional lender−approved drilling of new wells, lease acquisitions,
        pipeline expansion or seismic expenses.
 
 To
        secure
        Westside's obligations under the Credit Agreement, Westside granted a security
        interest in all of its assets in favor of GasRock. The Credit Agreement also
        required hedging for a substantial portion of Westside's reserves. Amounts
        outstanding under the Credit Agreement bear interest at an annual rate equal
        to
        the greater of (a) 12.0% or (b) the one−month London interbank offered rate
        (LIBOR), plus 6.50%. 85.0% of monthly revenue from oil & gas production and
        commodity hedging, net of production operations related costs, are applied
        to
        the repayment of the indebtedness under the Credit Agreement, subject to
        the
        limited ability of Westside to remit less than 85% and to retain more than
        15%
        of monthly net revenue to cover Westside's overhead. Westside also paid a
        facility fee equal to 2.0% of all advances, with the amount of such fee not
        paid
        at the time of the advance but added to the outstanding principal balance
        and
        amortized in accordance with the terms of the Credit Agreement. In consideration
        of GasRock providing the financing under the Credit Agreement, GasRock received
        a 1.0% overriding royalty interest (proportionately reduced to Westside's
        working interest) in each producing well and lease within Westside as of
        the
        date of the execution of the Credit Agreement. GasRock also received a 1.0%
        overriding royalty interest (proportionately reduced to Westside's working
        interest) in each producing well and lease and related unit acquired during
        the
        term of the Credit Agreement if Westside used advances under the Credit
        Agreement to acquire same. The Credit Agreement contained customary
        representations and warranties, customary affirmative and negative covenants
        (including a maximum leverage ratio), and customary events of
        default.
 
 During
        2005, Westside entered into an agreement with EBS Oil and Gas Partners
        Production Company, L.P. ("EBS Production"), a privately held entity engaged
        in
        the drilling and completion of wells on various oil and gas leases covering
        lands located in Cooke, Montague, and Wise Counties, Texas. Under the terms
        of
        the agreement, Westside made available to EBS Production, on a revolving
        basis,
        funds of up to a maximum sum of $1,000,000 outstanding at any given time.
        The
        funds were advanced to cover the costs incurred by EBS Production in connection
        with its acquisition of oil and gas leases.
 
 During
        November 2005, Westside purchased from a group of private investors their
        rights
        as lenders in certain outstanding debt owed by EBS to such group. The
        outstanding balance of, and the purchase price paid by Westside for, the
        debt
        was $3.85 million. The debt was secured by subordinate liens on and security
        interests in substantially all of EBS Production's assets. The debt accrued
        interest at the rate of 12% per annum.
 
 During
        December 2005, Westside made an additional loan to EBS for $250,000. The
        documentation governing the purchased debt was amended to cover this additional
        loaned amount as if it was part of the original purchased debt. Accordingly,
        the
        additional loaned amount accrues interest, is secured, and matures in the
        same
        manner as the original purchased debt.
  F-12
  As
        of
        December 31, 2005, Westside had a total $4,100,000 due from EBS Production.
        In
        March 2006, Westside completed the acquisition of EBS.
 
 The
        short
        and long-term debt was paid in full in March 2007 (see Note 13)and was replaced
        with a new credit facility.
 
 
 NOTE
        4 −
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
 On
        March
        17, 2006, Westside entered into swap agreements in order to provide a measure
        of
        stability to Westside's cash flows due to volatile oil and gas prices and
        to
        manage the exposure to commodity price risk.
 
 SFAS
        No.
        133 "Accounting for Derivative Instruments and Hedging Activities" requires
        that
        all derivative instruments be recorded on the balance sheet at their fair
        value.
        Changes in the fair value of each derivative is recorded each period in current
        earnings or other comprehensive income, depending on whether the derivative
        is
        designated as part of a hedge transaction and, if it is, the type of hedge
        transaction. To make this determination, management formally documents the
        hedging relationship and its risk−management objective and strategy for
        undertaking the hedge, the hedging instrument, the item, the nature of the
        risk
        being hedged, how the hedging instrument's effectiveness in offsetting the
        hedged risk will be assessed, and a description of the method of measuring
        ineffectiveness. This process includes linking all derivatives that are
        designated as cash−flow hedges to specific cash flows associated with assets and
        liabilities on the balance sheet or to specific forecasted
        transactions.
 
