** **

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D. C. 20549**

 

**FORM 10-Q**

 

**ý****  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIESEXCHANGE ACT OF 1934**

** **

**For the quarter ended****March 31, 2005**

** **

**or**

 

**o****  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission file number 000-25717**

 

**PETROHAWKENERGY CORPORATION**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                    | ** ** | **86-0876964**         |
|---------------------------------|------------|------------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer       |
| incorporation or organization)  |       | Identification Number) |

 

**1100 Louisiana, Suite 4400, Houston,Texas 77002**

(Address of principal executive offices including ZIP code)

 

**(832) 204-2700**

(Registrant’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

Yes ý No o

 

Indicate by check mark whether the Registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 

Yes o No ý

 

As of May 10, 2005, the Registrant had 40,141,017 shares of CommonStock, $.001 par value, outstanding.

 

 

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**TABLE OF CONTENTS**

 
| ** **                             | **Page**    |
|----------------------------------------|-------------|
| **PART I. FINANCIAL INFORMATION** |        |
|                                   |        |   |   |
|                                   | **ITEM 1.** | Consolidated Financial Statements (Unaudited) |   |
|                                   |        | Consolidated Statements of Operations for the Three Months Ended  March 31, 2005 and 2004 | 3 |
|                                   |        | Consolidated Balance Sheets as of  March 31, 2005 and December 31, 2004 | 4 |
|                                   |        | Consolidated Statements of Cash Flows for the Three Months Ended  March 31, 2005 and 2004 | 6 |
|                                   |        | Notes to the Consolidated Financial  Statements | 7 |
|                                   |        |   |   |
|                                   | **ITEM 2.** | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 17 |
|                                   |        |   |   |
|                                   | **ITEM 3.** | Quantitative and Qualitative Disclosures  about Market Risk | 23 |
|                                   |        |   |   |
|                                   | **ITEM 4.** | Controls and Procedures. | 24 |
|                                   |        |   |   |
| **PART II. OTHER INFORMATION**    | 24          |
|                                   |        |   |   |
|                                   | **ITEM 2.** | Unregistered Sales of Equity and Use of  Proceeds | 24 |
|                                   |        |   |   |
|                                   | **ITEM 6.** | Exhibits | 25 |
|                                   |        |   |   |
| Signatures                             |        | 28 |

 

2

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**PETROHAWK ENERGY CORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS (Unaudited)**

**In thousands, except per share amounts**

 
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **March 31,**     | ** ** |
| ** **                                          | ** ** | **2005**               | ** ** | **2004** | ** ** |
| **OPERATING  REVENUES:**                            |       |                   |       |   |   |
| Oil and gas sales                                   |       | $                      | 32,217     |   | $ | 3,954 |   |
| Field services and other                            |       | 109                    |       | 98 |   |
| Total operating revenues                            |       | 32,326                 |       | 4,052 |   |
|                                                |       |                   |       |   |   |
| **OPERATING  EXPENSES:**                            |       |                   |       |   |   |
| Lease operating expense                             |       | 5,231                  |       | 740 |   |
| Production and other taxes                          |       | 2,326                  |       | 227 |   |
| Field services                                      |       | 47                     |       | 45 |   |
| General and administrative:                         |       |                   |       |   |   |
| General and administrative expense                  |       | 3,300                  |       | 776 |   |
| Stock-based compensation                            |       | 1,579                  |       | 24 |   |
| Accretion expense                                   |       | 189                    |       | 23 |   |
| Depletion, depreciation and amortization  expense   |       | 10,625                 |       | 1,071 |   |
| Total operating expenses                            |       | 23,297                 |       | 2,906 |   |
|                                                |       |                   |       |   |   |
| **INCOME  FROM OPERATIONS**                         |       | 9,029                  |       | 1,146 |   |
|                                                |       |                   |       |   |   |
| Net loss on derivative contracts (Note 7)           |       | (28,652                | )          | — |   |
| Interest expense and other                          |       | (3,349                 | )          | (111 | ) |
|                                                |       |                   |       |   |   |
| (Loss) income before income taxes                   |       | (22,972                | )          | 1,035 |   |
| Income tax benefit (provision)                      |       | 8,720                  |       | (23 | ) |
| **NET  (LOSS) INCOME**                              |       | (14,252                | )          | 1,012 |   |
| Preferred dividends                                 |       | (109                   | )          | (111 | ) |
| Net (loss) income available to common  shareholders |       | $                      | (14,361    | ) | $ | 901 |   |
|                                                |       |                   |       |   |   |
| Basic (loss) earnings per share                     |       | $                      | (0.36      | ) | $ | 0.14 |   |
| Diluted (loss) earnings per share                   |       | $                      | (0.36      | ) | $ | 0.14 |   |
|                                                |       |                   |       |   |   |
| **WEIGHTED  AVERAGE SHARES OUTSTANDING:**           |       |                   |       |   |   |
| Basic                                               |       | 39,980                 |       | 6,215 |   |
| Fully Diluted                                       |       | 39,980                 |       | 6,570 |   |

 

**The accompanying notes are an integral partof these consolidated financial statements.**

 

3

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**PETROHAWK ENERGY CORPORATION**

**CONSOLIDATEDBALANCE SHEETS (Unaudited)**

**In thousands, except share and per shareamounts**

 
| ** **                                          | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| **CURRENT  ASSETS**                                 | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Cash and cash equivalents                           |       | $                       | 6,359      |                       | $          | 5,660 |   |
| Accounts receivable                                 |       | 20,972                  |       | 23,151                     |       |
| Deferred income taxes                               |       | 9,185                   |       | —                     |       |
| Receivables from price risk management  activities  |       | —                  |       | 4,973                      |       |
| Prepaid expenses and other                          |       | 2,940                   |       | 2,238                      |       |
| Total current assets                                |       | 39,456                  |       | 36,022                     |       |
|                                                |       |                    |       |                       |       |
| **OIL AND  GAS PROPERTY**(full cost method)         |       |                    |       |                       |       |
| Evaluated properties                                |       | 481,042                 |       | 484,233                    |       |
| Unevaluated properties                              |       | 71,773                  |       | 48,840                     |       |
| Total gross oil and gas properties                  |       | 552,815                 |       | 533,073                    |       |
| Less – accumulated depletion                   |       | (59,267                 | )          | (48,740                    | )          |
| Net oil and gas properties                          |       | 493,548                 |       | 484,333                    |       |
|                                                |       |                    |       |                       |       |
| **OTHER  OPERATING PROPERTY AND EQUIPMENT**         | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Gas gathering system and equipment                  |       | 1,506                   |       | 1,504                      |       |
| Support equipment                                   |       | 220                     |       | 220                        |       |
| Other                                               |       | 1,498                   |       | 1,041                      |       |
| Total gross other operating property and  equipment |       | 3,224                   |       | 2,765                      |       |
| Less – accumulated depreciation                |       | (1,032                  | )          | (934                       | )          |
| Net other operating property and equipment          |       | 2,192                   |       | 1,831                      |       |
|                                                |       |                    |       |                       |       |
| **OTHER  NON-CURRENT ASSETS**                       | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Receivables from price risk management  activities  |       | —                  |       | 3,363                      |       |
| Deferred tax asset                                  |       | —                  |       | 981                        |       |
| Debt issuance costs, net of amortization            |       | 3,627                   |       | 3,875                      |       |
| Other                                               |       | 3,787                   |       | 3,794                      |       |
| **TOTAL  ASSETS**                                   |       | $                       | 542,610    |                       | $          | 534,199 |   |

 

**The accompanying notes are an integral partof these consolidated financial statements.**

 

4

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**PETROHAWK ENERGY CORPORATION**

**CONSOLIDATEDBALANCE SHEETS (Unaudited)**

**In thousands, except share and per shareamounts (Continued)**

 
| ** **                                                                                                                                                                                | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| **CURRENT  LIABILITIES**                                                                                                                                                                  | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Accounts payable, trade                                                                                                                                                                   |       | $                       | 21,616     |                       | $          | 20,399 |   |
| Liabilities from price risk management  activities                                                                                                                                        |       | 7,758                   |       | 1,990                      |       |
| Current portion of long-term debt                                                                                                                                                         |       | 500                     |       | 500                        |       |
| Other accrued liabilities                                                                                                                                                                 |       | 5,416                   |       | 4,277                      |       |
| Total current liabilities                                                                                                                                                                 |       | 35,290                  |       | 27,166                     |       |
|                                                                                                                                                                                      |       |                    |       |                       |       |
| **LONG-TERM  DEBT**                                                                                                                                                                       | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Revolving credit facility                                                                                                                                                                 |       | 128,000                 |       | 155,000                    |       |
| Term B facility loan                                                                                                                                                                      |       | 49,500                  |       | 49,500                     |       |
| Subordinated convertible note payable                                                                                                                                                     |       | 35,000                  |       | 35,000                     |       |
| Total long-term debt                                                                                                                                                                      |       | 212,500                 |       | 239,500                    |       |
|                                                                                                                                                                                      |       |                    |       |                       |       |
| **LIABILITIES  FROM PRICE RISK MANAGEMENT ACTIVITIES**                                                                                                                                    |       | 13,422                  |       | 67                         |       |
|                                                                                                                                                                                      |       |                    |       |                       |       |
| **ASSET  RETIREMENT OBLIGATIONS**                                                                                                                                                         |       | 13,523                  |       | 12,726                     |       |
| ** **                                                                                                                                                                                | ** ** | ** **              | ** ** | ** **                 | ** ** |
| **DEFERRED  TAXES**                                                                                                                                                                       |       | 25,433                  |       | —                     |       |
| ** **                                                                                                                                                                                | ** ** | ** **              | ** ** | ** **                 | ** ** |
| **OTHER  NONCURRENT LIABILITIES**                                                                                                                                                         |       | 7,288                   |       | 7,649                      |       |
|                                                                                                                                                                                      |       |                    |       |                       |       |
| **COMMITMENTS  AND CONTINGENCIES (Note 6)**                                                                                                                                               | ** ** | ** **              | ** ** | ** **                 | ** ** |
|                                                                                                                                                                                      |       |                    |       |                       |       |
| **STOCKHOLDERS’  EQUITY**                                                                                                                                                            | ** ** | ** **              | ** ** | ** **                 | ** ** |
| ** **                                                                                                                                                                                | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Convertible Preferred Stock: 5,000,000  shares of $.001 par value authorized;   598,271 shares issued and outstanding at March 31, 2005 and  December 31, 2004.                 |       |                    |       |                       |       |
| Liquidation value at March 31, 2005 and December 31, 2004  of $5,533,890.                                                                                                       |       | 1                       |       | 1                          |       |
|                                                                                                                                                                                      |       |                    |       |                       |       |
| Common Stock: 75,000,000 shares of $.001  par value authorized; 40,144,156 and 39,788,238 shares issued and outstanding  at March 31, 2005 and December 31, 2004, respectively. |       | 40                      |       | 40                         |       |
| Additional paid-in capital                                                                                                                                                                |       | 264,469                 |       | 262,045                    |       |
|                                                                                                                                                                                      |       |                    |       |                       |       |
| Treasury Stock, at cost; 8,382 shares at  March 31, 2005 and December 31, 2004.                                                                                                 |       | (36                     | )          | (36                        | )          |
| Accumulated deficit                                                                                                                                                                       |       | (29,320                 | )          | (14,959                    | )          |
| Total stockholders’ equity                                                                                                                                                           |       | 235,154                 |       | 247,091                    |       |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                      |       | $                       | 542,610    |                       | $          | 534,199 |   |

 

**The accompanying notes are an integral partof these consolidated financial statements.**

 

5

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**PETROHAWK ENERGY CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (Unaudited)**

