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  fiscal  year  ended  DECEMBER  31,  2006

[ ]  TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
     1934

     For the transition period from ________ to  ________

                      Commission file number:     000-51488

                         PETROSEARCH ENERGY CORPORATION
        (Exact name of small business issuer as specified in its charter)

                  NEVADA                                  20-2033200
     (State or other jurisdiction of           (IRS Employer Identification No.)
     incorporation or organization)


                           675 BERING DRIVE, SUITE 200
                                HOUSTON, TX 77057
                     (Address of principal executive offices)

                                 (713) 961-9337

            Securities Registered Under Section 12(b) Of The Exchange Act:
                             Title Of Each Class n/a
                Name Of Each Exchange On Which Registered n/a

          Securities Registered Pursuant to 12(g) of the Exchange Act:
                               Title Of Each Class
                          Common Stock, $0.001Par Value

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act       ____

Check whether the issuer: (i) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (ii) has been
subject to such filing requirements for the past 90 days.   Yes [X]    No [ ]

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

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

The  Issuer's  revenues  for  the  year ended December 31, 2006 were $1,232,958.

The  aggregate  market  value  of  Common  Stock  held  by non-affiliates of the
registrant  at  March 15, 2007, based upon the last reported sales prices on the
OTCBB,  was  $54,400,477.

As of March 15, 2007, there were approximately 38,773,499 shares of Common Stock
outstanding.


<PAGE>
<TABLE>
<CAPTION>
                                        TABLE OF CONTENTS

<S>                                                                                          <C>
PART I                                                                                       Page
Item 1.   Business                                                                              1

Item 2.   Properties                                                                            2

Item 3.   Legal Proceedings                                                                     7

Item 4.   Submission of Matters to a Vote of Security Holders                                   8

PART II

Item 5.   Market for Common Equity, Related Stockholder Matters and Small Business
          Issuer Purchases Of Equity Securities                                                 8

Item 6.   Management's Discussion and Analysis or Plan of Operation                             9

Item 7.   Financial Statements                                                                 19

Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial
          Disclosure                                                                           19

Item 8A.  Controls and Procedures                                                              19

Item 8B.  Other Information                                                                    19

PART III

Item 9.   Directors, Executive Officers, Promoters, Control Persons and Corporate
          Governance; Compliance with Section 16(a) of  The Exchange Act                       19

Item 10.  Executive Compensation                                                               23

Item 11.  Security Ownership of Certain Beneficial Owners and Management and
          Related Stockholder Matters                                                          25

Item 12.  Certain Relationships and Related Transactions, and Director Independence            26

Item 13.  Exhibits                                                                             26

Item 14.  Principal Accountant Fees and Services                                               27
</TABLE>


<PAGE>
                                      PART I

ITEM  1     BUSINESS

Petrosearch  Energy  Corporation (the "Company"), a Nevada corporation formed in
November  2004,  is  an  independent  crude  oil and natural gas exploration and
production  company.  We  are  the successor of Petrosearch Corporation, a Texas
corporation  formed  in  August  2003.  (All  references  to  capitalization and
business  operations  herein  apply  to our current capitalization and operating
history, including our predecessor, Petrosearch Texas.)  We are a resource based
energy  company  with  operations  focused  in  three core areas of the lower 48
states  of the United States with existing production in North Dakota, Texas and
Oklahoma.   A  majority  of  our  effort  over  the next 12 months will focus on
growth  through  the  drill  bit  in  our  three  Core  Areas:

     -    The  Barnett  Shale project through our participation in DDJET Limited
          LLP;
     -    The  Texas  Panhandle  water  flood  of  which  we  operate;  and
     -    Development  of  the  Garwood field in the Wilcox trend of South Texas
          that  we  operate.

Our  goal  is  to  develop  additional production and reserves from our existing
resource  base.

We  are  the  successor  to  the  business  of  Petrosearch Corporation, a Texas
corporation  that  was formed in August 2003.  In November 2004, shareholders of
Petrosearch  Corporation  approved  a  6.5-to-1  reverse  stock split which took
effect  immediately  prior  to its merger with the Company on December 30, 2004.
The  effect  of  the  merger,  among other things, was to re-domicile to Nevada.
Upon  the completion of the merger, shareholders of Petrosearch Corporation were
issued  shares  of  our common and preferred stock representing 100% of the then
issued  and  outstanding  common  and  preferred  shares.

Our  common shares have been publicly traded on the OTC Bulletin Board under the
symbol  "PTSG"  since November, 2005.   Our principal offices are located at 675
Bering  Drive,  Houston,  Texas 77057, and our telephone number is 713-961-9337.
Our  website  is  www.petrosearch.com.
                  -------------------

BUSINESS  PLAN

We  are  a  resource  based energy company with operations focused in three core
areas  of  the  lower  48  states of the United States. Our strategic goal is to
build  intrinsic  shareholder value through focused operations in our three core
property  areas  while  maintaining  a  low cost structure at every level of our
Company.  We  intend  to  bring  additional  production  and  revenues  from our
existing  high quality resource base.  We also continue to identify and evaluate
other  potential  opportunities  that would complement our current business plan
and  create  economic  value.

Over the past two years, we have assembled an inventory of high quality drilling
opportunities  in  our  core  focus areas. We have a budget of approximately $20
million for lease acquisition and drilling in our Barnett Shale partnership over
the  next  two  years;  we  have  2  additional  development locations on our SW
Garwood,  Wilcox  properties; and we have 23 producing locations for development
on  our  Texas  panhandle  waterflood.  In  the  Barnett  Shale  project we have
accumulated a significant leasehold position inside our 2 million acre, 8-county
Contract Area  and a multi-rig drilling program is planned for the area over the
next  several  years.  We have embarked on an aggressive program to exploit this
inventory  for  the  benefit  of  our  shareholders.

As  of  December  31,  2006  we  have  $29,424,306  of PV-10 for proved reserves
associated  with  our  properties, which do not include reserves associated with
our  Barnett  Shale  project.  We  are  also  focused  on maintaining a low cost
structure  throughout our business by maintaining tight control on our corporate
overheads  and  operating  costs  in  our  properties.

EMPLOYEES

As  of December 31, 2006, we had nine full-time employees, of which three are in
executive  positions.  None  of  our employees are represented by a union and we
consider  our  employee  relations  to  be  good.

                                        1
<PAGE>
ITEM  2     PROPERTIES

CORE  PROPERTIES:

BARNETT  SHALE PROJECT -- Our Barnett Shale Project is part of the Barnett Shale
natural  gas  play  in  the  Fort Worth Basin, which is arguably one of the most
exciting  plays  to emerge in the lower 48 in the past decade. In December 2006,
through  our  wholly owned subsidiary, Barnett Petrosearch LLC, we joined in the
formation  of  a  partnership,  DDJET  Limited  LLP  ("Partnership),  for  the
development  of  the  integrated  venture.  We  own  a  5.54%  interest  in  the
Partnership  along  with  partners  Metroplex  Barnett Shale LLC (a wholly owned
subsidiary  of Exxon Mobil Corporation), which will direct operations, and Cinco
County  Barnett  Shale  LLC  (a  privately  held  Dallas-based  company).

The  Partnership's assets include all leases acquired to-date within an 8-county
contract  area,  comprising  approximately  2 million acres that was established
under  a  previous agreement among affiliates of the three partners. Partnership
assets  also  include  associated  facilities  that  include nearly 100 miles of
pipeline  and  an  option  on a separate pipeline right-of-way. Approximately 80
miles of pipeline facilities have been completed and are operational. We believe
our  ownership of these pipeline assets is a decided strategic advantage in this
urban area.  An aggressive leasing program within the 8-county contract area and
a  multi-rig  drilling  program  is  planned  for  2007,  2008  and  beyond.

As  of  March  15,  2007, two Partnership wells, both in Ellis County, have been
completed  and  are  selling  gas  through  the  Partnership-owned pipeline. The
cumulative  production  rate  of  these  two  completed  wells  has  met  our
expectations.  An  additional  three  wells, in Ellis and Tarrant Counties, have
been drilled; completion of these wells is expected within the second quarter of
2007.  A  sixth  well has been drilled but operations have been suspended due to
mechanical  difficulties  pending arrival of an appropriate rig, and the seventh
is  being  drilled as of March 15, 2007.  Both wells are in Ellis County.  As no
wells  had  been  completed  in  the  Barnett Shale as of December 31, 2006, our
reserve  estimates  do  not  include  any  proved  reserves  from Barnett wells;
however,  we  anticipate  substantial proved reserve additions in 2007 from this
project.

In order to finance our participation in the Partnership, on February 1, 2007 we
executed  a  Note and Warrant Purchase Agreement with an institutional investor,
RCH  Petro  Investors,  L.P.,  for  the sale of a $10,000,000, 8% Senior Secured
Convertible Promissory Note and a four-year warrant to purchase 5,000,000 shares
of  common  stock  at  an  exercise  price  of  $1.40  per  share.

SW  GARWOOD, COLORADO COUNTY, TEXAS - The Wilcox Trend, SW Garwood field has had
three  wells  drilled  with one of these in the process of being completed.  Two
additional locations are on current leases.   The initial well on this prospect,
the  Pintail  #1,  completed  in  the Upper Wilcox in December 2004, paid out in
April  of 2006.  As of payout, we began participating in the production from the
well  with a 16% working interest. The well is currently producing approximately
875  Mcfpd  and  18  bopd.

The  second well, the Pintail Flats #1, was completed and fracture stimulated in
May,  2005 from 15,950 feet to 16,010 feet in the Lower Wilcox.  In July 2006 we
re-completed  and  fracture  stimulated an up-hole zone at 15,135 feet. The well
flowed  back  frac  fluids  with a 2000 Mcfpd gas rate into the sales line as of
August  3,  2006.  The  well is currently flowing 240 Mcfpd and we are currently
analyzing  several  options  to  improve well performance. We have a 16% working
interest  in  the  well  after  payout. The well has four additional potentially
productive  zones in the Lower Wilcox and five additional potentially productive
zones  in  the  Upper  Wilcox.

A  third  well,  the Kallina 46 #1, began drilling in June, 2006 and reached its
targeted  depth  of 16,230 feet on August 6, 2006. Data available while drilling
and  from  open  hole logs indicated several potentially productive Wilcox sands
from  10,400  feet  to  16,100  feet. Gross prospective interval was believed to
exceed  250  feet  of  pay.  The first target zone at 16,100 feet was tested and
found  to be non-commercial. We have perforated a second set of Wilcox sands "up
the  hole"  from between 15,030 feet and 15,178 feet and testing is in progress.
We  have  an  87.5%  working interest in the Kallina lease and the Kallina 46 #1
well  before  payout  and  a  75.5%  interest  after  payout.

In  order  to  finance  the  Kallina  #46-1 well and future wells on the Kallina
lease,  we  signed  a  Securities  Purchase Agreement and Secured Term Note with
Laurus  Master  Fund,  Ltd.  ("Laurus")  for Laurus to provide financing for the
drilling  of  the  Kallina 46 #1 well and payment of the future completion costs
for  the  Kallina 46 #1 well which is in process of being completed.   We formed
a  subsidiary,  Garwood  Petrosearch  Inc.,  ("Garwood")  to  hold  our


                                        2
<PAGE>
interest  in  the  Kallina Lease and the Kallina 46 #1 well.  Also, as a part of
the  financing  arrangement,  Garwood  issued  Laurus a Warrant to acquire, upon
payout  of the Note indebtedness, 45% of Garwood's outstanding common stock such
that  upon  exercise of the Warrant, Garwood would be owned 55% by us and 45% by
Laurus  and  the  sole  asset  is  the  Kallina  lease.

In  the  SW  Garwood  Project,  in addition to the working interest in the wells
noted  above,  we currently own a 16% after payout working interest in 960 acres
of undeveloped leases; and an 87.5% before payout and 75.5% after payout working
interest  in 438 acres.   We believe these wells are in an excellent location in
the  trend. Significant discoveries by other oil and gas firms are nearby in the
same  sand  sequences.  These  discoveries  are  either  now  being exploited by
Petrohawk  Energy  Corp. and Cabot Oil & Gas less than one half mile west of our
westerly  lease  line.

NORTH TEXAS/PANHANDLE WATER FLOOD PROJECT - In November 2005, we acquired a 100%
working  interest in 1,755 acres in the Quinduno Field in Roberts County, Texas,
in  the  Anadarko  Basin.  The  project  is  focused  on infill drilling and the
implementation  of  a water flood on the property. Our leases at Quinduno have a
large  established  resource  base of over 23 million barrels of original oil in
place.  Since its discovery in 1953, approximately 5.1 million barrels have been
produced  using  primary  production.

One  infill  well  has been drilled to date. We have an ongoing program to enter
each  of  the 20 wells that have not been plugged. So far, we have entered seven
of  these  older  wells  to  determine  their  mechanical  status  and establish
potential  productivity.  Two  of  these  wells  have  been equipped and are now
capable of producing. We have prepared a detailed study and development plan for
the field. As of December 31, 2006, our independent engineers, Ryder Scott, have
estimated  our  share  of  proved oil reserves extractable by water flood at 1.6
million  barrels  of oil equivalent.  Slightly deeper than the water flood zone,
the  Moore  County  Limestone formation has undrilled exploration potential that
may  be  tested  in  a  future  well.

To  provide  adequate water for injection, in November, 2006 we executed a water
supply  agreement  with  a  landowner  in the leasehold, which allows us to draw
water  from  the  aquifer  underlying the landowner's property, and in that same
month  we  received approval from the Panhandle Groundwater Authority to use the
aquifer as a source of groundwater, up to 5,000 barrels per day. We have applied
to  the  Texas  Railroad  Commission  to  amend  a  previously granted saltwater
injection permit to include groundwater injection and are awaiting approval.  At
present  we  are in negotiations with potential industry partners to finance and
jointly  develop  this  important  asset.

OTHER  PROJECT  AREAS:

GRUMAN  PROSPECT, STARK COUNTY, NORTH DAKOTA - On March 28, 2006, we spudded the
Gruman 18-3 well intended to be either an increased density well if it proved to
be  up dip of the Gruman 18-1 producing well or a water injection well if it was
down  dip. The well reached total depth of 9,890 feet on April 14, 2006, and was
completed  as an injection well.  In October 2006, we undertook certain remedial
work  on the Gruman 18-1 which has improved the production on the well. The well
is  currently  producing  85  bopd  and  50 Mcfpd We are currently assessing the
positive  impact  on  the  long  term  production.

On  February  1,  2007,  we  began injecting produced water into the Gruman 18-3
well.  The  result  has  been to reduce the cost of operating the Gruman 18-1 by
eliminating  the  need  to  truck  produced water to a disposal facility. We are
considering  supplementing  this  injection  with  water  from the Dakota in the
second  quarter  of  2007  for  pressure  maintenance  in  the  mound.  We  have
established  that  the  Gruman 18-3 is in pressure communication with the Gruman
18-1.  Further  testing  or  stimulation may be necessary to achieve the desired
future  injection  rates.

Proved  developed  reserves  in  the  prospect  to  our  share of the well as of
December  31, 2006, were 252 Mbo and 54.4 MMcf of natural gas, as estimated by a
third  party  engineering  firm,  McCartney  Engineering,  LLC.

MISSISSIPPI  TUSCALOOSA  PROSPECTS  --  We  have  identified five Tuscaloosa oil
prospects  in  the  Mississippi Inland Salt Basin, in Yazoo County, comprising a
maximum  of  2,295  acres  and up to 18 potential drilling locations.  We are in
initial  discussions  with  a  potential  industry  partner  to co-develop these
prospects  with  us.   Once a joint venture is established, we plan to initially
drill 8 locations, ranging from 6,150 feet to 7,500 feet in depth. Approximately
55%  of  the  entire  prospect  acreage  has  been  leased.  Seismic data on the
prospects  has  been reprocessed and confirmed our original geological analysis.
We  currently  own  100%  of  the  prospect.


                                        3
<PAGE>
RODNEY  ISLAND,  TENSAS  PARISH,  LOUISIANA  -  In  October  2005,  we took over
operations  of  the  Harper  Z-1  well  on  the  Rodney Island prospect from the
previous operator after casing was set and cemented. As the current operator and
with the agreement of the other working interest owners, we initiated litigation
in February 2006 against the previous operator for non-payment of their share of
drilling and completion costs. Settlement discussions to resolve the dispute are
in  progress.

Downhole  mechanical  difficulties  hindered  our  attempt to complete the well,
which  was  directionally  drilled  to a measured depth of 11,701 feet (vertical
depth  =  9,373  feet)  and  logged  approximately  19  feet  of  oil pay in the
Tuscaloosa  Massive  Sand.  Our  program  for  sidetracking  the well to improve
wellbore  conditions  has  been  finalized.  Timing of the project completion is
indeterminate  due  to  the  ongoing  litigation.

Ryder  Scott  estimates proved reserves net to our share as of December 31, 2005
to  be  19  Mbo  and 9 MMcf. We have a 25% working interest before payout in the
Harper  Z-1  well  and  18.75% working interest after payout.  We have an 18.75%
working  interest  in  any  additional  wells.

OIL  AND  NATURAL  GAS  RESERVES

Our  estimate of proved reserves is based on the quantities of oil and gas which
geological  and  engineering  data demonstrate, with reasonable certainty, to be
recoverable  in  future  years from known reservoirs under existing economic and
operating  conditions. The accuracy of any reserve estimate is a function of the
quality  of  available  data,  engineering  and  geological  interpretation, and
judgment.  For  example,  we  must  estimate  the  amount  and  timing of future
operations,  development activities and costs, and work-over costs, all of which
may  in  fact  vary considerably from actual results. In addition, as prices and
costs  change  from  year to year, the estimate of proved reserves also changes.
Any  significant  variance  in  these  assumptions  could  materially affect the
estimated  quantity  and  value  of  our  reserves.