 Westside
        also formally assesses, both at the hedge's inception and on an ongoing basis,
        whether the derivatives that are used in hedging transactions are highly
        effective in offsetting cash flows of hedged items. A derivative that is
        highly
        effective and that is designated and qualifies as a cash−flow hedge has its
        changes in fair value recorded in other comprehensive income to the extent
        that
        the derivative is effective as a hedge. Any other changes determined to be
        ineffective do not qualify for cash−flow hedge accounting and are reported
        currently in earnings.
 
 Westside
        discontinues cash−flow hedge accounting when it is determined that the
        derivative is no longer effective in offsetting cash flows of the hedged
        item,
        the derivative expires or is sold, terminated, or exercised, the derivative
        is
        redesignated as a non−hedging instrument because it is unlikely that a
        forecasted transaction will occur, or management determines that designation
        of
        the derivative as a cash−flow hedge instrument is no longer appropriate. In
        situations in which cash−flow hedge accounting is discontinued, Westside
        continues to carry the derivative at its fair value on the balance sheet
        and
        recognizes any subsequent changes in its fair value in earnings.
 
 When
        the
        criteria for cash−flow hedge accounting are not met, realized gains and losses
        (i.e., cash settlements) are recorded in other income and expense in the
        Statements of Operations. Similarly, changes in the fair value of the derivative
        instruments are recorded as unrealized gains or losses in the Statements
        of
        Operations. In contrast, cash settlements for derivative instruments that
        qualify for hedge accounting are recorded as additions to or reductions of
        oil
        and gas revenues while changes in fair value of cash flow hedges are recognized,
        to the extent the hedge is effective, in other comprehensive income until
        the
        hedged item is recognized in earnings.
  F-13
  Based
        on
        the above, management has determined the swaps qualify for cash−flow hedge
        accounting treatment. As of December 31, 2006, Westside recognized a derivative
        asset of $169,885 with the change in fair value reflected in other comprehensive
        income.
 
 NOTE
        5 -
        ASSET RETIREMENT OBLIGATIONS
 
 Westside
        recognizes the fair value of an asset retirement obligation in the period
        in
        which it is incurred if a reasonable estimate of fair value can be made.
        The
        present value of the estimated asset retirement costs is capitalized as part
        of
        the carrying amount of the long-lived asset. For Westside, asset retirement
        obligations relate to the abandonment of oil and gas producing facilities.
        The
        amounts recognized are based upon numerous estimates and assumptions, including
        future retirement costs, future recoverable quantities of oil and gas, future
        inflation rates and the credit-adjusted risk-free interest rate.
 
 Westside
        records depreciation of the capitalized asset retirement cost and accretion
        of
        the asset retirement obligation over time. The depreciation will generally
        be
        determined on a straight line basis, while the accretion to be recognized
        will
        escalate over the life of the producing assets, typically as production
        declines. The following table indicates the changes to Westside's asset
        retirement obligations in 2006 and 2005:
 
 2006
              
              2005Balance
                  at beginning of year
              
              $
              27,880
              
              $
              6,646Liabilities
                  incurred
              
              
              122,855
              
              
              20,370Accretion
                  expense
              
              
              2,752
              
              
              864Balance
                  at end of year
              
              $
              153,487
              
              $
              27,880
 
 NOTE
        6 -
        CONCENTRATION OF CREDIT RISK
 
 At
        December 31, 2006, Westside's cash in financial institutions exceeded the
        federally insured deposits limit by $4,458,265. An investment of $447,176
        in a
        bank account with an original maturity of less than 90 days, backed by
        collateralized mortgage obligations, is included in cash and cash equivalents
        at
        December 31, 2006. The collateral for this investment had a market value
        of
        approximately $460,881 at December 31, 2006.
  NOTE
        7 -
        COMMITMENTS AND CONTINGENCIES
 