**In thousands**

 
| ** **                                                                                | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                |       |                                  |       |   |   |
| Net (loss) income                                                                         |       | $                                     | (14,252    | ) | $ | 1,012 |   |
| Adjustments to reconcile net (loss) income to net cash provided by  operating activities: |       |                                  |       |   |   |
| Depletion, depreciation and amortization                                                  |       | 10,625                                |       | 1,071 |   |
| Deferred income tax provision                                                             |       | (8,720                                | )          | — |   |
| Stock-based compensation                                                                  |       | 1,579                                 |       | 24 |   |
| Accretion expense                                                                         |       | 189                                   |       | 23 |   |
| Net unrealized loss on mark-to-markets  derivative contracts                              |       | 27,459                                |       | — |   |
| Other                                                                                     |       | 270                                   |       | (2 | ) |
| Change in assets and liabilities:                                                         |       |                                  |       |   |   |
| Accounts receivable                                                                       |       | 3,386                                 |       | (100 | ) |
| Prepaid expenses and other                                                                |       | (679                                  | )          | 147 |   |
| Accounts payable, trade and other accrued  liabilities                                    |       | (562                                  | )          | (216 | ) |
| Other non-current assets                                                                  |       | 7                                     |       | — |   |
|                                                                                      |       |                                  |       |   |   |
| Net cash provided by operating activities                                                 |       | 19,302                                |       | 1,959 |   |
|                                                                                      |       |                                  |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                                |       |                                  |       |   |   |
| Oil and gas property expenditures                                                         |       | (17,697                               | )          | (1,707 | ) |
| Acquisition of Proton Oil and Gas  Corporation, net of cash acquired of $0.9 million      |       | (52,625                               | )          | — |   |
| Proceeds received from sale of oil and gas  properties                                    |       | 78,469                                |       | 183 |   |
| Gas gathering and equipment expenditures                                                  |       | (459                                  | )          | (6 | ) |
|                                                                                      |       |                                  |       |   |   |
| Net cash provided by (used in) investing  activities                                      |       | 7,688                                 |       | (1,530 | ) |
|                                                                                      |       |                                  |       |   |   |
| **CASH FLOWS  FROM FINANCING ACTIVITIES:**                                                |       |                                  |       |   |   |
| Proceeds from exercise of options                                                         |       | 818                                   |       | — |   |
| Proceeds from borrowings under credit  facility                                           |       | 63,000                                |       | — |   |
| Repayment of borrowings under credit  facility                                            |       | (90,000                               | )          | — |   |
| Dividends paid                                                                            |       | (109                                  | )          | (113 | ) |
| Other                                                                                     |       | —                                |       | (66 | ) |
|                                                                                      |       |                                  |       |   |   |
| Net cash used in financing activities                                                     |       | (26,291                               | )          | (179 | ) |
|                                                                                      |       |                                  |       |   |   |
| **NET  INCREASE IN CASH AND CASH EQUIVALENTS**                                            |       | 699                                   |       | 250 |   |
|                                                                                      |       |                                  |       |   |   |
| **CASH AND  CASH EQUIVALENTS**                                                            |       |                                  |       |   |   |
| Beginning of period                                                                       |       | 5,660                                 |       | 2,110 |   |
|                                                                                      |       |                                  |       |   |   |
| End of period                                                                             |       | $                                     | 6,359      |   | $ | 2,360 |   |

 

**The accompanying notes are an integral partto these consolidated financial statements.**

 

6

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**PETROHAWK ENERGY CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL****STATEMENTS (Unaudited)**

 

**1**.**              FINANCIAL STATEMENTPRESENTATION**

 

During interim periods, Petrohawk Energy Corporation (Petrohawk or theCompany) follows the same accounting policies used in its Annual Report tostockholders and its Report on Form 10-K filed with the Securities andExchange Commission (SEC) on March 31, 2005. People using financialinformation produced for interim periods are encouraged to refer to thefootnotes in the Form 10-K when reviewing interim financial results.

 

These unaudited consolidated financial statements reflect, in theopinion of the Company’s management, all adjustments, consisting only of normaland recurring adjustments, necessary to present fairly the financial positionas of, and results of operations for, the periods presented. These financialstatements have been prepared in accordance with the instructions to Form 10-Qand, therefore, do not include all disclosures required for financialstatements prepared in conformity with accounting principles generally acceptedin the United States of America. Interim period results are not necessarilyindicative of results of operations or cash flows for the full year.

 

On May 18, 2004 the Company’s Board of Directors approved aone-for-two reverse stock split that was effective May 26, 2004. Thereverse stock split was implemented to effect the conditional approval by theNASDAQ National Market of the Company’s listing application, which was laterformally approved. Share and per share data (except par value) for periodspresented have been restated to reflect the reverse stock split.

 

**Recently Issued Accounting Pronouncements**

 

InMarch 2005, the Financial Accounting Standard Board (FASB) issued FASBInterpretation (FIN) No. 47, *Accounting for ConditionalAsset Retirement Obligations*. This Interpretation clarifies thedefinition and treatment of conditional asset retirement obligations asdiscussed in FASB Statement No. 143, *Accounting for AssetRetirement Obligations* (SFAS 143). A conditional asset retirementobligation is defined as an asset retirement activity in which the timing and/ormethod of settlement are dependent on future events that may be outside thecontrol of the Company. FIN 47 states that a Company must record a liabilitywhen incurred for conditional asset retirement obligations if the fair value ofthe obligation is reasonably estimable. This Interpretation is intended toprovide more information about long-lived assets, more information about futurecash outflows for these obligations and more consistent recognition of theseliabilities. FIN 47 is effective for fiscal years ending after December 15,2005. The Company does not believe that its financial position, results ofoperations or cash flows will be impacted by this Interpretation.

 

In September 2004, the SEC issued Staff Accounting Bulletin (SAB) No. 106(SAB 106) that provides guidance to oil and gas companies following the fullcost accounting method regarding the application of SFAS 143.  SAB 106requires companies calculating the full cost ceiling test to exclude futurecash outflows associated with settling asset retirement obligations that havebeen accrued on the balance sheet as required by SFAS 143.  However,estimated dismantlement and abandonment costs related to future developmentactivities, which are not required to be accrued under SFAS 143, should continueto be included in the full cost ceiling test.  The SEC staff has alsorecommended that companies discuss how the adoption of SFAS 143 has affectedtheir accounting for oil and gas operations.  The accounting anddisclosure requirements of SAB 106 are to be applied prospectively beginningwith the first quarter of 2005.  The Company has adopted the provisions ofSAB 106 effective January 1, 2005. This adoption did not have a materialimpact on the consolidated financial statements.

 

InDecember 2004, the FASB issued SFAS No. 123 (revised 2004), *Share-Based Payment* (SFAS 123(R)). SFAS 123(R) isa revision of SFAS No. 123, *Accounting for Stock BasedCompensation* (SFAS 123), and supercedes APB 25, *Accounting for Stock Issued to Employees*. Among other items,SFAS 123(R) eliminates the use of APB 25 and the intrinsic valuemethod of accounting and requires companies to recognize the cost of employeeservices received in exchange for awards of equity instruments based on thegrant date fair value of those awards in their financial statements. SFAS 123(R)permits companies to adopt its requirements using either a modified prospectivemethod, a variation of the modified prospective method or a modifiedretrospective method. Under the modified prospective method, compensation costis recognized in the financial statements beginning with the adoption date, basedon the requirements of SFAS 123(R) for all share-based payments grantedafter that date, and based on the requirements of SFAS 123 for allunvested awards granted prior to the adoption date. Under the variation of themodified prospective method, the requirements are the same as under themodified prospective method except that earlier interim periods in the year ofadoption are restated. Under the modified retrospective method, therequirements are the same as under the modified prospective method except thatfinancial statements of previous periods are restated based on pro formadisclosures made in accordance with SFAS 123.

 

7

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TheCompany currently utilizes a standard option pricing model (i.e.,Black-Scholes) to measure the fair value of stock options granted. SFAS 123(R)permits the continued use of this model as well as other standard optionpricing models. The Company has not yet determined which model it will use tomeasure the fair value of employee stock options upon our adoption of SFAS 123(R).SFAS 123(R) also requires that the benefits associated with tax deductionsin excess of recognized compensation cost be reported as a financing cash flow,rather than as an operating cash flow as required under current literature.This requirement will reduce reported net operating cash flows and increasereported net financing cash flows in periods after the effective date. Thesefuture amounts cannot be reasonably estimated because they depend on, amongother things, when employees exercise stock options. The Company will adoptSFAS 123(R) effective as of January 1, 2006; however, it has not yetdetermined which of the aforementioned adoption methods it will use.

 

InMarch 2005, the SEC issued SAB 107 on SFAS 123(R) (SAB 107).SAB 107 reinforces the flexibility allowed by SFAS 123(R) to choosean option pricing model, provides guidance on when it would be appropriate torely exclusively on either historical or implied volatility in estimatingexpected volatility and provided examples and simplified approaches todetermining the expected term. In April 2005, the SEC extended the date bywhich companies are required to adopt SFAS 123(R) from the first reportingperiod beginning on or after June 15, 2005 to the first reporting periodof the first fiscal year beginning on or after June 15, 2005.

 

In December 2004, the FASB issued SFAS 153,*Exchanges of Nonmonetary Assets — an amendment ofAPB Opinion 29* (SFAS 153).  The statement requires thatnonmonetary exchanges must be recorded at fair value and the appropriate gainor loss must be recognized so long as the fair value is determinable and thetransaction has commercial substance.  According to this statement,companies can no longer use the similar productive assets concept to accountfor nonmonetary exchanges at book value with no gain or loss beingrecognized.  SFAS 153 will be effective for fiscal periods beginning afterJune 15, 2005.  The adoption of this statement may impact the Company’soperating results, financial position or cash flows in future periods if such anonmonetary exchange occurs.

 

**Stock-Based Compensation**

 

On January 1, 2003, the Company adopted SFAS 123 and relatedinterpretations in accounting for its employee and director stock options andapplies the fair value based method of accounting to such options.  UnderSFAS 123, the fair value of each option granted is estimated on the date ofgrant using an option-pricing model such as the Black-Scholes model. Under Statement of Financial Accounting Standards No. 148*Accounting for Stock-Based Compensation — Transitionand Disclosure*, an amendment to SFAS 123, certain transitionalalternatives were available for a voluntary change to the fair value basedmethod of accounting for stock-based employee compensation if adopted in afiscal year beginning before December 16, 2003.  The Company used the*prospective method* which appliesprospectively the fair value recognition method to all employee and directorawards granted, modified or settled after the beginning of the fiscal year inwhich the fair value based method of accounting for stock-based compensation isadopted.  Prior to the adoption, the Company elected to follow AccountingPrinciples Board Opinion No. 25,*Accounting for Stock Issued to Employees* (APB 25) and relatedinterpretations in accounting for its employee stock options.  However, asrequired by SFAS 123, the Company disclosed on a pro forma basis the impact ofthe fair value accounting for employee stock options.  Transactions inequity instruments with non-employees for goods or services have been accountedfor using the fair value method as prescribed by SFAS 123.

 

Since the Company adopted the fair value recognition provisions of SFAS123 prospectively for all employee awards granted, modified or settled after January 1,2003, the cost related to stock-based compensation included in thedetermination of income for the three-months ended March 31, 2004, is lessthan that which would have been recognized if the fair value method had beenapplied to all awards since the original effective date of SFAS 123. For thethree-months ended March 31, 2005, these costs were accounted for based onthe requirements of SFAS 123 due to a modification of the terms granted toemployees prior to January 1, 2003 during the second quarter of 2004.

