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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549

FORM 10-KSB 

| [ x      ]                 | Annual Report      Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|----------------------------|-------------------------------------------------------------------------------------------|
|                       |                                                                                      | FOR THE      QUARTERLY PERIOD ENDED **JUNE 30, 2004** |
|                       |                                                                                      | OR |
| [         ] |                                                                                      | Transition      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934 |
|                       |                                                                                      | For the      transition period from to |

|                                                        |
|-------------------------------------------------------------|
| **COMMISSION      FILE NUMBER 000-33193**                   |
|                                                        |
|                                                        |
| **TEXEN OIL & GAS, INC.**                               |
| (Exact name of registrant as      specified in its charter) |

|                              |                         |
|-----------------------------------|------------------------------|
|                              |                         |
| **NEVADA**                        | **90-0082485**               |
| (State of other jurisdiction      | (IRS Employer Identification |
| of incorporation or organization) | Number)                      |
|                              |                         |

| **2401 Fountain      View**                               |
|-----------------------------------------------------------|
| **Suite 1008**                                            |
| **Houston, Texas 77057**                                  |
| (Address of principal executive      offices)             |
|                                                      |
| **(713) 782-5758**                                        |
| (Registrant's telephone number,      including area code) |

Indicate by check mark whether the registrant (1) has filedall reports 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 been subjectto such filing requirements for the past 90 days. Yes [ x ] No [ ] 

Indicate the number of shares outstanding of each of theissuer's classes of common stock, as of JUNE 30, 2004; 92,517,643. 

Check if there is no disclosure of delinquentfilers in response to Item 405 of Regulation S-B contained in this form, and nodisclosure will be contained, to the best of registrant's knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-KSB or any amendment to this Form 10-KSB. [ x ] 

Issuer's revenues for the year ended June 30, 2004 were$587,791. Aggregate market value of voting stock held by non-affiliates of45,351,979 shares outstanding at November 3, 2004 was approximately $4,535,198.Amount was computed using the closing market price as of November 3, 2004, whichwas $0.10. As of November 3, 2004, a total of 92,517,643 shares of common stockwere outstanding. 

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**Forward Looking Statements

    The words "believes," "intends," "expects,""anticipates," "projects," "estimates," "predicts" and similar expressions arealso intended to identify forward-looking statements. Although we believe thatthe expectations reflected in such forward-looking statements are reasonable, wecan give no assurance that such expectations reflected in such forward-lookingstatements will prove to have been correct. All forward looking statementscontained in this section are based on assumptions believed to be reasonable.These forward looking statements include statements regarding: 
- Estimates of proved reserve  quantities and net present values of those reserves
- Reserve potential
- Business strategy
- Capital expenditures - amount and  types
- Expansion and growth of our business  and operations
- Expansion and development trends of  the oil and gas industry
- Production of oil and gas reserves
- Exploration prospects
- Wells to be drilled, and drilling  results
- Operating results and working  capital

    We can give noassurance that our expectations and assumptions will prove to be correct.Reserve estimates of oil and gas properties are generally different from thequantities of oil and natural gas that are ultimately recovered or found. Thisis particularly true for estimates applied to exploratory prospects and newproduction. Additionally, any forward-looking statements are subject to variousknown and unknown risks, uncertainties and contingencies, many of which arebeyond our control. Such things may cause actual results, performance,achievements or expectations to differ materially from what we anticipated.

**2**
**PART I

**ITEM 1.    DESCRIPTION OF BUSINESS**

**Glossary of Terms**

    We are engaged inthe business of exploring for and producing oil and natural gas. Oil and gasexploration is a specialized industry. Many of the terms used to describe ourbusiness are unique to the oil and gas industry. The following glossaryclarifies certain of these terms that may be encountered while reading thisreport: 

*   "Acquisition costs of properties"*means the costs incurred to obtain rightsto production of oil and gas. These costs include the costs of acquiring oil andgas leases and other interests. These costs include lease costs, finder's fees,brokerage fees, title costs, legal costs, recording costs, options to purchaseor lease interests and any other costs associated with the acquisitions of aninterest in current or possible production. 

*    "Area ofmutual interest"*means,generally, an agreed upon area of land, varying in size, included and describedin an oil and gas exploration agreement which participants agree will be subjectto rights of first refusal as among themselves, such that any participantacquiring any minerals, royalty, overriding royalty, oil and gas leaseholdestates or similar interests in the designated area, is obligated to offer theother participants the opportunity to purchase their agreed upon percentageshare of the interest so acquired on the same basis and cost as purchased by theacquiring participant. If the other participants, after a specific time period,elect not to acquire their pro-rata share, the acquiring participant istypically then free to retain or sell such interests. 

*   "Back-in interests"*alsoreferred to as a carried interest, involve the transfer of interest in aproperty with provision to the transferor to receive a reversionary interest inthe property after the occurrence of certain events. 

*    "Bbl"*means barrel, 42 U.S. gallons liquid volume, used in this annual report inreference to crude oil or other liquid hydrocarbons. 

*    "Bcf"*means billion cubic feet, used in this annual report in reference to gaseoushydrocarbons. 

*    "BcfE"*means billions of cubicfeet of gas equivalent, determined using the ratio of six thousand cubic feet ofgas to one barrel of oil, condensate or gas liquids. 

*    "Casingpoint"*means the point in time at which an election ismade by participants in a well whether to proceed with an attempt to completethe well as a producer or to plug and abandon the well as a non-commercial dryhole. The election is generally made after a well has been drilled to itsobjective depth and an evaluation has been made from drill cutting samples, welllogs, cores, drill stem tests and other methods. If an affirmative election ismade to complete the well for production, production casing is then generallycemented in the hole and completion operations are then commenced. 
**3**

*   "Development costs"* arecosts incurred to drill, equip, or obtain access to proved reserves. Theyinclude costs of drilling and equipment necessary to get products to the pointof sale and may entail on-site processing. 

*   "Exploration costs"* arecosts incurred, either before or after the acquisition of a property, toidentify areas that may have potential reserves, to examine specific areasconsidered to have potential reserves, to drill test wells, and drillexploratory wells. Exploratory wells are wells drilled in unproven areas. Theidentification of properties and examination of specific areas will typicallyinclude geological and geophysical costs, also referred to as G&G, which includetopological studies, geographical and geophysical studies, and costs to obtainaccess to properties under study. Depreciation of support equipment, and thecosts of carrying unproved acreage, delay rentals, ad valorem property taxes,title defense costs, and lease or land record maintenance are also classified asexploratory costs. "Farmout" involves an entity's assignment of all or a part ofits interest in or lease of a property in exchange for consideration such as aroyalty. 

*    "Future netrevenue, before income taxes"*means an estimate of future net revenuefrom a property, based on the production of the proven reserves of oil andnatural gas believed to be recoverable at a specified date, after deductingproduction and ad valorem taxes, future capital costs and operating expenses,before deducting income taxes. Future net revenue, before income taxes, shouldnot be construed as being the fair market value of the property. 

*    "Future netrevenue, net of income taxes"*means an estimate of future net revenuefrom a property, based on the proven reserves of oil and natural gas believed tobe recoverable at a specified date, after deducting production and ad valoremtaxes, future capital costs and operating expenses, net of income taxes. Futurenet revenues, net of income taxes, should not be construed as being the fairmarket value of the property. 

*    "Gross"*oil or gas well or "gross" acre is a well or acre in which we have a workinginterest. 

*    "Mcf"*means thousand cubic feet, used in this annual report to refer to gaseoushydrocarbons. 

*    "McfE"*means thousands of cubicfeet of gas equivalent, determined using the ratio of six thousand cubic feet ofgas to one barrel of oil, condensate or gas liquids. 

*    "MMcf"*means million cubic feet, used in this annual report to refer to gaseoushydrocarbons. 

*    "MBbl"*means thousand barrels, used in this annual report to refer to crude oil orother liquid hydrocarbons." 

*    "Net"*oil and gas wells or "net" acres are determined bymultiplying "gross" wells or acres by our percentage interest in such wells oracres. 
**4**

*    "Oiland gas lease"*or"Lease" means an agreement between a mineral owner, the lessor, and a lesseewhich conveys the right to the lessee to explore for and produce oil and gasfrom the leased lands. Oil and gas leases usually have a primary term duringwhich the lessee must establish production of oil and or gas. If production isestablished within the primary term, the term of the lease generally continuesin effect so long as production occurs on the lease. Leases generally providefor a royalty to be paid to the lessor from the gross proceeds from the sale ofproduction. 

*    "Overpressuredreservoir"* arereservoirs subject to abnormally high pressure as a result of certain types ofsubsurface conditions. 

*   "Present value of future net revenue, before income taxes"*means future net revenue, before income taxes, discounted at an annual rate of10% to determine their "present value." The present value is shown to indicatethe effect of time on the value of the revenue stream and should not beconstrued as being the fair market value of the properties. 

*   "Present value of future net revenue, net of income taxes"*means future net revenue, net of income taxes discounted at an annual rate of10% to determine their "present value." The present value is shown to indicatethe effect of time on the value of the revenue stream and should not beconstrued as being the fair market value of the properties. Also known as the"Standardized Measure of Discounted Future Net Cash Flows" if SEC pricingassumptions are used. 

*    "Productioncosts"* means operatingexpenses and severance and ad valorem taxes on oil and gas production. 

*    "Prospect"*means a location where both geological and economical conditions favor drillinga well. 

*    "Proved oiland gas reserves"* arethe estimated quantities of crude oil, natural gas and natural gas liquids whichgeological and engineering data demonstrate with reasonable certainty to berecoverable in future years from known reservoirs under existing economic andoperating conditions, i.e. prices and costs as of the date the estimate is made.Prices include consideration of changes in existing prices provided only bycontractual arrangements, but not on escalations based upon future conditions.Reservoirs are considered proved if economic recovery by production is supportedby either actual production or conclusive formation test. The area of areservoir considered proved includes (A) that portion delineated by drilling anddefined by gas-oil and/or oil-water contacts, if any, and (B) the immediatelyadjoining portions not yet drilled, but which can reasonably be judged aseconomically productive on the basis of available geological and engineeringdata. In the absence of information on fluid contacts the lowest knownstructural occurrence of hydrocarbons controls the lower proved limit of thereservoir. 

*    "Proveddeveloped oil and gas reserves"* are those provedreserves that can be expected to be recovered through existing wells withexisting equipment and operating methods. Additional oil and gas reservesexpected to be obtained through the application of fluid injection or otherimproved secondary or tertiary recovery techniques for supplementing the naturalforces and mechanisms of primary recovery are included as "proved developedreserves" only after testing by a pilot project or after the operation of aninstalled recovery program has confirmed through production response thatincreased recovery will be achieved. "Proved undeveloped oil and gas reserves"are those proved reserves that are expected to be recovered from new wells onundrilled acreage, or from existing wells where a relatively major expenditureis required. Reserves on undrilled acreage are limited to those drilling unitsoffsetting productive units that are reasonably certain of production whendrilled. Proved reserves for other undrilled units are claimed only where it canbe demonstrated with reasonable certainty that there is continuity of productionfrom the 
**5**

existing productive formation.Estimates for proved undeveloped reserves attributable to any acreage do notinclude production for which an application of fluid injection or other improvedrecovery technique is required or contemplated, unless such techniques have beenproved effective by actual tests in the area and in the same reservoir. "Reservetarget" see "Prospect." 

*    "Royaltyinterest"* is a right tooil, gas, or other minerals that are not burdened by the costs to develop oroperate the related property. "Seismic option" generally means an agreement inwhich the mineral owner grants the right to acquire seismic data on the subjectlands and grants an option to acquire an oil and gas lease on the lands at apredetermined price. "Trend" means a geographical area along which a petroleumpay occurs (fairway). 

*    "Workinginterest"* is an interestin an oil and gas property that is burdened with the costs of development andoperation of the property. Disclosure Regarding Forward-Looking StatementsIncluded in this report are forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. All statements, other thanstatements of historical facts, included in this Form 10-KSB which addressactivities, events or developments which we expect or anticipate will or mayoccur in the future are forward-looking statements. **General

    We are an independent oil and gas companyengaged in the exploration, development, production and acquisition of naturalgas and crude oil. We conduct our operations through subsidiary corporations. Weare a Nevada corporation incorporated on September 2, 1999, as Palal MiningCorporation. In February 2002, we discontinued mining operations, changed ourfocus, and are currently focused on the exploration and development of oil andgas trends situated in Texas. We currently own interests in approximately 44gross wells, in fields located in Waller, Victoria, DeWitt, Calhoun and ConchoCounties, Texas region, with an average of a 70% net revenue interest in thesewells. Additionally, we own interests in 4,871.7 net acres in Texas. Theproperties are titled in the name of Texas Brookshire Partners, Inc. and TexasGohlke Partners, Inc. which are wholly owned subsidiary corporations. 

    In July 2002, we acquired Texas BrookshirePartners, Inc.("Brookshire") by issuing 15,376,103 shares of restricted commonstock. Brookshire's key assets consist of a 77.75% working interest ownership inabout 525 gross leasehold acres (95.73 net leasehold acres). 

    In September 2002, we acquired Texas GohlkePartners, Inc. ("Gohlke"), by issuing 4,000,000 shares of restricted commonstock. Gohlke's key assets consisted of a 100% working interest ownership inapproximately 4,346.7 gross leasehold acres. 

    Further in November 2002, we purchased anadditional 5% working interest in a field located in Waller County, Texas for$1.3 million which amount was paid and satisfied with an issuance of 1,250,000shares of common stock. We also acquired a 1.95% working interest in and to theBrookshire Dome Field through the purchase of Yegua, Inc. 

    Effective in February 2003, we acquired BWCMinerals LLC for 1,735,431 shares of restricted common stock. The mostsignificant asset of BWC is an 8.70% working interest in the Brookshire DomeField. 

**6**
**Business Strategy 

    The Company's goal is to maximize Sharevalue through profitable operations and through growth in our oil and gasreserves. We believe this can be achieved through the exploration anddevelopment of our existing prospect inventory located in Texas. The Companyintends to supplement its exploration and development program with a wellwork-over program targeting certain of its existing properties that havepotential for increased production. The Company intends to implement anacquisition program targeting properties that enhance the Company's reserve andproduction positions. The Company plans for additional capital expenditures aresubject to the Company being successful in raising additional capital 

    The Company has a base production level inplace from the Brookshire and Gohlke properties that can provide cash flow toassist in funding our exploration efforts. Exploration and developmentactivities have higher associated risks than those associated with acquisitionsof producing properties. Two of the largest risks associated with explorationand development activities are: 
- geological risks (the subject property does not hold  recoverable oil or natural gas);
- risk of project cost overruns. 