 Westside
        is not currently involved in any pending legal proceedings. In the future,
        Westside may become involved in various legal proceedings from time to time,
        either as a plaintiff or as a defendant, and either in or outside the normal
        course of business. Westside is not now in the position to determine when
        (if
        ever) such a legal proceeding may arise. If Westside ever becomes involved
        in a
        legal proceeding, Westside's financial condition, operations, or cash flows
        could be materially adversely affected, depending on the facts and circumstances
        relating to such proceeding.
 
 In
        June
        2006, Westside entered into a 24-month office lease agreement for $8,159
        per
        month.
  F-14
  Westside
        is subject to cash calls related to its various investments in oil and gas
        prospects. The potential cash calls are in the normal course of business
        for
        Westside's oil and gas interests. Westside will require funds in excess of
        its
        net cash flows from operations to meet its cash calls for its various interests
        in oil and gas prospects to explore, produce, develop, and eventually sell
        the
        underlying natural gas and oil products.
 
 NOTE
        8 -
        INCOME TAXES
 
 During
        2006 and 2005, Westside incurred net losses and therefore, had no tax liability.
        The net deferred tax asset generated by the loss carry-forward has been fully
        reserved. The cumulative net operating loss carry-forward is approximately
        $30,800,000 at December 31, 2006 and will expire in the years from 2019 to
        2026.
 
 At
        December 31, 2006, the deferred tax assets consisted of the
        following:
 
 Deferred
                  tax assetsNet
                  operating losses
              
              $
              10,472,000Less:
                  valuation allowance
              
              
              (10,472,000
              )Net
                  deferred tax asset
              
              $
              -
 
 NOTE
        9 -
        IMPAIRMENT OF LONG-LIVED ASSETS
 
 Pursuant
        to FASB Statement No. 144, Accounting for the Impairment or Disposal of
        Long-Lived Assets, impairment losses of $4,310,330 and $636,278 for 2006
        and
        2005, respectively, have been recognized in loss from continuing operations
        before income taxes under the caption "Impairment". The impairment loss was
        determined by subtracting the carrying value from the discounted present
        value
        of the estimated future cash flows of the wells and the expected expiration
        of
        unproved leases as of the end of each year.
 
 NOTE
        10 -
        COMMON STOCK
 
 During
        2006, Westside had the following equity transactions:
 
 Westside
        issued 94,384 shares of common stock for services valued at $327,148.
        Additionally, 175,308 common shares valued at $609,129 were issued for future
        services. The par value of these shares was recorded through common stock
        and
        additional paid-in capital. As the shares are earned, the value of the shares
        is
        recorded to expense and additional paid-in capital. For the year ended December
        31, 2006, $437,837 was earned and expensed.
 
 357,500
        warrants were exercised for total proceeds of $813,750. 357,500 shares of
        common
        stock were issued for the warrants exercised.
 
 In
        a
        private placement, 3,278,000 shares were sold for net proceeds of $9,659,544.
        Additionally, two employees purchased 179,972 shares for $472,500.
 
 During
        2005, Westside had the following equity transactions:
 
 218,000
        warrants were exercised for total proceeds of $225,000.
  F-15
  Westside
        also issued 33,972 shares of common stock for services valued at $128,138.
        Additionally, 76,442 common shares valued at $291,480 were issued for future
        services. The par value of these shares was recorded through common stock
        and
        additional paid-in capital. As the shares are earned, the value of the shares
        is
        recorded to expense and additional paid-in capital. For the year ended December
        31, 2005, $115,168 was earned and expensed.
 