 

8

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Awards vest over periods ranging from one to three years.  Thefair value of each grant is estimated on the date of grant using theBlack-Scholes option pricing model. The following table illustrates theapproximated pro forma effect on net income and earnings per share as if thefair value based method had been applied to all outstanding and unvested awardsfor the three-month period ended March 31, 2004. As discussed above, therewere no costs accounted for under APB 25 during the three months ended March 31,2005.

 
| ** **                                                                                                    | ** ** | **Three Months Ended**  | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                    | ** ** | **March 31, 2004** | ** ** |
| ** **                                                                                                    | ** ** | **(In thousands)**      | ** ** |
|                                                                                                          |       |                    |       |
| Net income available to common shareholders  as reported                                                      |       | $                       | 901        |   |
| Add: Stock-based compensation expense  included in reported net income, net of tax                            |       | 24                      |       |
| Deduct: Total stock-based compensation  expense determined under fair value method for all awards, net of tax |       | (58                     | )          |
| Pro forma net income available to common  shareholders                                                        |       | $                       | 867        |   |
|                                                                                                          |       |                    |       |
| Net income per share:                                                                                         |       |                    |       |
| Basic – as reported                                                                                      |       | $                       | 0.14       |   |
| Basic – pro forma                                                                                        |       | $                       | 0.14       |   |
|                                                                                                          |       |                    |       |
| Diluted – as reported                                                                                    |       | $                       | 0.14       |   |
| Diluted – pro forma                                                                                      |       | $                       | 0.14       |   |

 

The assumptions used in the fair value method calculation for the threemonths ended March 31, 2005 are disclosed in the following table:

 
| ** **                                                         | ** ** | **Three Months Ended**  | ** ** |
|--------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                         | ** ** | **March 31, 2005** | ** ** |
|                                                               |       |                    |       |
| Weighted average value per option granted  during the period *(1)* |       | $                       | 1.99       |   |
|                                                               |       |                    |       |
| Assumptions                                                        |       |                    |       |
| Stock price volatility                                             |       | 27.2                    | %          |
| Risk free rate of return                                           |       | 3.4                     | %          |
| Expected term                                                      |       | 3 years                 |       |
| Dividends                                                          |       | —                  |       |
|                                                                    |            |                         |            |  |

 

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*(1)Calculated using theBlack-Scholes fair value based method.*

 

The Company did not grant any stock optionsduring the three months ended March 31, 2004.

 

9

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**2**.              **ACQUISITIONSAND DIVESTITURES**

 

**Proton Oil & Gas Corporation**

 

On February 25, 2005, the Company acquired the stock of Proton Oil &Gas Corporation (Proton) for $53 million in cash.  This privatelynegotiated transaction had an effective date of January 1, 2005.  Theproperties acquired are located in South Louisiana and South Texas.

 

Major properties in the asset base include interests in a multi-payfield in South Louisiana and nine proved undeveloped locations. In South Texas,significant properties include interests in a multi-pay Frio sand field andfifteen proved undeveloped locations. The acquisition also included 3-D seismicdata covering all major properties.

 

The acquisition of Proton was accounted for using the purchase methodof accounting.  As a result, the assets and liabilities of Proton wereincluded in the Company’s March 31, 2005 consolidated balance sheet. The transaction had an effective date of January 1, 2005 and closed on February 25,2005.  As such, the Company reflected the results of operations of Protonbeginning February 25, 2005. The Company recorded a purchase price ofapproximately $80.4 million of which $26.0 million reflected a non-cash itempertaining to the deferred income taxes attributable to the differences betweenthe tax basis and the fair value of the acquired oil and gas properties. Substantiallyall of the $80.4 million was allocated to oil and gas properties. The purchaseprice allocation is preliminary and subject to change as additional informationbecomes available.  Management does not expect the final purchase price todiffer materially from the preliminary allocation.

 

**Sale of Royalty Interest Properties**

 

On February 25, 2005, the Company completed the disposition ofcertain royalty interest properties previously acquired from Wynn-Crosby toNoble Royalties, Inc. (Noble) d/b/a Brown Drake Royalties forapproximately $80 million in cash. The transaction had an effective date of January 1,2005.

 

**Wynn-Crosby Transaction**

 

On November 23, 2004, the Company acquired Wynn-Crosby Energy, Inc.and eight of the limited partnerships it managed for a purchase price ofapproximately $425 million after closing adjustments (the Acquisition orWynn-Crosby).   The transaction was funded with proceeds from a $200million private equity placement, $210 million in borrowings from itscommercial bank group, and cash.

 

The Company’s unaudited pro forma results are presented below for thethree months ended March 31, 2004.  The unaudited pro forma resultshave been prepared to illustrate the approximated pro forma effects of theWynn-Crosby acquisition on the Company’s results of operations under thepurchase method of accounting as if the Company had acquired Wynn-Crosby on January 1,2004.

 

The unaudited pro forma results do not purport to represent what theresults of operations would actually have been if the acquisition had in factoccurred on such date or to project the Company’s results of operations for anyfuture date or period.

 
| ** **                                  | ** ** | **Three Months Ended**                       | ** ** |
|---------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                  | ** ** | **March 31, 2004**                      | ** ** |
| ** **                                  | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Pro forma:                                  |       |                                         |       |
| Revenue                                     |       | $                                            | 28,795     |   |
| Net income available to common stockholders |       | 3,472                                        |       |
|                                        |       |                                         |       |
| Basic earnings per share                    |       | $                                            | 0.09       |   |
| Diluted earnings per share                  |       | $                                            | 0.08       |   |

 

10

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**PHAWK, LLC Transaction**

 

On August 11, 2004, the Company acquired from PHAWK, LLC (formerlyknown as Petrohawk Energy, LLC) (PHAWK) certain oil and gas properties in theBreton Sound area, Plaquemines Parish, Louisiana and in the West Broussardfield in Lafayette Parish, Louisiana. The purchase price for all of the provedreserves, seismic data, undeveloped acreage, pipelines, production facility andother assets was $8.5 million. The effective date of the acquisition was June 1,2004 and the effects of this transaction were first reported in results for thequarter ended September 30, 2004.

 

**Recapitalization by PHAWK**

 

On May 25, 2004, PHAWK, which is owned by affiliates of EnCapInvestments, L.P., Liberty Energy Holdings LLC, Floyd C. Wilson and othermembers of the Company’s management recapitalized the Company with$60 million in cash. The $60 million investment was structured as thepurchase by PHAWK of 7.576 million new shares of common stock for$25 million, a $35 million five year 8% subordinated note convertibleinto approximately 8.75 million shares of common stock at a conversionprice of $4.00 per share and warrants to purchase 5.0 million shares of commonstock at a price of $3.30 per share. At the annual stockholders meeting held July 15,2004, the stockholders approved changing the name of the Company to PetrohawkEnergy Corporation (from Beta Oil & Gas, Inc.), reincorporatingthe Company in Delaware, and the adoption of new stock option plans.

 

**3.**              **OIL AND GAS PROPERTIES**

 

Oil and gas properties are comprised of the following (In thousands):

 
| ** **                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2005**           | ** ** | **2004**              | ** ** |
|                                             |       |               |       |                  |       |
| Evaluated (subject to amortization)              |       | $                  | 481,042    |                  | $          | 484,233 |   |
| Unevaluated (not subject to amortization)        |       |               |       |                  |       |
| Unproved costs incurred in 2004                  |       | 43,897             |       | 48,679                |       |
| Unproved costs incurred in 2005                  |       | 27,876             |       | —                |       |
| Exploration wells in progress                    |       | —             |       | 161                   |       |
| Total unevaluated (not subject to  amortization) |       | 71,773             |       | 48,840                |       |
| Gross natural gas and crude oil properties       |       | 552,815            |       | 533,073               |       |
| Less accumulated amortization                    |       | (59,267            | )          | (48,740               | )          |
| Net natural gas and crude oil properties         |       | $                  | 493,548    |                  | $          | 484,333 |   |

 

**4.****              LONG-TERM DEBT**

 

**Revolving Credit Facility**

 

In connection with the acquisition of Wynn-Crosby, the Company enteredinto a new revolving credit facility with BNP Paribas as the lead bank andadministrative agent which is due in November 2008. The revolving creditfacility had an initial borrowing base of $200 million and a threshold amountof $180 million. Amounts outstanding under the revolving credit facility bearinterest at specified margins over the London Interbank Offered Rate (LIBOR) of1.25% to 2.5%. Such margins will fluctuate based on the utilization of the facility.               Borrowings underthe credit facility are secured by a first priority lien on substantially allof the Company’s assets and are due on November 23, 2008.

 

The available credit line is subject to adjustment semi-annually basedupon a number of factors, including commodity prices and reserve levels. On April 1,2005, the borrowing base under the facility was changed to $185 million with athreshold amount of $175 million. The next redetermination date is scheduled tooccur during the fourth quarter of 2005. Upon a redetermination, the Companycould be required to repay a portion of the bank debt.

 

The revolving credit facility requires the Company to maintain certainfinancial covenants pertaining to minimum working capital levels, minimumcoverage of interest expense, and a maximum leverage ratio. The Company may notpermit its ratio of reserves to total debt to be less than 1.5 to 1.0 after March 31,2005. The Company may not permit its ratio of total debt to EBITDA for theperiod of four fiscal quarters immediately preceding the date ofredetermination for which financial statements are available to be greater than4.0 to 1.0. In addition, the Company is subject to covenants limitingdividends, and other restricted payments, transactions with affiliates,incurrence of debt, changing of control, asset sales, and liens on properties. AtMarch 31, 2005, the Company is in compliance with all of its debtcovenants.

 

11

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**Second Lien Term Loan Facility**

 

A second lien facility in the amount of $50 million was provided by BNPParibas and a group of lenders. The facility matures on February 25, 2009.Any amounts repaid under the second lien facility may not be reborrowed. Borrowingsunder the term loan initially bear interest at LIBOR plus 4.00%, increasing0.25% on a quarterly basis thereafter, subject to a ceiling of LIBOR plus5.00%. Borrowings under the second lien facility are secured by a secondpriority lien on substantially all of the assets securing the revolving creditfacility. The Company is subject to certain financial covenants pertaining tominimum asset coverage ratio and a maximum leverage ratio as discussed aboveunder the revolving credit facility. In addition, the Company is subject tocovenants limiting dividends and other restricted payments, transactions withaffiliates, incurrence of debt, changes of control, asset sales, and liens onproperties. The Company is obligated to repay 1% per annum of the originalprincipal balance, with the remaining 96% of the original principal balance dueand payable on February 25, 2009. At March 31, 2005, the Company isin compliance with all of its debt covenants.

 

**Subordinated Convertible Note Payable**

 

On May 25, 2004 and in connection with the recapitalization of theCompany by PHAWK, LLC, the Company issued a $35 million five-year unsecuredsubordinated convertible note payable to PHAWK, LLC. The note bears interest at8%, is payable quarterly until maturity and is convertible after two years into8.75 million shares of common stock at a conversion price of $4.00 per share. Thefull amount of the principal plus accrued and unpaid interest will be payableon May 25, 2009.

 

**Debt Issue Costs**

 

The Company capitalizes certain direct costsassociated with the issuance of long-term debt. At March 31, 2005, theCompany has approximately $3.6 million of net debt issuance costs that arebeing amortized over the lives of the respective long-term debt.

 

**5.**              **ASSETRETIREMENT OBLIGATIONS**

 

If a reasonable estimate of the fair value of an obligation to performsite reclamation, dismantle facilities or plug and abandon wells can be made,the Company records a liability (an asset retirement obligation or ARO) on theconsolidated balance sheet and capitalizes the asset retirement cost in oil andgas properties in the period in which the retirement obligation is incurred. Ingeneral, the amount of an ARO and the costs capitalized will be equal to theestimated future cost to satisfy the abandonment obligation using currentprices that are escalated by an assumed inflation factor up to the estimatedsettlement date, which is then discounted back to the date that the abandonmentobligation was incurred using an assumed cost of funds for the company. Afterrecording these amounts, the ARO is accreted to its future estimated valueusing the same assumed cost of funds and the additional capitalized costs aredepreciated on a unit-of-production basis over the productive life of therelated properties. Both the accretion and the depreciation are included indepletion, depreciation and amortization on the consolidated statement ofoperations.