    By utilizing a "portfolio" approach in ourexploration activities, we expect to minimize the overall effect of these risks.We intend to participate in a larger number of exploratory and developmentactivities by diversifying our ownership positions. We utilize availableadvanced technology, such as 3-dimensional ("3-D") seismic modeling to furtherreduce risk and enhance our success rates. We believe that the availability ofeconomical 3-D seismic surveys fundamentally changed the risk profile of oil andgas exploration. Recognizing this, we will aggressively seek to acquiresignificant acreage blocks in selected areas for targeted 3-D seismic surveys.Using the data generated by initial proprietary seismic surveys, covering over8.3 square miles, we have identified 6 potential drill sites in the Gohlke leaseareas.**Oil and Gas Estimates and Producing Activities**
    The following table sets forth informationas to the Company's net proved and proved developed reserves as of June 30, 2004and 2003 and the present value as of such dates (based on an annual discountrate of 10%) of the estimated future net revenues from the production and salesof those reserves. 

    The Company does not currently believe thatthe calculation of estimated future net revenues using the assumptionsprescribed by the Commission guidelines and generally described below isrepresentative of the true value of future net revenues from the Company'sproved reserves. The future prices received by the Company for the sales of itsproduction may be higher or lower than the prices used in calculating theestimates of future net revenues, and the operating costs and other costsrelating to such production may also increase or decrease from existing levels.

**7**
**Oil and Gas Estimates and Producing Activities (continued)** **As of June 30,**Oil and Gas      Estimates****2004****2003****Total Proved      Reserves**                      Oil, condensate and natural gas liquids (Bbls)                           Located in Brookshire      120,291      116,922                         Located in Gohlke17,93822,377**                              Total Company****138,229****139,299**                       Natural Gas (Mcf)                              Located in Brookshire00                         Located in Gohlke209,800248,116**                              Total Company****209,800****248,116**                       Present Value of estimated future net revenues, before income taxes                          Located in Brookshire      4,113,947      3,332,277                         Located in Gohlke1,714,1011,720,701**                              Total Company****$ 5,828,048****$ 5,052,978**   **Total Proved      Developed Reserves:**                      Oil, condensate and natural gas liquids (Bbls)                           Located in Brookshire      18,061      33,400                         Located in Gohlke17,93822,377**                              Total Company****35,999****55,777**                       Natural Gas (Mcf)                           Located in Brookshire00                         Located in Gohlke5,81444,130**                              Total Company****5,814****44,130**                       Present Value of estimated future net revenues, before income taxes                          Located in Brookshire      617,697      951,900                         Located in Gohlke585,187802,764**                              Total Company****$ 1,202,884****$ 1,754,664**
**8**

**Oil and Gas Estimates andProducing Activities (continued)**
**Expenditure      Analysis**      **June 2004** **June 2003**           Undeveloped Leasehold Costs$      147,108$      147,108           Producing Properties       25,854,207       1,939,950           Accumulated depreciation, depletion       (21,530,926)       (569,717)               and amortization               Total capitalized costs$      4,470,389$      5,178,205      **June 2004****June 2003****Revenues****$****423,769****619,271**    **E X P E N S E S**              Production costs       711,762      1,046,829           Dry hole costs       262,0020           Depreciation, depletion and amortization      541,471      328,284           Production taxes 20,69779,889           Settlement loss 010,750           Impairment loss 020,407,559  (1,112,163)(21,254,040)      **June 2004****June 2003**Future cash      flows$      3,500,000$      3,600,000Future      development and production       (1,100,000)       (1,200,000)costs    Future income      tax expense (330,000) (350,000)Future net cash      flows 2,070,000 2,050,00010% annual      discount (1,200,000) (1,300,000)Standardized      measure of discounted    future net cash      flows$870,000$750,000
Future net cash flows were computed using year-end prices and gas to year-endquantities of proved reserves. Future price changes are considered only to theextent provided by contractual arrangements. Estimated future development andproduction costs are determined by estimating the expenditures to be incurred indeveloping and producing the proved oil and gas reserves at the end of the year,based on year-end costs and assuming continuation of existing economicconditions. Estimated future income tax expense is calculated by applyingyear-end statutory tax rates (adjusted for permanent differences and taxcredits) to estimated future pretax net cash flows related to proved oil and gasreserves, less the tax basis of the properties involved. 

These estimates are furnished and calculated in accordancewith requirements of the Financial Accounting Standards Board and the Securitiesand Exchange Commission, and do not represent management's assessment of futureprofitability or future cash flows to Texen. Management's investments andoperating decisions are based on reserves estimated that include proved reservesprescribed by the SEC as well as probable reserves, and on different price andcost assumptions from those used here. 

**9**
**Corporate Subsidiaries 

Texas Brookshire Partners, Inc.**
    Texas Brookshire Partners, Inc., one of ourwholly owned subsidiary corporations is engaged in the business of purchasing,developing and operating oil and gas leases in the Brookshire Dome of WallerCounty, Texas, and owns a 93.40% working interest ownership in and toapproximately 525 gross leasehold acres and 95.73 net acres leasehold acres. Thecurrent working interest ownership position owns various interests in 18 wellswhich have been drilled to date and one water injection well. Current productionfrom these properties over the last 12 months has averaged approximately 36barrels of oil per day. 
**Texas Gohlke Partners, Inc.

    Texas Gohlke Partners, Inc. is another ofour wholly owned subsidiary corporations and is engaged in the business ofpurchasing, developing and operating oil and gas leases in the Helen GohlkeField located in Victoria and DeWitt Counties, Texas and owns a 100% workinginterest ownership, 70% net revenue interest in and to approximately 4,346.7gross leasehold acres. There are currently eight producing wells on theproperty, eighteen shut-in wells and two salt water disposal wells. Currentproduction from these properties over the last 12 months has averagedapproximately 10 barrels of oil per day and 90 mcf per day. 
**Brookshire Drilling Service, LLC 

    The Company owns100% of the membership and management interests of Brookshire Drilling ServiceLLC, a Texas Limited Liability Company which is engaged in the business ofdrilling, servicing and reworking oil and gas wells and leases owned and /oroperated by the Company. ****
Yegua, Inc.**
    The Company owns 100% of the outstandingcommon stock of Yegua, Inc. which owns 1.95% working interest ownership in andto approximately 525 gross leasehold acres and 95.73 net leasehold acres locatedin the Brookshire Dome field of Waller County, Texas. This interest complimentsthe 77.75% working interest owned by Texas Brookshire Partners, Inc , a whollyowned subsidiary of the Company. 
**BWC Minerals, L.L.C.**
    The Company owns 100% ofthe outstanding common stock of BWC Minerals, L.L.C. which owns 8.7% workinginterest ownership in and to approximately 525 gross leasehold acres and 95.73net leasehold acres located in the Brookshire Dome field of Waller County,Texas. This interest compliments the 77.75% working interest owned by TexasBrookshire Partners, Inc, a wholly owned subsidiary of the Company. 

**10**
**Geological and Geophysical Techniques**
    Geological interpretation is based upon data recoveredfrom existing oil and gas wells in an area and other sources. Such informationis either purchased from the entity that drilled the wells or that becomespublic knowledge information though filings required by state agencies. Throughanalysis of rock types, fossils and the electrical and chemical characteristicsof rocks from existing wells, geologists engaged by the Company can construct apicture of rock layers in the area and predict possible sites of hydrocarbonaccumulation. Well logs available to the Company facilitate the calculation ofan estimate of initial oil or gas volume in place while decline curves fromrecorded production history facilitate the calculation of remaining provedproducing reserves. 
**Market for Oil and Gas Production**
    The market for oiland gas production is regulated by both the state and federal governments. Theoverall market is mature and with the exception of gas, all producers in aproducing region will receive the same price. Purchasers (or "Gatherers") willtypically purchase all crude oil offered for sale at posted field prices whichare adjusted for quality difference from the "Benchmark". Benchmark is the priceof Saudi Arabian light crude oil employed as the standard on which OPEC pricechanges have been based. The Purchaser normally picks up the oil at the wellsite but in some instances there may be deductions for transportation from thewell head to the sales point. The purchaser will usually handle all paymentdisbursements to both the working interest owners and the royalty interestowners. The Company is a working interest owner and is therefore responsiblewith other working interest owners if any, for the payment of its proportionateshare of the operating expenses of the well. Royalty owners and over-ridingroyalty owners receive a percentage of gross oil and gas production revenue fora particular lease and are not responsible for the costs of operating the lease.Working interest owners, such as the Company, are typically responsible for alllease operating and production expenses. 

***   **Gassales are by contract.* Gas purchasers pay welloperators 100% of the sale proceeds of gaseous hydrocarbons on or about the 25thof each month for the previous month's sales. The operator is responsible forall distributions to the working interest and royalty owners. There is nostandard price for gas and prices will fluctuate with the seasons and thegeneral market conditions. **Competition

    The oil and gasindustry is highly competitive. Our competitors and potential competitorsinclude major oil companies and independent producers of varying sizes of whichare engaged in the acquisition of producing properties and the exploration anddevelopment of prospects. Most of our competitors have greater financial,personnel and other resources than we do and therefore have a greater leverageto use in acquiring prospects, hiring personnel and marketing oil and gas.Accordingly, a high degree of competition in these areas is expected tocontinue. 
**Governmental Regulation

    The production andsale of oil and gas is subject to regulation by state, federal and localauthorities. In most areas there are statutory provisions regulating theproduction of oil and natural gas under which administrative agencies may setallowable rates of production and promulgate rules in connection with the 

**11**

operation and production of such wells, ascertain anddetermine the reasonable market demand of oil and gas, and adjust allowablerates with respect thereto 

    The sale of liquid hydrocarbons was subjectto federal regulation under the Energy Policy and Conservation Act of 1975 whichamended various acts, including the Emergency Petroleum Allocation Act of 1973.These regulations and controls included mandatory restrictions upon the pricesat which most domestic crude oil and various petroleum products could be sold.All price controls and restrictions on the sale of crude oil at the wellheadhave been withdrawn. It is possible, however, that such controls may bereimposed in the future but when, if ever, such re-imposition might occur andthe effect thereof on us cannot be predicted. 

    The sale of certain categories of naturalgas in interstate commerce is subject to regulation under the Natural Gas Actand the Natural Gas Policy Act of 1978 ("NGPA"). Under the NGPA, a comprehensiveset of statutory ceiling prices applies to all first sales of natural gas unlessthe gas is specifically exempt from regulation (i.e., unless the gas is"deregulated"). Administration and enforcement of the NGPA ceiling prices aredelegated to the FERC. In June 1986, the FERC issued Order No. 451, which, ingeneral, is designed to provide a higher NGPA ceiling price for certain vintagesof old gas. It is possible, though unlikely, that we may in the future acquiresignificant amounts of natural gas subject to NGPA price regulations and/or FERCOrder No. 451. 

    Our operations are subject to extensive andcontinually changing regulation because legislation affecting the oil andnatural gas industry is under constant review for amendment and expansion. Manydepartments and agencies, both federal and state, are authorized by statute toissue and have issued rules and regulations binding on the oil and natural gasindustry and its individual participants. The failure to comply with such rulesand regulations can result in large penalties. The regulatory burden on thisindustry increases our cost of doing business and, therefore, affects ourprofitability. However, we do not believe that we are affected in asignificantly different way by these regulations than our competitors areaffected. 
**Transportation and Production

***   Transportation and Sale of Oil and Natural Gas.***We can make sales of oil, natural gas and condensate at market prices which arenot subject to price controls at this time. Condensates are liquid hydrocarbonsrecovered at the surface that result from condensation due to reduced pressureor temperature of petroleum hydrocarbons existing initially in a gaseous phasein the reservoir. The price that we receive from the sale of these products isaffected by our ability to transport and the cost of transporting these productsto market. Under applicable laws, the Federal Energy Regulatory Commission ("FERC")regulates: 
- the construction of natural gas pipeline facilities, and
- the rates for transportation of these products in  interstate commerce. 

    Our possible future sales of natural gasare affected by the availability, terms and cost of pipeline transportation. Theprice and terms for access to pipeline transportation remain subject toextensive federal and state regulation. Several major regulatory changes havebeen implemented by Congress and the FERC from 1985 to the present. Thesechanges affect the economics of natural gas production, transportation andsales. In addition, the FERC is continually proposing and implementing new rulesand regulations affecting these segments of the natural gas industry that remainsubject to the FERC's jurisdiction. The most notable of these are natural gastransmission companies. 

**12**

    The FERC's more recentproposals may affect the availability of interruptible transportation service oninterstate pipelines. These initiatives may also affect the intrastatetransportation of gas in some cases. The stated purpose of many of theseregulatory changes is to promote competition among the various sectors of thenatural gas industry. These initiatives generally reflect more light-handedregulation of the natural gas industry. The ultimate impact of the complex rulesand regulations issued by the FERC since 1985 cannot be predicted. In addition,some aspects of these regulatory developments have not become final but arestill pending judicial and FERC final decisions. We cannot predict what furtheraction the FERC will take on these matters. However, we do not believe that anyaction taken will affect us much differently than it would affect other naturalgas producers, gatherers and marketers with which we might compete against.

    Effective as of January 1,1995, the FERC implemented regulations establishing an indexing system fortransportation rates for oil. These regulations could increase the cost oftransporting oil to the purchaser. We do not believe that these regulations willaffect us any differently than other oil producers and marketers with which wecompete with. 

***   Regulation of Drilling and Production.*** Ourproposed drilling and production operations are subject to regulation under awide range of state and federal statutes, rules, orders and regulations. Amongother matters, these statutes and regulations govern: -  the amounts and types of substances and  materials that may be released into the environment,the discharge and disposition of waste  materials,the reclamation and abandonment of wells and  facility sites, andthe remediation of contaminated sites, 
and require: 
-  permits for drilling operations,drilling bonds, andreports concerning operations.
Texas law contains: 
-  provisions for the unitization or pooling of  oil and natural gas properties, the establishment of maximum rates of  production from oil and natural gas wells, andthe regulation of the spacing, plugging and  abandonment of wells.**Environmental Regulations

***   General.*** Our operations are affected by the various state, local andfederal environmental laws and regulations, including the: 
**13**
-  Clean Air  Act,Oil Pollution  Act of 1990,Federal Water  Pollution Control Act,Resource  Conservation and Recovery Act ("RCRA"),Toxic  Substances Control Act, andComprehensive  Environmental Response, Compensation and Liability Act ("CERCLA").
these laws and regulations govern thedischarge of materials into the environment or the disposal of waste materials,or otherwise relate to the protection of the environment. In particular, thefollowing activities are subject to stringent environmental regulations: 
- drilling,
- development and production operations,
- activities in connection with storage and transportation of  oil and other liquid hydrocarbons, and
- use of facilities for treating, processing or otherwise  handling hydrocarbons and wastes. 