Despite  the  inherent  imprecision in these engineering estimates, our reserves
are  used  throughout  our  financial  statements. For example, since we use the
unit-of-production  method  to amortize our oil and gas properties, the quantity
of  reserves  could  significantly  impact  our  depreciation,  depletion  and
amortization  expense and accretion expense. Our oil and gas properties are also
subject  to  a  "ceiling" limitation based in part on the quantity of our proved
reserves. Finally, these reserves are the basis for our supplemental oil and gas
disclosures.  For  the  vast  majority  of  our  reserves, we engage independent
petroleum  engineering  firms  to  prepare  our  estimates of proved hydrocarbon
liquid and gas reserves.  These reserve estimates have not previously been filed
with  any  other  Federal  authority  or  agency.

The  following  tables  set forth summary information with respect to our proved
reserves as of December 31, 2006, as estimated by compiling reserve information,
which  was  prepared  by the engineering firms of Ryder Scott Company, McCartney
Engineering,  LLC  and  internally  generated  engineering  estimates  (internal
estimates  make  up  less  than  1%  of  our  proved  reserve  estimates).

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------
                                                             PRE-TAX PRESENT
                                    NET RESERVES             VALUE OF FUTURE
                                                               NET REVENUES
     ------------------  ----------------------------------  ----------------
     CATEGORY            OIL (BBLS)  GAS (MCF)     BOE(1)
     ------------------  ----------  ----------  ----------  ----------------
<S>                      <C>         <C>         <C>         <C>
     DECEMBER 31, 2006
     ------------------  ----------  ----------  ----------  ----------------
     PROVED DEVELOPED       263,604     557,409     356,506  $      9,640,628
     ------------------  ----------  ----------  ----------  ----------------
     PROVED UNDEVELOPED   1,494,037     752,000   1,619,370  $     19,783,678
     ------------------  ----------  ----------  ----------  ----------------

     ------------------  ----------  ----------  ----------  ----------------
     TOTAL PROVED         1,757,641   1,309,409   1,975,876  $     29,424,306
     ------------------------------------------------------------------------
</TABLE>

     (1)  Estimated  using a conversion ratio of 1.0 Bbl/6.0 Mcf (thousand cubic
          feet).

Total  PV-10  value  decreased  to  $29,424,306  as  of  December  31, 2006 from
$46,452,324  as  of  December  31,  2005.  The  two main factors that caused the
decrease  in  both  reserve  quantities  and  PV-10 value from 2005 to 2006 were
related  to our Texas Panhandle waterflood project. The reasons were as follows:
1)  the  price  of  natural gas used to calculate the PV-10 value decreased from
$13.08  to $5.24 as of the years ended December 31, 2005 and 2006, respectively;
and  2)  our  independent  reserve  engineer  made an internal decision in their
reserve


                                       4
<PAGE>
estimation  process  for  the  year  ended  December  31,  2006 to place greater
confidence  on  different  areas  of available data related to the waterflood as
compared  to  the  year  end 2005 reserve estimate. This shift in focus on other
data  by  the  independent reserve engineer caused a decrease in the estimate of
our  Proved Undeveloped reserves in the Texas Panhandle project of approximately
570,000  barrels  of  oil  equivalent.

We  note that reserve and cash flow estimates utilize experience and judgment as
well  as  actual data, but actual results are often different than the estimate.
Reserve  engineering  is  a  subjective  process  of  estimating  underground
accumulations  of  crude oil, condensate and natural gas that cannot be measured
in  an  exact  manner, and the accuracy of any reserve estimate is a function of
the  quality  of available data and of engineering and geological interpretation
and  judgment.  The  quantities  of  oil  and  natural  gas  that are ultimately
recovered,  production  and  operating  costs,  the  amount and timing of future
development  expenditures and future oil and natural gas sales prices may differ
from  those assumed in these estimates. Therefore, the pre-tax 10% Present Value
of  Future  Net  Revenues  amounts  shown  above  should not be construed as the
current  market  value  of  the oil and natural gas reserves attributable to our
properties.

In accordance with the guidelines of the Securities and Exchange Commission, the
engineers'  estimates of future net revenues from our properties and the pre-tax
10%  Present Value of Future Net Revenues thereof are made using oil and natural
gas  sales  prices in effect as of the effective dates of such estimates and are
held  constant  throughout  the  life  of  the  properties,  except  where  such
guidelines  permit  alternate  treatment,  including  the  use  of  fixed  and
determinable  contractual  price  escalations.

PRODUCTIVE  WELLS

The  following  table  sets  forth the total number of our active well bores and
working  interests  (WI)  that  we  maintain  in each well as of March 15, 2007.

<TABLE>
<CAPTION>
---------------------------------------------
                         NO. OF   WI     WI
                         WELLS   (OIL)  (GAS)
-----------------------  ------  -----  -----
<S>                      <C>     <C>    <C>
Gruman 18-1                1      85%    85%
-----------------------  ------  -----  -----
Gordon 1-18                1      95%    N/A
-----------------------  ------  -----  -----
Quinduno(1)                2     100%   100%
-----------------------  ------  -----  -----
Barnett Shale(3)           2     5.54%  5.54%
-----------------------  ------  -----  -----
Pintail #1                 1      16%    16%
-----------------------  ------  -----  -----
REP Pintail Flats(2)       1      16%    16%
-----------------------  ------  -----  -----
Corbett N. 13 #1           1      10%    10%
-----------------------  ------  -----  -----
TOTAL PRODUCTIVE WELLS     9
---------------------------------------------
</TABLE>

(1)  Project  in  which  the  Company's  working  interest  reduces  to  90% (as
     described  herein  ITEM  2  -  North  Texas/Panhandle  Water Flood Project)

(2)  Well  in  SW  Garwood  Prospect, Colorado County, Texas, in which we have a
     reversionary  back-in  interest  after  payout

(3)  WI  is  a  partnership  interest  in  DDJET  Limited  LLP


                                        5
<PAGE>
ACREAGE

The  following  table  summarizes  our  gross  and net developed and undeveloped
natural  gas  and  crude oil wells and acreage under lease as of March 15, 2007:

<TABLE>
<CAPTION>
-----------------------------------------------------------------
                                          WELLS        ACREAGE
-------------------------------------  -----------  -------------
STATE                                  GROSS  NET   GROSS    NET
---------------------  --------------  -----  ----  ------  -----
<S>                    <C>             <C>    <C>   <C>     <C>
DEVELOPED ACREAGE:
---------------------  --------------  -----  ----  ------  -----
Texas:
  Garwood                   Gas            2   .16   1,280    205
  Maddox (Quinduno)     19 Oil, 1 Gas     20    20   1,755  1,755
  Barnett Shale             Gas            2  .554   1,127     63
---------------------  --------------  -----  ----  ------  -----
North Dakota               Oil (1)         1   .85     280    238
---------------------  --------------  -----  ----  ------  -----
Oklahoma:
  Gordon 1-18               Oil            1   .95     610    579
  Corbett N.#13-1           Gas            1   .10     552     55
---------------------  --------------  -----  ----  ------  -----
TOTAL DEVELOPED                           27         5,604  2,895
---------------------  --------------  -----  ----  ------  -----
UNDEVELOPED ACREAGE:
---------------------  --------------  -----  ----  ------  -----
Louisiana                                            2,000    500
---------------------  --------------  -----  ----  ------  -----
Texas
  Barnett Shale                                     18,205  1,019
  Tait                                               1,250    125
  Garwood                                              438    383
---------------------  --------------  -----  ----  ------  -----
Mississippi:
  Dome Pickens                                         725    725
  Buena Vista                                          386    386
---------------------  --------------  -----  ----  ------  -----
Oklahoma                                             4,026  3,720
---------------------  --------------  -----  ----  ------  -----
TOTAL UNDEVELOPED                                   27,030  6,858
---------------------  --------------  -----  ----  ------  -----
    TOTAL                                           32,634  9,753
-----------------------------------------------------------------
</TABLE>

OPERATOR  ACTIVITIES

We currently operate all but one of our producing properties, and generally seek
to  become  the operator of record on properties we drill or acquire.  We have a
non-operated  partnership  interest  in  our  Barnett  Shale  project.

DRILLING  ACTIVITIES

The following table sets forth our drilling activities for the last three fiscal
years.  Our  working  interests  in theproductive wells owned as of December 31,
2006,  range  from  a  direct  working  interest of 100% to after payout working
interest  of  16%,  as  well  as  one non-operated interest of 10%.  In 2005, we
drilled one additional well not shown on the table due to the fact it is not yet
completed.  This  well  is  the Harper Z-1 in Rodney Island, Tensas Parish.  The
Phillips-Burkley  #1  well is to be plugged and abandoned, and the Rodney Island
well  isscheduled  for  a  sidetrack  of  the  initial well once issues with the
previous  Operator  have  been  resolved  (as  described  herein).   In 2006, we
drilled  an  exploratory  well  in  Colorado County, which is being completed as
ofthe  date of this filing and we participated in the drilling of 6 wells in the
Barnett  Shale  Project,  two  of  which  have  been completed and are currently
selling  gas  and  the  remaining  four  are  awaiting  completion.


                                        6
<PAGE>
<TABLE>
<CAPTION>
     ------------------------------------------------
                           YEAR ENDED DECEMBER 31,
     ------------------  ----------------------------
                          2006      2005       2004
     ------------------  -------  ---------  --------
<S>                      <C>      <C>        <C>
     Development Wells:
     ------------------  -------  ---------  --------
     Productive             1       4 (1)       5
     ------------------  -------  ---------  --------
     Non-Productive         1       -0-        -0-
     ------------------  -------  ---------  --------
         TOTAL              2        4          5
     ------------------  -------  ---------  --------

     ------------------  -------  ---------  --------
     Exploratory Wells:
     ------------------  -------  ---------  --------
     Productive             1       1 (2)        4
     ------------------  -------  ---------  --------
     Non-Productive         1        4          10
     ------------------  -------  ---------  --------
         TOTAL              2        4          14
     ------------------  -------  ---------  --------

     ------------------  -------  ---------  --------
     Total Wells:
     ------------------  -------  ---------  --------
     Productive             2        5           9
     ------------------  -------  ---------  --------
     Non-Productive         2        3          10
     ------------------  -------  ---------  --------
         TOTAL              4        8          19
     ------------------------------------------------
</TABLE>

(1)  Four  wells  associated with our former Blue Ridge property, sold effective
     July  1,  2005.
(2)  We  have  a 16% working interest after payout in this well, the REP Pintail
     Flats.

NET PRODUCTION, UNIT PRICES AND COSTS

The  following  table  presents certain information with respect to oil, gas and
condensate  production attributable to interests in all of our fields. Including
the average sales prices received and average production costs during the fiscal
periods  ended  December  31,  2006  and  December  31,  2005

<TABLE>
<CAPTION>
     ----------------------------------------------------------------
                                                        2006    2005
     ------------------------------------------------  ------  ------
<S>                                                    <C>     <C>
     Average sales price per barrel of oil equivalent  $60.14  $50.34
     ------------------------------------------------  ------  ------
       Lifting costs per barrel of oil equivalent*     $11.10  $11.19
     ----------------------------------------------------------------
</TABLE>

* Excludes the costs of re-entry into wells to assess non-producing assets

DESCRIPTION OF OFFICE PROPERTIES

We currently have two office locations, one in Houston and one in Dallas, Texas.
The  addresses  are  as  follows:

675  BERING  DRIVE,  SUITE  200        4925  GREENVILLE AVENUE, SUITE 670
HOUSTON,  TX  77057                    DALLAS,  TEXAS  75206

On  August  1,  2005,  we leased our Dallas location, comprised of approximately
2,100  square  feet of office space which is held under a sixty-four month lease
at  a rate of approximately $2,800 per month (with payments which began December
2005).  Since  July  15,  2005,  our  principle  executive  offices  have  been
approximately  3,700  square  feet of office space at 675 Bering Drive, Houston,
Texas.  We  hold this space under a five-year lease agreement at a lease rate of
approximately  $5,000  per  month.  We believe these properties are adequate for
our  corporate  office  needs.

ITEM  3.     LEGAL  PROCEEDINGS

We are currently not a party to any material pending legal proceeding.


                                        7
<PAGE>
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
            AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Our  common  stock is quoted on the OTCBB under the symbol "PTSG." The following
table  sets  forth  the quarterly high and low of sales prices per share for the
common  stock  for the last two fiscal years. Our fiscal year ended December 31,
2006.

COMMON STOCK PRICE RANGE

<TABLE>
<CAPTION>
-----------------------------------
    QUARTER            HIGH    LOW
---------------------  -----  -----
<S>                    <C>    <C>
1st Quarter 2005       $2.75  $1.05
---------------------  -----  -----
2nd Quarter 2005       $2.20  $1.13
---------------------  -----  -----
3rd Quarter 2005       $1.83  $0.90
---------------------  -----  -----
4th Quarter 2005       $1.49  $0.72
---------------------  -----  -----
1st Quarter 2006       $1.85  $0.87
---------------------  -----  -----
2nd Quarter 2006       $1.63  $ .82
---------------------  -----  -----
3rd Quarter 2006       $1.18  $ .41
---------------------  -----  -----
4th Quarter 2006       $1.09  $ .39
-----------------------------------
</TABLE>

On March 15, 2007, the last sales price for the common stock as reported on the
OTCBB was $1.35.  On March 15, 2007, there were approximately 2,466 stockholders
of record of the common stock.

TRANSFER AGENT AND REGISTRAR

The  transfer  agent  and  registrar  for  our  common  stock  is:

Corporate  Stock  Transfer
3200 Cherry Creek South Drive
Suite 430
Denver, CO 80209

DIVIDEND POLICY

We  have  not  paid,  and  do  not currently intend to pay cash dividends on our
preferred  or  common stock in the foreseeable future.  Our current policy is to
retain all earnings, if any, to provide funds for operation and expansion of our
business.  The  declaration  of  dividends,  if  any,  will  be  subject  to the
discretion  of  the  Board  of Directors, which may consider such factors as our
results  of  operation,  financial  condition,  capital  needs  and  acquisition
strategy,  among  others.  As  of  December  31,  2006,  no  dividends have been
declared.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth all equity compensation plans as of December 31,
2006:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                           NUMBER OF SECURITIES
                                                                         REMAINING AVAILABLE FOR
                                                                          FUTURE ISSUANCE UNDER
                       NUMBER OF SECURITIES TO      WEIGHTED-AVERAGE       EQUITY COMPENSATION
                       BE ISSUED UPON EXERCISE     EXERCISE PRICE OF         PLANS (EXCLUDING
                       OF OUTSTANDING OPTIONS,    OUTSTANDING OPTIONS,   SECURITIES REFLECTED IN
                         WARRANTS AND RIGHTS      WARRANTS AND RIGHTS          COLUMN (A))
   PLAN CATEGORY                 (A)                      (B)                      (C)
---------------------  ------------------------  ----------------------  -------------------------
<S>                    <C>                       <C>                     C>
Equity compensation
plans approved by                N/A                      N/A                      N/A
security holders
---------------------  ------------------------  ----------------------  -------------------------
Equity compensation
plans not approved by         14,147,690                 $1.88                     N/A
security holders
---------------------  ------------------------  ----------------------  -------------------------
    TOTAL                     14,147,690                 $1.88                     N/A
--------------------------------------------------------------------------------------------------
</TABLE>


                                        8
<PAGE>
RECENT  SALES  OF  UNREGISTERED  SECURITIES

All  previous sales of unregistered securities have been previously disclosed in
Form  10-QSB's  and  Form  8-Ks.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

In 2006, our main focus was continuing on with our plan of improving the quality
of  our  portfolio of oil and gas assets, as well as putting financings together
to  enable  us  to  economically  develop  these  assets.  We  believe  we  have
successfully high graded our portfolio completing the acquisition of assets that
have  multiple  year growth potential and have secured cost effective financings
for  two of our three core projects.  Our inventory of assets also allows for us
to  effectively align our financing needs with the capital needs of the project,
therefore allowing us to efficiently manage the amount and timing of our capital
expenditures.  Our  three  main  assets  are  resource  plays, which allow us to
re-invest  our capital into our projects to enhance the rates of return, revenue
growth  and  reserve growth.  We have also completed the disposition of non-core
assets  that  did  not  meet  our  risk/reward  parameters.

We  believe  we  were  successful  in  2006 at creating an extremely high-graded
portfolio  of  oil  and gas assets coupled with economical financings which will
enable us to continue to focus on the development of our high quality properties
in  2007.  Management  believes the development of our core assets should have a
significant  impact  on  our  production,  revenues  and  cash  flows  in  2007.

RESULTS  OF  OPERATIONS

The  following  discussion  should  be  read  in  conjunction  with  our audited
consolidated  financial  statements  and  the  related  notes  to  the financial
statements  included  in  this  Form  10-KSB.

The  factors  that  most significantly affect our results of operations are: (i)
the  sale  prices  of  crude  oil and natural gas; (ii) the amount of production
sales; and (iii) the amount of lease operating expenses. Sales of production and
level  of  borrowings  are  significantly impacted by our ability to maintain or
increase  production  and  reserves from existing oil and gas properties through
exploration  and  development  activities.

FOR  THE  YEAR  ENDED  DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31,
2005

REVENUES

Consolidated  oil  and  gas  production revenues for the year ended December 31,
2006  were  $1,232,958  versus  $1,701,043 for the year ended December 31, 2005.
This  decrease  is  primarily  the  result  of  the sale of our Blue Ridge Field
property in Fort Bend County, Texas, effective July 1, 2005, which accounted for
$552,998 of revenue during 2005. In addition to a decline in production from the
sale  of  our Blue Ridge Field, we also experienced a decline in production from
our  Gruman  18-1  well in Stark County, North Dakota which can be attributed to
pressure  depletion.  In  2005, production from this well was 19,816 BOE, and in
2006  production  decreased  to  14,410  BOE.  In  an  attempt  to  increase the
production  of  the  well, we drilled an injection well, the Gruman 18-3 in 2006
and  in  February  2007  began  injecting  water into the Gruman 18-3 well. Some
results  from the injection process are expected within 6-9 months. In addition,
in October 2006, we undertook certain remedial work on the Gruman 18-1 which has
improved  the  production  of  the well. We are currently assessing the positive
impact  of  this  work on the long term production. The effects of the decreased
production  in  2006  on  the  Gruman  18-1  were  substantially  reduced  by an
approximately  24%  increase  in  average  oil  prices  in  2006  over  2005.