 NOTE
        11 -
        WARRANTS
 
 There
        were no warrants issued or outstanding until the year ended December 31,
        2004.
        During 2004, Westside issued warrants attached to debt, stock purchases,
        and for
        consulting services. All issuances were approved by the Board of Directors.
        During 2006, no additional warrants were issued. A summary of changes in
        outstanding warrants is as follows:
 
 WeightedAverageWarrants
              
              Share
                  PriceOutstanding
                  at December 31, 2004
              
              
              1,495,500
              
              $
              1.30Changes
                  during the year:Granted
              
              
              -
              
              
              -Exercised
              
              
              (218,000
              )
              
              0.97Forfeited
              
              
              -
              
              
              -Outstanding
                  at December 31, 2005
              
              
              1,277,500
              
              
              1.36Changes
                  during the year:Granted
              
              
              -
              
              
              -Exercised
              
              
              (357,500
              )
              
              2.28Forfeited
              
              
              -
              
              
              -Outstanding
                  at December 31, 2006
              
              
              920,000
              
              $
              0.99Exercisable
                  at December 31, 2006
              
              
              920,000
              
              $
              0.99
 
 NOTE
        12 −
PURCHASE OF EBS OIL AND GAS PARTNERS PRODUCTION COMPANY, L.P.
 
 On
        March
        15, 2006, Westside acquired EBS Oil and Gas Partners Production Company,
        L.P.
        and EBS Oil and Gas Partners Operating Company, L.P. (collectively "EBS").
        The
        acquired EBS assets consist (in part) of rights in approximately 9,837 gross
        acres and an approximately one−sixth interest in Tri-County Gathering, a
        pipeline system serving part of the Barnett Shale area. The interest in the
        pipeline system was sold in November 2006 for $5,000,000.
  F-16
  The
        purchase price for the Equity Interests consisted of an initial purchase
        price
        paid at closing (the "Initial Purchase Price") and additional consideration
        to
        be paid after closing (the "Additional Consideration"). The Initial Purchase
        Price was set at $9,804,839, subject to certain adjustments. The adjustments
        included a reduction in the Initial Purchase Price for all debt owed by EBS,
        including (a) indebtedness in the approximate amount of $5,850,000 owed by
        EBS
        to Westside, and (b) indebtedness in the approximate amount of $1,600,000
        owed
        by EBS to a third party. After making adjustments, Westside paid in cash
        at the
        closing approximately $151,000 to the Class B partners of EBS and an EBS
        payable
        in the amount of approximately $294,000, and Westside received a credit in
        the
        approximate amount of $1,700,000 against the future payment of the Additional
        Consideration. Funding for the cash paid at the closing and the retirement
        of
        the Third Party Loan was provided from Westside's available cash and by GasRock
        Capital LLC ("GasRock") pursuant to an Advancing Term Credit Agreement (the
        "Credit Agreement"). The additional consideration was resolved and finalized
        in
        2006.
 
 The
        following table summarizes the estimated fair values of the assets that Westside
        acquired and the liabilities that it assumed from EBS on the date of
        acquisition.
 
 
 Current
                  Assets
              
              $
              8,094,600Fixed
                  Assets
              
              
              13,441,303Total
                  Assets Acquired
              
              $
              21,535,903Accounts
                  Payable
              
              
              (12,935,559
              )Accrued
                  Expense
              
              
              (58,800
              )Asset
                  Retirement Obligation
              
              
              (122,855
              )Total
                  Liabilities Assumed
              
              
              (13,117,214
              )Net
                  Assets Acquired
              
              $
              8,418,689
  
 The
        following unaudited pro forma information assumes the acquisition of EBS
        occurred as of January 1, 2006 and January 1, 2005, respectively. The pro
        forma
        results are not necessarily indicative of what actually would have occurred
        had
        the acquisition been in effect for the period presented.
 