    Violations are subject to reportingrequirements, civil penalties and criminal sanctions. As with the industrygenerally, compliance with existing regulations increases our overall cost ofbusiness. The increased costs cannot be easily determined. Such areas affectedinclude:
- unit production expenses primarily related to the control  and limitation of air emissions and the disposal of produced water,
- capital costs to drill exploration and development wells  resulting from expenses primarily related to the management and disposal of  drilling fluids and other oil and natural gas exploration wastes, and
- capital costs to construct, maintain and upgrade equipment  and facilities and remediate, plug and abandon inactive well sites and pits.  

    Environmental regulations historically havebeen subject to frequent change by regulatory authorities. Therefore, we areunable to predict the ongoing cost of compliance with these laws and regulationsor the future impact of such regulations on its operations. However, we do notbelieve that changes to these regulations will have a significant negativeaffect on our operations. 

    A discharge of hydrocarbons or hazardoussubstances into the environment could subject us to substantial expense,including both the cost to comply with applicable regulations pertaining to theclean up of releases of hazardous substances into the environment and claims byneighboring landowners and other third parties for personal injury and propertydamage. We do not maintain insurance for protection against certain types ofenvironmental liabilities. 

    The Clean Air Act requires or will requiremost industrial operations in the United States to incur capital expenditures inorder to meet air emission control standards developed by the EPA and stateenvironmental agencies. Although no assurances can be given, we believe theClean Air Act requirements will not have a material adverse effect on ourfinancial condition or results of operations. 

**14**

RCRA is the principal federal statute governing the treatment,storage and disposal of hazardous wastes. RCRA imposes stringent operatingrequirements, and liability for failure to meet such requirements, on a personwho is either: 
- a "generator" or "transporter" of hazardous waste, or
- an "owner" or "operator" of a hazardous waste treatment,  storage or disposal facility. 

    At present, RCRA includes astatutory exemption that allows oil and natural gas exploration and productionwastes to be classified as non-hazardous waste. As a result, we will not besubject to many of RCRA's requirements because its operations will probablygenerate minimal quantities of hazardous wastes.

    CERCLA, also known as"Superfund," imposes liability, without regard to fault or the legality of theoriginal act, on certain classes of persons that contributed to the release of a"hazardous substance" into the environment. These persons include:
-  the "owner" or "operator" of the site where  hazardous substances have been released, andcompanies that disposed or arranged for the  disposal of the hazardous substances found at the site.
    CERCLA also authorizes theEPA and, in some instances, third parties to act in response to threats to thepublic health or the environment and to seek to recover from the responsibleclasses of persons the costs they incur. In the course of our ordinaryoperations, we could generate waste that may fall within CERCLA's definition ofa "hazardous substance." As a result, we may be liable under CERCLA or underanalogous state laws for all or part of the costs required to clean up sites atwhich such wastes have been disposed. 

    Under such law we could be required to:
- remove or remediate previously disposed wastes, including  wastes disposed of or released by prior owners or operators,
- clean up contaminated property, including contaminated  groundwater, or
- perform remedial plugging operations to prevent future  contamination. 

    We could also be subject to other damageclaims by governmental authorities or third parties related to suchcontamination. 

    The foregoing regulations do not and willnot have any material adverse affect upon us. 
**Company's Office

    Our offices are located at 2401 FountainView, Suite 1008, Houston, Texas 77057. Our telephone number is (713) 782-5758.

**15**
**Employees 
    We currently have six full time employeesother than our officers and directors. 
**Risks Factors
**    1*.We have a limited operating history and in our auditor's opinion, we may not beable to stay in business*.**In our auditor's opinion, there is doubt about our ability tocontinue in business as a going concern. Because we have a limited operatinghistory we cannot reliably forecast our future operations. As a result we maynot be able to stay in business. 
**    2*.Our actual drilling results are likely to differ from our estimates of provedreserves.*** We mayexperience production that is less than estimated in our reserve reports anddrilling costs that are greater than estimated in our reserve reports. Suchdifferences may be material. Estimates of our natural gas and oil reserves andthe costs associated with developing these reserves may not be accurate.Development of our reserves may not occur as scheduled and the actual resultsmay not be as estimated. Drilling activity may result in downward adjustments inreserves or higher than estimated costs. Our estimates of our proved natural gasand oil reserves and the estimated future net revenues from such reserves arebased upon various assumptions, including engineering data furnished bypetroleum engineers, including assumptions required by the Securities andExchange Commission relating to natural gas and oil prices, drilling andoperating expenses, capital expenditures, taxes and availability of funds. Thisprocess requires significant decisions and assumptions in the evaluation ofavailable geological, geophysical, engineering and economic data for eachreservoir. Therefore, these estimates are inherently imprecise and the qualityand reliability of this data can vary. Our properties may also be susceptible tohydrocarbon drainage from production by other operators on adjacent properties.In addition, we may adjust estimates of proved reserves to reflect productionhistory, results of development, prevailing oil and natural gas prices and otherfactors, many of which are beyond our control. Actual production, revenues,taxes, development expenditures and operating expenses with respect to ourreserves will likely vary from the estimates used. These variances may bematerial. 
**    3.*If we are not able togenerate sufficient funds from our operations and other financing sources, wewill not be able to finance our development activity or future acquisitions***.We have experienced and expect to continue to experience substantial capitalexpenditure and working capital needs to finance our acquisition and developmentprogram. Low commodity prices, production problems, disappointing drillingresults and other factors beyond our control could reduce our funds fromoperations. We will also require future financing transactions to support ourfuture operations. Additional financing may not be available to us in the futureon acceptable terms or at all. In the event additional capital resources areunavailable, we may curtail our acquisition, drilling, development and otheractivities or be forced to sell some of our assets on an untimely or unfavorablebasis. 
**    4.*Natural gas and oil pricesare volatile, and low prices have had in the past and could have in the future amaterial adverse impact on our business.***Our revenues, profitability andfuture growth and the carrying value of our properties depend substantially onthe prices we realize for our natural gas and oil production. Our realizedprices also affect the amount of cash flow available for capital expendituresand our ability to borrow and raise additional capital. Natural gas and oil arecommodities and, therefore, their prices are subject to wide fluctuations inresponse to relatively minor changes in supply and demand. Historically, themarkets for natural gas and oil have been volatile, and they are likely tocontinue to be volatile in the future. Among the factors that can cause thisvolatility are: worldwide or regional demand for energy, which is affected byeconomic conditions; the domestic and foreign supply of natural gas and oil;
**16**

weather conditions; domestic and foreign governmentalregulations; political conditions in natural gas or oil producing regions; theability of members of the Organization of Petroleum Exporting Countries to agreeupon and maintain oil prices and production levels; and the price andavailability of alternative fuels. It is impossible to predict natural gas andoil price movements with certainty. Lower natural gas and oil prices may notonly decrease our revenues on a per unit basis but also may reduce the amount ofnatural gas and oil that we can produce economically. A substantial or extendeddecline in natural gas and oil prices may materially and adversely affect ourfuture business, financial condition, results of operations, liquidity andability to finance planned capital expenditures. Further, oil prices and naturalgas prices do not necessarily move together. 

**    5.*Because we have incurredsignificant losses from operations in recent years, our future operating resultsare difficult to forecast. Our failure to achieve or sustain profitability inthe future could adversely affect the market price of our common stock.***Our failure to achieve or sustain profitability in the future could adverselyaffect the market price of our common stock. In considering whether to invest inour common stock, you should consider the historical financial and operatinginformation available on which to base your evaluation of our performance.
**    6*.We may incur substantial impairment write-downs.***If management's estimates ofnatural gas and oil prices decline or if the recoverable reserves on a propertyare revised downward, we may be required to record additional impairmentwrite-downs in the future, which would result in a negative impact to ourfinancial position. We review our proved oil and gas properties for impairmenton a depletable unit basis when circumstances suggest there is a need for such areview. A depletable unit is equal to the cost of the natural resource dividedby estimated units of resource. For each property determined to be impaired, werecognize an impairment loss equal to the difference between the estimated fairvalue and the carrying value of the property on a depletable unit basis. Fairvalue is estimated to be the present value of expected future net cash flowscomputed by applying estimated future oil and gas prices, as determined bymanagement, to the estimated future production of oil and gas reserves over theeconomic life of a property. Future cash flows are based upon our independentengineer's estimate of proved reserves. In addition, other factors such asprobable and possible reserves are taken into consideration when justified byeconomic conditions and actual or planned drilling. 
    **7*.The natural gas and oil business involves many uncertainties and operating risksthat can prevent us from realizing profits and can cause substantial losses.***Our development activities may be unsuccessful for many reasons, includingweather, cost overruns, equipment shortages and mechanical difficulties.Moreover, the successful drilling of a natural gas or oil well does not ensure aprofit on investment. A variety of factors, both geological and market-related,can cause a well to become uneconomical or only marginally economic. In additionto their cost, unsuccessful wells can hurt our efforts to replace reserves. Thenatural gas and oil business involves a variety of operating risks, including:fires; explosions; blow-outs and surface cratering; uncontrollable flows ofnatural gas, oil and formation water; natural disasters, such as tornados andother adverse weather conditions; casing collapses; embedded oil field drillingand service tools; abnormally pressured formations; and environmental hazards,such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxicgases. If we experience any of these problems, it could affect well bores andgathering systems, which could adversely affect our ability to conductoperations. We could also incur substantial losses as a result of: injury orloss of life; severe damage to and destruction of property, natural resourcesand equipment; pollution and other environmental damage; clean-upresponsibilities; regulatory investigation and penalties; suspension of ouroperations; and repairs to resume operations. These conditions can causesubstantial damage to facilities and interrupt production. As a result, we couldincur substantial liabilities that could reduce or eliminate the funds availablefor development or leasehold acquisitions, or result in loss of equipment andproperties. 
**17**

**    8*.Our insurance coverage may not be sufficient to cover some liabilities or losseswhich we may incur.***The occurrence of a significant accident or other event not fullycovered by our insurance could have a material adverse effect on our operationsand financial condition. Our insurance does not protect us against alloperational risks. We do not carry business interruption insurance at levelsthat would provide enough funds for us to continue operating without access toother funds. For some risks, we may not obtain insurance if we believe the costof available insurance is excessive relative to the risks presented. Becausethird party drilling contractors are used to drill our wells, we may not realizethe full benefit of workmen's compensation laws in dealing with their employees.In addition, pollution and environmental risks generally are not fullyinsurable. 
**    9*.We may be unable to identify liabilities associated with the properties that weacquire or obtain protection from sellers against them.***The acquisition of propertieswith proved undeveloped reserves requires us to assess a number of factors,including recoverable reserves, development and operating costs and potentialenvironmental and other liabilities. Such assessments are inexact and inherentlyuncertain. In connection with the assessments, we perform a review of thesubject properties, but such a review will not reveal all existing or potentialproblems. In the course of our due diligence, we may not inspect every well orpipeline. We cannot necessarily observe structural and environmental problems,such as pipeline corrosion, when an inspection is made. We may not be able toobtain contractual indemnities from the seller for liabilities that it created.We may be required to assume the risk of the physical condition of theproperties in addition to the risk that the properties may not perform inaccordance with our expectations. 
**    10*.We are subject to complex laws and regulations, including environmentalregulations, that can adversely affect the cost, manner or feasibility of doingbusiness.***Development, production and sale of natural gas and oil in the United States aresubject to extensive laws and regulations, including environmental laws andregulations. We may be required to make large expenditures to comply withenvironmental and other governmental regulations. Matters subject to regulationinclude: discharge permits for drilling operations; bonds for ownership,development and production of oil and gas properties; reports concerningoperations; and taxation. Under these laws and regulations, we could be liablefor personal injuries, property damage, oil spills, discharge of hazardousmaterials, remediation and clean-up costs and other environmental damages.Failure to comply with these laws and regulations also may result in thesuspension or termination of our operations and subject us to administrative,civil and criminal penalties. Moreover, these laws and regulations could changein ways that substantially increase our costs. Accordingly, any of theseliabilities, penalties, suspensions, terminations or regulatory changes couldmaterially adversely affect our financial condition and results of operations.
**   11.*****Title to Properties may be defective andas a result, we could loose our right to explore on them***.It is customary in the oil and gas industry that upon acquiring an interest in aproperty, that only a preliminary title investigation be done at that time. Weintend to follow this custom. If the title to the prospects should prove to bedefective, we could lose the costs of acquisition, or incur substantial costsfor curative title work. 
**   12.*****Shut-in wells will curtail production andour revenues***.Production from gas wells in many geographic areas of the United States has beencurtailed or shut-in for considerable periods of time due to a lack of marketdemand, and such curtailments may continue for a considerable period of time inthe future. There may be an excess supply of gas in areas where our operationswill be conducted. In such event, it is possible that there will be no market ora very limited market for our prospects. It is customary in many portions ofOklahoma and Texas to shut-in gas wells in the spring and summer when there isnot sufficient demand for gas. 
**18**

    **13.*****Operating and environmental hazards couldimpair revenues***.Hazards incident to the operation of oil and gas properties, such as accidentalleakage of petroleum liquids and other unforeseen conditions, may be encounteredby us if we participate in developing a well and, on occasion, substantialliabilities to third parties or governmental entities may be incurred. We couldbe subject to liability for pollution and other damages or may lose substantialportions of prospects or producing properties due to hazards which cannot beinsured against or which have not been insured against due to prohibitivepremium costs or for other reasons. We currently do not maintain any insurancefor environmental damages. Governmental regulations relating to environmentalmatters could also increase the cost of doing business or require alteration orcessation of operations in certain areas. 
**    14.*Because our common stock is a "penny stock," investors may not be able to reselltheir shares and will have access to limited information about us.***Our common stock is definedas a "penny stock," under the Securities Exchange Act of 1934, and its rules.Because our common stock is a "penny stock," investors may be unable to reselltheir shares. This is because the Securities Exchange Act of 1934 and the pennystock rules impose additional sales practice and disclosure requirements onbroker/dealers who sell our securities to persons other than accreditedinvestors. As a result, fewer broker/dealers are willing to make a market in ourcommon stock and investors may not be able to resell their shares. Further, newscoverage regarding penny stock is extremely limited, if non-existent. As aresult, investors only information will be from reports filed the with theSecurities and Exchange Commission. **ITEM 2. DESCRIPTION OF PROPERTIES
    Our principal properties consist ofdeveloped and undeveloped oil and gas leases and the reserves associated withthese leases which are described in Item 1 of this report. Generally, developedoil and gas leases remain in force so long as production is maintained.Undeveloped oil and gas leaseholds are generally for a primary term of three tofive years. In most cases, the term of our undeveloped leases can be extended bypaying delay rentals or by producing reserves that are discovered under ourleases. 

    We lease our office space at 2401 FountainView Drive, Suite 1008, Houston, Texas 77057 pursuant to a written leaseagreement with Insite Realty. The lease is paid monthly at a rate of $1606.50.Management believes that additional office space will be required as ourbusiness grows. 
**ITEM 3. LEGAL PROCEEDINGS
    We are not subject to any legalproceedings. 