                                        9
<PAGE>
Our  future  revenue  will  be  principally  dependent  upon  the success of the
development  of our current quality prospects and projects as well as the market
price for crude oil and natural gas.  We plan to focus a majority of our current
working  capital resources on the Barnett Shale resource project and are in late
stage  negotiations  to  provide  financing and technical expertise to our Texas
Panhandle project.   We have not previously utilized any hedging instruments and
have  no  plans  to  do  so  in  the  foreseeable  future.

LEASE  OPERATING  AND  PRODUCTION  TAX  EXPENSE

Lease operating and production tax expense for the years ended December 31, 2006
and  December 31, 2005 were $653,265 and $581,313, respectively.  These expenses
relate  to  the  costs  that  are incurred to operate and maintain our wells and
related  production  equipment,  including the costs applicable to the operating
costs  of  support  equipment  and facilities.  Although there was a significant
decrease in production from 2005 to 2006, the lease operating expenses increased
because  in  November  2005  we added approximately 30 existing wells associated
with  our  Quinduno  Field  Prospect,  Roberts  County, Texas that require lease
operating  costs  to  be incurred even though the wells have minimal production.
These  existing,  but  non-productive  wells  are  vital  to  the success of the
waterflood  project  that will be needed to realize the reserves in the Quinduno
Field.

DEPLETION,  DEPRECIATION  AND  AMORTIZATION

Costs  for depletion, depreciation and amortization for the years ended December
31,  2006,  and  December  31,  2005,  were $391,347 and $563,252, respectively.
Depletion  expense  per  barrel  of oil equivalent was $18.51 and $15.24 for the
years  ended  December  31,  2006  and 2005 respectively.  The decrease in total
depletion  was  a  result of the significant decrease in production from 2006 to
2005 (19,549 boe and 35,676 boe for the years ending December 31, 2006 and 2005,
respectively).  Depletion  is  calculated  using  the  percentage  of  units  of
production  over  the  total  proved  reserves.  Therefore, being that our total
units  produced decreased, our depletion percentage of proved properties subject
to amortization of depletion decreased. This resulting decrease in depletion was
partially  offset  by  the  increase  in  properties  subject to amortization to
$23,462,639  as  of  December  31,  2006  from $11,849,520 at December 31, 2005.

GENERAL  AND  ADMINISTRATIVE  EXPENSES

General  and  administrative expenses for the years ended December 31, 2006, and
December  31,  2005,  were  $2,766,235  and  $3,268,088,  respectively.  This
significant  decline  of  $501,853  or  15%  in  one  year  can be attributed to
management's  efforts  to cut costs in 2006.  In 2006, the Company experienced a
decline  in  the  number of employees which resulted in lower payroll expense in
2006  as compared to 2005.  In addition, in 2006 there was a decline in services
provided  by  third party management and technical consultants as these services
were  primarily  performed  in-house  in 2006.  Other areas where management cut
costs  in  2006 were in the areas of travel and office expense.  The decrease in
general  and  administrative  expenses  can also be attributed to lower bad debt
expense in 2006 as compared to 2005.  The decrease in general and administrative
expense  was  partially offset by an increase in stock based compensation to key
employees  in  the  amount  of  $240,000  and an increase in legal fees incurred
during  the  normal  course  of  business.

NET LOSS FROM OPERATIONS

We  generated a net operating loss of $2,577,889 for the year ended December 31,
2006, compared to a net operating loss of $2,711,610 for the year ended December
31,  2005.  The $133,721 decrease in the net operating loss is related mainly to
the Company's effort in reducing general and administrative costs as well as the
decrease in depletion as discussed above. The effect of these decreases in costs
was  offset  by  the  sale of our Blue Ridge Field asset which resulted in lower
revenue.

As  explained  above,  our  main  focus  during 2006 and 2005 was to improve the
quality  of  our  portfolio of our oil and gas assets and dispose of assets that
did  not  meet our risk/reward parameters.  Our current portfolio reflects these
goals.  We  believe we were successful in 2005 and 2006 in creating an extremely
high-graded  portfolio  of  oil and gas assets and a sound infrastructure, which
will  enable  us  to  focus on the development of our high quality properties in
2007  which  we  anticipate,  will  have  a  positive  impact on our production,
revenues  and  cash  flows.


                                       10
<PAGE>
OTHER  INCOME  (EXPENSE)

The  increase  in  interest expense from $240,452 in 2005 to $801,067 in 2006 is
attributable  to a higher debt level in 2006 and amortization of financing costs
for  new  debt  arrangements  in  2006.

The  $1,000,000  of  other  income  during 2006 is the result of the sale of our
investment  in  equity  securities  having  a basis of $-0- at the time of sale.

LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we  have  primarily financed our operating and investing cash
flow  needs  through  private offerings of equity securities, sales of crude oil
and  natural  gas, and the use of debt instruments such as convertible notes and
revolving  credit  facilities.  The  proceeds  from, and the utilization of, all
these methods have been, and Management believes will continue to be, sufficient
to  keep the operations funded and the business plan moving forward.  We plan to
continue  to  utilize  these methods to access capital in order to implement our
business  plan,  which  we believe will be an effective vehicle to carry out our
business  plan.

CONVERTIBLE  SECURITIES

Subsequent  to  our fiscal year end, on February 1, 2007, we executed a Note and
Warrant  Purchase  Agreement  for  the  sale  of a $10,000,000 8% Senior Secured
Convertible Promissory Note and a four year warrant to purchase 5,000,000 shares
of  our  common  stock  at  an exercise price of $1.40 per share for total gross
proceeds  to  us  of  $10,000,000.   We  completed  the transaction and received
funding  on  February 7, 2007.  Upon closing, we issued the Convertible Note and
the  Warrant,  and  executed  a Pledge and Security Agreement and a Registration
Rights  Agreement.

PRIVATE  EQUITY  PLACEMENTS

In  December  2006,  we completed sales of $3.2 million of our common stock in a
private  offering.  We received net proceeds of approximately $3.0 million which
were  to  be  used  for  general  corporate  purposes

In  February  2006,  we completed sales of $2.7 million of our common stock in a
private offering.  We received net proceeds of approximately $2.56 million which
were  to  be  used  for  general  corporate  purposes, including the drilling of
projects  in  our  prospect  inventory.

In  April  2005,  we  completed  sales  of  $12.6 million of our common stock in
private  offerings.  We  received  net  proceeds  of approximately $11.9 million
which  were to be used for general corporate purposes, including the drilling of
projects  in  our  prospect  inventory.

PROJECT  FINANCINGS

In  November  2006,  we  signed a Securities Purchase Agreement and Secured Term
Note  with  Laurus Master Fund, Ltd to provide financing for the drilling of our
Kallina  46  #1 well and payment of the future completion costs for the  Kallina
46  #1  well.   We  formed  a  subsidiary, Garwood Petrosearch Inc., to hold our
interest  in  the  Kallina Lease and the Kallina 46 #1 well.  Also, as a part of
the  financing  arrangement,  Garwood  issued  Laurus a Warrant to acquire, upon
payout  of the Note indebtedness, 45% of Garwood's outstanding common stock such
that  upon  exercise of the Warrant, Garwood would be owned 55% by us and 45% by
Laurus.  The  collateral  for  this  financing  is  specifically recourse to the
Kallina  46  #1  well  and  the  associated  lease  acreage  only.

REVOLVING  CREDIT  AGREEMENT

On  October  16,  2006,  we  amended our existing revolving credit facility with
Fortuna Energy, LP.   The principal available under the revolving borrowing base
remains  $10,000,000,  with  a  current  outstanding balance of $3,732,500 as of
March  15,  2007.  Under  the  terms  of  the  transaction,  Fortuna advanced us
$780,000  for  the  purpose of paying amounts due for the Barnett Shale Project.
As  part  of  the  financing,  we  provided  Fortuna  additional collateral.  In
addition, we agreed to issue to Fortuna 475,000 five year warrants with a strike
price  of  $0.92  per  share.  The Warrants will contain a "put" provision which
will  allow Fortuna to "put" the warrants to the Company at a price of $0.65 per
share  for  two  (2) years, which "put" period shall commence 180 days after the
issuance  of  the


                                       11
<PAGE>
Letter  Agreement.  Additionally, as part of the transaction, we agreed to issue
100,000 new warrants, which expire 5 years from the date of issue, at a price of
$0.92  per  share  to replace 100,000 warrants previously issued to Fortuna at a
price  of  $2.00  per  share, which were previously set to expire on November 1,
2007.  We  do  not intend to draw down any more funds from this credit facility.

SALE  OF  PROPERTY

In  June  2005  we entered into an option agreement to sell all of the assets of
our  TK  Petrosearch  subsidiary  for  a  cash  purchase  price of approximately
$2,140,000.  The  option  agreement  was  exercised  on  August 3, 2005 with the
effective  date  of  the transfer being July 1, 2005.  The assets sold accounted
for  $1,370,110  of  our  PV-10  proved  reserves  as  of  December 31, 2004, or
approximately  10%  of  our  total  proved  reserve  value  at  that  date.

DRILLING  PARTNERSHIPS

We  continue  to  strive to develop relationships with institutional or high net
worth  individuals  to  participate  in our prospects.  Management believes this
will reduce our capital risk and increase the diversity of the projects in which
we  use  our  own  capital.  We  intend  to establish these drilling partnership
relationships  with  terms  that  are  standard  in  the  oil  and gas industry.

FORWARD LOOKING STATEMENT AND INFORMATION

This  document  contains  "forward-looking statements" within the meaning of the
Private  Securities  Litigation Reform Act of 1995. These statements are subject
to  risks  and  uncertainties  and  are  based on the beliefs and assumptions of
management  and  information currently available to management. The use of words
such  as  "believes," "expects," "anticipates," "intends," "plans," "estimates,"
"should,"  "likely"  or  similar  expressions,  indicates  a  forward-looking
statement.

Forward-looking  statements  are  not  guarantees  of  performance. They involve
risks,  uncertainties and assumptions. Future results may differ materially from
those expressed in the forward-looking statements. Many of the factors that will
determine  these  results  are  beyond  our  ability  to  control  or  predict.
Stockholders  are  cautioned  not  to  put undue reliance on any forward-looking
statements,  which  speak  only to the date made. For those statements, we claim
the  protection  of  the safe harbor for forward-looking statements contained in
the  Private  Securities  Litigation  Reform  Act  of  1995.

Forward-looking  statements  include  statements  concerning  plans, objectives,
goals,  strategies, future events, or performance and underlying assumptions and
other  statements,  which  are  other than statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product  and  service  demands  and  acceptance, changes in technology, economic
conditions, the impact of competition and pricing, and government regulation and
approvals.  Petrosearch  cautions  that  assumptions, expectations, projections,
intentions,  or  beliefs about future events may, and often do, vary from actual
results and the differences can be material. Some of the key factors which could
cause  actual  results to vary from those Petrosearch expects include changes in
natural  gas  and  oil  prices,  the  timing  of  planned  capital expenditures,
availability  of  acquisitions,  uncertainties in estimating proved reserves and
forecasting  production  results, operational factors affecting the commencement
or  maintenance  of  producing  wells,  the  condition  of  the  capital markets
generally,  as  well  as our ability to access them, and uncertainties regarding
environmental  regulations  or  litigation  and  other  legal  or  regulatory
developments  affecting  our  business.

Our  expectations,  beliefs  and projections are expressed in good faith and are
believed  to  have  a  reasonable  basis,  including  without  limitation,  our
examination  of  historical  operating trends, data contained in our records and
other  data  available  from  third parties. There can be no assurance, however,
that  our  expectations,  beliefs or projections will result, be achieved, or be
accomplished.   Readers  are  cautioned  not  to  place  undue reliance on these
forward-looking  statements,  which  speak  only  as  of  the  date  hereof.  We
undertake  no  duty  to  update  these  forward-looking  statements.


                                       12
<PAGE>
CAUTIONARY  NOTE  TO  U.S.  INVESTORS

THE  UNITED  STATES  SECURITIES  AND  EXCHANGE  COMMISSION  PERMITS  OIL AND GAS
COMPANIES,  IN THEIR FILINGS WITH THE SEC, TO DISCLOSE ONLY PROVED RESERVES THAT
A COMPANY HAS DEMONSTRATED BY ACTUAL PRODUCTION OR CONCLUSIVE FORMATION TESTS TO
BE  ECONOMICALLY  AND  LEGALLY  PRODUCIBLE UNDER EXISTING ECONOMIC AND OPERATING
CONDITIONS.  WE  USE  CERTAIN  TERMS  HEREIN,  SUCH  AS  "PROBABLE", "POSSIBLE",
"RECOVERABLE",  AND  "RISKED,"  AMONG OTHERS, THAT THE SEC'S GUIDELINES STRICTLY
PROHIBIT  US  FROM  INCLUDING  IN  FILINGS  WITH  THE SEC.  READERS ARE URGED TO
CAREFULLY  REVIEW  AND CONSIDER THE VARIOUS DISCLOSURES MADE BY US WHICH ATTEMPT
TO  ADVISE  INTERESTED  PARTIES  OF  THE ADDITIONAL FACTORS WHICH MAY AFFECT OUR
BUSINESS.

For  a  discussion  of  some additional factors that may cause actual results to
differ materially from those suggested by the forward-looking statements, please
read  carefully  the  information  under  "Risk  Factors"  section  below.  The
identification  in  this  document of factors that may affect future performance
and  the  accuracy of forward-looking statements is meant to be illustrative and
by  no means exhaustive. All forward-looking statements should be evaluated with
the  understanding  of  their  inherent  uncertainty.

We  operate  in  a very competitive and rapidly changing environment.  New risks
emerge  from  time  to time and it is not possible for our management to predict
all  risks,  nor  can  we  assess the impact of all risks on our business or the
extent  to  which any risk, or combination of risks, may cause actual results to
differ  from  those  contained  in  any  forward-looking  statements.  All
forward-looking statements included in this Form 10-KSB are based on information
available  to  us on the date of the Form 10-KSB.  Except to the extent required
by  applicable  laws  or rules, we undertake no obligation to publicly update or
revise  any  forward-looking  statement, whether as a result of new information,
future  events  or  otherwise.  All  subsequent written and oral forward-looking
statements  attributable  to  us  or  persons acting on our behalf are expressly
qualified  in  their  entirety by the cautionary statements contained throughout
this  Form  10-KSB.

RISK FACTORS

An  investment  in  our Common Stock involves a high degree of risk.  You should
carefully  consider the risks described below before deciding to purchase shares
of  our  Common  Stock.  If  any  of the events, contingencies, circumstances or
conditions described in the risks below actually occurs, our business, financial
condition or results of operations could be seriously harmed.  The trading price
of  our  Common  Stock could, in turn, decline and you could lose all or part of
your  investment.

RISKS RELATED TO THE COMPANY

OUR  LIMITED  HISTORY  MAKES  AN  EVALUATION  OF  US  AND  OUR  FUTURE EXTREMELY
DIFFICULT,  AND  PROFITS  ARE  NOT  ASSURED.

We have a limited operating history, having begun commercial drilling operations
in  August  2003.  There  can  be no assurance that we will be profitable in the
future  or  that the shareholders' investments in us will be returned to them in
full,  or  at all, over time.  In view of our limited history in the oil and gas
exploration  business,  an  investor must consider our business and prospects in
light  of  the  risks,  expenses  and  difficulties  frequently  encountered  by
companies  in  their early stage of development.  There can be no assurance that
we  will  be successful in undertaking any or all of the activities required for
successful  commercial  drilling  operations.  Our  failure  to  undertake
successfully such activities could materially and adversely affect our business,
prospects,  financial  condition  and results of operations.  In addition, there
can  be no assurance that our exploration and production activities will produce
oil  and  gas in commercially viable quantities, if any at all.  There can be no
assurance  that  sales  of  our  oil  and  gas  production  will  ever  generate
significant  revenues,  that we will ever generate additional positive cash flow
from  our operations or that we will be able to achieve or sustain profitability
in  any  future  period.

WE HAVE EXPERIENCED RECENT SUBSTANTIAL OPERATING LOSSES AND MAY INCUR ADDITIONAL
OPERATING  LOSSES  IN  THE  FUTURE.

During the twelve month period ended December 31, 2006 we incurred a net loss of
$2,321,925.  In  the  event  we are unable to increase our gross margins, reduce
our costs and/or generate sufficient additional revenues to offset our increased
costs,  we  may  continue  to sustain losses and our business plan and financial
condition  will  be  materially  and  adversely  affected.


                                       13
<PAGE>
THE  TRADING  PRICE  OF  OUR  COMMON  STOCK  ENTAILS  ADDITIONAL  REGULATORY
REQUIREMENTS,  WHICH  MAY  NEGATIVELY  AFFECT  SUCH  TRADING  PRICE.

The  trading price of our common stock is below $5.00 per share.  As a result of
this  price  level,  trading  in  our  common  stock  would  be  subject  to the
requirements  of  certain rules promulgated under the Securities Exchange Act of
1934,  as  amended.  These rules require additional disclosure by broker-dealers
in connection with any trades generally involving any non-NASDAQ equity security
that  has  a  market  price  of  less  than  $5.00 per share, subject to certain
exceptions.  Such  rules  require  the  delivery,  before  any  penny  stock
transaction,  of a disclosure schedule explaining the penny stock market and the
risks  associated  therewith,  and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and  accredited  investors  (generally  institutions).  For  these  types  of
transactions,  the  broker-dealer  must  determine  the suitability of the penny
stock  for  the  purchaser  and  receive  the purchaser's written consent to the
transaction  before sale.  The additional burdens imposed upon broker-dealers by
such  requirements  may discourage broker-dealers from effecting transactions in
our  common  stock.  As  a consequence, the market liquidity of our common stock
could  be  severely  affected  or  limited  by  these  regulatory  requirements.