 

The Company recorded the following activity related to the liabilityfor the three months ended March 31, 2005 (In thousands):

 
| Beginning balance – liability for asset  retirement obligations |   | $      | 12,726 |   |
|----------------------------------------------------------------------|--------|--------|--------|--------|
| Obligations fulfilled during the period                              |   | — |   |
| Additions                                                            |   | 83     |   |
| Acquisition of Proton Oil and Gas  Corporation* (1)*            |   | 525    |   |
| Accretion expense                                                    |   | 189    |   |
|                                                                 |   |   |   |
| Ending balance – liability for asset  retirement obligations    |   | $      | 13,523 |   |

 

----

*(1)  Refer to Note 2,Acquisitions and Divestitures for more details.*

 

**6.**              **COMMITMENTS AND****CONTINGENCIES**

 

From time to time, the Company is a party to ordinary and routinelitigation incidental to the Company’s business. The Company is currently not aparty to any pending litigation, and is not aware of any threatened litigationthat would in the opinion of the Company’s legal counsel, have a significantimpact on the consolidated financial statements. The Company has not been aparty to any bankruptcy, receivership, reorganization, adjustment or similarproceeding.

 

12

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**7**.              **DERIVATIVEAND HEDGING ACTIVITIES**

 

Periodically, the Company enters into derivative commodity instrumentsto hedge its exposure to price fluctuations on natural gas and crude oilproduction. Under collar arrangements, if the index price rises above theceiling price, the Company pays the counterparty. If the index price fallsbelow the floor price, the counterparty pays the Company. Under price swaps,the Company receives a fixed price on a notional quantity of natural gas andcrude oil in exchange for paying a variable price based on a market-basedindex, such as the NYMEX gas and crude oil futures.

 

At March 31, 2005, the Company had 78 open positions: 36 naturalgas price collar arrangements, 8 natural gas price swap arrangements, 6 crudeoil price swap arrangements and 28 crude oil collar arrangements. The Companyhas elected not to designate any positions as cash flow hedges for accountingpurposes, and accordingly, records the net change in the mark-to-marketvaluation of these derivative contracts in the consolidated statement ofoperations.

 

At March 31, 2005, the Company had a $21.2 million derivativeliability, $7.8 million of which is classified as short-term. In addition, theCompany had $1.2 million of realized losses and $27.5 million of unrealizedlosses which resulted in a net loss of $28.7 million for the three months endedMarch 31, 2005.

 

During the three months ended March 31, 2004, the Company had nooutstanding commodity price hedging contracts.

 

**Natural Gas**

 

At March 31, 2005, the Company had the following natural gascostless collar positions:

 
| ** **                             | ** ** | ** **       | ** ** | **Contract Price per Mmbtu** | ** ** |
|----------------------------------------|------------|------------------|------------|------------------------------|------------|
| ** **                             | ** ** | ** **       | ** ** | **Collars**                  | ** ** |
| ** **                             | ** ** | ** **       | ** ** | **Floors**                   | ** ** | **Ceilings** | ** ** |
| ** **                             | ** ** | **Volume in**    | ** ** | **Price /**                  | ** ** | **Weighted** | ** ** | **Price /** | ** ** | **Weighted** | ** ** |
| **Period**                             | ** ** | **Mmbtu’s** | ** ** | **Price Range**              | ** ** | **Average Price** | ** ** | **Price Range** | ** ** | **Average Price** | ** ** |
|                                   |       |             |       |                         |       |   |   |   |   |   |   |
| April 2005 - June 2005       |       | 90,000           |       | $ 6.50                  |       | $ | 6.50 |   | $ 8.15 |   | $ | 8.15 |   |
| April 2005 - December 2005   |       | 5,152,500        |       | 5.00 - 7.00                  |       | 6.15 |   | 7.59 - 10.05 |   | 9.40 |   |
| July 2005 - December 2005    |       | 1,020,000        |       | 6.00                         |       | 6.00 |   | 7.68 |   | 7.68 |   |
| January 2006 - December 2006 |       | 6,600,000        |       | 5.50 - 6.00                  |       | 5.64 |   | 8.26 - 9.54 |   | 9.19 |   |
| January 2007 - December 2007 |       | 2,880,000        |       | 5.30                         |       | 5.30 |   | 7.12 |   | 7.12 |   |
| January 2008 - December 2008 |       | 3,600,000        |       | 5.00 - 5.15                  |       | 5.05 |   | 6.45 - 6.71 |   | 6.53 |   |
|                                        |            |                  |            |                              |            |  |  |  |  |  |  |  |  |

 

At March 31, 2005, the Company had the following natural gas swappositions:

 
| **Contract Price per Mmbtu**           | ** ** |
|----------------------------------------|------------|
| **Swaps**                              | ** ** |
| ** **                             | ** ** | **Volume in** | ** ** | **Weighted** | ** ** |
| **Period**                             | ** ** | **Mmbtu’s** | ** ** | **Average Price** | ** ** |
|                                   |       |   |   |   |   |
| April 2005 - June 2005       |       | 360,000 |   | $ | 4.08 |   |
| April - May 2005             |       | 60,000 |   | 4.03 |   |
| January 2007 - December 2007 |       | 1,200,000 |   | 6.06 |   |
|                                        |            |  |  |  |  |  |

 

13

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**Crude Oil**

 

At March 31, 2005, the Company had the following crude oilcostless collar positions:

 
| ** **                             | ** ** | ** **    | ** ** | **Contract Price per Bbl** | ** ** |
|----------------------------------------|------------|---------------|------------|----------------------------|------------|
| ** **                             | ** ** | ** **    | ** ** | **Collars**                | ** ** |
| ** **                             | ** ** | ** **    | ** ** | **Floors**                 | ** ** | **Ceilings** | ** ** |
| ** **                             | ** ** | **Volume in** | ** ** | **Price /**                | ** ** | **Weighted** | ** ** | **Price /** | ** ** | **Weighted** | ** ** |
| **Period**                             | ** ** | **Bbls**      | ** ** | **Price Range**            | ** ** | **Average Price** | ** ** | **Price Range** | ** ** | **Average Price** | ** ** |
|                                   |       |          |       |                       |       |   |   |   |   |   |   |
| April 2005 - June 2005       |       | 18,000        |       | $ 40.00               |       | $ | 40.00 |   | $ 55.85 |   | $ | 55.85 |   |
| April 2005 - December 2005   |       | 369,000       |       | 38.00 - 43.00              |       | 42.39 |   | 51.40 - 57.00 |   | 55.29 |   |
| January 2006 - December 2006 |       | 408,000       |       | 40.00                      |       | 40.00 |   | 47.30 - 49.30 |   | 48.89 |   |
| January 2007 - December 2007 |       | 240,000       |       | 35.00 - 36.00              |       | 35.30 |   | 43.20 - 45.75 |   | 43.97 |   |
| January 2008 - December 2008 |       | 60,000        |       | 34.00                      |       | 34.00 |   | 45.30 |   | 45.30 |   |
|                                        |            |               |            |                            |            |  |  |  |  |  |  |  |  |

 

At March 31, 2005, the Company had the following crude oil swappositions:

 
| **Contract Price per Bbl**             | ** ** |
|----------------------------------------|------------|
| **Swaps**                              | ** ** |
| ** **                             | ** ** | **Volume in** | ** ** | **Weighted** | ** ** |
| **Period**                             | ** ** | **Bbls** | ** ** | **Average Price** | ** ** |
|                                   |       |   |   |   |   |
| January 2008 - December 2008 |       | 144,000 |   | $ | 38.10 |   |
|                                        |            |  |  |  |  |  |

 

**8.****              STOCKHOLDERS’ EQUITY**

 

***Stock Option Grants***

During the first quarter of 2005, the Company granted stock optionscovering 1,027,500 shares of common stock to employees of the Company. Theoptions vest over a two-year period with one-third vesting on the date ofgrant, one-third one year from the date of the grant and the remainingone-third two years from the date of the grant. The options have exercise pricesranging from $8.51 to $10.29 with a weighted average price of $8.67. Theseoptions will expire ten years from the grant date. No options were granted during the firstquarter of 2004.

 

***Restricted Stock***

During thefirst quarter of 2005, the Company issued 5,000 shares of restricted commonstock to an employee of the Company. These restricted shares vest over atwo-year period with one-third vesting on the date of issuance, one-third oneyear from the date of the issuance and the remaining one-third two years fromthe date of the issuance. The shares were issued at a price of $8.51 per share.

 

***Treasury Stock***

In August 2004, the Company’s Board of Directors terminated thestock repurchase program.  The Company did not purchase any shares ofcommon stock during the three months ended March 31, 2004.   At March 31,2005, the Company held 8,382 treasury shares with an average price per share of$4.35.

 

**9.** **           RELATED PARTYTRANSACTIONS**

 

On August 11, 2004, the Company purchased working interests incertain oil and gas properties and various other assets from PHAWK, LLC for$8.5 million. The effective date of the acquisition was June 1, 2004. Sincethe Company and PHAWK, LLC were under common control at the time of thetransaction, the assets were recorded by the Company at the net book value ofPHAWK, LLC at the time of the purchase. The purchase price exceeded the netbook value by approximately $5.6 million. The excess is reflected as a returnof capital to PHAWK, LLC in the consolidated financial statements.

 

A Special Committee of one disinterested director was formed by theCompany’s board of directors to evaluate, negotiate and complete the purchase. TheSpecial Committee hired an independent reservoir engineering firm to provide areserve evaluation and engaged an independent financial advisor to evaluate thefairness, from a financial point of view, to the Company. The independentfinancial advisor has rendered a fairness opinion to the Special Committee.

 

14

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**10.****       NET INCOME (LOSS) PER COMMON SHARE**

 

Basic earnings per share (EPS) is calculatedby dividing net income by the weighted average number of shares of common stock(other than unvested restricted stock) outstanding during the period. Dilutedearnings per share incorporates the dilutive impact of common stock equivalents(using the treasury stock method) and unvested restricted stock.

 

The following is the calculation of basic anddiluted weighted average shares outstanding and EPS for the indicated periods:

 
| ** **                                                                                                                | ** ** | **Three Months Ended**                       | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                                                | ** ** | **March 31,**                           | ** ** |
| ** **                                                                                                                | ** ** | **2005**                                     | ** ** | **2004** | ** ** |
| ** **                                                                                                                | ** ** | **(In thousands, except per share amounts)** | ** ** |
|                                                                                                                      |       |                                         |       |   |   |
| Basic:                                                                                                                    |       |                                         |       |   |   |
| Net (loss) income applicable to common  stockholders                                                                      |       | $                                            | (14,361    | ) | $ | 901 |   |
|                                                                                                                      |       |                                         |       |   |   |
| Weighted average number of common shares                                                                                  |       | 39,980                                       |       | 6,215 |   |
| Basic (loss) earnings per share                                                                                           |       | $                                            | (0.36      | ) | $ | 0.14 |   |
|                                                                                                                      |       |                                         |       |   |   |
| Diluted:                                                                                                                  |       |                                         |       |   |   |
| Net (loss) income applicable to common  stockholders                                                                      |       | $                                            | (14,361    | ) | $ | 901 |   |
| Plus: preferred dividends *(1)*                                                                                           |       | —                                       |       | — |   |
| Plus: interest on 8% subordinated convertible  note payable (net of tax)* (1)*                                       |       | —                                       |       | — |   |
| Net (loss) income for diluted (loss)  earnings per share                                                                  |       | $                                            | (14,361    | ) | $ | 901 |   |
|                                                                                                                      |       |                                         |       |   |   |
| Weighted average number of common shares                                                                                  |       | 39,980                                       |       | 6,215 |   |
| Common stock equivalent shares - stock  options                                                                           |       | Antidilutive                                 |       | 356 |   |
| Common stock equivalent shares - warrants                                                                                 |       | Antidilutive                                 |       | Antidilutive |   |
| Common stock equivalent shares representing  shares “as-if” conversion of convertible subordinated note payable |       | Antidilutive                                 |       | — |   |
| Common stock equivalent shares representing  shares “as-if” conversion of preferred shares                      |       | Antidilutive                                 |       | Antidilutive |   |
| Weighted average number of shares used in  calculation of diluted income (loss) per share                                 |       | 39,980                                       |       | 6,570 |   |
| Diluted (loss) earnings per share                                                                                         |       | $                                            | (0.36      | ) | $ | 0.14 |   |