 Year
        Ended December 31, 2006:
 
 **As**
                **Reported**
              
              **Pro-**
                **Forma**Total
                  Assets
              
              $
              34,504,280
              
              $
              34,504,280Revenues
              
              $
              3,915,209
              
              $
              4,584,021Net
                  Loss
              
              $
              (13,911,912
              )
              $
              (14,087,928
              )Loss
                  Per Share
              
              $
              (0.66
              )
              $
              (0.67
              )
  F-17
  Year
        Ended December 31, 2005
 
 **As**
                **Reported**
              
              **Pro-**
                **Forma**Total
                  Assets
              
              $
              18,067,329
              
              $
              38,124,798Revenues
              
              $
              595,657
              
              $
              2,156,103Net
                  Loss
              
              $
              (1,939,322
              )
              $
              (3,418,183
              )Loss
                  Per Share
              
              $
              (0.11
              )
              $
              (0.20
              )
 
 NOTE
        13 -
        SUBSEQUENT EVENTS
 
 Westside
        closed a $25 million senior secured loan from four entities managed by
        Wellington Management Company, LLP to replace the credit facility previously
        provided by GasRock Capital, LLC. Two of the lending entities are among the
        largest institutional holders of the Company’s outstanding shares.
 
 NOTE
        14
        -- SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
 
 Capitalized
        Costs
 
 Capitalized
        costs incurred in property acquisition, exploration, and development activities
        as of December 31, 2006 are as follows:
 
 Total
                  Capitalized
              
              $
              34,000,234Less:
                  Accumulated depletion
              
              
              (10,815,176
              )Net
                  Capitalized
              
              $
              23,149,058
  Costs
        incurred for property acquisition, exploration, and development activities
        for
        the year ended December 31, 2006 are as follows:
 
 Acquisition
                  of propertiesProved
              
              $
              -Unproved
              
              
              8,418,689Exploration
                  costs
              
              
              -Development
                  costs
              
              
              4,887,554Total
                  costs incurred for property acquisition, exploration, and development
                  activities
              
              $
              13,306,243
  Results
        of operations for oil and gas producing activities for the year ended December
        31, 2006 are as follows:
 
 Oil
                  & gas sales
              
              $
              3,915,209Production
                  costs
              
              
              (1,779,192
              )Exploration
                  expenses
              
              
              -Depreciation,
                  depletion and amortization
              
              
              (5,551,536
              )Impairment
              
              
              (4,310,330
              )(7,725,849
              )Income
                  tax expense
              
              
              -Results
                  of operations for oil and gas producing activities (excluding corporate
                  overhead and financing costs)
              
              $
              (7,725,849
              )
  F-18
  Reserve
        information
  The
        following estimates of proved and proved developed reserve quantities and
        related standardized measure of discounted net cash flow are estimates only,
        and
        do not purport to reflect realizable values or fair market values of the
        Company's reserves. The Company emphasizes that reserve estimates are inherently
        imprecise and that estimates of new discoveries are more imprecise than those
        of
        producing oil and gas properties. Accordingly, these estimates are expected
        to
        change as future information becomes available. All of the Company's reserves
        are located in the United States.
  Proved
        reserves are estimated reserves of crude oil (including condensate and natural
        gas liquids) and natural gas that geological and engineering data demonstrate
        with reasonable certainty to be recoverable in future years from known
        reservoirs under existing economic and operating conditions. Proved developed
        reserves are those expected to be recovered through existing wells, equipment,
        and operating methods.
 
 The
        standardized measure of discounted future net cash flows is computed by applying
        year-end prices of oil and gas (with consideration of price changes only
        to the
        extent provided by contractual arrangements) to the estimated future production
        of proved oil and gas reserves, less the estimated future expenditures (based
        on
        year-end costs) to be incurred in developing and producing the proved reserves,
        less estimated future income tax expenses (based on year-end statutory tax
        rates, with consideration of future tax rates already legislated) to be incurred
        on pretax net cash flows less tax basis of the properties and available credits,
        and assuming continuation of existing economic conditions. The estimated
        future
        net cash flows are then discounted using a rate of 10 percent a year to reflect
        the estimated timing of the future cash flows.
  2006
              
              2005Oil
              
              Gas
              
              Oil
              
              Gas(MBbls)
              
              (MMcf)
              
              (MBbls)
              