**19**
**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    No matters were submitted to a vote ofshareholders in the fiscal year ending June 2004. 
**PART II 

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERMATTERS**
    Our common shares are traded on the Bulletin Boardoperated by the National Association of Securities Dealers, Inc. under thesymbol "TXEO." Our shares began trading on April 11, 2001. The following tablesets forth the closing high and low bid prices of the common stock for eachquarter within the last two years. The quotations reflect inter-dealer pricesand do not represent retail mark-ups, markdowns, commissions, and may notreflect actual transactions. 
**          Quarter ended****High Bid****Low Bid****     2002**                 March 31$0.72$0.30               June 30$0.76$0.34               September 30$0.76$0.50               December 31$0.55$0.11**     2003**                 March 31$0.70$0.78               June 30$1.15$0.32               September 30$1.06$0.18               December 31$0.55$0.23**     2004**                 March 31$0.39$0.09               June 30$0.31$0.12
    As of June 30, 2004 there wereapproximately 164 shareholders of record of our common shares. This does notreflect persons or entities that hold stock through various brokerage firms ordepositories. 

    The market price of our common shares mayto be the object of significant fluctuations related to a number of events andreasons, such as variations in our operating results, publication oftechnological developments or new products or services by us or our competitors,recommendations of securities analysts on us or our competitors, the operatingand stock performance of other companies that the market may view as related toour business, and news reports relating to trends in our activities. Inaddition, the stock market in recent years has experienced significant price andvolume fluctuations that have particularly affected the market prices of manyhigh technology companies that may have often been not related or inconsistentto the operating performance of those companies. These fluctuations, as well asgeneral political, economic and market conditions and other factors, mayadversely affect the market price for our common stock. 

**20**
**Dividend Policy

    We have never paid any cash dividends onour common shares and at present we do not intend to pay any cash dividends inthe foreseeable future. Our plan is to retain earnings, if any, to fund ourfuture growth. 
**Section 15(g) **of the SecuritiesExchange Act of 1934**

    Our company's shares are covered by Section15(g) of the Securities Exchange Act of 1934, as amended that imposes additionalsales practice requirements on broker/dealers who sell such securities topersons other than established customers and accredited investors (generallyinstitutions with assets in excess of $5,000,000 or individuals with net worthin excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointlywith their spouses). For transactions covered by the Rule, the broker/dealermust make a special suitability determination for the purchase and have receivedthe purchaser's written agreement to the transaction prior to the sale.Consequently, the Rule may affect the ability of broker/dealers to sell oursecurities and also may affect your ability to sell your shares in the secondarymarket. 

    Section 15(g) also imposes additional salespractice requirements on broker/dealers who sell penny securities. These rulesrequire a one page summary of certain essential items. The items include therisk of investing in penny stocks in both public offerings and secondarymarketing; terms important to in understanding of the function of the pennystock market, such as "bid" and "offer" quotes, a dealers "spread" andbroker/dealer compensation; the broker/dealer compensation, the broker/dealersduties to its customers, including the disclosures required by any other pennystock disclosure rules; the customers rights and remedies in causes of fraud inpenny stock transactions; and, the NASD's toll free telephone number and thecentral number of the North American Administrators Association, for informationon the disciplinary history of broker/dealers and their associated persons.
**Securities authorized for issuance under equity compensationplans

    The 2003 Nonqualified Stock Option Planprovides for the issuance of up to 5,000,000 stock options for services renderedto the Company. As of June 30, 2004, 1,500,000 have been granted and 1,250,000have been exercised and 3,500,000 options are available for issuance. 
 **Number of securities** **Number of securities** **to      be issued upon****Weighted-average****remaining available for** **exercise of****exercise price of****future issuance under** **outstanding options,****outstanding options,****equity compensation plans** **warrants and rights****warrants and rights****(excluding securities****Plan category****(a)****(b)****reflected in column (a)) (c)**    Equity compensation   plans approved by   security holders000    Equity compensation   plans not approved      by   securities holders      250,000$         0.10      3,500,000    Total      250,000$         0.10      3,500,000 
**21**
**ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS 

Critical Accounting Policies and Estimates
    Management's discussion and analysis of ourfinancial condition and results of operations are based upon our consolidatedfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States of America. The preparationof these financial statements requires that we make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses andrelated disclosure of contingent assets and liabilities. At each balance sheetdate, management evaluates its estimates, including, but not limited to, thoserelated to accounts receivable, inventories, and deferred revenue. We base ourestimates on historical experience and on various other assumptions that arebelieved to be reasonable under the circumstances. Actual results may differfrom these estimates under different assumptions or conditions. The estimatesand critical accounting policies that are most important in fully understandingand evaluating our financial condition and results of operations are discussedbelow. 

    Our auditors have issued a going concernopinion. This means that our auditors believe there is doubt that we cancontinue as an on-going business for the next twelve months unless we obtainadditional capital. We have not generated enough revenues from operations todrill, complete and rework wells on our leases accordingly we must raise cashfrom sources other than the sale of oil or gas found on our property. TheCompany expects to raise capital through the sale of securities or thearrangement of loans. As of the date hereof, we have not made sales ofadditional securities and there is no assurance that we will be able to raiseadditional capital through the sale of securities in the future. Further, wehave not initiated any negotiations for loans to us and there is no assurancethat we will be able to raise additional capital in the future through loans. Inthe event that we are unable to raise additional capital, we may have to suspendor cease operations. 
**MANAGEMENT DISCUSSION OF RESULTS OF OPERATIONS****KEY COMPARISONS**                  **Stockholders**  **Revenues** **Expenses** **Assets** **Liabilities** **Equity****2001****$**0 **$**      71,387**$**      10,231**$**      770**$**      11,271**2002** 0       25,088 0       4,190       (141,90)**2003**       863,501       23,326,465       5,880,802       2,636,086       3,244,716**2004**       587,791       3,425,374       5,152,587       2,548,701       2,603,886**INCOME STATEMENT 

Oil and Gas Revenues

For the year ending June 30, 2004, oiland gas revenues decreased from $619M to $424M due to a 54% decrease in volumes.This is partially offset by a 7% increase in oil and gas prices. 

**22**
**Drilling Income
For the year ending June 30, 2004, drilling income decreasedfrom $95M to a loss of $18M, a 119% decrease. This is a result ofnon-utilization of drilling assets. 
**Executive Compensation
For the year ending June 30, 2004, executive compensation wasincreased by 13% due to the engagement of consultants pursuant to thedevelopment of the business strategy of the Company. 
**Lease Operating Expense
For the year ending June 30, 2004, lease operating expensedecreased by 21%. This is primarily a result of decreased workovers anddecreased production. 
**Dry Hole Costs
For the year ending June 30, 2004, dry hole costs of $262M wasrecorded as a result of unsuccessful drilling operations on the Mitchell #3 Wellin Waller County, Texas. 
**Depreciation, Depletion and Amortization
For the year ending June 30, 2004, a 64% increase ofdepreciation, depletion and amortization was recorded resulting from higher perunit expenses. 
**Interest and Finance Expenses
For the year ending June 30, 2004, interest and financeexpenses decreased by 33% resulting from funds being advanced by a related partyat reduced expense to the company. 
**BALANCE SHEET 

Accounts Payable Related Party**
For the year ending June 30, 2004, accounts payable of affiliates increasedfrom $196M to $1,295M as a result of year end accruals and amount owed tocompany management. 
**Workovers**
The company did not undertake any substantial workovers during 2004. As ofthe date of this filing, no substantial workovers have been undertaken pendingreceipt of additional capital. 
**Financial Condition, Liquidity and Capital Resources**
The Company continues to incur operating expenses in excess ofnet revenue and will require capital infusions to sustain the company untiloperating results improve. The Company may not be able to obtain such infusionsin a timely manner and as a result may incur liquidity imbalances. 

This discussion should be read in conjunctionwith other discussions included in this document and with prior year's financialstatements. Some of the statements are "Forward Looking Statements" and are thusprospective. As discussed, these forward-looking statements are subject torisks, uncertainties and other factors that could cause results to differmaterially for the results expressed or implied by such statements. 

**23**
**Recent Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 150, "Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity"(hereinafter "SFAS No. 150"). SFAS No. 150 establishes standards for classifyingand measuring certain financial instruments with characteristics of bothliabilities and equity and requires that those instruments be classified asliabilities in statements of financial position. Previously, many of thoseinstruments were classified as equity. SFAS No. 150 is effective for financialinstruments entered into or modified after May 31, 2003 and otherwise iseffective at the beginning of the first interim period beginning after June 15,2003. The Company has not yet determined the impact of the adoption of thisstatement. 

In April 2003, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards No. 149, "Amendment of Statement 133on Derivative Instruments and Hedging Activities" (hereinafter "SFAS No. 149").SFAS No. 149 amends and clarifies the accounting for derivative instruments,including certain derivative instruments embedded in other contracts, and forhedging activities under SFAS No. 133, "Accounting for Derivative Instrumentsand Hedging Activities". This statement is effective for contracts entered intoor modified after June 30, 2003 and for hedging relationships designated afterJune 30, 2003. The adoption of SFAS No. 149 is not expected to have a materialimpact on the financial position or results of operations of the Company as theCompany has not issued any derivative instruments or engaged in any hedgingactivities as of June 30, 2003. 

In December 2002, the Financial Accounting Standards Boardissued Statement of Financial Accounting Standards No. 148, "Accounting forStock-Based Compensation - Transition and Disclosure" ("SFAS No. 148"). SFAS 148amends SFAS 123, "Accounting for Stock-Based Compensation," to providealternative methods of transition for a voluntary change to the fair value basedmethod of accounting for stock-based employee compensation. In addition, thestatement amends the disclosure requirements of SFAS 123 to require prominentdisclosure in both annual and interim financial statements about the method ofaccounting for stock-based employee compensation and the effect of the methodused on reported results. The provisions of the statement are effective forfinancial statements for fiscal years ending after December 15, 2002. TheCompany currently reports stock issued to employees under the rules of SFAS 123.Accordingly, there is no change in disclosure requirements due to SFAS 148 asadopted by the Company during the year ended June 30, 2003. 

In June 2002, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standard No. 146, "Accounting for CostsAssociated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146addresses significant issues regarding the recognition, measurement, andreporting of costs associated with exit and disposal activities, includingrestructuring activities. SFAS No. 146 also addresses recognition of certaincosts related to terminating a contract that is not a capital lease, costs toconsolidate facilities or relocate employees, and termination benefits providedto employees that are involuntarily terminated under the terms of a one-timebenefit arrangement that is not an ongoing benefit arrangement or an individualdeferred-compensation contract. SFAS No. 146 was issued in June 2002 and iseffective December 31, 2002 with early application encouraged. The Companyadopted SFAS during the year ended June 30, 2002 and there has been no impact onthe Company's financial position or results of operations from adopting SFAS146. 

**24**
**ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Table of Contents 
     INDEPENDENT      AUDITOR'S REPORTF-1           CONSOLIDATED FINANCIAL STATEMENTS                  Consolidated Balance SheetsF-2                 Consolidated Statements of OperationsF-4                 Consolidated Statements of Stockholders' Equity (Deficit)F-5                 Consolidated Statements of Cash FlowsF-7             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSF-9  
**25**

Board of Directors Texen Oil and Gas, Inc, Houston, Texas USA 

INDEPENDENT AUDITOR'S REPORT 

We have audited the accompanying consolidatedbalance sheets of TexEn Oil & Gas, Inc. as of June 30, 2004 and 2003 and therelated consolidated statements of operations, stockholders' equity and cashflows for the years then ended. These consolidated financial statements are theresponsibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on our audits. 

We conducted our audits in accordance withstandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion. 

In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of TexEn Oil & Gas, Inc. as of June 30, 2004 and 2003 and therelated consolidated statements of operations, stockholders' equity (deficit)and cash flows for the years then ended, in conformity with accountingprinciples generally accepted in the United States of America. 

The accompanying consolidated financialstatements have been prepared assuming that the Company will continue as a goingconcern. As discussed in Note 2, the Company's operating losses and significantimpairment of oil and gas properties raise substantial doubt about its abilityto continue as a going concern. Management's plans regarding those matters alsoare described in Note 2. The consolidated financial statements do not includeany adjustments that might result from the outcome of this uncertainty. 

/s/ Williams & Webster, P.S. Williams & Webster, P.S. *Certified PublicAccountants*Spokane, Washington November 4, 2004 

F - 1

**26**
**TEXEN OIL & GAS, INC. 

CONSOLIDATED BALANCE SHEETS**                  June 30,       June 30,  2004 2003     **ASSETS**    **           CURRENT ASSETS**                   Cash$      46,295$      8,879               Accounts receivable - affiliates       397,717       407,805               Accrued oil and gas sales       43,350       74,697               Prepaid insurance and other assets 5,501 6,975               Total Current Assets 492,863 498,356     **PROPERTY AND      EQUIPMENT**                   Oil and gas, on the basis of successful efforts accounting:                   Unproved property       147,108       147,108               Proved properties, developed and undeveloped       25,854,207       25,861,305               Less accumulated depreciation, depletion, amortization                       and impairments (21,530,926) (20,977,316)                   Net Oil and Gas Assets 4,470,389 5,031,097     **OTHER PROPERTY      AND EQUIPMENT**                   Other property and equipment       275,867       410,232               Less accumulated depreciation (86,532) (58,883)               Net Other Property and Equipment 189,335 351,349     **               TOTAL ASSETS****$****5,152,587****$****5,880,802**
F-2 

The accompanying notes are an integral part ofthese financial statements. 

**27**
**TEXEN OIL & GAS, INC. 

CONSOLIDATED BALANCE SHEETS 

(continued)**                  June 30,       June 30,  2004 2003     **LIABILITIES      AND STOCKHOLDERS' EQUITY**    **          CURRENT LIABILITIES**              Accounts payable and accrued expenses$      1,295,327$      218,861          Accounts payable - related party       388,266       328,593          Accrued interest - related party -       22,484          Advances from affiliates       715,108       560,801          Notes payable -       1,200,000          Notes payable - related party 150,000 -              Total Current Liabilities 2,548,701 2,330,739               Long term debt - notes payable -related party - 305,347     **TOTAL      LIABILITIES** **2,548,701** **2,636,086**     **COMMITMENTS      AND CONTINGENCIES** - -     **STOCKHOLDERS'      EQUITY**               Common stock, 100,000,000 shares authorized, $0.00001 par value;                   92,517,643 and 45,184,310 shares issued and                    outstanding, respectively       925       451           Additional paid-in capital       29,886,44126,214,782           Stock options       95,175       844,150           Accumulated deficit (27,378,655)(23,814,667)           Total Stockholders' Equity 2,603,886 3,244,716     **TOTAL      LIABILITIES AND STOCKHOLDERS' EQUITY**$5,152,587$5,880,802     
F-3 

The accompanying notes are an integral part ofthese financial statements. 