 

----

*(1)  Due to the antidilutive nature of these items,these amounts have been excluded from the diluted earnings per sharecalculation for the three months ended March 31, 2005 and 2004.*

 

15

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The following common stock equivalents were not included in thecomputation for diluted (loss) earnings per share because the effect would beantidilutive:

 
| ** **                            | ** ** | **March 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|
| **Common Stock Equivalents:**         | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                            | ** ** | **(In thousands)** | ** ** |
|                                  |       |               |       |   |   |
| Options                               |       | 2,060              |       | 126 |   |
| Warrants                              |       | 5,331              |       | 920 |   |
| “As-if” conversion of:      |       |               |       |   |   |
| Subordinated Convertible Note Payable |       | 8,750              |       | — |   |
| Preferred Stock                       |       | 299                |       | 302 |   |
|                                  |       | 16,440             |       | 1,348 |   |

 

**11**.       **SUBSEQUENT EVENT**

 

On April 4, 2005, the Company, and Mission Resources Corporation(Mission), a Delaware corporation, announced the execution of an Agreement andPlan of Merger, dated as of April 3, 2005 (the Merger Agreement) pursuantto which the Company has agreed to purchase all of the issued and outstandingshares of Mission common stock.

 

Under the terms of the Merger Agreement, which was approved by theBoards of Directors of both the Company and Mission, Mission will merge withand into Merger Sub (the Merger), with Merger Sub surviving the Merger. TheMerger is intended to qualify as a tax-free reorganization under Section 368(a) ofthe Internal Revenue Code of 1986, as amended. The Company’s Board of Directorshas determined that the merger is fair to, and in the best interests of, theCompany and its stockholders. The Company believes Mission offers a number ofimportant features that it looks for – undervalued or underdeveloped propertiesin areas where the Company has technical expertise, near-term non-coredivestments, opportunities for accelerated development of proved undevelopedreserves, an attractive acreage position and significant upside in the form of 3-Dseismic based drilling prospects, all within existing core areas.

 

Total consideration for the shares of Mission common stock will becomprised of approximately 60% of Company common stock and 40% cash, and isfixed at approximately $135 million in cash and approximately 19.2 millionshares of the Company’s common stock, not including outstanding options topurchase Mission common stock. The Company currently anticipates the issuanceof debt to finance all or a portion of the cash consideration paid for Mission’scommon stock. Outstanding options to purchase Mission common stock will beconverted into options to purchase the Company’s common stock pursuant to theterms of the Merger Agreement. Mission stockholders will have the right toelect cash or the Company’s common stock, subject to a proration if either cashor stock is oversubscribed. While the per share consideration is initiallyfixed in the Merger Agreement at $8.15 in cash or 0.7718 shares of the Company’scommon stock, the per share consideration is subject to adjustment upwards ordownwards so that each share of Mission common stock receives considerationrepresenting equal value. This adjustment will reflect 46.3% of the differencebetween $10.56 and the price of the Company’s common stock during a specifiedperiod prior to closing. Based on the closing price of $11.53 per share of theCompany’s common stock on April 1, 2005, the adjusted per shareconsideration would be valued at $8.60 or 0.7458 shares of the Company’s commonstock. In addition, the Company will assume or pay off Mission’s approximate$170 million of long-term debt.

 

Consummation of the transactions contemplated by the Merger Agreementis conditioned upon, among other things, (1) approval by the stockholdersof Mission and the Company, (2) the receipt of all required regulatoryapprovals, (3) absence of any order or injunction prohibiting theconsummation of the Merger, (4) subject to certain exceptions, theaccuracy of representations and warranties with respect to Mission’s or theCompany’s business, as applicable, (5) receipt of customary tax opinionsand (6) the effectiveness of a registration statement relating to theshares of the Company’s common stock to be issued in the Merger. The MergerAgreement contains certain termination rights and provides that, upon thetermination of the Merger Agreement under specified circumstances, Mission willbe required to pay the Company a termination fee of $12.5 million.

 

16

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**Item 2.****           Management’s Discussion****and Analysis of FinancialCondition and Results of Operations**

 

Thefollowing review of operations for the first quarter of 2005 and 2004 should beread in conjunction with our Consolidated Financial Statements and the Notesincluded in this Form 10-Q and with the Consolidated Financial Statements,Notes and Management’s Discussion and Analysis included in the Petrohawk EnergyCorporation Form 10-K for the year-end December 31, 2004.

 

Statementsin this discussion may be forward-looking. These forward-looking statementsinvolve risks and uncertainties, including those discussed below, which couldcause actual results to differ from those expressed. See Forward-LookingInformation on page 22.

 

**Overview**

 

Petrohawk Energy Corporation is anindependent oil and gas company engaged in the acquisition, development,production and exploration of natural gas and crude oil. Our explorationactivities are concentrated in areas with known hydrocarbons resources, whichare conducive to multi-well, repeatable drilling programs.

 

In the first three months of 2005, we produced 4.8 Bcfe compared toproduction of 0.7 Bcfe for the comparable period of the prior year. Natural gasproduction was 3.4 Bcf and oil production was 231 Mbbls for the first threemonths of 2005. Oil and natural gas production in the current period increasedby 4.1 Bcfe from the same period in 2004. We reported oil and gas revenues forthe three months ended March 31, 2005 of $32.2 million. This represents anincrease of $28.3 million as compared to the comparable period of the prioryear. The increase in our production and oil and natural gas revenues wasprincipally through acquisitions. We focus on properties within our coreoperating areas that have a significant proved reserve component and whichmanagement believes have additional development and exploration opportunities.

 

Our financial results depend upon many factors, particularly the priceof natural gas and crude oil and our ability to market our production. Commodityprices are affected by changes in market demands, which are impacted by overalleconomic activity, weather, pipeline capacity constraints, inventory storagelevels, basis differentials and other factors. As a result, we cannotaccurately predict future natural gas and crude oil prices, and therefore, wecannot determine what effect increases or decreases will have on our capitalprogram, production volumes and future revenues. In addition to productionvolumes and commodity prices, finding and developing sufficient amounts ofcrude oil and natural gas reserves at economical costs are critical to ourlong-term success.

 

Wehave assembled an experienced management team and technical staff withsignificant experience and expertise in property acquisitions, development anddivestments, reservoir engineering, production operations, exploration andfinancial management. Most of the members of this team have worked together forseveral years with other companies.

 

Webelieve that our cash flow from operations and other financial resources willprovide us with the ability to fully develop our existing properties, tofinance our current exploration projects and to pursue new acquisitionopportunities.

 

**Capital Resources and Liquidity**

 

Our primary source of cash during the first quarter of 2005 was fromfunds obtained from operating and investing activities. Funds obtained fromoperating activities were generated from the production and sale of natural gasand crude oil. Funds obtained from investing activities were generated fromproceeds from the sale of certain royalty properties. Operating cash flowfluctuations are substantially driven by commodity prices and changes in ourproduction volumes. Prices for natural gas and crude oil have historically beensubject to seasonal influences characterized by peak demand and higher pricesin the winter heating season; however, the impact of other risks anduncertainties have influenced prices throughout recent years. Working capital issubstantially influenced by these variables. Fluctuation in cash flow mayresult in an increase or decrease in our capital and exploration expenditures. SeeResults of Operations for a review of the impact of prices and volumes onsales. Cash flows provided by operating activities were primarily used to fundexploration and development expenditures. See below for additional discussionand analysis of cash flow.

 

17

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Net increase in cash and cash equivalents is summarized as follows (Inthousands):

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|
| ** **                                            | ** ** | **March 31,**     | ** ** |
| ** **                                            | ** ** | ** **             | ** ** | ** ** | ** ** | **Increase** | ** ** |
| ** **                                            | ** ** | **2005**               | ** ** | **2004** | ** ** | **(Decrease)** | ** ** |
|                                                  |       |                   |       |   |   |   |   |
| Cash flows provided by operating activities           |       | $                      | 19,302     |   | $ | 1,959 |   | $ | 17,343 |   |
| Cash flows provided by (used in) investing activities |       | 7,688                  |       | (1,530 | ) | 9,218 |   |
| Cash flows used in financing activities               |       | (26,291                | )          | (179 | ) | (26,112 | ) |
|                                                  |       |                   |       |   |   |   |   |
| Net increase in cash and cash equivalents             |       | $                      | 699        |   | $ | 250 |   | $ | 449 |   |

 

**Operating Activities**. Net cash provided by operating activities during the first quarter of2005 increased $17.3 million from the same period in 2004. This increase wasprimarily due to an increase in sales volumes attributable to the acquisitionof Wynn-Crosby as well as an increase in prices. Average realized prices forthe first quarter increased 15% from $5.79 Mcfe in 2004 to $6.68 Mcfe in 2005. Productionvolumes increased from 683 Mmcfe to 4,822 Mmcfe for the three months ended March 31,2004 and 2005, respectively. We are unable to predict future commodity prices,and as a result cannot provide any assurance about future levels of net cashprovided by operating activities.

 

**Investing Activities**. Cash flows provided byinvesting activities increased by $9.2 million for the three months ended March 31,2005, compared to the same period in 2004. The primary driver of cash used byinvesting activities is capital spending in the amount of $18.2 million and theacquisition of Proton Oil and Gas Corporation in the amount of $52.6 million. Thesetransactions were offset by the sale of certain royalty properties in theamount of $78.5 million. We establish our budget for capital spending based onour current estimate of future commodity prices. Due to the volatility ofcommodity prices our budget may be periodically adjusted in any given year.

 

**Financing Activities.**Net cash provided by financing activities during the first quarter of2005 decreased $26.1 million from the same period in 2004. Net cash used infinancing activities in 2005 was primarily driven by the repayment of $90 millionof borrowings under the Company’s revolving credit facility partially offset byborrowings of $63 million during the first quarter resulting in a net repaymentof $27 million. This net decrease was offset by the receipt of approximately$0.8 million from the issuance of common stock related to the exercise ofemployee stock options during the first quarter of 2005. During the firstquarter of 2005 and 2004, we paid $0.1 million in dividends on our Series APreferred Stock. Management believes that we have the ability to financethrough new debt or equity offerings, if necessary, our capital requirements,including potential acquisitions.

 

**Contractual Obligations**

 

We have no material long-term commitments associated with our capitalexpenditure plans or operating agreements.  Consequently, we have asignificant degree of flexibility to adjust the level of such expenditures ascircumstances warrant.  The level of capital expenditures will vary infuture periods depending on the success we have with our acquisition,developmental and exploration activities in future periods, gas and oil priceconditions and other related economic factors. The Company currently expects tospend approximately $70 million during 2005 on its drilling program. Currentlyno sources of liquidity or financing are provided by off-balance sheetarrangements or transactions with unconsolidated, limited-purpose entities.

 

We have announced the execution of an agreement and plan of merger toacquire Mission Resources Corporation. Total consideration for the shares ofMission common stock which will be comprised of approximately 60% of our commonstock and 40% cash, and is fixed at approximately $135 million in cash andapproximately 19.2 million shares of our common stock, not includingoutstanding options to purchase Mission common stock. Outstanding options topurchase Mission common stock will be converted into options to purchase ourcommon stock pursuant to the terms of the Merger Agreement. We currentlyanticipate the issuance of debt to finance all or a portion of the cashconsideration paid for Mission’s common stock.