WE  ARE  DEPENDENT  ON  KEY  PERSONNEL.

We depend to a large extent on the services of certain key management personnel,
including  our  executive officers and other key consultants, the loss of any of
which  could  have a material adverse effect on our operations. Specifically, we
rely on Mr. Richard Dole, Chairman, President and CEO, to maintain the strategic
direction  of  the Company.  We also rely on Mr. Wayne Beninger, Chief Operating
Officer,  to  oversee the technical evaluation of projects as well as operations
of  the  Company.  Although  Messrs.  Dole  and  Beninger  currently serve under
employment  agreements,  there  is  no  assurance  that they will continue to be
employed  by  us.  We  do not maintain, nor do we plan to maintain, key-man life
insurance  with  respect  to  any  of  our  officers  or  directors.

WE  ARE  SUBJECT  TO  POTENTIAL  LIABILITY  FROM  OPERATIONS.

We  are  subject to potential liability from our operations, such as injuries to
employees  or third parties, which are inherent in the management of oil and gas
programs.  While we intend to obtain and maintain appropriate insurance coverage
for  these  risks, there can be no assurance that our operations will not expose
us  to  liabilities  exceeding  such  insurance  coverage  or to liabilities not
covered  by  insurance.

WE  MAY  EXPERIENCE  POTENTIAL  FLUCTUATIONS  IN  RESULTS  OF  OPERATIONS.

Our  future  revenues may be affected by a variety of factors, many of which are
outside our control, including (a) the success of project results; (b) swings in
availability  of  drilling services needed to implement projects and the pricing
of  such  services;  (c)  a  volatile  oil and gas pricing market which may make
certain  projects  that we undertake uneconomic; (d)  the ability to attract new
independent  professionals  with prospects in a timely and effective manner; and
(e)  the  amount and timing of operating costs and capital expenditures relating
to  conducting  our  business operations and infrastructure.  As a result of our
limited  operating  history  and the emerging nature of our business plan, it is
difficult  to  forecast  revenues  or  earnings  accurately, which may fluctuate
significantly  from  quarter  to  quarter.

WE  PARTICIPATE  IN  OIL  AND  GAS  LEASES  WITH  THIRD  PARTIES.

We  may own less than 100% of the working interest in certain leases acquired by
us,  and  other  parties will own the remaining portion of the working interest.
Financial  risks  are  inherent  in  any  operation  where the cost of drilling,
equipping, completing and operating wells is shared by more than one person.  We
could  be  held  liable  for the joint activity obligations of the other working
interest  owners  such  as  nonpayment of costs and liabilities arising from the
actions  of  the  working  interest owners.  In the event other working interest
owners  do  not pay their share of such costs, we would likely have to pay those
costs.  In  such  situations,  if  we  were  unable to pay those costs, we could
become  insolvent.


                                       14
<PAGE>
WE  MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE, WHICH COULD CAUSE
DILUTION  TO  ALL  SHAREHOLDERS.

We  may  seek to raise additional equity capital in the future.  Any issuance of
additional  shares  of  our  common  stock  will dilute the percentage ownership
interest  of  all  shareholders  and  may dilute the book value per share of our
common  stock.

EXPANSION  OF OUR EXPLORATION PROGRAM WILL REQUIRE CAPITAL FROM OUTSIDE SOURCES.

We do not currently have the financial resources to explore and drill all of our
currently  identified  prospects.  Absent raising additional capital or entering
into  joint  venture agreements, we will not be able to increase our exploration
and drilling operations at the projected rate.  This could limit the size of our
business.  There is no assurance that capital will be available in the future to
us or that capital will be available under terms acceptable to us.  We will need
to  raise  additional money, either through the sale of equity securities (which
could dilute the existing stockholders' interest), through the entering of joint
venture  agreements  (which, while limiting our risk, could reduce our ownership
interest  in  particular  assets),  or from borrowings from third parties (which
could  result  in  additional assets being pledged as collateral and which would
increase  our  debt  service  requirements).

WE  DEPEND  ON INDUSTRY VENDORS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE SERVICES.

We  are  and  will  continue to be largely dependent on industry vendors for the
success  of  our  oil  and  gas exploration projects.  These contracted services
include,  but  are  not  limited to, accounting, drilling, completion, workovers
(remedial down hole work on a well) and reentries (entering an existing well and
changing  the  direction  and/or  depth  of  a  well),  geological  evaluations,
engineering,  leasehold  acquisitoin  (landmen),  operations,  legal,  investor
relations/public  relations,  and prospect generation.  We could be harmed if we
fail  to  attract  quality  industry  vendors  to participate in the drilling of
prospects  which  we  identify  or  if  our  industry  vendors  do  not  perform
satisfactorily.  We  often  have, and will continue to have, little control over
factors  that  would  influence  the  performance  of  our  vendors.

WE  RELY  ON  THIRD  PARTIES  FOR PRODUCTION SERVICES AND PROCESSING FACILITIES.

The  marketability  of our production depends upon the proximity of our reserves
to,  and the capacity of, facilities and third party services, including oil and
natural  gas  gathering systems, pipelines, trucking or terminal facilities, and
processing  facilities.  The unavailability or lack of capacity of such services
and  facilities  could  result in the shut-in of producing wells or the delay or
discontinuance  of  development  plans  for  properties.  A  shut-in or delay or
discontinuance  could  materially  adversely affect our financial condition.  In
addition,  federal  and  state  regulation of oil and natural gas production and
transportation affect our ability to produce and market oil and natural gas on a
profitable  basis.

WE  MAY  NOT  OPERATE  ALL  PROJECTS.

We  may not operate all properties in which we have an interest; as a result, we
may  have  limited  ability  to  exercise  influence over, and control the risks
associated with, operations of these properties.  The failure of a well operator
to  adequately  perform  operations,  an  operator's  breach  of  the applicable
agreements or an operator's failure to act in ways that are in our best interest
could  reduce  our  production  and  revenues.  The  success  and  timing of our
development  activities on properties operated by others therefore depend upon a
number  of  factors  outside of our control, including the operator's timing and
amount  of capital expenditures; expertise and financial resources; inclusion of
other  participants  in  drilling  wells;  and  use  of  technology.

THERE  IS  LIMITED  LIQUIDITY  IN  OUR  SHARES.

There is a limited market for our shares of common stock and an investor may not
be  able to liquidate his or her investment regardless of the necessity of doing
so.  The  prices  of  our shares are highly volatile. This could have an adverse
effect  on  developing  and  sustaining  the  market for our securities.  If the
market  price  of  our common stock declines significantly, you may be unable to
resell  your  common  stock  at  or  above the public offering price.  We cannot
assure  you  that  the  market  price  of our common stock will not fluctuate or
decline  significantly,  including a decline below the public offering price, in
the  future.  In  addition,  the  stock  markets  in  general  can  experience
considerable  price  and  volume  fluctuations.


                                       15
<PAGE>
                    GENERAL RISKS OF THE OIL AND GAS BUSINESS

WE  ARE  SUBJECT  TO  DRILLING  AND  OPERATIONAL  HAZARDS.

The  oil  and  gas  business  involves  a  variety of operating risks, including
blowouts,  cratering  and  explosions,  mechanical  and  equipment  problems,
uncontrolled  flows  of  oil  and gas or well fluids, fires, marine hazards with
respect  to  offshore  operations, formations with abnormal pressures, pollution
and other environmental risks, and natural disasters.  Any of these events could
result  in  loss  of  human  life, significant damage to property, environmental
pollution,  impairment  of  our  operations  and  substantial  losses.  Locating
pipelines near populated areas, including residential areas, commercial business
centers  and  industrial  sites, could increase these risks.  In accordance with
customary  industry  practice,  we will maintain insurance against some, but not
all, of these risks and losses.  The occurrence of any of these events not fully
covered  by  insurance  could  have  a  material adverse effect on our financial
position  and  results  of  operations.

WE  HAVE  COMPETITION  FROM  OTHER  COMPANIES.

A  large number of companies and individuals engage in drilling for gas and oil,
and  there  is  competition for the most desirable prospects.  We will encounter
intense  competition  from other companies and other entities in the sale of our
gas  and  oil  production.  We  could  be  competing  with  numerous gas and oil
companies  which  may  have financial resources significantly greater than ours.
Further,  the quantities of gas and oil to be delivered by us may be affected by
factors beyond our control, such as the inability of the wells to deliver at the
necessary  quality  and  pressure,  premature exhaustion of reserves, changes in
governmental regulations affecting allowable production and priority allocations
and  price  limitations  imposed  by  federal  and  state  regulatory  agencies.

THE UNAVAILABILITY OR HIGH COST OF DRILLING RIGS, EQUIPMENT, SUPPLIES, PERSONNEL
AND OILFIELD SERVICES COULD MATERIALLY ADVERSELY IMPACT US.

Drilling  activity  in  the area of our proposed initial activities is extremely
high. Increased drilling activity in these areas could decrease the availability
of  rigs  and our access to oilfield services.  Either shortages or increases in
the  cost  of  drilling  rigs,  equipment,  supplies or personnel could delay or
adversely affect our operations.  There can be no assurance that we will be able
to  obtain  the  necessary  equipment  or services may not be available to us at
economical  prices.

OIL  AND  GAS  PRICES  ARE  VOLATILE.

Declines  in  oil  and  gas prices may materially adversely affect our financial
condition,  liquidity, ability to obtain financing and operating results.  Lower
oil and gas prices also may reduce the amount of oil and gas that we can produce
economically.  High oil and gas prices could preclude acceptance of our business
model.  Depressed  prices  in  the  future  would  have a negative effect on our
future  financial  results.  Historically,  oil  and gas prices and markets have
been  volatile,  with prices fluctuating widely, and they are likely to continue
to  be  volatile.  Prices  for  oil  and gas are subject to wide fluctuations in
response to relatively minor changes in supply of and demand, market uncertainty
and  a variety of additional factors that are beyond our control.  These factors
include,  the  domestic and foreign supply of oil, the level of consumer product
demand,  weather  conditions,  political  conditions  in  oil producing regions,
including  the  Middle  East,  the ability of the members of the Organization of
Petroleum  Exporting Countries to agree to and maintain oil price and production
controls,  the  price  of  foreign imports, actions of governmental authorities,
domestic  and  foreign  governmental  regulations,  the  price, availability and
acceptance of alternative fuels; and overall economic conditions.  These factors
and the volatile nature of the energy markets make it impossible to predict with
any certainty future oil and gas prices.  Our inability to respond appropriately
to  changes  in  these  factors  could  negatively  affect  their profitability.

WE  MAY  HAVE  WRITEDOWNS  OF  OUR  ASSETS  DUE  TO  PRICE  VOLATILITY.

SEC  accounting rules require us to review the carrying value of our oil and gas
properties  on  a  quarterly basis for possible write-down or impairment.  Under
these  rules,  capitalized  costs  of  proved  reserves may not exceed a ceiling
calculated  at  the  present  value  of estimated future net revenues from those
proved  reserves.  Capital  costs  in  excess of the ceiling must be permanently
written  down.  A decline in oil and natural gas prices could cause a write down
which  would  negatively  affect  our  net  income.


                                       16
<PAGE>
ESTIMATES  OF OIL AND GAS RESERVES ARE UNCERTAIN AND MAY VARY SUBSTANTIALLY FROM
ACTUAL  PRODUCTION.

There  are  numerous  uncertainties  inherent in estimating quantities of proved
reserves  and  in  projecting  future  rates  of  production  and  timing  of
expenditures,  including  many  factors  beyond  our  control.  Our oil and  gas
reserves set forth in this Form 10-KSB represent the estimated quantities of oil
and  gas based on reports prepared by third party reserve engineers.  There is a
reasonable  certainty  of  recovering  the proved reserves as disclosed in those
reports.    Information  relating  to  our  proved oil and gas reserves is based
upon  engineering  data  which  demonstrates,  with  reasonable certainty, to be
recoverable  in  future  years from known reservoirs under existing economic and
operating  conditions. Reserve engineering is a subjective process of estimating
underground  accumulations  of oil and natural gas that cannot be measured in an
exact  manner. The accuracy of any reserve estimate is a function of the quality
of  available  geological,  geophysical,  engineering  and  economic  data,  the
precision  of  the engineering and judgment. As a result, estimates of different
engineers  often  vary. The estimates of reserves, future cash flows and present
value  are  based  on various assumptions, including those prescribed by the SEC
relating to oil and natural gas prices, drilling and operating expenses, capital
expenditures,  taxes  and  availability  of funds, and are inherently imprecise.

WE  ARE  SUBJECT  TO  GOVERNMENTAL  REGULATIONS.

Gas  and oil operations in the United States are subject to extensive government
regulation  and  to  interruption  or termination by governmental authorities on
account  of  ecological  and  other considerations. The Environmental Protection
Agency  of  the United States and the various state departments of environmental
affairs  closely  regulate  gas  and  oil  production  effects on air, water and
surface resources.  Furthermore, proposals concerning regulation and taxation of
the  gas  and  oil industry are constantly before Congress.  It is impossible to
predict  future  proposals  that  might  be enacted into law and the effect they
might  have  on  us.  Thus,  restrictions  on  gas  and  oil activities, such as
production  restrictions,  price  controls,  tax  increases  and  pollution  and
environmental  controls  may  have  a  material  adverse  effect  on  us.

THE  OIL  AND  GAS  INDUSTRY  IS  SUBJECT  TO  HAZARDS  RELATED TO POLLUTION AND
ENVIRONMENTAL  ISSUES.

Hazards  in the drilling and/or the operation of gas and oil properties, such as
accidental  leakage  or  spillage,  are sometimes encountered.  Such hazards may
cause  substantial  liabilities  to  third parties or governmental entities, the
payment of which could reduce distributions or result in the loss of our leases.
Although  it  is  anticipated  that  insurance  will  be obtained by third-party
operators  for  our  benefit,  we  may be subject to liability for pollution and
other damages due to environmental events which cannot be insured against due to
prohibitive  premium  costs,  or  for  other  reasons.  Environmental regulatory
matters  also could increase substantially the cost of doing business, may cause
delays  in  producing  oil  and gas or require the modification of operations in
certain  areas.

WE  MAY  EXPERIENCE  RAPID  INCREASES  IN  OUR  OPERATING  COSTS.

The  gas  and  oil  industry  historically has experienced periods of rapid cost
increases  from  time  to  time.  Increases  in  the  cost  of  exploration  and
development  would  affect  our  ability  to  acquire  equipment  and  supplies.
Increased  drilling  activity  could lead to shortages of equipment and material
which  would make timely drilling and completion of wells impossible.  The costs
of  producing oil and gas and conducting field operations may also be subject to
rapid cost changes that are not in our control.  There is no assurance that over
the  life  of  any  project there will not be fluctuating or increasing costs in
doing  business.

CRITICAL  ACCOUNTING  POLICIES

Our discussion and analysis of our financial condition and results of operations
are based upon financial statements, which have been prepared in accordance with
accounting  principles  generally  accepted  in the United States, or GAAP.  The
preparation  of  these  financial  statements  requires us to make estimates and
judgments  that affect the reported amounts of assets, liabilities, revenues and
expenses.  We  analyze  our  estimates,  including  those related to oil and gas
properties,  income  taxes,  commitments  and  contingencies  and  stock  based
compensation,  and base our estimates on historical experience and various other
assumptions  that  we believe to be reasonable under the circumstances.   Actual
results  may  differ  from  these estimates.   We believe the following critical
accounting  policies  are subject to significant judgments and estimates used in
the  preparation  of  our  financial  statements:

Oil and Gas properties.  The Company uses the full cost method of accounting for
oil  and  gas operations.  Accordingly, all costs, including nonproductive costs
and  certain  overhead  costs  associated  with  acquisition,


                                       17
<PAGE>
exploration  and  development  of  oil and gas properties, are capitalized.  Net
capitalized  costs  are  limited to the future net revenues, after income taxes,
discounted  at  10%  per year, from proven oil and gas reserves plus the cost of
the  properties  not subject to amortization.  Such capitalized costs, including
the  estimated  future  development  costs  and  remediation  costs, if any, are
depleted by an equivalent units-of-production method, converting gas units (Mcf)
to  oil  units  (barrels)  at  the ratio of six Mcf of gas to one barrel of oil.
Also, with full cost accounting, no gain or loss is recognized upon the disposal
of  oil  and  gas  properties,  unless such dispositions significantly alter the
relationship between capitalized costs and proven oil and gas reserves.  Oil and
gas  properties  not  subject to amortization consist of the cost of undeveloped
leaseholds and other geological and exploration costs, and totaled $6,309,169 at
December  31,  2006.  These  costs  are  reviewed periodically by management for
impairment,  with  the  impairment provision included in the cost of the oil and
gas properties subject to amortization.  Factors considered by management in its
impairment  assessment  include  drilling results, re-evaluations of properties,
terms  of  oil  and  gas  leases  not held by production and available funds for
exploration  and  development.

Reserve  Estimates. Our estimates of oil and natural gas reserves, by necessity,
are  projections  based  on  geological  and  engineering  data,  and  there are
uncertainties  inherent  in  the  interpretation  of  such  data  as well as the
projection  of  future  rates  of  production  and  the  timing  of  development
expenditures.  Reserve  engineering  is  a  subjective  process  of  estimating
underground  accumulations of oil and natural gas that are difficult to measure.
The  accuracy  of any reserve estimate is a function of the quality of available
data,  engineering  and  geological  interpretation  and  judgment. Estimates of
economically  recoverable oil and natural gas reserves and future net cash flows
necessarily  depend  upon  a number of variable factors and assumptions, such as
historical  production  from  the  area  compared  with  production  from  other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions governing future oil and natural gas prices, future operating costs,
severance  and  excise taxes, development costs and workover and remedial costs,
all  of  which  may  in  fact  vary  considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and natural
gas  attributable to any particular group of properties, classifications of such
reserves  based  on risk of recovery, and estimates of the future net cash flows
expected  there  from  may  vary  substantially. Any significant variance in the
assumptions  could  materially  affect  the  estimated quantity and value of the
reserves,  which  could  affect the carrying value of our oil and gas properties
and/or  the  rate of depletion of the oil and gas properties. Actual production,
revenues  and  expenditures  with  respect to our reserves will likely vary from
estimates,  and  such  variances  may  be  material.