**28**
**TEXEN OIL & GAS, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS**      Years Ended June 30       2004 2003**REVENUES**              Oil and gas sales$      423,769$      619,271          Drilling revenues 164,022 244,230          TOTAL REVENUES 587,791 863,501     **COST OF      REVENUES**              Drilling costs 181,985 148,970     **GROSS PROFIT      FROM DRILLING**    **AND PRODUCTION** 405,806 714,531     **E X P E N S E      S**              Impairment loss -       20,407,559          Compensation       1,188,867       1,049,150          Production costs       711,762       899,026          Intangible drilling -       40,298          General and administrative expense       350,096       143,048          Legal and accounting       310,690       296,752          Dry hole costs       262,002       107,505          Depreciation, depletion and amortization       581,260       353,611          Production taxes 20,697 29,516               TOTAL EXPENSES 3,425,374 23,326,465     **OPERATING LOSS** (3,019,568) (22,611,934)     **OTHER EXPENSES**              Interest and finance expenses (544,420) (807,316)               TOTAL OTHER EXPENSES (544,420) (807,316)     **LOSS BEFORE      INCOME TAXES** (3,563,988) (23,419,250)     **INCOME TAXES** - -     **NET LOSS**$(3,563,988)$(23,419,250)     NET LOSS PER      COMMON SHARE,              BASIC AND DILUTED$(0.05)$(0.52)     WEIGHTED      AVERAGE NUMBER OF              COMMON STOCK SHARES              OUTSTANDING, BASIC AND DILUTED 69,117,169 44,829,466
F-4 

The accompanying notes are an integral part ofthese financial statements. 

**29**
**TEXEN OIL & GAS, INC. 

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY**                       Additional       
Common Stock       Paid-in Stock       Accumulated   Shares Amount Capital Options Deficit Total            Balance, June 30,      2002      45,448,879$454$      380,773$-$      (395,417)$      (14,190)            Issuances of common      stock as follows:           - for cash      acquisition of subsidiaries      22,885,381 229       23,349,622 - -       23,349,851  at $0.97 to      $1.40 per share           - for acquisition of      management rights of related             party for par      value      1,500,000 15 - - - 15- for assignment of      working interest and net             revenue      interests at $1.06 per share      2,338,000 23       2,484,117 - -       2,484,140            Rescission of common      stock by officer at par value      (26,987,950) (270) 270 - - -            Issuance of options      as follows:           - to officers for      services- - -       748,975 -       748,975- to consultant for      services- - - 95,175 - 95,175            Net loss for the      year ended June 30, 2003- - - -       (23,419,250)       (23,419,250)            Balance, June 30,      200345,184,310 451 26,214,782 844,150 (23,814,667) 3,244,716
F-5 

The accompanying notes are an integral part ofthese financial statements. 

**30**
 **TEXEN OIL & GAS, INC.** **CONSOLIDATED STATEMENT OF STOCKHOLDERS'    EQUITY****(continued)**           Issuances    of common stock as follows:          - for    exercise of options and accrued consulting to               officer at $0.10 per share1,250,000 10753,790 (653,800) - 100,000- issuance    of stock for consulting at an average                of $0.27 per share1,500,000 18447,482 - - 447,500- issuance    of stock for consulting at an average                of $0.15 per share1,333,333 13199,987 - - 200,000           Issuance    of common stock for settlement of debt and              forgiveness of interest40,000,000 4001,646,508 - - 1,646,908           - issuance    of stock for consulting at an average                of $0.29 per share500,000 5144,995 - - 145,000           Issuance    of stock for financing fees at $0.14 per share2,500,000 25337,475 - - 337,500           Issuance    of stock for financing fees at $0.18 per share250,000 346,247 - - 46,250           Rescission    of options granted to officer for services- -95,175 (95,175) - -           Net loss    for the year ended June 30, 2004- -                                - - (3,563,988) (3,563,988)           Balance,    June 30, 200492,517,643$925$                29,886,441$95,175$(27,378,655)$2,603,886           
F-6 

The accompanying notes are an integral part ofthese financial statements. 

**31**

**TEXEN OIL & GAS, INC. **CONSOLIDATED STATEMENTS OF CASH    FLOWS**      Years    Ended  June 30,   20042003    CASH FLOWS FROM    OPERATING   ACTIVITIES       Net          loss$    (3,563,988)$                       (23,419,250)       Adjustments to reconcile net loss to net              cash used by operating activities:          Depreciation, depletion and       amortization 581,260353,611    Impairment loss -    20,407,559    Forgiveness of related    party interest 156,920-    Stock issued for    consulting 792,500-    Stock issued for    financing costs 383,750     Expenses paid with    officer loans 98,403     Dry hole    costs-Non-cash portion 197,697     Interest and finance    cost paid by note       payable -785,000    Options issued for    services -844,150       Decrease in accounts receivable -       affiliates 10,088(78,736)    Decrease in advances    receivable from       affiliates -42,399    Decrease in accrued    oil and gas sales 31,347(39,385)    Decrease in prepaid    insurance 1,474(2,468)    Increase in accounts    payable and       accrued expenses     1,098,950(92,107)    Increase in accounts    payable and       advances to related    parties 37,189932,462    Decrease in interest    payable (22,484)-    Net cash used by    operating activities     (196,894)    (266,765)    CASH FLOWS FROM    INVESTING   ACTIVITIES       Purchase of wells,    related equipment and       facilities (9,162)(9,231)    Purchase of machinery    and equipment (12,073)(14,794)Net cash used by    investing activities (21,235)(24,025)
F-7 

The accompanying notes are an integral part ofthese financial statements. 

**32**

**TEXEN OIL & GAS, INC.****CONSOLIDATED STATEMENTS OF CASH    FLOWS****(continued)**     CASH FLOWS FROM    FINANCING    ACTIVITIES           Proceeds from note payable - related party  295,347       Proceeds from note payables 500,000         Payments on notes payable (500,000)         Proceeds from loans payable - related           parties 255,545 113,284       Payments to loans payable - related parties      - (108,962)Net cash provided by    financing activities 255,545 299,669     Increase (decrease) in    cash 37,416 8,879     Cash, beginning of    period 8,879 -     Cash, end of period$46,295$8,879     SUPPLEMENTAL CASH FLOW    DISCLOSURES:                Interest paid$110,695$-       Income taxes paid$-$-     NON-CASH TRANSACTIONS:           Stock issued for acquisition of subsidiaries$-$    23,349,851       Stock issued for acquisition of           management rights$-$15       Stock issued for acquisition of working           interest        and    net revenue interest$-$2,484,140Stock issued for stock    dividend    Stock issued for debt    settlement$1,646,908$-Stock options issued    to officer for services$-$844,150Impairment    loss on oil and gas producing   properties$-$    20,407,559Interest and finance    costs paid by note    payable$-$785,000          Advance to    affiliate paid by note payable  415,000Stock issued for    consulting services$792,500       Expenses paid by    officers loans$98,403$-Stock Issued for    financing costs$383,750  
F-8 

The accompanying notes are an integral part ofthese financial statements.****
**33**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS**
TexEn Oil & Gas, Inc. (formerly Palal Mining Corporation)(hereinafter "TexEn" or "the Company") filed for incorporation on September 2,1999 under the laws of the State of Nevada primarily for the purpose ofacquiring, exploring, and developing mineral properties. The Company changed itsname from Palal Mining Corporation to TexEn Oil & Gas, Inc. on May 15, 2002 uponobtaining approval from its shareholders and filing an amendment to its articlesof incorporation. The Company shall be referred to as "TexEn" or "TexEn Oil &Gas, Inc." even though the events described may have occurred while theCompany's name was Palal Mining Corporation. The Company's fiscal year end isJune 30. 

On July 1, 2002, TexEn developed a plan for acquisition,development, production, exploration for, and the sale of, oil, gas and naturalgas liquids and accordingly ended its exploration stage as a mineral propertiesexploration company. The Company sells its oil and gas products primarily todomestic pipelines and refineries. These acquisitions were accounted for usingthe purchase method. Prior to this, TexEn conducted its business as anexploration stage company, meaning that it intended to acquire, explore anddevelop mineral properties. 

The Company's wholly owned subsidiariesconsist of Texas Brookshire Partners, Inc. ("Brookshire"), Texas GohlkePartners, Inc, ("Gohlke"), Brookshire Drilling Services, Inc. ("Drilling"),Yegua, Inc. ("Yegua") and BWC Minerals, LLC ("BWC"). 

Texas Brookshire Partners, Inc. On July 15, 2002, the Company issued 15,376,103 shares of itscommon stock in exchange for all the common stock of Texas Brookshire Partners,Inc. ("Brookshire"). Common stock issued and outstanding was not affectedbecause of a major shareholder rescinding shares of stock equal in number to theshares of stock issued for this acquisition. This transaction was considered tobe with a related party as Brookshire's president is also a shareholder of TexEn.The Company recognized an increase of $8,107,131 in unproved properties due tothe value of Texen stock given to non-affiliated shareholders exceeding thecarryover basis by that amount. The market value of Texen Oil and Gas, Inc.common stock was $1.40 on July 15, 2002. Non-affiliates represented 77% of theseshareholders while affiliates and promoters represented 23% of the shareholders.The nonaffiliated shares represented $16,575,439 at the value of the stock andthe affiliated shareholders represented $739,064 at their basis. Liabilitiesassumed, including accounts payable and payable to related party, totaled$153,988 as of July 15, 2002. Brookshire's major assets consist of a 77.75%working interest ownership in approximately 1,440 gross leasehold acres and 550net leasehold acres located in the Brookshire Dome Field of Waller County,Texas. This working interest ownership position consists of various interests in26 wells drilled to date and one water injection well. Brookshire plansadditional development before expiration of the leasehold. 

F-9 

**34**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS(continued)

Brookshire Drilling Service, L.L.C.****On July 26, 2002, the Company entered into an agreement to acquire all of theoutstanding common stock of Brookshire Drilling Service, L.L.C. ("Drilling") inexchange for 1,400,000 shares of the Company's common stock. The transaction wasvalued at the fair market value of the Company's common stock on the date ofacquisition. Drilling's major assets consist of oil and gas drilling equipmentand related transportation equipment. Drilling conducts business as a wellservice provider including, workover units for completed wells. 

Yegua, Inc. On July 22, 2002, the Company issued 373,847 shares of its common stock inexchange for all of the common stock of Yegua, Inc. (hereinafter "Yegua"). Thistransaction was valued at $486,001, which represents the fair market value ofthe Company's common stock on the transaction date. Yegua's major asset consistsof a 1.95% working interest in the Brookshire Dome Field. 

Texas Gohlke Partners, Inc. On September 18, 2002, the Company purchased Texas Gohlke Partners, Inc. ("Gohlke")in exchange for 4,000,000 shares of TexEn Oil & Gas, Inc.'s restricted commonstock. Common stock issued and outstanding was not affected because of a majorshareholder rescinding shares of stock equal in number to the shares of stockissued for this acquisition. The transaction is considered to be with a relatedparty as Gohlke's president and principal shareholder is also a shareholder ofTexEn. The Company recognized an increase of $456,805 in unproved properties dueto the value of TexEn stock given to non-affiliated shareholders exceeding thecarryover basis by that amount. The market value of Texen Oil and Gas, Inc.common stock was $0.97 on September 18, 2002. The Company issued 4,000,000shares of common stock as part of this acquisition. Non-affiliates represented51% of these shareholders while affiliates and promoters represented 49% of theshareholders. The nonaffiliated shares represented $1,978,800 at the value ofthe stock and affiliated shareholders represented $459,374 at their basis.Liabilities assumed, including accounts payable totaled $120,000 as of September18, 2002. Gohlke's major assets consists of a 100% working interest and a 70%net revenue interest in the Helen Gohlke Field located in Victoria and DeWittCounties, Texas. This working interest ownership position consists of variousinterests in 60 wells, which have been drilled to date. Gohlke plans additionaldevelopment before expiration of the leasehold. 

BWC Minerals, L.L.C. On February 27, 2003, the Company purchased BWC Minerals, L.L.C. ("BWC") inexchange for 1,735,431 shares of TexEn Oil & Gas, Inc.'s restricted commonstock. The transaction was valued at $1,943,582, which represents the fairmarket value of the Company's common stock on the transaction date. BWC's majorasset consists of a 6.15% working interest in the Brookshire Dome Field. 

F-10 

**35**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004**
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accountingpolicies is presented to assist in understanding the financial statements. Thefinancial statements and notes are representations of the Company's management,which is responsible for their integrity and objectivity. These accountingpolicies conform to accounting principles generally accepted in the UnitedStates of America, and have been consistently applied in the preparation of thefinancial statements. 

Accounting Method The Company uses the accrual method of accounting in accordance with accountingprinciples generally accepted in the United States of America. 

Use of Estimates The process of preparing financial statements in conformity with accountingprinciples generally accepted in the United States of America requires the useof estimates and assumptions regarding certain types of assets, liabilities,revenues, and expenses. Such estimates primarily relate to unsettledtransactions and events as of the date of the financial statements. Accordingly,upon settlement, actual results may differ from estimated amounts. 

Cash and Cash Equivalents For purposes of its statement of cash flows, the Company considers allshort-term debt securities purchased with a maturity of three months or less tobe cash equivalents. 

Fair Value of Financial Instruments The carrying amounts for cash, accounts receivable, accrued oil and gas runs,accounts payable, accrued liabilities and loans and notes payable approximatetheir fair value. 

F-11

**36**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)

Compensated Absences The Company's policy is to recognize the cost of compensated absences whenearned by employees. If the amount were estimatible, it would not be currentlyrecognized as the amount would be deemed immaterial. 

Basic and Diluted Loss Per Share Net loss per share was computed by dividing the net loss by the weighted averagenumber of shares outstanding during the period. The weighted average number ofshares was calculated by taking the number of shares outstanding and weightingthem by the amount of time that they were outstanding. Diluted earnings pershare reflect the potential dilution of securities that could share in theearnings of an entity similar to fully diluted earnings per share. Outstandingoptions were not included in the computation of net loss per share because theywould be antidilutive. 

Property and Equipment Wells and related equipment and facilities, support equipment and facilities andother property and equipment are carried at cost. Oil and gas assets are subjectto depreciation, depletion and amortization utilizing a unit of productionmethod. Depreciation for drilling equipment and other assets are subject to thestraight-line method over the estimated useful lives of the related assets,which range from five to ten years. 