 

**Critical Accounting Policies and Estimates**

 

The Company’s discussion and analysis of its financial condition andresults of operation are based upon the consolidated financial statements,which have been prepared in accordance with accounting principals generallyaccepted in the United States of America. Preparation of these financialstatements requires the Company to make estimates and judgments that affect thereported amounts of assets, liabilities, revenues and expenses. There have beenno changes to the Company’s critical accounting policies from those describedin the 2004 Form 10-K. See the Company’s Form 10-K for the year endedDecember 31, 2004, for further discussion.

 

18

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**Results of Operations**

 

*Quarters ended March 31, 2005 and 2004*

 

We reported a net loss of $14.2 million for the three months ended March 31,2005 compared to net income of $1.0 million for the comparable period in 2004. Thenet loss in 2005 was driven by a $28.7 million net loss on derivative contractsand an increase in interest expense and debt issue cost amortization of $3.2million offset by an increase of $7.9 million in income from operations and anincrease in the Company’s income tax benefit of $8.7 million.

 

The following table summarizes key items of comparison for the periodsindicated.  Dollars, except for per unit data, and production data are inthousands.

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** | ** **   | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|--------------|------------|
| ** **                                            | ** ** | **March 31,**     | ** ** | **Increase** | ** ** |
| **In Thousands (Except price and  per Mcfe amounts)** | ** ** | **2005**               | ** ** | **2004**     | ** ** | **(Decrease)** | ** ** |
|                                                  |       |                   |       |         |       |   |   |
| Net (loss) income                                     |       | $                      | (14,252    | )            | $          | 1,012 |   | $ | (15,264 | ) |
| Oil and gas sales                                     |       | 32,217                 |       | 3,954        |       | 28,263 |   |
| Field service and other revenues                      |       | 109                    |       | 98           |       | 11 |   |
| Lease operating expense                               |       | 5,231                  |       | 740          |       | 4,491 |   |
| Production tax expense                                |       | 2,326                  |       | 227          |       | 2,099 |   |
| Field service expense                                 |       | 47                     |       | 45           |       | 2 |   |
| General and administrative expense:                   |       |                   |       |         |       |   |   |
| General and administrative expense                    |       | 3,300                  |       | 776          |       | 2,524 |   |
| Stock compensation                                    |       | 1,579                  |       | 24           |       | 1,555 |   |
| Accretion expense                                     |       | 189                    |       | 23           |       | 166 |   |
| Depletion – Full cost                            |       | 10,526                 |       | 1,023        |       | 9,503 |   |
| Depreciation – Field service and other           |       | 99                     |       | 48           |       | 51 |   |
| Net loss on derivative contracts                      |       | (28,652                | )          | —       |       | (28,652 | ) |
| Interest expense and other                            |       | (3,349                 | )          | (111         | )          | (3,238 | ) |
| Income tax benefit (expense)                          |       | 8,720                  |       | (23          | )          | 8,743 |   |
|                                                  |       |                   |       |         |       |   |   |
| Production:                                           |       |                   |       |         |       |   |   |
| Natural Gas – Mmcf                               |       | 3,438                  |       | 481          |       | 2,957 |   |
| Crude Oil – Mbbl                                 |       | 231                    |       | 34           |       | 197 |   |
| Natural Gas Equivalent – Mmcfe                   |       | 4,822                  |       | 683          |       | 4,139 |   |
|                                                  |       |                   |       |         |       |   |   |
| Average price per unit *(1)**:*                       |       |                   |       |         |       |   |   |
| Gas price per Mcf                                     |       | $                      | 6.24       |         | $          | 5.74 |   | $ | 0.50 |   |
| Oil price per Bbl                                     |       | 46.62                  |       | 33.16        |       | 13.46 |   |
| Equivalent per Mcfe                                   |       | 6.68                   |       | 5.79         |       | 0.89 |   |
|                                                  |       |                   |       |         |       |   |   |
| Average cost per Mcfe:                                |       |                   |       |         |       |   |   |
| Operating expense                                     |       | 1.08                   |       | 1.08         |       | — |   |
| Production tax expense                                |       | 0.48                   |       | 0.33         |       | 0.15 |   |
| General and administrative expense                    |       | 0.68                   |       | 1.14         |       | (0.46 | ) |
| Depletion expense                                     |       | 2.18                   |       | 1.50         |       | 0.68 |   |

 

----

*(1)**       Amounts exclude the impactof derivatives, as the Company does did not apply hedge accounting.*

 

19

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For the three months ended March 31, 2005, oil and gas salesincreased $28.3 million from the comparable period in 2004, to $32.2million.  The increase for the three months was primarily due to an increasein volumes of 4,139 Mmcfe as a result of the acquisition of Wynn-Crosby in November of2004. Higher commodity prices led to an approximate $4.3 million increase inrevenues from the comparable period in 2004 as our realized average price perMcfe increased $0.89 in 2005 to $6.68 from $5.79 in 2004.

 

Lease operating expenses increased $4.5 million for the three monthsended March 31, 2005 as compared to the comparable period in 2004. Theincrease was primarily due to the acquisition of Wynn-Crosby in November of2004 as well as the acquisition of Proton in February of 2005. On a perunit basis, lease operating expense was $1.08 per Mcfe for the first quarter of2005 and 2004.

 

Production tax expense increased $2.1 million for the three monthsended March 31, 2005 as compared to the same period in 2004 due to acorresponding increase in natural gas and crude oil revenues. Production taxesare generally assessed as a percentage of gross oil and natural gas sales.

 

General and administrative expenses for the three months ended March 31,2005 increased $2.5 million to $3.3 million compared to the same period in2004. This increase was primarily due to changes in the following items as aresult of the Wynn-Crosby and Proton acquisitions (In thousands):

 
| ** **                              | ** ** | **2005 increase** | ** ** |
|-----------------------------------------|------------|-------------------|------------|
| **Description**                         | ** ** | **over  2004**    | ** ** |
| Increase in legal and professional fees |       | $                 | 1,836      |   |
| Increase in office expenses             |       | 168               |       |
| Other                                   |       | 520               |       |
|                                    |       |              |       |
| Total                                   |       | $                 | 2,524      |   |

 

The increase in legal and professional feesfor the three months ended March 31, 2005 as compared to 2004 is primarilydue to a $1.3 million increase in contract services as the Company made thedecision to outsource its primary accounting function in 2004 subsequent to thefirst quarter. In January 2005, we made the decision to bring this functionback in house and expect these costs to decrease in the second half of 2005. Thedecrease in the outsource fee will be partially offset by an increase in costsassociated with an internal accounting department.

 

Office expenses increased $0.2 million fromprior year due primarily to an increase in office rent associated with theCompany’s relocation of the corporate office to Houston, Texas.

 

Stock-based compensation expense increased$1.6 million from the prior year. This increase is due to the recognition ofexpense associated with 1.0 million and 0.7 million stock options issued duringthe first and third quarters of 2005 and 2004, respectively.

 

Accretion expense increased $0.2 million fromprior year. This increase is primarily due to the acquisition of Wynn-Crosby in2004. The acquisition of Wynn-Crosby increased our retirement obligation byapproximately $10.8 million.

 

Depletion expense increased $9.5 million fromthe same period in 2004 to $10.5 million for the three-months ended March 31,2005. Depletion for oil and gas properties is calculated using the Unit ofProduction method, which amortizes the capitalized costs associated with theevaluated properties based on the ratio of production volume for the currentperiod to total remaining reserve volumes for the evaluated properties. On aper unit basis, depletion expense increased $0.68 per Mcfe, or 45%. Thisincrease was primarily due to the acquisition of Wynn-Crosby.

 

Periodically, we enter into derivative commodity instruments to hedgeour exposure to price fluctuations on natural gas and crude oil production. At March 31,2005, the Company had a $21.2 million derivative liability, $7.8 million ofwhich is classified as short-term. In addition, the Company had $1.2 million ofrealized losses and $27.5 million of unrealized losses which resulted in a netloss of $28.7 million for the three months ended March 31, 2005.

 

Interest expense and other for the firstquarter of 2005 increased $3.2 million from the same period in 2004. Thisincrease is primarily due to the issuance of the $35 million 8% subordinatedconvertible note payable in conjunction with the recapitalization of theCompany by PHAWK, LLC and the remaining $178 million of long-term debt at March 31,2005 that was incurred in association with the acquisition of Wynn-Crosby. Amortizationexpense represents the amortization of debt issue costs associated with thePHAWK transaction and the acquisition of Wynn-Crosby in 2004. At March 31,2005, we had approximately $3.6 million of debt issue costs. These costs arebeing amortized over the lives of the respective long-term debt.

 

20

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Income tax benefit for the first quarter of2005 increased $8.7 million from the prior year. The increase from prior yearis primarily due to the Company’s net loss of approximately $14.2 million forthe first quarter of 2005 compared to net income of $1.0 million for the firstquarter of 2004.

 

**Recently Issued Accounting Pronouncements**

 

InMarch 2005, the Financial Accounting Standard Board (FASB) issued FASBInterpretation (FIN) No. 47, *Accounting for ConditionalAsset Retirement Obligations*. This Interpretation clarifies thedefinition and treatment of conditional asset retirement obligations asdiscussed in FASB Statement No. 143, *Accounting for AssetRetirement Obligations* (SFAS 143). A conditional assetretirement obligation is defined as an asset retirement activity in which thetiming and/or method of settlement are dependent on future events that may beoutside the control of the Company. FIN 47 states that a Company must record aliability when incurred for conditional asset retirement obligations if thefair value of the obligation is reasonably estimable. This Interpretation isintended to provide more information about long-lived assets, more informationabout future cash outflows for these obligations and more consistentrecognition of these liabilities. FIN 47 is effective for fiscal years endingafter December 15, 2005. The Company does not believe that its financialposition, results of operations or cash flows will be impacted by thisInterpretation.

 

In September 2004, the SEC issued Staff Accounting Bulletin (SAB) No. 106(SAB 106) that provides guidance to oil and gas companies following the fullcost accounting method regarding the application of SFAS 143.  SAB 106requires companies calculating the full cost ceiling test to exclude futurecash outflows associated with settling asset retirement obligations that havebeen accrued on the balance sheet as required by SFAS 143.  However,estimated dismantlement and abandonment costs related to future developmentactivities, which are not required to be accrued under SFAS 143, shouldcontinue to be included in the full cost ceiling test.  The SEC staff hasalso recommended that companies discuss how the adoption of SFAS 143 hasaffected their accounting for oil and gas operations.  The accounting anddisclosure requirements of SAB 106 are to be applied prospectively beginningwith the first quarter of 2005.  The Company has adopted the provisions ofSAB 106 effective January 1, 2005. This adoption did not have a materialimpact on the consolidated financial statements.

 

InDecember 2004, the FASB issued SFAS No. 123 (revised 2004), *Share-Based Payment* (SFAS 123(R)). SFAS 123(R) isa revision of SFAS No. 123, *Accounting for Stock BasedCompensation* (SFAS 123), and supercedes APB 25, *Accountingfor Stock Issued to Employees*. Among other items, SFAS 123(R)eliminates the use of APB 25 and the intrinsic value method of accounting andrequires companies to recognize the cost of employee services received inexchange for awards of equity instruments based on the grant date fair value ofthose awards in their financial statements. SFAS 123(R) permits companiesto adopt its requirements using either a modified prospective method, avariation of the modified prospective method or a modified retrospectivemethod. Under the modified prospective method, compensation cost is recognizedin the financial statements beginning with the adoption date, based on therequirements of SFAS 123(R) for all share-based payments granted afterthat date, and based on the requirements of SFAS 123 for all unvestedawards granted prior to the adoption date. Under the variation of the modifiedprospective method, the requirements are the same as under the modifiedprospective method except that earlier interim periods in the year of adoptionare restated. Under the modified retrospective method, the requirements are thesame as under the modified prospective method except that financial statementsof previous periods are restated based on pro forma disclosures made inaccordance with SFAS 123.