Income  taxes. The Company uses the asset and liability method of accounting for
income taxes, under which deferred tax assets and liabilities are recognized for
the  future  tax consequences of (1) temporary differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities,
and (2) operating loss and tax credit carryforwards.  Deferred income tax assets
and  liabilities  are based on enacted tax rates applicable to the future period
when  those  temporary differences are expected to be recovered or settled.  The
effect  of  a  change  in  tax  rates  on deferred tax assets and liabilities is
recognized in income during the period the rate change is enacted.  Deferred tax
assets  are  recognized  in  the year in which realization becomes determinable.
Periodically,  management performs a forecast of its taxable income to determine
whether it is more likely than not that a valuation allowance is needed, looking
at  both  positive and negative factors.  A valuation allowance for our deferred
tax  assets  is  established, if in management's opinion, it is more likely than
not,  that some portion will not be realized.  At December 31, 2006, a valuation
allowance  of  $2,416,055  has  been  provided  for  deferred  tax  assets.

Commitments  and contingencies.  Liabilities for loss contingencies arising from
claims,  assessments,  litigation  or  other  sources  are  recorded  when it is
probable  that  a  liability  has been incurred and the amount can be reasonably
estimated.  Management  does  not  see  any circumstances that would require the
Company  to  record  a  loss  contingency;  therefore, to date no commitments or
contingencies  have  been  recorded.

Stock  based compensation.  Effective January 1, 2006, we adopted the provisions
of  Statement  of  Financial  Accounting  Standards  No.  123  (revised  2004) -
Share-Based  Payment  ("SFAS  123(R)"),  which  requires  the  measurement  and
recognition  of  compensation  expense  for  all  share-based  payment  awards
(including stock options) made to employees and directors based on the estimated
fair  value.  Compensation  expense  for equity-classified awards is measured at
the  grant  date  based  on  the fair value of the award and is recognized as an
expense  in  earnings  over  the requisite service period using a graded vesting
method.  Total  share-based  compensation  expense for equity-classified awards,
was  $240,000  during the year ended December 31 2006.  As of December 31, 2006,
there  is  no  estimated  unrecognized  compensation expense from unvested stock
options.

We  use  the  Black-Scholes  valuation model to determine the fair value of each
option  award.  Expected  volatilities are based on the historical volatility of
our  stock  over  a  period  consistent  with  that of the expected terms of the


                                       18
<PAGE>
options.  The  expected terms of the options are estimated based on factors such
as vesting periods, contractual expiration dates, historical trends in our stock
price  and  historical exercise behavior. The risk-free rates for periods within
the  contractual  life  of  the options are based on the yields of U.S. Treasury
instruments  with terms comparable to the estimated option terms.   Prior to our
adoption of the provisions of SFAS 123(R), we previously accounted for the Plans
under  Accounting  Principles Board Opinion No. 25, "Accounting for Stock Issued
to  Employees,"  ("APB  25"),  and  related  interpretations  and  disclosure
requirements  established by SFAS 123 - Accounting for Stock-Based Compensation,
as  amended  by  SFAS  No.  148  -  Accounting  for  Stock-Based  Compensation -
Transition  and  Disclosure.

OFF  BALANCE  SHEET  ARRANGEMENTS

None

ITEM 7.     FINANCIAL STATEMENTS

The information required by this Item 7 is included in this report beginning on
page F-1

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

There have been no changes in or disagreements with accountants on accounting
and financial disclosure.

ITEM 8A.     CONTROLS AND PROCEDURES

Richard  D.  Dole,  our Chief Executive Officer, and David J. Collins, our Chief
Financial  Officer,  have  concluded that our disclosure controls and procedures
are  appropriate  and  effective.  They  have  evaluated  these  controls  and
procedures  as  of  December  31,  2006.  There  were no changes in our internal
controls over financial reporting that has materially affected, or is reasonably
likely  to  materially  affect,  our internal controls over financial reporting.

ITEM  8B.     OTHER  INFORMATION

None

                                    PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth our Directors and executive officers as of
December 31, 2006.

<TABLE>
<CAPTION>
-----------------------------------------------------------
     NAME        AGE                POSITION
---------------  ---  -------------------------------------
<S>              <C>  <C>

Richard D. Dole   61  Director, Chairman, President and CEO
---------------  ---  -------------------------------------
Wayne Beninger.   53  Chief Operating Officer
---------------  ---  -------------------------------------
David Collins .   38  Chief Financial Officer
---------------  ---  -------------------------------------
Gerald Agranoff   60  Director
---------------  ---  -------------------------------------
Richard Majeres   40  Director
-----------------------------------------------------------
</TABLE>

RICHARD  D.  DOLE,  DIRECTOR,  CHAIRMAN  OF  THE  BOARD,  PRESIDENT  AND  CEO
Mr.  Dole  joined  us  as  a Director in July 2004, and assumed the positions of
Chairman,  President  and  CEO  in December 2004.  Mr. Dole previously served as
Vice  President  and  Chief  Financial  Officer  for  Burlington


                                       19
<PAGE>
Resources International from 1998 to 2000. Since that time he has been active in
consulting  and  financial  services.  He  was  a  co-founder of Benefits Access
Solutions,  LLC,  a  company  formed  to  provide financial services and benefit
options  to  employees  and  members  of  corporate  organizations.  He was also
co-founder  and managing partner of Innovation Growth Partners, LLC, a firm that
provided management and consulting services to early stage companies. Mr. Dole's
extensive  industry  experience  includes  being  National  Partner-in-Charge of
Business Process Solutions at KPMG.  Prior to that he was with Coopers & Lybrand
(now PriceWaterhouse Coopers) where he served as Assurance and Business Advisory
Partner for nearly 20 years and also served in numerous senior management roles,
including  National  Chairman  for  the  Energy  and  Natural Resources Industry
practices  for  over  15  years  and  as  the Vice Chairman for the U.S. Process
Management  business  unit.  From  August 2003 to July 2004, Mr. Dole was also a
member  of the Board of Directors of Westport Resources Corporation (NYSE: WRC),
a  member of its audit committee and a designated financial expert. He currently
serves  as  a  director  of  Double Eagle Petroleum Company (DBLE, NASDAQ Global
Select  Market)  and  chairs the audit committee and is the designated financial
expert.  Mr.  Dole  graduated  from  Colorado  State  University.

WAYNE  BENINGER,  CHIEF  OPERATING  OFFICER
Mr.  Beninger  joined  us  as Chief Operating Officer in May 2005.  Prior to May
2005,  Mr.  Beninger served as President of Southwest Oil & Gas Management, Inc.
("SOGMI")  which  he  founded in 1997 to provide oil and gas property evaluation
services,  geologic  prospect  review,  contract  operating  services, technical
support  for  initial  public  offerings  and  strategic  planning solutions for
domestic  and international projects. Prior to Mr. Beninger joining the Company,
SOGMI  provided  a significant amount of our engineering and geological services
for  all  projects.  From  1995 to 1997, Mr. Beninger was the Vice President for
Strategic  Planning  with WRT Energy Corporation. From 1982 to 1995 he was first
employed  by,  and  then  was  a  partner  in,  The Scotia Group, a domestic and
international  consulting  firm  where  he  provided  petroleum  engineering and
geological  services  for  companies  and  projects  in  the  majority of active
petroleum  basins  in  both the U.S. and overseas. He has been active in the oil
and  gas  industry since 1976.  Mr. Beninger holds undergraduate degrees in both
petroleum engineering and geology from the University of Southern California and
has  a  number  of  industry  publications to his credit.  He is a member of the
Society  of  Petroleum Engineers, Pi Epsilon Tau (petroleum engineering honorary
fraternity)  and  Sigma  Gamma  Epsilon  (geologic  honorary  fraternity).

DAVID  COLLINS,  VICE  PRESIDENT,  CHIEF  FINANCIAL  OFFICER
Mr.  Collins  joined  Petrosearch  Corporation as a Vice President and the Chief
Financial  Officer  in October 2003.  Previously, he served as the Controller of
Kazi  Management  VI,  LLC, a diversified investment and management organization
actively  involved  in energy, retail food chains, aquaculture and biotechnology
from  February  2002 to October 2003.  At Kazi Management VI, he was responsible
for  the  financial  operations of multiple accounting offices across the United
States,  as  well as fourteen international and domestic Companies.  Mr. Collins
was  also  the  Chief  Financial  Officer  of  ZK  Petroleum, an independent oil
producer  in  South  Texas.  Prior  to  Kazi  Management  VI,  he  served  as an
independent  analyst  for  The March Group in St. Thomas, U.S.V.I. from February
2001  to  January  2002.  Mr.  Collins  previously  held  the  position of Chief
Financial Officer of Federation Logistics, LLC in the New York metropolitan area
from  November  1994  to  January  2001.  Mr.  Collins  graduated from Villanova
University  in  1990  with  a  Bachelor's  degree  in  Accountancy.  He became a
Certified  Public  Accountant  and  began  his  career in the Financial Services
Division  of Ernst and Young in New York City.  At Ernst and Young, he performed
audits  of  Fortune  500  Companies.

GERALD  N.  AGRANOFF,  DIRECTOR
Gerald  N.  Agranoff joined us as a Director in May 2004.  Mr. Agranoff has been
counsel  to the firm of Kupferman & Kupferman, L.L.P. in New York since 2004 and
has  been  a  general  partner of SES Family Investment and Trading Partnership,
L.P.,  an  investment  partnership  since  2004.  Mr.  Agranoff  has also been a
member  of  Inveraray  Capital  Management  L.L.C.,  the  investment  manager of
Highlander Fund B.V. and Highlander Partners (USA) L.P since 2002.  He is also a
director and the chair of the audit committee of Triple Crown Media Inc (symbol,
TCMI).  Active  in  Wall Street financial transactions for over two decades, his
specialties  include  taxation,  investments  and  corporate  finance. From 1975
through  1981,  Mr.  Agranoff was engaged exclusively in the private practice of
law in New York and was an adjunct-instructor at New York University's Institute
of Federal Taxation. Previously, he served as attorney-advisor to a Judge of the
United  States  Tax  Court.  He holds an L.L.M. degree in Taxation from New York
University  and  J.D.  and  B.S.  Degrees  from  Wayne  State  University.

RICHARD  MAJERES,  DIRECTOR
Richard  Majeres  joined  us  as  a Director in May 2004.  In December 2000, Mr.
Majeres  was  one of the founding partners of the Houston public accounting firm
Ubernosky  &  Majeres,  PC,  which  currently  operates  as  Ubernosky,


                                       20
<PAGE>
Passmore  &  Majeres,  LLP,  offering  tax,  audit,  accounting  and  management
consulting  services. Mr. Majeres has served as a partner of this firm since its
inception in December 2000.  From January 1999 to November 2000, Mr. Majeres was
a  partner  at  Cox  &  Lord,  PC.  Mr.  Majeres  graduated  from  Bemidji State
University,  Bemidji,  Minnesota in 1989 with a bachelor's degree in accounting.
Upon graduation, he served as a field auditor with the Federal Energy Regulatory
Commission  of  the  Department of Energy. Mr. Majeres became a certified public
accountant  in  1992.  He  has  extensive  experience with oil and gas entities,
including  exploration  and  development  partnerships  and  corporations  and
currently  focuses  a  majority  of  his  efforts  on the Firm's audit practice.

BOARD OF DIRECTORS AND ITS COMMITTEES

During  the  fiscal  year ended December 31, 2006 the Board of Directors held 14
meetings.  Mr.  Dole  is  our only Director who is also an Officer. Our Board of
Directors  currently  has  an Audit Committee and a Compensation Committee which
are  comprised  of  independent  directors  Richard Majeres and Gerald Agranoff.

AUDIT  COMMITTEE

Our Audit Committee is made up of our two independent Board members, Mr. Richard
Majeres  and  Mr.  Gerald  Agranoff.  Mr.  Majeres  is the Chairman of the Audit
Committee  and  is designated the Financial Expert. During the fiscal year ended
December  31,  2006  the  Audit  Committee  held  4  meetings.

COMPENSATION  COMMITTEE

Subsequent  to  our  fiscal  year  end  on March 23, 2007 our Board of Directors
approved  the  formation  of  a  Compensation  Committee  made  up  of  our  two
independent  Directors,  Mr.  Gerald  Agranoff  and  Mr.  Richard  Majeres.  Mr.
Agranoff  was  designated  the  Chairman  of  the  Compensation  Committee.

SECURITY  HOLDERS  RECOMMENDATIONS  TO  BOARD  OF  DIRECTORS

We  do  not currently have a process for security holders to send communications
to  the Board of Directors.  However, we welcome comments and questions from our
shareholders.  Shareholders  can  direct  communications  to our Chief Executive
Officer, Richard D. Dole, at our executive offices, 675 Bering Drive, Suite 200,
Houston,  Texas  77057.  While  we appreciate all comments from shareholders, we
may  not  be  able to individually respond to all communications.  We attempt to
address  shareholder  questions and concerns in our press releases and documents
filed  with the SEC so that all shareholders have access to information about us
at  the  same  time.  Mr.  Dole  collects  and  evaluates  all  shareholder
communications.  If  the  communication  is  directed  to the Board of Directors
generally  or  to  a  specific  director,  Mr.  Dole  will  disseminate  the
communications to the appropriate party at the next scheduled Board of Directors
meeting.  If  the  communication  requires a more urgent response, Mr. Dole will
direct  that  communication  to  the  appropriate  executive  officer.  All
communications  addressed  to  our  directors  and  executive  officers  will be
reviewed  by  those  parties  unless  the  communication  is  clearly frivolous.

Our  Bylaws  provide  that  nominations  of persons for election to the Board of
Directors  of  the corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors or by any stockholder of the corporation
entitled  to  vote in the election of directors at the meeting who complies with
the  following  notice  procedures,  as  set  forth  in  the  Bylaws:

     Nominations  of  persons for election to the Board of Directors may be made
     at  a  meeting of the shareholders at which directors are to be elected (a)
     by or at the direction of the Board of Directors, or (b) by any shareholder
     of  the Company who is a shareholder of record at the time of the giving of
     such shareholders notice provided for in Paragraph 3.3 (of the Bylaws), who
     shall  be entitled to vote at such meeting in the election of directors and
     who  complies  with the requirements of Paragraph 3.3 (of the Bylaws). Such
     nominations,  other  than those made by or at the direction of the Board of
     Directors  shall  be  preceded  by  timely advance notice in writing to the
     Secretary.  To  be timely, a shareholder's notice shall be delivered to, or
     mailed  and received at, the principal executive offices of the Company (1)
     with  respect  to  an  election  to  be  held  at the annual meeting of the
     shareholders  of  the  Company, not later than the close of business on the
     90th  day  prior  to  the  first anniversary of the preceding year's annual
     meeting;  provided,  however,  in  the  event  that  the date of the annual
     meeting  is  more  than  30  days  before  or  more than 60 days after such
     anniversary  date,  notice  by  the  shareholder  to  be  timely must be so
     delivered not later than the close of business on the later of the 90th day
     prior  to  such  annual  meeting or the 10th day following the day on which
     public  announcement  of  the  date  of  such  meeting is first made by the
     Company;  and  (2)  with


                                       21
<PAGE>
     respect  to  an election to be held at a special meeting of shareholders of
     the  Company  for  the  election  of  directors not later than the close of
     business  on  the 10th day following the day on which notice of the date of
     the  special  meeting was mailed to shareholders of the Company as provided
     in  Paragraph  2.4  (of the Bylaws) or public disclosure of the date of the
     special  meeting  was  made, whichever first occurs. Any such shareholder's
     notice  to  the  Secretary  shall  set forth (x) as to each person whom the
     shareholder proposes to nominate for election or re-election as a director,
     (i)  the  name, age, business address and residence address of such person;
     (ii)  the  principal  occupation  or  employment  of such person; (iii) the
     number  of  shares  of  each  class  of  capital  stock  of  the  Company's
     beneficially  owned by such person; (iv) the written consent of such person
     to  having  such  person's  name placed in nomination at the meeting and to
     serve  as a director if elected; (v) any other information relating to such
     person  that  is  required  to be disclosed in solicitations of proxies for
     election of directors, or is otherwise required, pursuant to Regulation 14A
     under  the  Exchange Act, and (vi) as to the shareholder giving the notice,
     (i)  the  name  and  address, as they appear on the Company's books of such
     shareholder, and (ii) the number of shares of each class of voting stock of
     the  Company  which  are  then  beneficially owned by such shareholder. The
     presiding  officer  of  the meeting of shareholders shall determine whether
     the  requirements  of  Paragraph  3.3  (of  the  Bylaws) have been met with
     respect  to any nomination or intended nomination. If the presiding officer
     determines  that  any  nomination  was  not  made  in  accordance  with the
     requirements  of  Paragraph 3.3 (of the Bylaws), he shall so declare at the
     meeting  and the defective nomination shall be disregarded. Notwithstanding
     the  foregoing  provisions  ,  a  shareholder  shall  also  comply with all
     applicable  requirements  of the Exchange Act and the rules and regulations
     thereunder  with  respect  to the matters set forth in Paragraph 3.3 of the
     Bylaws.  For  (purposes  of  the  notice  provisions of the Bylaws), public
     disclosure  shall  be  deemed  to  first  be  given  to  shareholders  when
     disclosure  of  such date of the meeting of shareholders is first made in a
     press  release reported by the Dow Jones News Services, Associated Press or
     comparable  national  news  service, or in a document publicly filed by the
     Company  with  the  Securities and Exchange Commission pursuant to Sections
     13,  14  or  15(d)  of  the  Exchange  Act.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section  16(a) of the Securities Exchange Act of 1934 requires our directors and
executive  officers,  and  persons who own beneficially more than ten percent of
our common stock, to file reports of ownership and changes of ownership with the
Securities  and  Exchange  Commission.  Based  solely  on  the  reports  we have
received  and  on  written  representations  from  certain reporting persons, we
believe  that  the  directors,  executive officers, and greater than ten percent
beneficial  owners  have  complied  with  all  applicable  filing  requirements.