Future Development and Abandonment Costs Future development costs include costs incurred to obtain access to provedreserves such as drilling costs and the installation of production equipment.Future abandonment costs include costs to dismantle and relocate or dispose ofour production platforms, gathering systems and related structures andrestoration costs of land. In reviewing the assets in Brookshire and Gohlke, wehave determined that the costs to plug and abandon these wells are approximatelyequal to the salvage value of associated production facilities. We will continueto review these estimates and the Statement of Financial Accounting Standards (SFAS)No 143 requirements on an annual basis. 

Derivative Instruments The Financial Accounting Standards Board issued Statement of FinancialAccounting Standards ("SFAS") No. 133, "Accounting for Derivative Instrumentsand Hedging Activities," as amended by SFAS No. 137, "Accounting for DerivativeInstruments and Hedging Activities - Deferral of the Effective Date of FASB No.133", and SFAS No. 138, "Accounting for Certain Derivative Instruments andCertain Hedging Activities" and SFAS No. 149 "Amendment of Statement 133 onDerivative Instruments and Hedging Activities". 

F-12 

**37**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)

Derivative Instruments (Continued) These standards establish accounting and reporting standards for derivativeinstruments, including certain derivative instruments embedded in othercontracts, and for hedging activities. They require that an entity recognize allderivatives as either assets or liabilities in the consolidated balance sheetand measure those instruments at fair value. 

If certain conditions are met, a derivativemay be specifically designated as a hedge, the objective of which is to matchthe timing of gain or loss recognition on the hedging derivative with therecognition of (i) the changes in the fair value of the hedged asset orliability that are attributable to the hedged risk or (ii) the earnings effectof the hedged forecasted transaction. For a derivative not designated as ahedging instrument, the gain or loss is recognized in income in the period ofchange. 

Historically, the Company has not entered into derivativescontracts to hedge existing risks or for speculative purposes. 

At June 30, 2004 and 2003, the Company had not engaged in anytransactions that would be considered derivative instruments or hedgingactivities. 

Successful Efforts Accounting The company accounts for its oil and gas exploration and development activitiesutilizing the successful efforts method of accounting. Under this method, costof productive exploratory wells, developmental dry hole and productive wells andundeveloped leases are capitalized. Oil and gas acquisition costs are alsocapitalized. Exploration costs, including personnel costs, certain geologicaland geophysical expenses and delay rentals for oil and gas leases, are chargedto expense as incurred. Exploratory drilling costs are initially capitalized,but such costs are charged to expense if and when the well is determined not tohave found reserves in commercial quantities. ****
Unproved oil and gas properties that are individuallysignificant are periodically assessed for impairment of value and a loss isrecognized at the time of impairment by providing an impairment allowance. Otherunproved properties are amortized based on the Company's experience ofsuccessful drilling and average holding period. Capitalized costs of producingoil and gas properties, after considering estimated dismantlement andabandonment costs and estimated salvage values, are depreciated and depleted bythe units-of-production method. Support equipment and other property andequipment are depreciated over their estimated useful lives. 

On the sale or retirement of a complete unit of a provedproperty, the cost and related accumulated depreciation, depletion, andamortization are eliminated from the property accounts, and the resultant gainor loss is recognized. On the retirement or sale of a partial unit of provedproperty, the cost and related accumulated depreciation, depletion, andamortization of this partial unit are eliminated from the property account andthe resulting gain or loss is recognized in income. 

F-13 

**38**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)

Successful Efforts Accounting (Continued) On the sale of an entire interest in an unproved property, gain or loss on thesale is recorded, with recognition given to the amount of any recordedimpairment if the property has been assessed individually. If a partial interestin an unproved property is sold, the amount received is treated as a reductionof the cost of the interest retained. 

Capitalized Interest The Company capitalizes interest on expenditures for significant exploration anddevelopment projects while activities are in progress to bring the assets totheir intended use. No amounts of interest were capitalized in the years endedJune 30, 2004 and 2003. 

Provision for Taxes Income taxes are provided based upon the liability method of accounting pursuantto Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting forIncome Taxes." Under this approach, deferred income taxes are recorded toreflect the tax consequences on future years of differences between the taxbasis of assets and liabilities and their financial reporting amounts at eachyear end. A valuation allowance is recorded against deferred tax assets ifmanagement does not believe the Company has met the "more likely than not"standard imposed by SFAS No. 109 to allow recognition of such an asset. See Note13. 

Going Concern The accompanying financial statements have been prepared assuming that theCompany will continue as a going concern. 

As shown in the accompanying financial statements, the Companyhas incurred an accumulated deficit during exploration stage in the amount of$27,378,655 for the period of September 2, 1999 (inception) to June 30, 2004 anda net loss in the amount of $3,563,988 during the year ended June 30, 2004. Thefuture of the Company is dependent upon its ability to obtain financing and uponfuture successful explorations for and profitable operations from thedevelopment of oil and gas properties. 

Management has plans to seek additional capital through aprivate placement at market value and public offering of its common stock aswell as obtaining additional financing in the form of loans. The financialstatements do not include any adjustments relating to the recoverability andclassification of recorded assets, or the amounts and classification ofliabilities that might be necessary in the event the Company cannot continue inexistence. 

Environmental Remediation and Compliance Expenditures for ongoing compliance with environmental regulations that relateto current operations are expensed or capitalized as appropriate. Expendituresresulting from the remediation of existing conditions caused by past operationsthat do not contribute to future revenue generations are expensed. Liabilitiesare recognized when environmental assessments indicate that remediation effortsare probable and the costs can be reasonably estimated. 

F-14 

**39**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)

Environmental Remediation and Compliance (Continued) Estimates of such liabilities are based upon currently available facts, existingtechnology and presently enacted laws and regulations taking into considerationthe likely effects of inflation and other societal and economic factors, andinclude estimates of associated legal costs. These amounts also reflect othercompanies' clean-up experience and data released by the Environmental ProtectionAgency (EPA) or other organizations. Such estimates are by their natureimprecise and can be expected to be revised over time because of changes ingovernment regulations, operations, technology and inflation. At June 30, 2004,the Company accrued $10,750 for compliance with environmental regulations.

Recoveries are evaluated separately from the liability and,when recovery is assured, the Company records and reports an asset separatelyfrom the associated liability. 

Principles of Consolidation The financial statements include those of TexEn Oil & Gas, Inc., TexasBrookshire Partners, Inc., Texas Gohlke Partners, Inc., Brookshire DrillingServices, Inc., Yegua, Inc., and BWC Minerals, L.L.C. All significantinter-company accounts and transactions have been eliminated. 

Recent Accounting Pronouncements In May 2003, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 150, "Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity" (hereinafter "SFASNo. 150"). SFAS No. 150 establishes standards for classifying and measuringcertain financial instruments with characteristics of both liabilities andequity and requires that those instruments be classified as liabilities instatements of financial position. Previously, many of those instruments wereclassified as equity. SFAS No. 150 is effective for financial instrumentsentered into or modified after May 31, 2003 and otherwise is effective at thebeginning of the first interim period beginning after June 15, 2003. The Companyhas determined that there is no impact upon the adoption of this statement.

In April 2003, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 149,"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"(hereinafter "SFAS No. 149"). SFAS No. 149 amends and clarifies the accountingfor derivative instruments, including certain derivative instruments embedded inother contracts, and for hedging activities under SFAS No. 133, "Accounting forDerivative Instruments and Hedging Activities". This statement is effective forcontracts entered into or modified after June 30, 2004 and for hedgingrelationships designated after June 30, 2004. The adoption of SFAS No. 149 isnot expected to have a material impact on the financial position or results ofoperations of the Company as the Company has not issued any derivativeinstruments or engaged in any hedging activities as of June 30, 2004 or 2003.

F-15 

**40**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)**
Recent Accounting Pronouncements (Continued) In December 2002, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 148, "Accounting for Stock-Based Compensation- Transition and Disclosure" ("SFAS No. 148"). SFAS 148 amends SFAS 123,"Accounting for Stock-Based Compensation," to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, the statement amends thedisclosure requirements of SFAS 123 to require prominent disclosure in bothannual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults. The provisions of the statement are effective for financial statementsfor fiscal years ending after December 15, 2002. The Company currently reportsstock issued to employees under the rules of SFAS 123. Accordingly, there is nochange in disclosure requirements due to SFAS 148 as adopted by the Companyduring the year ended June 30, 2004. 

In June 2002, the Financial AccountingStandards Board issued Statement of Financial Accounting Standard No. 146,"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.146"). SFAS No. 146 addresses significant issues regarding the recognition,measurement, and reporting of costs associated with exit and disposalactivities, including restructuring activities. SFAS No. 146 also addressesrecognition of certain costs related to terminating a contract that is not acapital lease, costs to consolidate facilities or relocate employees, andtermination benefits provided to employees that are involuntarily terminatedunder the terms of a one-time benefit arrangement that is not an ongoing benefitarrangement or an individual deferred-compensation contract. SFAS No. 146 wasissued in June 2002 and is effective December 31, 2002 with early applicationencouraged. The Company adopted SFAS during the year ended June 30, 2002 andthere has been no impact on the Company's financial position or results ofoperations from adopting SFAS 146. 

Revenue Recognition Oil and gas revenues are recorded using the accrual method. Under this method,the Company recognizes revenues based on actual volumes of oil and gas produced.

Accounts Receivable The Company carries its accounts receivable at cost. On a periodic basis, theCompany evaluates its accounts receivable and writes off receivables that areconsidered non-collectible. 

The Company's policy is to accrue interest ontrade receivables 30 days after invoice date. A receivable is considered pastdue if payments have not been received by the Company within 90 days ofinvoicing. At that time, the Company will discontinue accruing interest andpursue collection. If a payment is made after pursuing collection, the Companywill apply the payment to the outstanding principal first and resume accruinginterest. Accounts are written off as non-collectible if no payments arereceived within 90 days after initiating collection efforts. 

F-16 

**41**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)**
Accounts Receivable (continued) Accrued oil and gas sales consist of amounts due as of June 30, 2004, but notcollected until July 2004. 
**NOTE 3 - COMMON STOCK**
During the year ended June 30, 2003, theCompany issued 22,885,381 shares of its common stock for acquisition of itsfully owned subsidiaries. In addition, the Company had the following issuancesof common stock: 1,500,000 shares of its common stock to Sanka, L.L.C. ("Sanka")in exchange for the management rights of Sanka, L.L.C.; 588,000 shares of itscommon stock in exchange for an assignment of a 98% working interest in, and a75% net revenue interest in approximately 255.21 gross leasehold acres and netleasehold acres in a certain oil and gas lease located in Concho County, Texas;500,000 shares of its common stock in exchange for the conveyance of a 100%working interest with a 75% net revenue interest in and to the leaseholdownership at the Trull Heirs #1 well bore located in Calhoun County, Texas; and1,250,000 shares of its common stock in exchange for a 5% working interest inthe Brookshire Dome Field located in Waller County, Texas. The shares issued inacquisitions were valued at their fair market value on the date of issuance,except for shares issued to affiliates which were valued at the carryover basisin the assets acquired. A major shareholder of the Company rescinded 26,987,950shares of the Company's common stock in order to prevent dilution ofstockholders' interest, from these issuances. The rescission of these shares wasrecorded at the stock's par value. As of June 30, 2003, the company had45,184,310 shares issued and outstanding. 

During the year ended June 30, 2004, theCompany issued a total of 47,333,333 shares of its common stock as follows:40,000,000 shares issued to Tatiana Golovina for conversion of debt; 1,333,333shares issued to Crescent Fund for public relations consulting; 2,500,000 sharesissued to non-associated financing parties for additional compensation onfinancing; 500,000 shares issued to Pinnacle Research for consulting services;1,250,000 to Woodburn Holdings for consulting services; 1,500,000 shares issuedto associated consultants for consulting services, and 250,000 shares issued toMJB Limited for consulting services. As of June 30, 2004, the Company had92,517,643 shares issued and outstanding. 
**NOTE 4 - RELATED PARTIES**
In 2003, Tatiana Golovina, a shareholder of the Company andprevious President and CEO loaned the Company approximately $1,646,000 foroperations. In December of 2003, Ms. Golovina's loan of $1,646,508 was forgivenin exchange for 40,000,000 shares of Company stock. In 2004, Ms. Golovina loanedthe company $715,108. 

In February 2003, the Company entered into a consultingagreement with Woodburn Holdings Ltd. 

("Woodburn") which was made effective June 1, 2002 and callsfor monthly consulting fees in the amount of 

F-17 

**42**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 4 - RELATED PARTIES (continued) $15,000. Under terms of thisagreement, Woodburn's designated consultant provides managerial, administrativeand other services as the Company's chief executive officer. Although theconsulting agreement had an original length of eighteen months, the agreementwas rescinded subsequent to the date of these financial statements in June 2004.In December 2003, Woodburn entered into a new agreement to advise the Company inits oil and gas operations. The agreement is for a period of one year, withsuccessive six-month renewable terms by mutual agreement of the parties. Optionsto purchase 250,000 shares of common stock were given as compensation andexercised. 
**NOTE 5 - COMMITMENTS AND CONTINGENCIES

Regulatory Issues The oil and gas exploration and development industry is inherently speculativeand subject to complex environmental regulations. As of June 30, 2003, theCompany has accrued $10,750 as a settlement loss for environmental cleanup asassessed by the Texas Railroad Commission, which was paid in 2004. The Companyis unaware of any other pending litigation or of past or prospectiveenvironmental matters which could impair the value of its properties. As of June30, 2004, the Company is not aware of any pending litigation of regulatoryissues. 

Farmout Agreements There were no significant farmout agreements entered into during the yearsending June 30, 2004 or 2003. 