              (MMcf)Total
                  proved reservesBeginning
                  of year
              
              
              85.206
              
              
              1,191.699
              
              
              1.679
              
              
              90.789Extensions
                  and discoveries
              
              
              8.856
              
              
              1,001.032
              
              
              -
              
              
              -Revisions
                  of previous estimates
              
              
              (33.740
              )
              
              (133.747
              )
              
              0.182
              
              
              43.585Purchases
                  of minerals in place
              
              
              112.174
              
              
              4,136.802
              
              
              84.185
              
              
              1,120.091Production
              
              
              (22.881
              )
              
              (360.751
              )
              
              (0.840
              )
              
              (62.766
              )End
                  of the year
              
              
              149.615
              
              
              5,835.035
              
              
              85.206
              
              
              1,191.699Proved
                  developed reserves
              
              
              85.385
              
              
              3,277.562
              
              
              85.206
              
              
              1,191.699
  F-19
  Standardized
                  Measure of Discounted FutureNet
                  Cash Flows at December 31, 2006
              
              (000's)Future
                  cash inflows
              
              $
              41,158Future
                  production costs
              
              
              (12,516
              )Future
                  development costs
              
              
              (8,943
              )Future
                  income tax expenses, at 34%
              
              
              (5,411
              )Future
                  gross cash flows
              
              
              14,288Less:
                  10% annual discount for estimated timing of cash flows
              
              
              (2,085
              )Standardized
                  measures of discounted future net cash flows relating to proved
                  oil and
                  gas reserves
              
              $
              12,203
 
 The
        following reconciles the change in the standardized measure of discounted future
        net cash flow during 2006.
 
 (000's)Beginning
                  of year
              
              $
              6,404Sales
                  of oil and gas produced, net of production costs
              
              
              (2,136
              )Net
                  changes in prices and production costs
              
              
              6,934Purchases
                  of minerals
              
              
              4,556Extensions,
                  discoveries and improved recovery
              
              
              1,862Net
                  changes in estimated future development costs
              
              
              -Revisions
                  of previous quantity estimates
              
              
              (4,414
              )Change
                  in production rates
              
              
              657Change
                  in discount
              
              
              858Change
                  in income tax expense
              
              
              (2,518
              )End
                  of year
              
              $
              12,203


F-20
 
 *Index*





**APPENDIX
      A**





**Glossary
      of Certain Natural Gas and Oil Terms**




The
      following are abbreviations and definitions of certain terms commonly used
      in
      the natural gas and oil industry and in this Annual Report.




**Bbl.** One
      stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to
      oil or other liquid hydrocarbons.




**Bcf/d.** One
      billion cubic feet per day.




**Bcfe.** One
      billion cubic feet equivalent of natural gas, calculated by converting oil
      to
      equivalent Mcf at a ratio of 6 Mcf to 1 Bbl of oil.




**Boe.** Barrels
      of oil equivalent, with 6,000 cubic feet of natural gas being equivalent to
      one
      barrel of oil.




**Bop/d.** Barrels
      of oil per day.




**Btu
      or British thermal unit.** The
      quantity of heat required to raise the temperature of one pound of water by
      one
      degree Fahrenheit.




**Btu/cf.** The heat
      content, expressed in Btu’s, of one cubic foot of natural gas.




**Completion.** The
      installation of permanent equipment for the production of natural gas or oil.




**Developed
      acreage.** The
      number of acres that are allocated or assignable to producing wells or wells
      capable of production.




**Development
      well.** A well
      drilled into a proved natural gas or oil reservoir to the depth of a
      stratigraphic horizon known to be productive.




**Dry
      hole.** A well
      found to be incapable of producing hydrocarbons in sufficient quantities such
      that proceeds from the sale of such production exceed production expenses and
      taxes.




**Exploitation.** The
      continued development of a known producing formation in a previously discovered
      field. To make complete or maximize the ultimate recovery of oil or natural
      gas
      from the field by work including development wells, secondary recovery equipment
      or other suitable processes and technology.




**Exploration.** The
      search for natural accumulations of natural gas and oil by any geological,
      geophysical or other suitable means.