CODE OF ETHICS

Effective  August  19, 2005, the Board of Directors adopted a Code of Ethics for
our  directors,  officers and employees.  A copy of our Code of Ethics was filed
with  our  Form  SB-2 registration statement filed with the SEC on June 6, 2005.


                                       22
<PAGE>
ITEM 10.     EXECUTIVE COMPENSATION

The  following  table  sets  forth  certain  compensation  information  for  the
following  individuals  for  the  two most recently completed fiscal years ended
December  31,  2006.   No  other  compensation  was  paid to our named executive
officers  other  than  the  compensation  set  forth  below.  The  compensation
reflected  in  this  section  has  been  awarded  by  us  and  our  predecessor,
Petrosearch  Texas.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                           NON-EQUITY    NONQUALIFIED
 NAME AND                                             STOCK     OPTION      INCENTIVE      DEFERRED          ALL
 PRINCIPAL     TITLE    YEAR    SALARY     BONUS     AWARDS     AWARDS        PLAN       COMPENSATION       OTHER        TOTAL
 POSITION                (B)      ($)       ($)        ($)        ($)     COMPENSATION     EARNINGS     COMPENSATION      ($)
   (A)                            (C)       (D)        (E)        (F)          ($)            ($)            ($)          (J)
                                                                               (G)            (H)            (I)
-----------  ---------  -----  ---------  --------  ---------  ---------  -------------  -------------  -------------  ---------
<S>          <C>        <C>    <C>        <C>       <C>        <C>        <C>            <C>            <C>            <C>
             Chairman,
Richard       CEO and   2006   $180,000     -0-     $160,000      -0-          -0-            -0-            -0-       $340,000
Dole(1)      President  2005   $180,000     -0-        -0-        -0-          -0-            -0-            -0-       $180,000
-----------  ---------  -----  ---------  --------  ---------  ---------  -------------  -------------  -------------  ---------
David           CFO     2006   $180,000     -0-      $80,000      -0-          -0-            -0-            -0-       $260,000
Collins(2)              2005   $180,000     -0-        -0-      $55,855        -0-            -0-            -0-       $235,855
-----------  ---------  -----  ---------  --------  ---------  ---------  -------------  -------------  -------------  ---------
Wayne           COO     2006   $250,000   $50,000      -0-        -0-          -0-            -0-            -0-       $300,000
Beninger(3)             2005   $135,416   $25,000      -0-     $310,907        -0-            -0-            -0-       $471,323
-----------  ---------  -----  ---------  --------  ---------  ---------  -------------  -------------  -------------  ---------
              Former
Eric           V.P.,    2006    $45,000     -0-        -0-        -0-          -0-            -0-            -0-        $45,000
Brown(4)      Finance   2005   $180,000     -0-        -0-     $274,750        -0-            -0-            -0-       $454,750
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Notes to Summary Compensation Table:

     (1)  Mr.  Dole  was  appointed  as a Director in July 2004. On December 30,
          2004,  Mr.  Dole  assumed  the  roles  of  Chairman  of  our  Board of
          Directors,  President  and Chief Executive Officer. Mr. Dole became an
          employee  of  the Company as of January 1, 2005. Mr. Dole entered into
          an  employment  agreement  with  the  Company  in November 2004 for an
          initial  term of two years which calls for compensation of $15,000 per
          month.
     (2)  Mr.  Collins was appointed Chief Financial Officer in September, 2004.
          Mr.  Collins  became an employee of the Company as of January 1, 2005.
          Mr.  Collins entered into an employment agreement with the Company May
          1, 2005, for an initial term of two years which calls for compensation
          of  $15,000  per  month.
     (3)  Mr.  Beninger  was  appointed  Chief  Financial  Officer and became an
          employee  of  the Company as of May 1, 2005. Mr. Beninger entered into
          an  employment  agreement with the Company May 1, 2005, for an initial
          term  of  two  years which calls for compensation of $20,830 per month
          salary  and  $50,000  per  year  bonus.
     (4)  Mr.  Brown  was  appointed  Vice  President of Finance on December 30,
          2004.  Mr.  Brown  became  an employee of the Company as of January 1,
          2005.  Mr. Brown entered into an employment agreement with the Company
          May  1, 2005, for a term of two years which called for compensation of
          $15,000  per  month. Mr. Brown resigned from his position on March 15,
          2006  at  which  time is employment agreement was mutually terminated.

EMPLOYMENT AGREEMENTS

The  employment  contracts  in existence with officers and key personnel include
employment  contracts  with  each of Richard Dole (Chairman, President and CEO),
David  Collins  (Chief  Financial  Officer) and Wayne Beninger, (Chief Operating
Officer).  Mr. Dole's Employment Agreement became effective on November 14, 2004
and  had  an  initial  term  of 2 years, of which has since expired and still in
effect on a month to month basis.  Employment Agreements with Messrs Collins and
Beninger  became  effective  May  1,  2005  and have an initial term of 2 years.

The employment contracts with Messrs. Dole, Collins, and Beninger provide for an
initial employment term of two years and month to month thereafter.  Each of the
employment  contracts  provides  for  termination  by  the Company upon death or
disability, with six month severance payments.  Each of the employment contracts
permits termination by the Company for cause, which includes malfeasance, misuse
of  funds, insubordination, a material uncured breach or conviction for a felony
or  crime  of  moral turpitude.  The agreements may be voluntarily terminated by
the  employee  at  any  time,  with  no  severance  payment.  Additionally,  the
respective  employees  may  elect  to  terminate  their  employment contract and
receive  severance pay upon a material uncured breach by the Company or a change
in  control,  if within forty five days of the change in control the employee is
not  offered  a  position  with  the  identical


                                       23
<PAGE>
salary  for  a  period  equal  to  the  then  remaining term plus one year.  For
purposes  of  each  agreement, a change in control is defined as a change in the
majority  of  the  Board  of  Director positions accompanying the acquisition of
voting  securities  by  a  third  party  (other  than directly from the Company)
equivalent  to  forty percent of the voting control of the Company (other than a
subsidiary  or  employee  benefit  plan),  or  accompanying a sale of all of the
assets  or  a  merger (other than involving a subsidiary).  Upon termination for
cause,  the  employee  is  not entitled to severance pay.  A termination without
cause  while  a  contract  is  pending,  other  than due to a change in control,
entitles  the  employees  other than Mr. Dole to compensation through the end of
the  contract term plus an additional three months.  A termination without cause
of Mr. Dole or non-renewal of Mr. Dole's agreement gives rise to a severance pay
obligation  equal to twelve months.  Upon a termination coupled with a change in
control  where  the  particular  employee  is  not  offered  a  position for the
identical  salary,  and  in  the  case  of  Messrs.  Dole and Beninger, the same
position,  the  employee is entitled to severance compensation equal to the face
period  of  the  employment  contract then pending at termination (e.g. a 1-year
contract  would  give  rise  to  twelve  months  severance  pay).

                  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                      OPTION AWARDS                                               STOCK AWARDS
           -------------------------------------------------------------------  -----------------------------------------------
                                                                                                                       Equity
                                                                                                           Equity    Incentive
                                                                                                         Incentive      Plan
                                            Equity                                                          Plan      Awards:
                                          Incentive                                                       Awards:    Market or
                                             Plan                               Number of     Market     Number of     Payout
            Number of      Number of       Awards:                              Shares or    Value of     Unearned    Value of
            Securities     Securities     Number of                              Units of    Shares or    Shares,     Unearned
  Name      Underlying     Underlying     Securities     Option      Option       Stock      Units of      Units      Shares,
           Unexercised    Unexercised     Underlying    Exercise   Expiration   that have   Stock that    or Other     Units
           Options (#)    Options (#)    Unexercised   Price ($)      Date         not       have not      Rights     or Other
           Exercisable   Unexercisable     Unearned                               Vested      Vested        that       Rights
                                           Options                                 (#)          ($)       have not      that
                                             (#)                                                           Vested     have not
                                                                                                            ($)        Vested
                                                                                                                        ($)

  (a)          (b)            (c)            (d)          (e)          (f)         (g)          (h)         (i)         (j)
---------  ------------  --------------  ------------  ----------  -----------  ----------  -----------  ----------  ----------
<S>        <C>           <C>             <C>           <C>         <C>          <C>         <C>          <C>         <C>
Richard       61,538          -0-            -0-         $6.50      7/26/2007      -0-          -0-         -0-         -0-
Dole         230,769          -0-            -0-         $5.20      9/15/2007      -0-          -0-         -0-         -0-
            2,687,738         -0-            -0-         $1.95     11/15/2008      -0-          -0-         -0-         -0-
---------  ------------  --------------  ------------  ----------  -----------  ----------  -----------  ----------  ----------
Wayne         19,231          -0-            -0-         $9.75      2/24/2007      -0-          -0-         -0-         -0-
Beninger     365,000          -0-            -0-         $1.95     11/15/2008      -0-          -0-         -0-         -0-
---------  ------------  --------------  ------------  ----------  -----------  ----------  -----------  ----------  ----------
David         92,308          -0-            -0-         $0.98     11/15/2008      -0-          -0-         -0-         -0-
Collins       76,923          -0-            -0-         $1.63     11/15/2008      -0-          -0-         -0-         -0-
              50,000          -0-            -0-         $1.95     11/15/2008      -0-          -0-         -0-         -0-
---------  ------------  --------------  ------------  ----------  -----------  ----------  -----------  ----------  ----------
Richard       61,538          -0-            -0-         $6.50      7/26/2007      -0-          -0-         -0-         -0-
Majeres       50,000          -0-            -0-         $1.95      3/25/2008      -0-          -0-         -0-         -0-
---------  ------------  --------------  ------------  ----------  -----------  ----------  -----------  ----------  ----------
Gerald        61,538          -0-            -0-         $6.50      7/26/2007      -0-          -0-         -0-         -0-
Agranoff      50,000          -0-            -0-         $1.95      3/25/2008      -0-          -0-         -0-         -0-
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

DIRECTOR COMPENSATION

For  the  year  ending  December  31,  2006,  the  Board  of  Directors approved
compensation  of  $30,000 cash to independent board members, Gerald Agranoff and
Richard  Majeres,  for  their  services  for  2006.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                        Non-Equity     Nonqualified
                   Fees Earned     Stock     Option   Incentive Plan     Deferred       All Other
    Name           or Paid in    Awards ($)  Awards    Compensation    Compensation   Compensation   Total ($)
    (a)             Cash ($)        (c)        ($)          ($)        Earnings ($)        ($)          (h)
                       (b)                     (d)          (e)             (f)            (g)
----------------  -------------  ----------  -------  ---------------  -------------  -------------  ----------
<S>               <C>            <C>         <C>      <C>              <C>            <C>            <C>
Gerald Agranoff      $30,000        -0-        -0-          -0-             -0-            -0-        $30,000
----------------  -------------  ----------  -------  ---------------  -------------  -------------  ----------
Richard Majeres      $30,000        -0-        -0-          -0-             -0-            -0-        $30,000
---------------------------------------------------------------------------------------------------------------
</TABLE>


                                       24
<PAGE>
ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
             RELATED STOCKHOLDER

The  following  table  sets  forth  certain  information  at March 15, 2007 with
respect to the beneficial ownership of shares of common stock by (i) each person
known  to  us  who  owns  beneficially more than 5% of the outstanding shares of
common  stock,  (ii) each of our Directors, (iii) each of our Executive Officers
and  (iv)  all  of  our  Executive  Officers  and  Directors  as a group. Unless
otherwise  indicated, each stockholder has sole voting and investment power with
respect  to the shares shown.  As of March 15, 2007, we had 38,773,495 shares of
common  stock  issued  and  outstanding.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
                                                   AMOUNT AND
TITLE OF CLASS   NAME AND ADDRESS OF BENEFICIAL     NATURE OF     PERCENTAGE OF
                             OWNER                 BENEFICIAL    COMMON STOCK (1)
                                                    OWNERSHIP
--------------  --------------------------------  -------------  ----------------
<S>             <C>                               <C>            <C>
Common Stock    Richard D. Dole                    3,245,430(2)       7.77%
                Chairman, President and CEO
                675 Bering Drive, Suite 200
                Houston, Texas  77057
--------------  --------------------------------  -------------  ----------------
Common Stock    Wayne Beninger                      631,923(3)       1.61%
                Chief Operating Officer
                675 Bering Drive, Suite 200
                Houston, Texas  77057
--------------  --------------------------------  -------------  ----------------
Common Stock    David J. Collins                     859,417(4)       2.20%
                Vice President and
                Chief Financial Officer
                675 Bering Drive, Suite 200
                Houston, Texas  77057
--------------  --------------------------------  -------------  ----------------
Common Stock    Gerald Agranoff                     121,795(6)       0.31%
                Director
                675 Bering Drive, Suite 200
                Houston, Texas  77057
--------------  --------------------------------  -------------  ----------------
Common Stock    Richard Majeres                     203,943(7)       0.52%
                Director
                675 Bering Drive, Suite 200
                Houston, Texas  77057
--------------  --------------------------------  -------------  ----------------

--------------  --------------------------------  -------------  ----------------
                ALL OFFICERS AND DIRECTORS AS A     5,062,508        12.43%
                GROUP (TOTAL OF  5)
--------------  --------------------------------  -------------  ----------------

--------------  --------------------------------  -------------  ----------------
Common Stock    Wellington Trust Company, NA       2,033,084(9)       5.24%
                75 State Street
                Boston, MA 02109
---------------------------------------------------------------------------------
</TABLE>

(1) Under Rule 13d-3 promulgated under the Exchange Act, a beneficial owner of a
security  includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares: (i) voting
power,  which includes the power to vote, or to direct the voting of shares; and
(ii)  investment  power,  which  includes  the  power  to  dispose or direct the
disposition of shares.  Certain shares may be deemed to be beneficially owned by
more  than  one  person (if, for example, persons share the power to vote or the
power  to  dispose  of  the  shares).  In  addition,  shares  are  deemed  to be
beneficially owned by a person if the person has the right to acquire the shares
(for example, upon exercise of an option) within 60 days of the date as of which
the  information  is  provided.  In  computing  the  percentage ownership of any
person,  the  amount  of  shares  is  deemed  to  include  the  amount of shares
beneficially  owned  by  such  person  (and only such person) by reason of these
acquisition  rights.  As  a  result, the percentage of outstanding shares of any
person  as  shown in this table does not necessarily reflect the person's actual
ownership  or  voting power with respect to the number of shares of common stock
actually  outstanding  on  March  15,  2007.  As  of  March  15, 2007 there were
38,773,495  shares  of  our  common  stock  issued  and  outstanding.


                                       25
<PAGE>
(2)   Includes 265,385 shares of common stock held directly and 2,980,045 shares
issuable  upon  the exercise of warrants to purchase additional shares of common
stock.  Excludes  950,000  warrants  issued to Mr. Dole that have been gifted to
his  children,  to  which  Mr.  Dole  disavows  beneficial  ownership.

(3)  Includes  247,692  shares  of common stock held directly and 384,231 shares
issuable directly upon the exercise of warrants to purchase additional shares of
common  stock.

(4)   Includes 640,186 shares directly and 219,231 shares issuable directly upon
the  exercise  of  warrants  to  purchase  additional  shares  of  common stock.

(6)  Includes  10,257  shares held directly and 111,538 shares issuable upon the
exercise  of  warrants  to  purchase  additional  shares  of  common  stock.

(7)  Includes  92,405  shares  held  directly  by Mr. Majeres and 111,538 shares
issuable  upon  the exercise of warrants to purchase additional shares of common
stock.

(9)  Includes 2,033,084 shares held by Wellington Trust Company, NA

_____________________________

We are not aware of any arrangements that could result in a change of control.

The disclosure required by Item 201(d) of Regulation S-B is set forth in ITEM 5
herein.

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

None  of  the  following persons has any direct or indirect material interest in
any  transaction to which we were or are a party since the beginning of our last
fiscal  year,  or in any proposed transaction to which we propose to be a party:

(A)  any  of  our  directors  or  executive  officers;

(B)  any  nominee  for  election  as  one  of  our  directors;

(C)  any  person who is known by us to beneficially own, directly or indirectly,
     shares  carrying  more  than 5% of the voting rights attached to our common
     stock;  or

(D)  any  member  of  the immediate family (including spouse, parents, children,
     siblings  and  in-laws)  of any of the foregoing persons named in paragraph
     (A),  (B)  or  (C)  above.

DIRECTOR  INDEPENDENCE

Two  of  our  Board  of  Directors  are  independent  Directors  pursuant to the
standards  applicable  to  Regulation  S-B.  Mr. Gerald Agranoff and Mr. Richard
Majeres  are  the  independent  Board  members

ITEM  13.     EXHIBITS

Exhibit  14.1  -  Code  of  Ethics  (Incorporated  by  reference  to  our  Form
SB-2 registration  statement  filed  on  June  6,  2005.

Exhibit  21.1  -  List  of  Subsidiaries

Exhibit  23.1  -  Consent  of  McCartney  Engineering  LLC,  March  26,  2007

Exhibit  23.2  -  Consent  of  Ryder  Scott  Company,  March  30,  2007


                                       26
<PAGE>
Exhibit  31.1  -  Certification of Chief Executive Officer of Petrosearch Energy
Corporation  required  by  Rule  13a-14(1) or Rule 15d - 14(a) of the Securities
Exchange  Act  of  1934,  as  adopted  pursuant  to  Section  302  of  the
Sarbanes-Oxley  Act  of  2002.

Exhibit  31.2  -  Certification of Chief Financial Officer of Petrosearch Energy
Corporation   required  by  Rule  13a-14(1)  or Rule 15d-14(a) of the Securities
Exchange  Act  of  1934,  as  adopted  pursuant  to  Section  302  of  the
Sarbanes-Oxley  Act  of  2002.