Consulting Agreements During the year ending June 30, 2004, the Company entered into a consultingagreement with Pinnacle Research and Consulting Group Ltd. ("Pinnacle") toprovide consulting services for oil and gas operations. This agreement becameeffective December 18, 2003 and options to acquire 500,000 shares of commonstock were given as compensation and exercised. During the year ending June 30,2004, the Company entered into consulting agreements with Woodburn Holdings Ltd.("Woodburn") to provide consulting services for oil and gas operations. Stockoptions to acquire 1,250,000 shares of common stock were given as compensationand exercised. During the year ending June 30, 2004, the Company entered into aconsulting agreement with Crescent Fund, Inc. to provide public relationsconsulting services. 1,333,333 shares of common stock were issued under the SECRule 144. Subsequently, the Company rescinded and canceled its agreement withCrescent Fund, Inc., and issued an administrative order to cancel the 1,333,333shares and demanded the return of said stock certificate. The outcome of thissituation has yet to be determined. In addition, during the year ending June 30,2004, the Company entered into various consulting agreements and issued1,500,000 shares for field operating consulting and accounting consulting.
F-18 

**43**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued)

Leases The Company has a lease beginning in June 2004 on office space requiringpayments of $1,607 every month, which is accounted for as an operating lease andis through November 2005. Future lease obligations are $19,284 and $8035 for2005 and 2006. 
**NOTE 6 - NOTES PAYABLE**
At June 30, 2004 and 2003, the Company's notes payableconsisted of the following: 
  2004 2003        Tatiana Golovina, (a shareholder of the Company),            unsecured, interest at 10%, due on February 14, 2004     $-$155,347             Tatiana Golovina, (an officer and shareholder of the            Company), unsecured, interest at 10%, dated            September 17, 2002. 150,000 150,000             Mathon Fund I, LLC, secured by deed of trust on real            property and personal guarantee, finance charges in            the amount of $785,000 included in principal,            original agreements dated January 31, 2003 and            February 7, 2003, extended on April 28, 2003, due            on August 15, 2003. Note was retired in the second            quarter of year ending December 2003. -     1,200,000             Total 150,000 1,505,347             Less current portion of notes payable 150,000     1,200,000             Total long term portion$-$305,347
F-19 

**44**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 7 - MANAGEMENT RIGHTS**
On August 10, 2002, the Company issued 1,500,000 shares of itscommon stock to Sanka, L.L.C. ("Sanka") in exchange for the management rights ofSanka, L.L.C., a Texas limited liability company, which is owned by ashareholder of the Company. A second Company shareholder, who is the manager ofSanka L.L.C., rescinded 1,500,000 shares of his common stock, at par value, uponcompletion of this transaction. The Company accounted for this transaction byusing the par value of the Company's common stock. During the year ended June30, 2003, Sanka, L.L.C. acquired Chief Operating Company ("Chief") and TigerOperating Company ("Tiger") as wholly owned subsidiaries. Chief and Tiger arethe operators of the oil and gas properties held by the Company and its whollyowned subsidiaries. 
**NOTE 8 - OIL AND GAS PROPERTIES

The Company's oil and gas producing activities are subject tolaws and regulations controlling not only their exploration and development, butalso the effect of such activities on the environment. Compliance with such lawsand regulations may necessitate additional capital outlays, affect the economicsof a project, and cause changes or delays in the Company's activities. TheCompany's oil and gas properties are valued at the lower of cost or netrealizable value. 

Brookshire Dome Field During the year ended June 30, 2003, the Company acquired a 77.75% workinginterest ownership in approximately 1,440 gross leasehold acres and 550 netleasehold acres located in the Brookshire Dome Field of Waller County, Texasthrough acquisition of Texas Brookshire Partners, Inc. as a wholly ownedsubsidiary. The Company also acquired an additional 5% working interestownership in this field through the issuance of 1,250,000 shares of its commonstock, and another 8.70% working interest ownership in this field through theacquisition of BWC Minerals, L.L.C. as a wholly owned subsidiary. As of June 30,2003, the Company has effectively acquired a total working interest of 91.45% inthis field. (See Note 3.) This working interest ownership position consists of26 wells drilled to date and one water injection well. As of June 30, 2004, 6wells were producing oil. 

Brookshire plans to drill additional developmental wells onthe existing Brookshire leasehold acreage and to purchase, farm-in orparticipate in the acquisition of additional leasehold acreage on which to drillmore wells. 

Helen Gohlke Field During 2003, the Company acquired a 100% working interest and a 70% net revenueinterest in the Helen Gohlke Field located in Victoria and DeWitt Counties,Texas through acquisition of Texas Gohlke Partners, Inc. as a wholly ownedsubsidiary. This field comprises approximately 4,800 gross and net leaseholdacres which are located under nine different oil, gas and mineral leases inVictoria and DeWitt Counties, Texas. 

F-20 

**45**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 8 - OIL AND GAS PROPERTIES (continued)**
Helen Gohlke Field Over 60 wells have been drilled in this field, with 8 wells currently producing.The Company intends to drill and develop seismic leads from this field withinthe next few months. 

Other Oil and Gas Properties On September 23, 2002, the Company issued 588,000 shares of its common stock toSanka, Ltd. ("Limited") in exchange for an assignment from Sanka ExplorationCompany ("Exploration") of a 98% working interest in, and a 75% net revenueinterest in approximately 255.21 gross leasehold acres and net leasehold acresin oil and gas leases located in Concho County, Texas. 

On September 21, 2002, the Company issued500,000 shares of its common stock for 100% working interest with a 75% netrevenue royalty interest in the leasehold ownership at the Trull Heirs #1 wellbore located in Calhoun County, Texas. 

These transactions were valued at the fair market value of theCompany's common stock on the date of the acquisitions. 
**NOTE 9 - CONCENTRATION OF RISK**
The Company derives its sales and accountsreceivable from primarily two affiliated customers and these receivables are notcollateralized. At June 30, 2004 and 2003, the Company's accounts receivablefrom these customers totaled $397,717 and $405,805, respectively. 
**NOTE 10 - STOCK OPTIONS**
In April 2003, the Company and Board ofDirectors adopted the 2003 Nonqualified Stock Option Plan of Texen Oil & Gas,Inc. under which 5,000,000 shares of common stock are available for issuancewith respect to awards granted to officers, directors, management, employees andother consultants of the Company and/or its subsidiaries. None of the stockoptions issued by the company were under a shareholder approval plan. 

The Company estimates the fair value of eachstock option at the grant date by using the Black-Scholes option-pricing modelwith the following weighted-average assumptions used during the year ended June30, 2004: dividend yield of zero percent; expected volatility of one hundred andfifty eight percent; risk-free interest rate of four percent. 

F-21 

**46**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 10- STOCK OPTIONS (Continued)

Following is a summary of the status of theseperformance-based options during the years ending June 30, 2004 and 2003: 
    Weighted    Average  Number Exercise    Price per  of    Shares share     Outstanding at July 1,    2002 0$-       Granted 1,500,000 0.10Outstanding at June    30, 2003 1,500,000$0.10            Options exercisable at June 30, 2003 1,500,000$0.10     Weighted average for    value of options    granted during the    year ended June 30, 2003$0.56                                    Weighted    Average  Number Exercise    Price per  of    Shares share     Outstanding at July 1,    2003     1,500,000$0.10       Revised Grant 250,000$0.10       Exercised     1,250,000$0.10       Forfeited 250,000$0.10     Outstanding at June    30, 2004 250,000$0.10            Options exercisable at June 30, 2004 250,000$0.10     Weighted average for    value of options    granted during the    year ended June 30, 2004$0.00       
F-22 

**47**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 10- STOCK OPTIONS (Continued)

The following table gives information about the Company'scommon stock that may be issued upon the exercise of options under all of theCompany's existing stock option plans as of June 30, 2004. 
      Weighted    Remaining     Weighted  Average    Contractual Average    ExerciseNumber    of    ExerciseLifeNumber    ExercisePricesOptionsPrice(in    years)    ExercisablePrice      $0.10250,000$0.101.91250,000$0.10**NOTE 11 - IMPAIRMENT OF LONG-LIVED ASSETS**
In accordance with SFAS No. 144, "Accounting for theImpairment or Disposal of Long-Lived Assets," the Corporation recorded animpairment loss on its oil and gas proved and unproved properties and itsleasehold costs of oil and gas producing properties. The engineering reports onthe oil and gas properties indicated that the undiscounted future cash flowsfrom these properties would be less than the carrying value of the long-livedassets. The engineer reports also indicated that net leasehold acreage did notsupport the value carried by the Company. Accordingly, on June 30, 2003, theCompany recognized an asset impairment loss of $20,407,559 ($0.46 per share).This loss is the difference between the carrying value of the oil and gasproperties and the fair value of these properties based on discounted estimatedfuture cash flows. 

No additional impairment was deemed necessary by the Companyfor the year ended June 30, 2004. 
**NOTE 12 - INCOME TAXES**
At June 30, 2004 and 2003, the Company had netdeferred tax assets of approximately $1,620,000 and $842,000, calculated atprojected income tax rates of 34%. The deferred tax assets are principallyderived from net operating loss carryforwards for income tax purposes. Asmanagement of the Company cannot determine that it is more likely than not thatthe Company will realize the benefit of the net deferred tax asset, a valuationallowance equal to the net deferred tax asset has been recorded at June 30, 2004and 2003. The significant components of the deferred tax assets at June 30, 2004and 2003 are as follows: 

F-23 

**48**

**TEXEN OIL & GAS, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2004
**NOTE 12 - INCOME TAXES (continued)**  June 30, 2004 June 30, 2003             Net operating loss carryforward before adjustments$    3,563,988$    23,541,000             Less:                 Stock options issued under an unqualified plan     (1,276,250)     (844,150)             Impairment of assets 0     (20,407,559)             Effective net operating loss carryforward     2,287,738     2,289,291             Expected tax rate 34% 34%             Deferred tax asset 777,000 778,000             Deferred tax asset valuation allowance     (777,000)     (778,000)             Deferred tax asset after valuation allowance$-$-
At June 30, 2004 and 2003, the Company has net operating loss carryforwardsof approximately $4,700,000 and $2,400,000 respectively. These net operatinglosses would begin to expire in the year 2020. 
**NOTE 13 - SUBSEQUENT EVENTS**
Officers and Directors During the year ending 2004, the Company appointed Tatiana Golovina as the newPresident and Secretary. Subsequent to these financial statements, in July 2004,Tatiana Golovina resigned and Michael Sims was appointed as the new Presidentand Secretary. 

Stock Options Subsequent to the date of these financial statements, outstanding andexercisable stock options were exercised for 1,250,000 shares of the Company'scommon stock at $0.10. The options were exercised in payment of accruedconsulting fees. 

Workovers The company did not undertake any substantial workovers during 2004. As of thedate of this filing, no substantial workovers have been undertaken pendingreceipt of additional capital. 

F-24 

**49**

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

None**. 
ITEM 8A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that aredesigned to ensure that information required to be disclosed in our SecuritiesExchange Act of 1934 reports are recorded, processed, summarized and reportedwithin the time periods specified in the SEC's rules and forms, and that suchinformation is accumulated and communicated to our management, including ourchief executive officer and chief financial officer, as appropriate, to allowtimely decisions regarding required disclosure. Based upon the foregoing, ourchief executive officer and chief financial officer concluded that ourdisclosure controls and procedures are effective in connection with the filingof this Annual Report on Form 10-KSB for the year ended June 30, 2004. 

There were no significant changes in our internal controls orin other factors that could significantly affect these controls subsequent tothe date of their evaluation, including any significant deficiencies or materialweaknesses of internal controls that would require corrective action. **PART III
**ITEM 9. DIRECTORS, OFFICERS, PROMOTERS AND CONTROL PERSONSCOMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
**Directors and Officers

The directors and officers, their ages and positions held asof October 22, 2004 are listed below. Each director serves until our next annualmeeting of the stockholders or unless they resign earlier. The Board ofDirectors elects officers and their terms of office are at the discretion of theBoard of Directors. 
**Name****Position Held**Michael    Sims    President, Principal Executive Officer, Secretary,     Treasurer, Principal Financial Officer and sole member of the    Board of Directors
The following describes the business experience during the pastfive years of our directors and executive officers, including for each director,other directorships held in reporting companies. 

Michael Sims has been our President since July 21,2004. Mr. Sims has been involved with Texen Oiland Gas most recently as Vice President of the Company from November 11, 2003 toJuly 21, 2004 and was involved as a consultant to the company prior to that.During the last 5 years Mr. Sims has been self-employed as an advisor for oiland gas exploration companies. 

Tatiana Golovina wasour Secretary and Director from October 8, 2003 to November 11 2003 and ourPresident, Principal Executive, Treasurer and Principal Financial Officer fromNovember 11, 2003 to July 21,2004. During the previous five years, Ms. Golovinahas been self-employed. 
**50**

On November 10, 2003, Donald Beckman resigned as an officerand director. At the time of resignation, Mr. Beckman was paid $8,000 forservices rendered. 

On June 26, 2003, John F. Templeton resigned as a member ofthe board of directors and was removed as president. 
**Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, asamended (the "1934 Act") requires officers and directors of a company withsecurities registered pursuant to Section 12 of the 1934 Act, and persons whoown more than 10% of the registered class of such company's equity securities,to file reports of ownership and changes in ownership with the Securities andExchange Commission (the "SEC"). Ms. Golovina is delinquent in filing her Form 3and multiple Form 4s. Mr. Beckham did not file a Form 3 which was due upon hisappointment as an officer and director on October 15, 2003. Mr. Beckman hassince resigned as an officer and director. 
**Audit Committee and Charter

We have an audit committee and audit committee charter. Ouraudit committee is comprised of all of our officers and directors. None of thedirectors are deemed independent. All directors also hold positions as ourofficers. A copy of our audit committee charter is filed as an exhibit to thisreport. Our audit committee is responsible for: (1) selection and oversight ofour independent accountant; (2) establishing procedures for the receipt,retention and treatment of complaints regarding accounting, internal controlsand auditing matters; (3) establishing procedures for the confidential,anonymous submission by our employees of concerns regarding accounting andauditing matters; (4) engaging outside advisors; and, (5) funding for theoutside auditory and any outside advisors engagement by the audit committee. Acopy of our audit committee charter is filed as an exhibit to this report.
**Audit Committee Financial Expert

We have no financial expert. We believe the cost related toretaining a financial expert at this time is prohibitive. Further, because ofour limited operations, we believe the services of a financial expert are notwarranted. 
**Code of Ethics

We have adopted a corporate code of ethics. A copy of the codeof ethics is filed as an exhibit to our June 2003 10KSB filed on November 12,2003. We believe our code of ethics is reasonably designed to deter wrongdoingand promote honest and ethical conduct; provide full, fair, accurate, timely andunderstandable disclosure in public reports; comply with applicable laws; ensureprompt internal reporting of code violations; and provide accountability foradherence to the code. We have not made any changes in year ending 2004. 