**Exploratory
      well.** A well
      drilled to find and produce natural gas or oil reserves not classified as
      proved, to find a new reservoir in a field previously found to be productive
      of
      natural gas or oil in another reservoir or to extend a known reservoir.




**Field.** An area
      consisting of either a single reservoir or multiple reservoirs, all grouped
      on
      or related to the same individual geological structural feature and/or
      stratigraphic condition.




**Fracturing.** The
      technique of improving a well’s production or injection rates by pumping a
      mixture of fluids into the formation and rupturing the rock, creating artificial
      channels. As part of this technique, sand or other material may also be injected
      into the formation to keep the channels open, so that fluids or gases may more
      easily flow through the formation.





*Index*




**Gross
      acres.** The
      total acres in which we own any amount of working interest.


**Gross
        wells.** The
        total number of producing wells in which we own any amount of working interest.
  **Horizontal
        drilling.** A
        drilling operation in which a portion of the well is drilled horizontally
        within
        a productive or potentially productive formation. This operation usually
        yields
        a well which has the ability to produce higher volumes than a vertical well
        drilled in the same formation.
  **Injection
        well or injector.** A well
        that is used to place liquids or gases into the producing zone during
        secondary/tertiary recovery operations to assist in maintaining reservoir
        pressure and enhancing recoveries from the field.
  **Lease.** An
        instrument that grants to another (the lessee) the exclusive right to enter
        to
        explore for, drill for, produce, store and remove natural gas and oil on
        the
        mineral interest, in consideration for which the lessor is entitled to certain
        rents and royalties payable under the terms of the lease. Typically, the
        duration of the lessee’s authorization is for a stated term of years and “for so
        long thereafter” as minerals are producing.
  **MBbl.** One
        thousand barrels of oil or other liquid hydrocarbons.
  **Mcf.** One
        thousand cubic feet of natural gas at standard atmospheric conditions.
  **Mcf/d.** One Mcf
        per day.
  **Mcfe.** One
        thousand cubic feet equivalent of natural gas, calculated by converting oil
        to
        equivalent Mcfs, at a ratio of 6 Mcf to 1 Bbl of oil.
  **MMBtu.** Million
        British thermal units.
  **MMcf.** One
        million cubic feet of natural gas at standard atmospheric
        conditions.
  **Net
        acres.** Gross
        acres multiplied by Westside’s percentage working interest in the acreage.
  **Net
        production.** Production that is owned by Westside less royalties and production due others.
  **Net
        wells.** The sum
        of all the complete and partial well ownership interests (i.e., if we own
        25%
        percent of the working interest in eight producing wells, the subtotal of
        this
        interest to the total net producing well count would be two net producing
        wells).
  **Operator.** The
        individual or company responsible for the exploration, exploitation, development
        and production of a natural gas or oil well or lease.
  **Overriding
        royalty interest.** Ownership in a percentage of production or production revenues, free of the
        cost
        of production, created by the lessee, company and/or working interest owner
        and
        paid by the lessee, company and/or working interest owner out of revenue
        from
        the well.
  **Pay
        zones.** A
        reservoir or portion of a reservoir that contains economically producible
        natural gas and oil reserves.
  **Permeability.** The
        capacity of a geologic formation to allow water, natural gas or oil to pass
        through it.
  **Plugging
        and abandonment.** Sealing
        off of fluids in the strata penetrated by a well so that the fluids from
        one
        stratum will not escape into another or to the surface.
  **PV-10
        value.** The
        present value of estimated future revenues to be generated from the production
        of proved reserves calculated in accordance with SEC guidelines, net of
        estimated lease operating expenses, production taxes and future development
        costs, using prices and costs as of the date of estimation without future
        escalation, without giving effect to non-property related expenses such as
        general and administrative expenses, debt service and depreciation, depletion
        and amortization or Federal income taxes, and discounted using an annual
        discount rate of 10%.
  *Index*
   **Productive
        well.** A well
        with the capacity to produce hydrocarbons in sufficient quantities such that
        proceeds from the sale of the production exceed production expenses and taxes.
  **Prospect.** A
        specific geographic area which, based on supporting geological, geophysical