Exhibit  32.1  -  Certification of Chief Executive Officer of Petrosearch Energy
Corporation  pursuant  to  Section  906  of  the  Sarbanes-Oxley Act of 2002 and
Section  1350  of  18  U.S.C.  63.

Exhibit  32.2  -  Certification of Chief Financial Officer of Petrosearch Energy
Corporation  pursuant  to  Section  906  of  the  Sarbanes-Oxley Act of 2002 and
Section  1350  of  18  U.S.C.  63.


ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES

     The  following  table  sets  forth  the  aggregate fees paid or accrued for
professional  services  rendered by Ham, Langston & Brezina for the audit of our
annual  financial  statements  for fiscal year 2006 and fiscal year 2005 and the
aggregate fees paid or accrued for audit-related services and all other services
rendered  by  Ham, Langston & Brezina for fiscal year 2006 and fiscal year 2005.

<TABLE>
<CAPTION>
                            2006          2005
                         -----------  ------------
<S>                      <C>          <C>
     Audit fees          $    76,000  $     69,000
     Audit-related fees            0         2,000
     Tax fees                 18,800         9,805
     All other fees            1,500        27,309
                         -----------  ------------

     Total               $    96,300  $    108,114
                         ===========  ============
</TABLE>

     The  category of "Audit fees" includes fees for our annual audit, quarterly
reviews  and  services  rendered  in connection with regulatory filings with the
SEC,  such  as  the  issuance  of  comfort  letters  and  consents.

     The category of "Audit-related fees" includes employee benefit plan audits,
internal  control  reviews  and  accounting  consultation.

     The  category  of  "Tax  fees"  includes  consultation related to corporate
development  activities.

All  above  audit  services,  audit-related  services  and  tax  services  were
pre-approved  by the Audit Committee, which concluded that the provision of such
services  by Ham, Langston & Brezina was compatible with the maintenance of that
firm's  independence  in  the  conduct  of  its  auditing  functions.


                                       27
<PAGE>
                                   SIGNATURES

In  accordance with the requirements of Section 13 of 15(d) of the Exchange Act,
the  Registrant  has  caused  this  report  to  be  signed  on its behalf by the
undersigned,  thereunto  duly  authorized,  on  April  2,  2007.

PETROSEARCH ENERGY CORPORATION

By /s/ Richard D. Dole
   -------------------
Richard D. Dole
President and Chief Executive Officer


In  accordance  with  the  requirements of the Securities Act of 1933, this Form
10-KSB  has  been  signed  below by or on behalf of the following persons in the
capacities  and  on  the  dates  stated.

<TABLE>
<CAPTION>
Signature                      Title                                     Date
<S>                            <C>                                       <C>
By /s/ Richard D. Dole         President, Chief Executive Officer        April 2, 2007
----------------------         and Chairman of the Board
Richard D. Dole


By /s/ David J. Collins        Chief Financial Officer                   April 2, 2007
-----------------------        and Principal Financial Officer
David J. Collins


By /s/  Gerald Agranoff        Director                                  April 2, 2007
-----------------------
Gerald Agranoff


By /s/ Richard Majeres         Director                                  April 2, 2007
----------------------
Richard Majeres
</TABLE>


                                       28
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------



To the Board of Directors and Stockholders
Petrosearch Energy Corporation


We  have  audited  the  accompanying  consolidated balance sheets of Petrosearch
Energy  Corporation  and  subsidiaries  as of December 31, 2006 and 2005 and the
related  consolidated  statements  of  operations, stockholders' equity and cash
flows for the years then ended.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on  these  consolidated  financial  statements  based  on  our  audits.

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

In  our opinion, the consolidated financial statements referred to above present
fairly,  in  all  material  respects,  the  consolidated  financial  position of
Petrosearch  Energy  Corporation  and  subsidiaries  as of December 31, 2006 and
2005,  and  the  results  of their operations and their cash flows for the years
then  ended,  in conformity with accounting principles generally accepted in the
United  States  of  America.



                                        /s/  Ham,  Langston  &  Brezina,  L.L.P.



Houston,  Texas

March  30,  2007


                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                                   PETROSEARCH ENERGY CORPORATION
                                    CONSOLIDATED BALANCE SHEETS
                                     DECEMBER 31, 2006 AND 2005

ASSETS                                                                          2006          2005
------                                                                      ------------  ------------
<S>                                                                         <C>           <C>

Current assets:
  Cash                                                                      $ 3,715,618   $ 4,052,844
  Accounts receivable:
    Joint owners-billed, net of allowance of $83,073                            421,081     1,342,386
    Joint owners-unbilled                                                        15,213         1,958
    Oil and gas production sales                                                146,408         9,345
  Prepaid expenses and other current assets                                     829,104       517,482
                                                                            ------------  ------------
      Total current assets                                                    5,127,424     5,924,015
                                                                            ------------  ------------

Property and equipment:
  Oil and gas properties, full cost method of accounting:
    Properties subject to amortization                                       23,462,639    11,849,520
    Properties not subject to amortization                                    6,309,169     3,513,597
  Other property and equipment                                                  149,348       147,047
                                                                            ------------  ------------
    Total                                                                    29,921,156    15,510,164
  Less accumulated depreciation, depletion and amortization                  (2,357,347)   (1,966,000)
                                                                            ------------  ------------
    Total property and equipment, net                                        27,563,809    13,544,164

Prepaid oil and gas costs                                                        14,507        81,603

Other assets                                                                    656,790        66,462
                                                                            ------------  ------------

    Total assets                                                            $33,362,530   $19,616,244
                                                                            ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
  Current portion of long-term debt                                         $ 1,863,531   $   908,168
  Current portion of long-term debt Kallina                                     298,806             -
  Trade note payable                                                            409,819             -
  Accounts payable                                                            1,062,679       561,546
  Accrued liabilities                                                         1,532,196       750,036
  Warrant liability                                                             317,752             -
                                                                            ------------  ------------
    Total current liabilities                                                 5,484,783     2,219,750
                                                                            ------------  ------------

Long-term debt, net of current portion                                        2,066,074     2,537,251
Long-term debt, net of current portion - Kallina                              6,963,694             -
Other long-term obligations                                                     906,996       670,456
                                                                            ------------  ------------
    Total liabilities                                                        15,421,547     5,427,457
                                                                            ------------  ------------

Stockholders' equity:
  Preferred stock, par value $1.00 per share, 20,000,000 shares
  authorized:
    Series A  8% convertible preferred stock, 1,000,000 shares authorized;
    483,416 shares issued and outstanding at December 31, 2006 and 2005         483,416       483,416
    Series B convertible preferred stock, 100,000 shares authorized;
    43,000 shares issued and outstanding at December 31, 2006 and  2005          43,000        43,000
  Common stock, par value $0.001 per share, 100,000,000 shares
  Authorized; 37,927,070 and 28,497,761 shares issued and outstanding
  at December 31, 2006 and 2005                                                  37,927        28,497
  Additional paid-in capital                                                 23,928,090    18,089,828
  Unissued common stock                                                         771,429       545,000
  Accumulated deficit                                                        (7,322,879)   (5,000,954)
                                                                            ------------  ------------
      Total stockholders' equity                                             17,940,983    14,188,787
                                                                            ------------  ------------

      Total liabilities and stockholders' equity                            $33,362,530   $19,616,244
                                                                            ============  ============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                         PETROSEARCH ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                                       2006          2005
                                                   ------------  ------------
<S>                                                <C>           <C>
Oil and gas production revenues                    $ 1,232,958   $ 1,701,043
                                                   ------------  ------------

Operating costs and expenses:
  Lease operating and production taxes                 653,265       581,313
  Depreciation, depletion and amortization             391,347       563,252
  General and administrative                         2,766,235     3,268,088
                                                   ------------  ------------

    Total costs and expenses                         3,810,847     4,412,653
                                                   ------------  ------------

Operating loss                                      (2,577,889)   (2,711,610)
                                                   ------------  ------------

Other income (expense):
  Interest income                                       73,585        51,031
  Interest expense                                    (801,067)     (240,452)
  Gain on sale of securities                         1,000,000             -
  Change in value of warrant liability                 (16,554)            -
                                                   ------------  ------------

    Total other income (expense)                       255,964      (189,421)
                                                   ------------  ------------

      Net loss                                     $(2,321,925)  $(2,901,031)
                                                   ============  ============

Basic and diluted net loss per common share        $     (0.08)  $     (0.11)
                                                   ============  ============

Weighted average common shares                      31,253,819    25,409,348
                                                   ============  ============
</TABLE>

    The accompanying notes are an integral part of these consolidated financial
                                   statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                                  PETROSEARCH ENERGY CORPORATION
                                          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                                                                                                        TOTAL
                                        SERIES A             SERIES B         ADDITIONAL   UNISSUED                     STOCK-
                   COMMON STOCK      PREFERRED STOCK      PREFERRED STOCK      PAID-IN      COMMON     ACCUMULATED     HOLDERS
                 SHARES    AMOUNT    SHARES     AMOUNT    SHARES    AMOUNT     CAPITAL       STOCK       DEFICIT        EQUITY
               ----------  -------  ---------  --------  ---------  -------  ------------  ---------  -------------  ------------
<S>            <C>         <C>      <C>        <C>       <C>        <C>      <C>           <C>        <C>            <C>
Balance at
December 31,
2004           18,792,120  $18,792    483,416  $483,416     43,000  $43,000  $ 6,884,784   $       -  $ (2,099,923)  $ 5,330,069

Common Stock
issued
for cash        9,174,873    9,174          -         -          -        -   10,600,545           -             -    10,609,719

Common stock
issued and
committed for
oil and gas
properties        500,000      500          -         -          -        -      544,500     545,000             -     1,090,000

Compensation
awarded to
Board of
Directors          30,768       31          -         -          -        -       59,969           -             -        60,000

Issuances of
warrants
with debt               -        -          -         -          -        -       88,422           -             -        88,422

Cancellation
of warrants             -        -          -         -          -        -      (88,392)          -             -       (88,392)

Net loss                -        -          -         -          -        -            -           -    (2,901,031)   (2,901,031)
               ------------------------------------------------------------------------------------------------------------------
Balance at
December 31,
2005           28,497,761  $28,497    483,416  $483,416     43,000  $43,000  $18,089,828   $ 545,000  $ (5,000,954)  $14,188,787
               ==================================================================================================================
</TABLE>

    The accompanying notes are an integral part of these consolidated financial
                                   statements.


                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                                                  PETROSEARCH ENERGY CORPORATION
                                          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


                                                                                                                        TOTAL
                                          SERIES A            SERIES B       ADDITIONAL    UNISSUED                     STOCK-
                     COMMON STOCK      PREFERRED STOCK     PREFERRED STOCK     PAID-IN      COMMON     ACCUMULATED     HOLDERS
                   SHARES    AMOUNT    SHARES    AMOUNT    SHARES   AMOUNT     CAPITAL      STOCK        DEFICIT        EQUITY
                 ----------  -------  --------  --------  --------  -------  -----------  ----------  -------------  ------------
<S>              <C>         <C>      <C>       <C>       <C>       <C>      <C>          <C>         <C>            <C>
Balance at
December 31,
2005             28,497,761  $28,497   483,416  $483,416    43,000  $43,000  $18,089,828  $ 545,000   $ (5,000,954)  $14,188,787

Common stock
issued for cash   8,368,576    8,369                                           4,787,768    771,429                    5,567,566

Issuance of
common stock
committed           500,000      500                                             544,500   (545,000)                           -

Common stock
issued for
employee
compensation        300,000      300                                             239,700                                 240,000

Common stock
issued for
services             82,500       83                                              54,501                                  54,584

Exercise of
warrants            178,233      178                                             174,491                                 174,669

Issuance of
warrants to
lender                                                                            37,302                                  37,302

Net loss                                                                                                (2,321,925)   (2,321,925)
                 ----------------------------------------------------------------------------------------------------------------
Balance at
December 31,
2006             37,927,070  $37,927   483,416  $483,416    43,000  $43,000  $23,928,090  $ 771,429   $ (7,322,879)  $17,940,983
                 ================================================================================================================
</TABLE>

    The accompanying notes are an integral part of these consolidated financial
                                   statements.


                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                                     PETROSEARCH ENERGY CORPORATION
                                  CONSOLIDATED STATEMENT OF CASH FLOWS
                             FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                                                                 2006           2005
                                                                             -------------  ------------
<S>                                                                          <C>            <C>
Cash flows from operating activities:
Net loss                                                                     $ (2,321,925)  $(2,901,031)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depletion, depreciation and amortization expense                                391,347       563,252
  Write off of prepaid oil and gas costs                                                -        60,000
  Stock based compensation                                                        294,584        60,000
  Amortization of deferred rent                                                    (5,082)           77
  Amortization of debt discount and financing costs                               161,887        48,283
  Accretion of asset retirement obligation                                         28,505             -
  Change in value of warrant liability                                             16,554             -
  Bad debt expense                                                                      -       145,443
  Gain on sale of securities                                                   (1,000,000)            -
Changes in operating assets and liabilities:
  Accounts receivable                                                             488,455       368,664
  Prepaid expenses and other assets                                              (960,403)     (235,055)
  Accounts payable and accrued liabilities                                        853,423      (599,672)
  Trade note payable                                                              409,819             -
                                                                             -------------  ------------

Net cash used in operating activities                                          (1,642,836)   (2,490,039)
                                                                             -------------  ------------

Cash flows from investing activities:
  Capital expenditures, including purchases and development of properties     (14,141,190)   (7,815,083)
  Purchase of prepaid credits for oil and gas properties, net                           -       (59,323)
  Proceeds from sale of property                                                  509,015     2,072,002
  Proceeds from sale of equity securities                                       1,000,000             -
                                                                             -------------  ------------

Net cash used in investing activities                                         (12,632,175)   (5,802,404)
                                                                             -------------  ------------

Cash flows from financing activities:
  Proceeds from the sale of common stock                                        5,760,616    10,609,719
  Proceeds from exercise of warrants                                              174,669             -
  Proceeds from notes payable                                                  10,880,000     3,950,000
  Repayment of notes payable                                                   (2,877,500)   (3,315,000)
                                                                             -------------  ------------

Net cash provided by financing activities                                      13,937,785    11,244,719
                                                                             -------------  ------------

Net (decrease) increase in cash and cash equivalents                             (337,226)    2,952,276

Cash and cash equivalents at beginning of year                                  4,052,844     1,100,568
                                                                             -------------  ------------

Cash and cash equivalents at end of year                                     $  3,715,618   $ 4,052,844
                                                                             =============  ============

Supplemental disclosures of cash flow information:
  Interest paid                                                              $    546,031   $   227,192
                                                                             =============  ============

  Income taxes paid                                                          $          -   $         -
                                                                             =============  ============

</TABLE>

    The accompanying notes are an integral part of these consolidated financial
                                   statements.


                                      F-6
<PAGE>
                         PETROSEARCH ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   ORGANIZATION  AND  SIGNIFICANT  ACCOUNTING  POLICIES
     ----------------------------------------------------

     ORGANIZATION
     ------------

     Petrosearch Energy Corporation (the "Company"), a Nevada Corporation formed
     in  November  2004, is an independent oil and gas company based in Houston,
     Texas,  with  a  second  office in Dallas, Texas. The Company is a resource
     based  exploration and development company with operations focused in three
     core  areas  of  the  lower  48  states  of the United States with existing
     production  in  Texas,  North  Dakota and Oklahoma. The three core areas of
     operation  include  a  Barnett  Shale  project through the participation in
     DDJET Limited LLP, the development of a Texas Panhandle water flood project
     and  the  exploitation of the Wilcox trend in the SW Garwood Field of South
     Texas.

     PRINCIPLES  OF  CONSOLIDATION
     -----------------------------

     The consolidated financial statements presented herein include the accounts
     of the Company and its wholly-owned subsidiaries. In addition, during 2006,
     the  consolidated  financial statements of the Company include its pro-rata
     share  of  the  accounts of the DDJET Limited LLP Partnership, in which the
     company  has  a  5.54  percent  ownership  interest.  All  significant
     inter-company  accounts  and  transactions  have  been  eliminated.

     ACCOUNTING  ESTIMATES
     ---------------------

     The  preparation  of  financial  statements  in  conformity with accounting
     principles  generally  accepted  in  the  United States of America requires
     management  to  make  estimates  and  assumptions  that affect the reported
     amounts  of  assets and liabilities at the date of the financial statements
     and  the  reported  amounts  of  revenue  and expenses during the reporting
     period.  Our  most  significant  financial estimates are based on remaining
     proved  natural  gas and oil reserves. Estimates of proved reserves are key
     components of our depletion rate for natural gas and oil properties and our
     full  cost  ceiling  test  limitation.  In  addition, estimates are used in
     computing  taxes,  preparing  accruals  of  operating  costs and production
     revenues,  asset retirement obligations and fair value of stock options and
     the  related  compensation  expense. See Note 14 - Supplemental Oil and Gas
     Information  (Unaudited)  for  more  information  relating  to estimates of
     proved  reserves.  Because there are numerous uncertainties inherent in the
     estimation  process,  actual  results  could  differ  materially from these
     estimates.

     BUSINESS  SEGMENTS
     ------------------

     The  Financial  Accounting  Standards Board ("FASB") Statement of Financial
     Accounting  Standards  ("SFAS")  131,  "Disclosures  about  Segments  of an
     Enterprise  and  Related  Information"  establishes standards for reporting
     information  about  operating  segments.  Operating segments are defined as
     components  of  an  enterprise  that engage in activities from which it may
     earn  revenues  and  incur  expenses.  Operating  segments  have  separate
     financial  information  and  this information is regularly evaluated by the
     chief  decision maker for the purpose of allocating resources and assessing
     performance.