**51**

**Disclosure Committee and Charter

We have a disclosure committee and disclosure committeecharter. Our disclosure committee is comprised of all of our officers anddirectors. The purpose of the committee is to provide assistance to the ChiefExecutive Officer and the Chief Financial Officer in fulfilling theirresponsibilities regarding the identification and disclosure of materialinformation about us and the accuracy, completeness and timeliness of ourfinancial reports. A copy of our disclosure committee charter is filed with thisreport. 
**ITEM 10. EXECUTIVE COMPENSATION**
The following table sets forth information with respect tocompensation paid by us to our officers and directors during the three mostrecent fiscal years. 
**Summary Compensation Table**   **Annual Compensation** **Long Term Compensation Awards****Payouts****(a)****(b)****(c)****(d)****(e)****(f)****(g)****(h)****(i)**     **Restricted****Securities**  **Name and**   **Other    Annual****Stock****Underlying****LTIP****All    Other****Principal Position**   **Compensation****Award(s)****Options /****Payouts****Compens****[1]****Year****Salary    ($)****Bonus    ($)****($)****($)****SARs    (#)****($)****ation    ($)**         Michael Sims2004120,000000000President, CEO,2003 000000Secretary/Treasurer,        CFO and Director          80,000      Tatiana Golovina20040000000President, CEO,2003 000000Secretary, Treasurer,        CFO and Director        (resigned)                 Donald Beckham20030000000President, CEO,        Treasurer, CFO and        Director (resigned)                 Robert M. Baker200425,0000001,250,00000President, CEO,200315,000      Treasurer, CFO and        Director        (resigned)        
**52**

                  Kjeld Werbes20030000000Secretary        Director        (resigned)                          John F. Templin20030000000President        (terminated as        President, resigned        as Director        
[1] All compensation received by the officers and directors has beendisclosed. 
**Option/SAR Grants

There are no stock option, retirement, pension, or profitsharing plans for the benefit of our officers and directors, other than our 2003Incentive Stock Option Plan. Under this Plan, the board of directors is vestedwith discretionary authority to grant options to persons furnishing services tous. There were 5,000,000 shares in the plan. 1,250,000 shares have been issuedas a result of the exercise of options. 3,750,000 shares remain in the plan.
**Option Grants to Officers and Directors During the Last Fiscal Year** **Number of****% of    Total**   **Securities****Options/SARs**   **Underlying****Granted to**   **Options/SARs****Employees in****Exercise of Base** **Name****Granted (#)****Fiscal Year****Price    ($/Sh)****Expiration Date**     Robert M. Baker [1]    1,250,000100%$ 0.10April    27, 2006
[1] Mr. Baker exercised his options. The exercise price was offset againstmoney owed to Mr. Baker. 
**Aggregated option/SAR Exercised by Officers and Directors in Last Fiscal Yearand FY-End Option/SAR Values
   **Number of Securities****Value of Unexercised In-the-**   **Underlying Unexercised****Money Options/SARs at FY-**   **Options/SARs at FY-End (#)****End ($)** **Shares**      **Acquired on****Value**     **Exercised****Realized**    **Name****(#)****($)****Exercisable****Unexercisable****Exercisable****Unexercisable**       Robert Baker1,250,000Unknown00$ 0$ 0
**53**

**Future Compensation of Our Officers**
For the fiscal year ending June 30, 2004, we intend to payMichael Sims, our president, chief executive officer, secretary, treasurer andchief financial officer a base salary of $120,000. We have not determined ifoptions will be granted to him in the fiscal year ending June 30, 2004. 
**Long-Term Incentive Plan Awards

We do not have any long-term incentive plans that providecompensation intended to serve as incentive for performance to occur over aperiod longer than one fiscal year, whether such performance is measured byreference to our financial performance, our stock price, or any other measureother than our 2003 Incentive/or Nonqualified Stock Option Plan. 
**Compensation of Directors

We do not have any plans to compensate our directors in theimmediate future. We do intend to grant our directors options for serving on ourBoard of Directors. For fiscal year ending June 30, 2004, we have not determinedthe compensation that we may grant our directors. 
**Indemnification

Pursuant to the articles of incorporation and bylaws of thecorporation, we may indemnify an officer or director who is made a party to anyproceeding, including a lawsuit, because of his position, if he acted in goodfaith and in a manner he reasonably believed to be in our best interest. Incertain cases, we may advance expenses incurred in defending any suchproceeding. To the extent that the officer or director is successful on themerits in any such proceeding as to which such person is to be indemnified, wemust indemnify him against all expenses incurred, including attorney's fees.With respect to a derivative action, indemnity may be made only for expensesactually and reasonably incurred in defending the proceeding, and if the officeror director is judged liable, only by a court order. The indemnification isintended to be to the fullest extent permitted by the laws of the state ofNevada. 

Regarding indemnification for liabilities arising under theSecurities Act of 1933 which may be permitted to directors or officers pursuantto the foregoing provisions, we are informed that, in the opinion of theSecurities and Exchange Commission, such indemnification is against publicpolicy, as expressed in the Act and is, therefore unenforceable. 
**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT

The following table sets forth, as of October 22, 2004, thebeneficial shareholdings of persons or entities holding five percent or more ofour common stock, each director individually, each named executive officer andall directors and officers of our company as a group. Each person has solevoting and investment power with respect to the shares of common stock shown,and all ownership is of record and beneficial. 

**54**

**Name of owner****and****Number of** **Percentage of****Address of    Beneficial****Shares****Position****Ownership****Owner**   Tatiana Golovina    47,165,664Director51%181 Kensington High    Street   London W86SH   United Kingdom   **Changes in Control

To the knowledge of management, there are no presentarrangements or pledges of our securities which may result in a change incontrol of our company. 
**ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On July 11, 2002, we issued 15,376,103 restricted shares ofcommon stock to the shareholders of Texas Brookshire Partners, Inc in exchangefor 777.50 shares of common stock of Texas Brookshire Partners, Inc., a Texascorporation. This transaction is evidenced by a Share Exchange Agreement datedas of June 24, 2002. The 777.50 shares of Texas Brookshire Partners, Inc.constituted 100% of the total outstanding shares of Texas Brookshire Partners,Inc. 

On September 12, 2002, we issued 500,000 restricted shares ofcommon stock to Sanka Ltd. in exchange for an assignment of a 100% workinginterest with a 75%, net revenue interest in and to approximately 40 grossleasehold acres and 40 net leasehold acres which contains the Trull Heirs # 1well. 

On September 12, 2002, we issued 373,847 restricted shares ofcommon stock to the shareholders of Yegua, Inc. in exchange for 10,000 shares ofYegua, Inc. common stock which represents a 1.95% working interest with variousnet revenue interests in and to approximately 1,440 gross leasehold acres and550 net leasehold acres in the Brookshire Salt Dome Field of Waller County,Texas. 

On September 12, 2002, we issued 1,400,000 restricted sharesof common stock to Tatiana Golovina in exchange for a 100% of the ownership,membership and management of Brookshire Drilling Service, LLC, a Texas LimitedLiability Company. This transaction is evidenced by a Stock SubscriptionAgreement dated as of July 26, 2002. 

On September 12, 2002, we issued 4,000,000 restricted sharesof common stock to the shareholders of Texas Gohlke Partners, Inc. in exchangefor 1,000 shares of common stock of Texas Gohlke Partners, Inc., a Texascorporation. The 1,000 shares of Texas Gohlke Partners, Inc. constituted 100% ofthe total outstanding shares of Texas Gohlke Partners, Inc. 

On September 12, 2002, we issued 1,500,000 restricted sharesof common stock to Sanka, LLC, a Texas Limited Liability Corporation in exchangefor a 100% of the management of Sanka, LLC. This transaction is evidenced by aStock Subscription Agreement dated as of August 10, 2002. Sanka is controlled byTatiana Golovina, our sole director. 

**55**

On September 12, 2002, Mr. Harry P. Gamble IV returned7,773,847 shares of our common stock to us which was cancelled. 

On September 23, 2002, we issued 580,000 restricted shares ofcommon stock to Sanka, Ltd. in exchange for an assignment of a 98% workinginterest with a 75% net revenue interest in and to approximately 255.21 grossand net leasehold acres in Concho County, Texas, which contains two (2) shut-inoil wells and one (1) saltwater disposal well. 

On September 23, 2002, Harry P. Gamble, IV returned 580,000shares of our common stock to us. 

On February 13, 2003, we entered into a written an employmentcontract with our president, Robert Baker. The employment agreement isretroactively effective to June 1, 2002. Because Mr. Baker is a citizen ofCanada, in order to make the contract most advantageous to him and us, theemployment contract was entered into as a Consulting Agreement and the partieswere us and Woodburn Holdings Ltd., ("Woodburn") a corporation owned andcontrolled entirely by Mr. Baker. 

In 2003, Tatiana Golovina, a shareholder of the company andprevious President and CEO lent us approximately $1,646,508 for our operations.In December of 2003, Ms. Golovina's loan of $1,646,508 was forgiven in exchangeof 40,000,000 shares of the Company stock. In 2004, Ms. Golovina loaned thecompany $715,108. 

Mr. Robert Baker had an employment contract,as CEO and President, with us through Woodburn Holdings Ltd., a corporation heowns and controls. The company issued Woodburn Holdings Ltd., stock options toacquire up to 1,250,000 shares of out common stock at $0.10 per share, whichexercised. The company also paid Woodburn Holdings Ltd. $25,000 in compensation.
**ITEM 13. Reports on Form 8-K**andExhibits**
**Reports on Form 8-K

The following reports on Form 8-K were filed during the fourthquarter of 2004: 

On March 5, 2004, the Company reported that ithas hired Houston based Coastline Operating, llc to manage all field operationsfor its oil and gas properties. 

On April 13, 2004, the Company reported thatthe Editorial Board of Standard and Poor's ("S&P") has approved Texen Oil andGas for a complete corporate listing and description in Standard and Poor'sCorporation Records. 

On April 15, 2004, the Company reported theaddition of Michael McAdams, former associate group policy advisor to Lord JohnBrowne, Chief Executive Officer of BP, as a new member of the Texen Oil and Gasteam. 

On April 30, 2004, the Company reported thatCoastline Operations has identified 7 workover candidates on the company'sproperties to begin reservoir analysis. 

**56**

On May 18, 2004, the Company reported that wehave retained Larry Lenig Jr., as a strategic consultant for Texen Oil and Gas.

On June 21, 2004, the Company reported thatthey have completed the relocation of the company's new corporate offices to2401 Fountain View Drive, Suite 1008, Houston, Texas, 77057. 

On July 22, 2004, the Company reported thatMichael Sims was named as President and CEO, replacing Tatiana Golovina. 

On July 30, 2004, the Company reported thatthey completed the rework of a well on the Gohlke fiels and a well on the onBrookshire property. 

On August 3, 2004, the Company reported thatthe CEO conducts interview on PRBroadcast.com 

On August 11, 2004, the Company reported thatthe CEO conducts interview on CEOCast and is in talks regarding additionalleases on Brookshire property. 

On August 18, 2004, the Company reported thatthey completed reworks on two wells on the Brookshire property. 

On August 25, 2004, the Company reported thatthey completed reworks on an additional well on the Brookshire property and planto begin reworks on the Helen Gohlke field. 

On August 26, 2004, the Company reported thatthe CEO conducts interview with WallStreeReporter.com 

On September 27, 2004, the Company reportedthat they have commenced plans to rework a well on the Helen Gohlke field.
**Exhibits

The following Exhibits are incorporated herein by referencefrom our Form SB-2 Registration Statement filed with the Securities and ExchangeCommission, SEC file #333-94631 on January 13, 2000. Such exhibits areincorporated herein by reference pursuant to Rule 12b-32: 
**Exhibit No.****Document Description**3.1    Articles of Incorporation.3.2Bylaws.4.1    Specimen Stock Certificate.
The following Exhibits are incorporated herein by reference from our Form 8-KRegistration Statement filed with the Securities and Exchange Commission, onFebruary 22, 2002. Such exhibits are incorporated herein by reference pursuantto Rule 12b-32: 
99.2Stock    Purchase Agreement
**57**

The following Exhibits are incorporated hereinby reference from our Form 8-K Registration Statement filed with the Securitiesand Exchange Commission, on May 17, 2002. Such exhibits are incorporated hereinby reference pursuant to Rule 12b-32: 

3.3       Amended to the  Articles of Incorporation 

The following Exhibits are incorporated herein by referencefrom our Form 8-K Registration Statement filed with the Securities and ExchangeCommission, on July 26, 2002. Such exhibits are incorporated herein by referencepursuant to Rule 12b-32: 

10.1      Share Exchange Agreement  

The following Exhibits are incorporated herein by referencefrom our Form 8-K Registration Statement filed with the Securities and ExchangeCommission, on September 17, 2002. Such exhibits are incorporated herein byreference pursuant to Rule 12b-32: 

10.2      Stock  Purchase Agreement and Assignment of Interest from Sanka, LTD. (Trull Heirs #1  Well)   10.3      Stock Subscription Agreement from Yegua,  Inc.   10.4      Stock Subscription Agreement - Brookshire  Drilling Service LLC   10.5      Share Exchange Agreement - Texas Gohlke  Partners, Inc.   10.6      Stock Subscription Agreement - Sanka LLC    10.7      Assignment of Oil - Sanka Exploration  Company 

The following Exhibits are incorporated hereinby reference from our Form 8-K Registration Statement filed with the Securitiesand Exchange Commission, on October 4, 2002. Such exhibits are incorporatedherein by reference pursuant to Rule 12b-32: 

10.8      Stock Subscription  Agreement - Sanka Ltd.   10.9      Assignment of Oil - Sanka Exploration  Company 

The following Exhibits are incorporated hereinby reference from our Form 8-K Registration Statement filed with the Securitiesand Exchange Commission, on October 4, 2002. Such exhibits are incorporatedherein by reference pursuant to Rule 12b-32: 

3.4      Articles of Incorporation  of Texas Brookshire Partners, Inc.   3.5      Bylaws of Texas Brookshire Partners 3.6  Articles of Incorporation of Texas Gohlke Partners, Inc. 3.7 Bylaws of Texas  Gohlke Partners, Inc. 

The following Exhibits are incorporated herein by referencefrom our Form S-8 Registration 

Statement filed with the Securities and Exchange Commission,on April 11, 2003, SEC file no. 333-104482. Such exhibits are incorporatedherein by reference pursuant to Rule 12b-32: 

10.1      2003 Nonqualified Stock  Option Plan. 

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The following Exhibits are incorporated herein by referencefrom our Form 8-K Registration Statement filed with the Securities and ExchangeCommission, on July 9, 2003. Such exhibits are incorporated herein by referencepursuant to Rule 12b-32: 

10.1      Marketing Contract 

The following Exhibits are incorporated herein by referencefrom our Form 10KSB Annual Report filed with the Securities and ExchangeCommission, on November 12, 2003. Such exhibits are incorporated herein byreference pursuant to Rule 12b-32: 

14.1      Code of Ethics   99.1      Audit Committee Charter   99.2      Disclosure Committee Charter 

The following exhibits are filed with this report: 
23.1Consent of Williams &    Webster, P.S. Certified Public Accountants.31.1Certification of    Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14 and Rule    15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.32.1Certification pursuant    to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of    2002 (Chief Executive Officer and Chief Financial Officer).99.3Lease agreement with    Insite Realty for office space99.4Stock Purchase    Agreement
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**SIGNATURES

Pursuant to the requirements of Section 13 or15(d) of the Securities and Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized, on this 5th day of November, 2004. 
**TEXEN OIL & GAS,      INC.**(Registrant)  BY:/s/ Michael Sims Michael Sims,      President, Principal Executive Officer, Secretary,      Treasurer, Principal Financial Officer, and sole      member of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following person on behalf of the Registrantand in the capacities. 
**Signatures****Title****Date**   /s/ Michael SimsPresident, Principal    Executive Officer,November 5, 2004Michael SimsSecretary, Treasurer,    Principal Financial  Officer, and sole    member of the Board of  Directors 
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