 

TheCompany currently utilizes a standard option pricing model (i.e.,Black-Scholes) to measure the fair value of stock options granted. SFAS 123(R)permits the continued use of this model as well as other standard optionpricing models. The Company has not yet determined which model it will use tomeasure the fair value of employee stock options upon our adoption of SFAS 123(R).SFAS 123(R) also requires that the benefits associated with tax deductionsin excess of recognized compensation cost be reported as a financing cash flow,rather than as an operating cash flow as required under current literature. Thisrequirement will reduce reported net operating cash flows and increase reportednet financing cash flows in periods after the effective date. These futureamounts cannot be reasonably estimated because they depend on, among otherthings, when employees exercise stock options. The Company will adopt SFAS 123(R)effective as of January 1, 2006; however, it has not yet determined whichof the aforementioned adoption methods it will use.

 

InMarch 2005, the SEC issued SAB 107 on SFAS 123(R) (SAB 107). SAB 107reinforces the flexibility allowed by SFAS 123(R) to choose an optionpricing model, provides guidance on when it would be appropriate to relyexclusively on either historical or implied volatility in estimating expectedvolatility and provided examples and simplified approaches to determining theexpected term. In April 2005, the SEC extended the date by which companiesare required to adopt SFAS 123(R) from the first reporting periodbeginning on or after June 15, 2005 to the first reporting period of thefirst fiscal year beginning on or after June 15, 2005.

 

21

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In December 2004, the FASB issued SFAS 153,*Exchanges of Nonmonetary Assets — an amendment ofAPB Opinion No. 29* (SFAS 153).  The statement requiresthat nonmonetary exchanges must be recorded at fair value and the appropriategain or loss must be recognized so long as the fair value is determinable andthe transaction has commercial substance.  According to this statement,companies can no longer use the similar productive assets concept to accountfor nonmonetary exchanges at book value with no gain or loss beingrecognized.  SFAS 153 will be effective for fiscal periods beginning afterJune 15, 2005.  The adoption of this statement may impact the Company’soperating results, financial position or cash flows in future periods if such anonmonetary exchange occurs.

 

**Forward-Looking Information**

 

The statements regarding future financial and operating performance andresults, market prices, future hedging activities, and other statements thatare not historical facts contained in this report are forward-lookingstatements. The words “expect,” “project,” “estimate,” “believe,” “anticipate,”“intend,” “budget,” “plan,” “forecast,” “predict,” “may,” “should,” “could,” “will”and similar expressions are also intended to identify forward-lookingstatements. These statements involve risks and uncertainties, including, butnot limited to, market factors, market prices (including regional basisdifferentials) of natural gas and oil, results of future drilling and marketingactivity, future production and costs, and other factors detailed in thisdocument and in our other Securities and Exchange Commission (SEC) filings. Ifone or more of these risks or uncertainties materialize, or if underlyingassumptions prove incorrect, actual outcomes may vary materially from thoseincluded in this document.

 

22

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**Item 3.  Quantitative and Qualitative****Disclosure about Market Risk**

 

**Derivative Instruments and Hedging Activity**

 

Our hedging policy is designed to reduce the risk of price volatilityfor our production in the natural gas and crude oil markets. Our hedgingarrangements apply to only a portion of our current and anticipated productionand provide only partial price protection against declines in oil and gasprices. These hedging arrangements may expose us to risk of financial loss andlimit the benefit to us of increases in price. Please read the discussion belowrelated to commodity collars and price swaps.

 

Periodically, the Company enters into derivative commodity instrumentsto hedge its exposure to price fluctuations on natural gas and crude oilproduction. Under collar arrangements, if the index price rises above the ceilingprice, the Company pays the counterparty. If the index price falls below thefloor price, the counterparty pays the Company. Under price swaps, the Companyreceives a fixed price on a notional quantity of natural gas and crude oil inexchange for paying a variable price based on a market-based index, such as theNYMEX gas and crude oil futures.

 

At March 31, 2005, the Company had 78 open positions: 36 naturalgas price collar arrangements, 8 natural gas price swap arrangements, 6 crudeoil price swap arrangements and 28 crude oil collar arrangements. The Companyhas elected not to designate any positions as cash flow hedges for accountingpurposes, and accordingly, records the net change in the mark-to-marketvaluation of these derivative contracts in the consolidated statement ofoperations.

 

At March 31, 2005, the Company had a $21.2 million derivativeliability, $7.8 million of which is classified as short-term. In addition, theCompany had $1.2 million of realized losses and $27.5 million of unrealizedlosses which resulted in a net loss of $28.7 million for the three months endedMarch 31, 2005.

 

During the three months ended March 31, 2004, the Company had nooutstanding commodity price hedging contracts.

 

**Natural Gas**

 

At March 31, 2005, the Company had the following natural gascostless collar positions:

 
| ** **                             | ** ** | ** **       | ** ** | **Contract Price per Mmbtu** | ** ** |
|----------------------------------------|------------|------------------|------------|------------------------------|------------|
| ** **                             | ** ** | ** **       | ** ** | **Collars**                  | ** ** |
| ** **                             | ** ** | ** **       | ** ** | **Floors**                   | ** ** | **Ceilings** | ** ** |
| ** **                             | ** ** | **Volume in**    | ** ** | **Price /**                  | ** ** | **Weighted** | ** ** | **Price /** | ** ** | **Weighted** | ** ** |
| **Period**                             | ** ** | **Mmbtu’s** | ** ** | **Price Range**              | ** ** | **Average Price** | ** ** | **Price Range** | ** ** | **Average Price** | ** ** |
|                                   |       |             |       |                         |       |   |   |   |   |   |   |
| April 2005 - June 2005       |       | 90,000           |       | $ 6.50                  |       | $ | 6.50 |   | $ 8.15 |   | $ | 8.15 |   |
| April 2005 - December 2005   |       | 5,152,500        |       | 5.00 - 7.00                  |       | 6.15 |   | 7.59 - 10.05 |   | 9.40 |   |
| July 2005 - December 2005    |       | 1,020,000        |       | 6.00                         |       | 6.00 |   | 7.68 |   | 7.68 |   |
| January 2006 - December 2006 |       | 6,600,000        |       | 5.50 - 6.00                  |       | 5.64 |   | 8.26 - 9.54 |   | 9.19 |   |
| January 2007 - December 2007 |       | 2,880,000        |       | 5.30                         |       | 5.30 |   | 7.12 |   | 7.12 |   |
| January 2008 - December 2008 |       | 3,600,000        |       | 5.00 - 5.15                  |       | 5.05 |   | 6.45 - 6.71 |   | 6.53 |   |
|                                        |            |                  |            |                              |            |  |  |  |  |  |  |  |  |

 

At March 31, 2005, the Company had the following natural gas swappositions:

 
| **Contract Price per Mmbtu**           | ** ** |
|----------------------------------------|------------|
| **Swaps**                              | ** ** |
| ** **                             | ** ** | **Volume in** | ** ** | **Weighted** | ** ** |
| **Period**                             | ** ** | **Mmbtu’s** | ** ** | **Average Price** | ** ** |
|                                   |       |   |   |   |   |
| April 2005 - June 2005       |       | 360,000 |   | $ | 4.08 |   |
| April - May 2005             |       | 60,000 |   | 4.03 |   |
| January 2007 - December 2007 |       | 1,200,000 |   | 6.06 |   |
|                                        |            |  |  |  |  |  |

 

23

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**Crude Oil**

 

At March 31, 2005, the Company had the following crude oilcostless collar positions:

 
| ** **                             | ** ** | ** **    | ** ** | **Contract Price per Bbl** | ** ** |
|----------------------------------------|------------|---------------|------------|----------------------------|------------|
| ** **                             | ** ** | ** **    | ** ** | **Collars**                | ** ** |
| ** **                             | ** ** | ** **    | ** ** | **Floors**                 | ** ** | **Ceilings** | ** ** |
| ** **                             | ** ** | **Volume in** | ** ** | **Price /**                | ** ** | **Weighted** | ** ** | **Price /** | ** ** | **Weighted** | ** ** |
| **Period**                             | ** ** | **Bbls**      | ** ** | **Price Range**            | ** ** | **Average Price** | ** ** | **Price Range** | ** ** | **Average Price** | ** ** |
|                                   |       |          |       |                       |       |   |   |   |   |   |   |
| April 2005 - June 2005       |       | 18,000        |       | $ 40.00               |       | $ | 40.00 |   | $ 55.85 |   | $ | 55.85 |   |
| April 2005 - December 2005   |       | 369,000       |       | 38.00 - 43.00              |       | 42.39 |   | 51.40 - 57.00 |   | 55.29 |   |
| January 2006 - December 2006 |       | 408,000       |       | 40.00                      |       | 40.00 |   | 47.30 - 49.30 |   | 48.89 |   |
| January 2007 - December 2007 |       | 240,000       |       | 35.00 - 36.00              |       | 35.30 |   | 43.20 - 45.75 |   | 43.97 |   |
| January 2008 - December 2008 |       | 60,000        |       | 34.00                      |       | 34.00 |   | 45.30 |   | 45.30 |   |
|                                        |            |               |            |                            |            |  |  |  |  |  |  |  |  |

 

At March 31, 2005, the Company had the following crude oil swappositions:

 
| **Contract Price per Bbl**             | ** ** |
|----------------------------------------|------------|
| **Swaps**                              | ** ** |
| ** **                             | ** ** | **Volume in** | ** ** | **Weighted** | ** ** |
| **Period**                             | ** ** | **Bbls** | ** ** | **Average Price** | ** ** |
|                                   |       |   |   |   |   |
| January 2008 - December 2008 |       | 144,000 |   | $ | 38.10 |   |
|                                        |            |  |  |  |  |  |

 

We are also exposed to market risk related to adverse changes ininterest rates.  Our interest rate risk exposure results primarily fromshort-term rates, mainly LIBOR-based on borrowing from our commercialbank.  At March 31, 2005, none of our outstanding debt was at variablerates. Any future volatility could be mitigated through the use of financialderivative instruments.

 

**Item4.  Controls and Procedures**

 

Based on their evaluation, our Chief Executive Officer and PrincipalFinancial Officer have concluded that the Company’s disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of the end of the period covered by this report on Form 10-Qare effective to ensure that information required to be disclosed by theCompany in reports that it files or submits under the Exchange Act arerecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission rules and forms.

 

During the period covered by this report on Form 10-Q, there havebeen no changes in the Company’s internal control over financial reporting thathave materially affected or are reasonably likely to materially affect theCompany’s internal control over financial reporting.

 

**PART II.OTHER INFORMATION**

 

**Item 2. Changes in Securities, Use ofProceeds and Issuer Purchases of Equity Securities**

 

The Company did not purchase or sell any equity securities during thefirst quarter of 2005. At March 31, 2005, the Company held 8,382 treasuryshares.