        or
        other data and preliminary economic analysis using reasonable anticipated
        prices
        and costs, is deemed to have potential for the discovery of commercial
        hydrocarbons.
  **Proved
        developed reserves.** Reserves
        that can be expected to be recovered through existing wells with existing
        equipment and operating methods.
  **Proved
        reserves.** The
        estimated quantities of oil, natural gas and natural gas liquids that geological
        and engineering data demonstrate with reasonable certainty to be commercially
        recoverable in future years from known reservoirs under existing economic
        and
        operating conditions.
  **Proved
        undeveloped reserves (PUD).** Proved
        reserves that are expected to be recovered from new wells on undrilled acreage
        or from existing wells where a relatively major expenditure is required for
        recompletion.
  **Reservoir.** A porous
        and permeable underground formation containing a natural accumulation of
        producible natural gas and/or oil that is confined by impermeable rock or
        water
        barriers and is separate from other reservoirs.
  **Royalty.** An
        interest in an oil and natural gas lease that gives the owner of the interest
        the right to receive a portion of the production from the leased acreage,
        or of
        the proceeds of the sale thereof, but generally does not require the royalty
        owner to pay any portion of the costs of drilling or operating the wells
        on the
        leased acreage. Royalties may be either landowner’s royalties, which are
        reserved by the owner of the leased acreage at the time the lease is granted,
        or
        overriding royalties, which are usually reserved by an owner of the leasehold
        in
        connection with a transfer to a subsequent owner.
  **Secondary
        recovery.** An
        artificial method or process used to restore or increase production from
        a
        reservoir after the primary production by the natural producing mechanism
        and
        reservoir pressure has experienced partial depletion. Gas injection and
        waterflooding are examples of this technique.
  **Three-dimensional
        seismic.** The
        method by which a three-dimensional image of the earth’s subsurface is created
        through the interpretation of reflected seismic data collected over a surface
        grid. Three-dimensional seismic surveys allow for a more detailed understanding
        of the subsurface than do conventional surveys and contribute significantly
        to
        field appraisal, exploitation and production.
  **Tcf.** One
        trillion cubic feet of natural gas
  **Undeveloped
        acreage.** Lease
        acreage on which wells have not been drilled or completed to a point that
        would
        permit the production of commercial quantities of natural gas and oil regardless
        of whether such acreage contains proved reserves.
  **Working
        interest.** An
        interest in a natural gas and oil lease that gives the owner of the interest
        the
        right to drill for and produce natural gas and oil on the leased acreage
        and
        requires the owner to pay a share of the costs of drilling and production
        operations.




*Index*





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, Westside Energy Corporation has duly caused this annual report on Form
      10-KSB to be signed on its behalf by the undersigned, thereunto duly
      authorized.





April
                17, 2007
            WESTSIDE
              ENERGY CORPORATIONBy:
            /s/Douglas
                G. MannerDouglas
              G. Manner,Chief
              Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





Name
            
            Title
            
            Date/s/Douglas
                G. Manner
            
            Director,
                Chief Executive Officer
            
            April
                17, 2007Douglas
                G. Manner
            
            (Principal
                Executive Officer)/s/
                Keith D. Spickelmier
            
            Director,
                Chairman of the Board
            
            April
                17, 2007Keith
                D. Spickelmier/s/Craig
                S. Glick
            
            Director,
            
            April
                17, 2007Craig
                S. Glick/s/John
                T. Raymond
            
            Director,
            
            April
                17, 2007John
                T. Raymond/s/Herbert
                C. Williamson
            
            Director,
            
            April
                17, 2007Herbert
                C. Williamson/s/
                Sean J. Austin
            
            Vice
                President and
            
            April
                17, 2007Sean
                J. Austin
            
            Chief
                Financial Officer(Principal
                Financial Officer&
                Principal AccountingOfficer)