 

We have never paid cash dividends on our common stock.  We intendto retain earnings for use in the operation and expansion of our business andtherefore do not anticipate declaring cash dividends on our common stock in theforeseeable future.  Holders of our Series A preferred stock areentitled to receive cumulative dividends at the annual rate of $0.74 per sharewhen and as declared by the board of directors.  No dividends may be paidon common stock unless all cumulative dividends due on Series A preferredstock have 

 

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been declared and paid.  Any future determination to pay dividendson common stock will be at the discretion of the board of directors and will bedependent upon then existing conditions, including our prospects, and suchother factors, as the board of directors deems relevant.  We are alsorestricted from paying cash dividends on common stock under our creditfacilities

 

**Item6.  Exhibits**

 

The following documents are included as exhibits to this Form 10-Q. Those exhibits incorporated by reference are so indicated by the informationsupplied with respect thereto.  Those exhibits which are not incorporatedby reference are attached hereto.

 
| 2.1    |   | Agreement and Plan of Merger, dated April 3, 2005 (and as  amended April 26, 2005), by and among Petrohawk Energy Corporation,  Petrohawk Acquisition Corporation, and Mission Resources Corporation  (Incorporated by reference to Annex A of our Registration Statement on  Form S-4 filed on April 28, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 2.2    |   | Agreement and Plan of Merger, dated October 13, 2004, among  Petrohawk Energy Corporation, Wynn-Crosby Energy, Inc., Ronald W. Crosby  and Paige L. Crosby (Incorporated by reference to Exhibit 2.1 of our  Current Report on Form 8-K filed on November 24, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 2.3    |   | Agreement and Plan of Mergers, dated October 13, 2004, among  Petrohawk Energy Corporation, Wynn-Crosby Energy, Inc., Wynn-Crosby  1994, Ltd.; Wynn-Crosby 1995, Ltd.; Wynn-Crosby 1996, Ltd.;  Wynn-Crosby 1997, Ltd.; Wynn-Crosby 1998, Ltd.; Wynn-Crosby  1999, Ltd.; Wynn-Crosby 2000, Ltd.; Wynn-Crosby 2002, Ltd.;  WCOG Properties, Ltd.; Kara Nicole Limited; Kristen Lee Limited; Eric  Wynn Limited; Christopher David Limited; Paige Lee Limited; Bernadien Wynn  Limited; Roger Lee Limited; and George Heaps Limited, and Ronald W. Crosby  (Incorporated by reference to Exhibit 2.2 of our Current Report on  Form 8-K filed on November 24, 2004)             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 2.4    |   | Amendment to Agreement and Plan of Mergers among Petrohawk Energy  Corporation, Wynn-Crosby Energy, Inc., Wynn-Crosby 1994, Ltd.; Wynn-Crosby  1995, Ltd.; Wynn-Crosby 1996, Ltd.; Wynn-Crosby 1997, Ltd.;  Wynn-Crosby 1998, Ltd.; Wynn-Crosby 1999, Ltd.; Wynn-Crosby  2000, Ltd.; Wynn-Crosby 2002, Ltd.; WCOG Properties, Ltd.;  Kara Nicole Limited; Kristen Lee Limited; Eric Wynn Limited; Christopher  David Limited; Paige Lee Limited; Bernadien Wynn Limited; Roger Lee Limited;  and George Heaps Limited, and Ronald W. Crosby, dated October 26, 2004  (Incorporated by reference to Exhibit 2.3 of our Current Report on  Form 8-K filed on November 24, 2004) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.1    |   | Certificate of Incorporation for Petrohawk Energy Corporation  (Incorporated by reference to Exhibit 3.1 to the Form S-8 that we  filed on July 29, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.2    |   | Certificate of Amendment of Certificate of Incorporation of Petrohawk  Energy Corporation (Incorporated by reference to Exhibit 3.1 of our  Current Report on Form 8-K filed on November 24, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.3    |   | Amended and Restated Bylaws of Petrohawk Energy Corporation  (Incorporated by reference to Exhibit 3.2 of our Third Quarter 2004  Form 10-Q filed on August 13, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.1    |   | Form of Warrant Agreement covering warrants issued to employees  as employment inducements (Incorporated by reference to Exhibit 4.1 of  Beta Oil & Gas, Inc.’s Annual Report on Form 10-K for the  year ended December 31, 2003 filed on March 26, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.2    |   | Warrant Agreement between Beta Oil & Gas, Inc. and  Brookstreet Securities dated July 30, 1999 (Incorporated by reference to  Exhibit 4.2 of Beta Oil & Gas, Inc.’s Annual Report for  the year ended December 31, 2003 Form 10K filed on March 26,  2004)                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.3    |   | Form of Warrant Agreement with suppliers, service providers and  other third parties (Incorporated by reference to Exhibit 4.3 of Beta  Oil & Gas, Inc.’s Annual Report for the year ended  December 31, 2003 Form 10K filed on March 26, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4    |   | Certificate of Designation of Beta Oil & Gas, Inc.’s 8%  Cumulative Convertible Preferred Stock (Incorporated by reference to  Exhibit 3.1 of Beta’s Form 8-K filed on July 3, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5    |   | Warrant Agreement between Beta Oil & Gas, Inc. and its  preferred shareholders, including Warrant Certificates A and B (Incorporated  by reference to Exhibit 4.1 of Beta Oil & Gas, Inc.’s  Form 8-K filed on July 3, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

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| 4.6    |   | Registration Rights Agreement dated April 1, 2005 among  Petrohawk Energy Corporation and the certain parties set forth on  Exhibit A of the Registration Rights Agreement (First Quarter 2005  Form 10-Q)                                                                                                                                                                                                                                                         |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.7    |   | Registration Rights Agreement dated November 23, 2004, among  Petrohawk Energy Corporation and Friedman, Billings, Ramsey &  Co., Inc. (Incorporated by reference to Exhibit 10.5 of our Current  Report on Form 8-K filed on November 24, 2004)                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.8    |   | Registration Rights Agreement, dated May 25, 2004, between Beta  and PHAWK, LLC (Incorporated by reference to Exhibit 4.11 to our  Registration Statement No. 333-120881 on Form S-3 filed  December 1, 2004)                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.1   |   | The Petrohawk Energy Corporation Amended and Restated  1999  Incentive and Nonstatutory Stock Option Plan (Incorporated by reference to  Exhibit 99.3 of our Current Report on Form 8-K filed on  August 18, 2004)                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.2   |   | The Petrohawk Energy Corporation Amended and Restated 2004  Non-Employee Director Incentive Plan  (Incorporated by reference to  Exhibit 10.2 of our Annual Report on Form 10-K filed on  March 31, 2005)                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.3   |   | Form of Stock Option Agreement for the Amended and Restated 2004  Non-Employee Director Incentive Plan. (Incorporated by reference to  Exhibit 10.3 of our Annual Report on Form 10-K filed on March 31,  2005)                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.4   |   | Form of Restricted Stock Agreement for the Amended and Restated  2004 Non-Employee Director Incentive Plan. (Incorporated by reference to  Exhibit 10.4 of our Annual Report on Form 10-K filed on  March 31, 2005)                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.5   |   | Form of Incentive Stock Agreement for the Amended and Restated  2004 Non-Employee Director Incentive Plan (Incorporated by reference to  Exhibit 10.5 of our Annual Report on Form 10-K filed on  March 31, 2005)                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.6   |   | The Petrohawk Energy Corporation Amended and Restated 2004 Employee  Incentive Plan, (Incorporated by reference to Exhibit 99.2 of our  Current Report on Form 8-K filed on August 18, 2004)                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.7   |   | Amendment No. 1 to the Petrohawk Energy Corporation Amended and  Restated 2004 Employee Incentive Plan (Incorporated by reference to Appendix  B to our Definitive Information Statement filed on Schedule 14C on  December 14, 2004)                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.8   |   | Form of Stock Option Agreement for the Amended and Restated 2004  Employee Incentive Plan. (Incorporated by reference to Exhibit 10.8 of  our Annual Report on Form 10-K filed on March 31, 2005)                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.9   |   | Form of Restricted Stock Agreement for the Amended and Restated  2004 Employee Incentive Plan (Incorporated by reference to Exhibit 10.9  of our Annual Report on Form 10-K filed on March 31, 2005)                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.10  |   | Form of Incentive Stock Agreement for the Amended and Restated  2004 Employee Incentive Plan (Incorporated by reference to Exhibit 10.10  of our Annual Report on Form 10-K filed on March 31, 2005)                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.11  |   | Form of Director and Officer Indemnity Agreement (Incorporated  by reference to Exhibit 10.11 of our Annual Report on Form 10-K  filed on March 31, 2005)                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.12  |   | Securities Purchase Agreement dated December 12, 2003 between  Beta Oil & Gas, Inc. and Petrohawk Energy, LLC (Incorporated by  reference to Appendix A to Beta’s Preliminary Proxy Statement filed on  Schedule 14A on January 9, 2004)                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.13  |   | Senior Revolving Credit Facility dated November 23, 2004, among  Petrohawk Energy Corporation, as Borrower, and BNP Paribas, as Administrative  Agent, Fleet National Bank, as Syndication Agent, Fortis Capital Corp., U.S.  Bank National Association and KeyBank National Association as  Co-Documentation Agent, and the lenders party thereto (Incorporated by  reference to Exhibit 10.1 of our Current Report on Form 8-K filed  on November 24, 2004) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.14  |   | Second Lien Term Loan Agreement dated November 23, 2004, among  Petrohawk Energy Corporation, as Borrower, and BNP Paribas, as Administrative  Agent, and the lenders party thereto (Incorporated by reference to  Exhibit 10.2 of our Current Report on Form 8-K filed on  November 24, 2004)                                                                                                                                                                |

 

26

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| 10.15  |   | Guarantee and Collateral Agreement dated November 23, 2004, made  by Petrohawk Energy Corporation and each of its subsidiaries, as Grantors, in  favor of BNP Paribas, as Administrative Agent (Incorporated by reference to  Exhibit 10.3 of our Current Report on Form 8-K filed on  November 24, 2004) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10.16  |   | Convertible Promissory Note dated May 25, 2004 between PHAWK,  LLC f/k/a Petrohawk Energy, LLC and the Company (Incorporated by reference to  Exhibit 10.16 of our Annual Report on Form 10-K filed on  March 31, 2005)                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10.17  |   | Purchase and Sale Agreement executed January 14, 2005, by and  between Wynn-Crosby 1994, Ltd., et al and Noble Royalties, Inc. d/b/a  Brown Drake Royalties (Incorporated by reference to Exhibit 2.1 to our  Current Form 8-K filed on March 3, 2005)                                               |
| 10.18  |   | Amendment to Purchase and Sale Agreement executed on  February 15, 2005, by and between Wynn-Crosby 1994, Ltd., et al and  Noble Royalty, Inc. d/b/a Brown Drake Royalties (Incorporated by  reference to Exhibit 2.2 to our Current Form 8-K filed on  March 3, 2005)                               |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10.19  |   | Stock Purchase Agreement dated February 4, 2005 by and among the  Company and Proton Oil & Gas Corporation, et al (Incorporated by  reference to Exhibit 2.3 to our Current Form 8-K filed on  March 3, 2005)                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10.20  |   | Agreement of Sale and Purchase dated August 11, 2004, by and  between the Company and PHAWK, LLC (Incorporated by reference to  Exhibit 10.20 of our Annual Report on Form 10-K filed on  March 31, 2005)                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 31.1   |   | Certificate of Chief Executive Officer under Section 302 of the  Sarbanes-Oxley Act of 2002 (First Quarter 2005 Form 10-Q)                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 31.2   |   | Certificate of Chief Financial Officer under Section 302 of  Sarbanes-Oxley Act of 2002 (First Quarter 2005 Form 10-Q)                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 32.1   |   | Certificate of Chief Executive Officer and Chief Financial Officer under  Section 906 of the Sarbanes-Oxley Act of 2002 (First Quarter 2005  Form 10-Q)                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                          |

 

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**SIGNATURES**

 

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

 

 
|                    | **PETROHAWK ENERGY CORPORATION**                      |
|-------------------------|-------------------------------------------------------|
|                    |                                                  |
| Date: May 12, 2005 | By:                                                   | /s/ **Floyd C. Wilson** |   |
|                    |                                                  |
|                    | **Floyd C. Wilson**                                   |
|                    | Chief Executive Officer and President                 |
|                    |                                                  |
|                    | By:                                                   | /s/ **Shane M. Bayless** |   |
|                    |                                                  |
|                    | **Shane M. Bayless**                                  |
|                    | Chief Financial Officer, Vice President and Treasurer |
|                         |                                                       |  |  |  |

 

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