     Segment  reporting  is not applicable for us as each of our operating areas
     has  similar  economic  characteristics  and  each  meets  the criteria for
     aggregation  as  defined  in  SFAS  131.  All of our operations involve the
     exploration,  development and production of natural gas and oil, and all of
     our  operations  are  located  in  the  United  States.  We  have a single,
     company-wide  management  team  that  administers all properties as a whole
     rather than as discrete operating segments. We track only basic operational
     data  by  area,  and  do  not  maintain  comprehensive  financial statement
     information  by  area.  We  measure  financial  performance  as  a  single
     enterprise and not on an area-by-area basis. Throughout the year, we freely
     allocate  capital resources on a project-by-project basis across our entire
     asset  base to maximize profitability without regard to individual areas or
     segments.


                                      F-7
<PAGE>
     OIL  AND  GAS  PROPERTIES
     -------------------------

     The  Company  follows  the full cost method of accounting for crude oil and
     natural  gas  properties.  Under  this method, all direct costs and certain
     directly  related  internal costs associated with acquisition of properties
     and  successful,  as  well  as  unsuccessful,  exploration  and development
     activities  are  capitalized.  Depreciation,  depletion and amortization of
     capitalized  crude  oil  and  natural  gas  properties and estimated future
     development  costs,  excluding  unproved  properties,  are  based  on  the
     unit-of-production  method  based on proved reserves. Net capitalized costs
     of  crude  oil and natural gas properties, as adjusted for asset retirement
     obligations, net of salvage value, are limited, by country, to the lower of
     unamortized  cost  or  the  cost ceiling, defined as the sum of the present
     value  of  estimated  future  net  revenues  from  proved reserves based on
     unescalated  prices  discounted  at 10 percent, plus the cost of properties
     not being amortized, if any, plus the lower of cost or estimated fair value
     of  unproved properties included in the costs being amortized, if any, less
     related  income  taxes.  Excess  costs  are  charged  to  proved  property
     impairment  expense. No gain or loss is recognized upon sale or disposition
     of  crude  oil and natural gas properties, except in unusual circumstances.

     The  following  table  reflects the depletion expense incurred from oil and
     gas  properties  during  the  years  ended  December  31,  2006  and  2005:

<TABLE>
<CAPTION>
                                             2006      2005
                                           --------  --------
<S>                                        <C>       <C>
       Depletion Expense                   $361,933  $543,654
                                           ========  ========
       Depletion expense per BOE produced  $  18.51  $  15.24
                                           ========  ========
</TABLE>

     At  December 31, 2006 and 2005, unproved oil and gas properties not subject
     to  amortization  included  $6,309,169  and  $3,513,597,  respectively,  of
     property  acquisition, exploration and development costs that are not being
     amortized.  These  costs will begin to be amortized when they are evaluated
     and  proved,  reserves  are discovered, impairment is indicated or when the
     lease  terms expire. Unproved leasehold costs consist of interest in leases
     located  in  Mississippi,  Oklahoma  and  Texas.

     The  following  table  reflects  the  periods  when costs were incurred for
     unproved  oil  and  gas  properties  costs:

<TABLE>
<CAPTION>
                                     2004      2005       2006       TOTAL
                                   --------  --------  ----------  ----------
<S>                                <C>       <C>       <C>         <C>
       Property acquisition costs  $309,961  $431,334  $2,872,847  $3,614,142
       Exploration costs                  -         -   2,695,027   2,695,027
                                   ------------------------------------------

         Total                     $309,961  $431,334  $5,567,874  $6,309,169
                                   ==========================================
</TABLE>

     Unproved properties represent costs associated with properties on which the
     Company  is  performing  exploration activities or intends to commence such
     activities.  These costs are reviewed periodically for possible impairments
     or  reduction  in  value  based  on  geological  and geophysical data. If a
     reduction  in  value  has  occurred,  costs  being amortized are increased.

     OTHER  PROPERTY  AND  EQUIPMENT
     -------------------------------

     Property  and  equipment is stated at cost.  Depreciation is computed using
     the  straight-line  method  over the estimated useful lives of 3 to 5 years
     for  office furniture and equipment and transportation and other equipment.
     Additions  or improvements that increase the value or extend the life of an
     asset  are capitalized. Expenditures for normal maintenance and repairs are
     expensed  as incurred. Disposals are removed from the accounts at cost less
     accumulated depreciation and any gain or loss from disposition is reflected
     in  operations.  Depreciation  expense for other property and equipment for
     the  years  ended  December  31,  2006  and  2005  was $29,414 and $19,598,
     respectively.


                                      F-8
<PAGE>
     ASSET RETIREMENT OBLIGATIONS
     ----------------------------

     Effective  January  1,  2003,  the  Company  adopted Statement of Financial
     Accounting  Standards  No. 143, Accounting for Asset Retirement Obligations
     ("SFAS  143").  This  statement  applies to obligations associated with the
     retirement  of tangible long-lived assets that result from the acquisition,
     construction and development of the assets. SFAS 143 requires that the fair
     value  of  a  liability  for  a  retirement obligation be recognized in the
     period in which the liability is incurred. For oil and gas properties, this
     is the period in which an oil or gas well is acquired or drilled. The asset
     retirement  obligation is capitalized as part of the carrying amount of the
     Company's  oil  and  gas  properties  at  its  discounted  fair  value. The
     liability  is  then  accreted each period until the liability is settled or
     the  well  is  sold,  at  which  time  the  liability  is  reversed.

     A  reconciliation of the Company's asset retirement obligation liability is
     as  follows:

<TABLE>
<CAPTION>
                                                 As of December 31,
                                                 2006         2005
                                              -----------  ----------
<S>                                           <C>          <C>
       Beginning asset retirement obligation  $  633,455            -
         Liabilities incurred                     76,826   $  633,455
         Liabilities settled                     (30,056)           -
         Revisions in estimated cash flows       166,347            -
       Accretion expense                          28,505            -
                                              -----------  ----------
       Ending asset retirement obligation     $  875,077   $  633,455
                                              ===========  ==========
</TABLE>

     CASH  AND  CASH  EQUIVALENTS
     ----------------------------

     For  purposes of reporting cash flows, the Company considers all short-term
     investments  with  an  original  maturity  of  three  months  or  less when
     purchased  to  be  cash  equivalents.

     RECEIVABLES
     -----------

     The Company routinely assesses the recoverability of all material trade and
     other  receivables to determine their collectibility. Many of the Company's
     receivables  are  from  joint  interest  owners  on properties of which the
     Company is the operator. Thus, the Company may have the ability to withhold
     future  revenue  disbursements to recover any non-payment of joint interest
     billings.  Generally,  the  Company's crude oil and natural gas receivables
     are  collected  within  two  months.  The  Company  accrues  a reserve on a
     receivable when, based on the judgment of management, it is probable that a
     receivable  will  not  be  collected  and  the amount of any reserve may be
     reasonably  estimated.  As  of  December  31,  2006  and  2005, the Company
     provided  an  allowance  of  $83,073  for  doubtful  accounts  for  trade
     receivables  or  joint  interest  owner  receivables.

     FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS
     ---------------------------------------

     The  Company  includes  fair  value  information  in the notes to financial
     statements  when  the  fair value of its financial instruments is different
     from  the  book  value.  When  the  book  value approximates fair value, no
     additional  disclosure is made, which is the case for financial instruments
     outstanding  as of December 31, 2006 and 2005. The Company assumes the book
     value  of  those  financial  instruments  that  are  classified  as current
     approximates fair value because of the short maturity of these instruments.
     For  non-current  financial  instruments,  the  Company  uses quoted market
     prices  or, to the extent that there are no available quoted market prices,
     market  prices  for  similar  instruments.

     RESTORATION,  REMOVAL  AND  ENVIRONMENTAL  LIABILITIES
     ------------------------------------------------------

     The  Company is subject to extensive federal, state and local environmental
     laws  and  regulations. These laws regulate the discharge of materials into
     the  environment  and  may  require  the  Company to remove or mitigate the
     environmental effects of the disposal or release of petroleum substances at
     various  sites.  Environmental  expenditures  are  expensed  or capitalized
     depending  on their future economic benefit. Expenditures that relate to an
     existing  condition  caused  by  past  operations  and  that have no future
     economic  benefit  are  expensed.


                                      F-9
<PAGE>
     Liabilities  for  expenditures  of  a  noncapital  nature are recorded when
     environmental assessments and/or remediation is probable, and the costs can
     be reasonably estimated. Such liabilities are generally undiscounted unless
     the  timing  of  cash  payments for the liability or component are fixed or
     reliably determinable. As of December 31, 2006, the Company believes it has
     no  such  liabilities.

     CONCENTRATION  OF  CREDIT  RISK  AND  MAJOR  CUSTOMERS
     ------------------------------------------------------

     Financial instruments which subject the Company to concentrations of credit
     risk include cash and cash equivalents and accounts receivable. The Company
     maintains  its  cash and cash equivalents with major financial institutions
     selected  based  upon  management's  assessment  of  the  banks'  financial
     stability.  Balances  regularly  exceed  the  $100,000  federal  depository
     insurance  limit.  The  Company has not experienced any losses on deposits.

     The Company performs ongoing credit evaluations and, generally, requires no
     collateral  from  its  customers  or  other  joint  interest  owners. As of
     December  31,  2006,  53%, 20%, and 17% of accounts receivable from oil and
     gas  sales  were  from  three  customers.

     As  of  December  31,  2006,  43%, 30%, and 17% of accounts receivable from
     joint  interest  owners  were  from  three  joint  interest  owners.

     During  the  years  ended December 31, 2006 and 2005, respectively, 77% and
     94%  of  the Company's revenue was received from two and three customers as
     follows:

<TABLE>
<CAPTION>
                      2006        2005
                   ----------  ----------
<S>                <C>         <C>
       Customer A  $  787,839  $  879,542
       Customer B           -     552,998
       Customer C     160,605     172,540
       Others         284,514      95,963
                   ----------  ----------

         Total     $1,232,958  $1,701,043
                   ==========  ==========
</TABLE>

     The  Company had no other single customer that accounted for 10% or more of
     revenues  in 2006 or 2005. Due to the nature of the demand of its products,
     crude oil and natural gas, the Company believes that it is not dependent on
     any  single  customer.

     REVENUE  RECOGNITION
     --------------------

     We use the entitlements method of accounting for the recognition of natural
     gas  and  oil revenues. Under this method of accounting, income is recorded
     based on our net revenue interest in production or nominated deliveries. We
     recognize  and  record  sales  when  production is delivered to a specified
     pipeline point, at which time title and risk of loss are transferred to the
     purchaser.  Our  arrangements  for  the  sale  of  natural  gas and oil are
     evidenced  by  written  contracts  with determinable market prices based on
     published  indices.  We  continually  review  the  creditworthiness  of our
     purchasers  in  order  to  reasonably  assure  the timely collection of our
     receivables.  Historically,  we  have  experienced  no  material  losses on
     receivables.

     EARNINGS  (LOSS)  PER  SHARE
     ----------------------------

     The  Company  provides  basic and dilutive earnings (loss) per common share
     information for each year presented. The basic net loss per common share is
     computed  by dividing the net loss by the weighted average number of common
     shares  outstanding.  Diluted  net  loss  per  common  share is computed by
     dividing  the  net  loss,  adjusted  on  an "as if converted" basis, by the
     weighted  average  number  of  common  shares  outstanding  plus  potential
     dilutive  securities.  For  the  years  ended  December  31, 2006 and 2005,
     potential  dilutive  securities,  assuming the Company had net income, that
     had  an  anti-dilutive  effect  and were not included in the calculation of
     diluted net loss per common share consisted of warrants for the purchase of
     63,210  and  651,281 common shares, respectively, and convertible preferred
     stock  convertible  into  94,218  common  shares.


                                      F-10
<PAGE>
     STOCK  BASED  COMPENSATION
     --------------------------

     Prior  to  January  1,  2006 the Company used SFAS No. 123, "Accounting for
     Stock-Based  Compensation"  which  established  financial  accounting  and
     reporting standards for stock-based employee compensation plans. It defined
     a  fair  value  based  method of accounting for an employee stock option or
     similar  equity instrument and encouraged all entities to adopt that method
     of  accounting  for  all  of  their  employee  stock compensation plans and
     include  the cost in the income statement as compensation expense. However,
     it  also  allowed  an  entity  to continue to measure compensation cost for
     those plans using the intrinsic value based method of accounting prescribed
     by  Accounting  Principles  Board  ("APB")  Opinion No. 25, "Accounting for
     Stock  Issued  to  Employees".  During  2005,  the  Company  accounted  for
     compensation cost for stock option plans in accordance with APB Opinion No.
     25.

     On  January 1, 2006, the Company adopted SFAS 123(R), "Share-Based Payment"
     using  the  "modified  prospective method" as defined by SFAS 123 (R). SFAS
     123(R)  requires all share-based payments to employees, including grants of
     employee  stock  options,  to  be  recognized  as  stock-based compensation
     expense  in  the  Company's  Consolidated  Statement of Operations based on
     their  fair  values.  Proforma  disclosure  is  no  longer  an alternative.
     Accordingly,  the Company now recognizes compensation expense for all stock
     options.

     CAPITALIZED  INTEREST
     ---------------------

     The  Company  capitalizes  interest on expenditures made in connection with
     exploration  and  development  projects  that  are  not  subject to current
     amortization.  Interest  is capitalized only for the period that activities
     are  in  progress  to  bring these projects to their intended use. Interest
     capitalized  in  2006  and  2005  was  $120,802  and $46,630, respectively.

     INCOME  TAXES
     -------------

     The  Company  uses  the  liability  method  in accounting for income taxes.
     Under this method, deferred tax assets and liabilities are determined based
     on  differences between financial reporting and income tax carrying amounts
     of  assets and liabilities and are measured using the enacted tax rates and
     laws that will be in effect when the differences are expected to reverse. A
     valuation allowance, if necessary, is provided against deferred tax assets,
     based  upon  management's  assessment  as  to  their  realization.

     OTHER  INCOME
     -------------

     On  May  5,  2006  the  Company sold 1,500,000 shares of Texcom Stock for a
     total  of  $1,000,000.  The  Company  acquired  the shares in November 2003
     pursuant  to  a  merger  and  a  sale  of  a  subsidiary.

     OFF BALANCE SHEET ARRANGEMENTS
     ------------------------------

     From  time-to-time,  the Company enters into off-balance sheet arrangements
     and transactions that can give rise to off-balance sheet obligations. As of
     December 31, 2006, the off-balance sheet arrangements and transactions that
     the  Company  has  entered  into include two operating lease agreements for
     office  space.  The  Company  does  not believe that these arrangements are
     reasonably likely to materially affect its liquidity or availability of, or
     requirements  for,  capital  resources.

     NEW ACCOUNTING PRONOUNCEMENTS
     -----------------------------

     The  following  discussions  provide  information  about  new  accounting
     pronouncements  that  have  been  issued  by  the  FASB:

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements."
     SFAS  157  defines  fair  value, establishes a framework for measuring fair
     value  and requires enhanced disclosures regarding fair value measurements.
     SFAS  157  does not add any new fair value measurements, but it does change
     current  practice and is intended to increase consistency and comparability
     in such measurement. The provisions of SFAS 157 are effective for financial
     statements  issued  for  fiscal  years  beginning  after November 15, 2007.


                                      F-11
<PAGE>
     Any amounts recognized upon adoption as a cumulative effect adjustment will
     be  recorded  to  the  opening  balance of retained earnings in the year of
     adoption.  The  Company is currently evaluating the impact of adopting SFAS
     157  on  its financial statements and does not expect the interpretation to
     have  a material impact on its results of operations or financial position.

     In  July  2006, the FASB issued FASB Interpretation No. 48, "Accounting for
     Uncertainty  in  Income  Taxes  -  an interpretation of FASB Statement 109"
     ("FIN 48"), which clarifies the accounting for uncertainty in tax positions
     taken or expected to be taken in a tax return, including issues relating to
     financial  statement  recognition and measurement. FIN 48 provides that the
     tax  effects  from  an  uncertain  tax  position  can  be recognized in the
     financial  statements  only if the position is "more-likely-than-not" to be
     sustained  if the position were to be challenged by a taxing authority. The
     assessment  of  the tax position is based solely on the technical merits of
     the position, without regard to the likelihood that the tax position may be
     challenged.  If  an uncertain tax position meets the "more-likely-than-not"
     threshold,  the  largest amount of tax benefit that is more than 50 percent
     likely to be recognized upon ultimate settlement with the taxing authority,
     is  recorded.  The  provisions  of  FIN  48  are effective for fiscal years
     beginning after December 15, 2006, with the cumulative effect of the change
     in  accounting  principle  recorded  as  an  adjustment to opening retained
     earnings.  Consistent  with the requirements of FIN 48, the Company adopted
     FIN  48  on January 1, 2007. The Company is currently evaluating the impact
     of  adopting  FIN  48  and  does  not  expect  the interpretation to have a
     material  impact  on  its  results  of  operations  or  financial position.

2.   SALE OF OIL AND GAS PROPERTIES
     ------------------------------

     Effective  July  1,  2005,  the  Company's  wholly  owned  subsidiary,  TK
     Petrosearch,  L.L.C.,  sold  its interest in the Blue Ridge Salt Dome Field
     for  $2,072,002  to  the individual who had managed the TK PetroSearch, LLC
     subsidiary.  The  transaction  has  been  reflected  in  the  accompanying
     financial  statements  as a reduction of capitalized oil and gas properties
     as  required  by  accounting  principles  generally  accepted in the United
     States  of  America. The following represents the unaudited proforma effect
     on the consolidated statement of operations for the year ended December 31,
     2005 as if the transaction occurred on January 1, 2005. The sale represents
     $30.16  per  barrel  of  oil  of  the  proved  reserves  sold.

<TABLE>
<CAPTION>
                                                                     PROFORMA       PROFORMA
                                                     AS REPORTED    ADJUSTMENTS    (UNAUDITED)
                                                    -------------  -------------  -------------
<S>                                                 <C>            <C>            <C>

       Oil and gas production revenues              $  1,701,043   $   (552,998)  $  1,148,045
       Costs and expenses                              4,412,653        359,162      4,053,491
                                                    -------------------------------------------
       Operating loss                                 (2,711,610)      (193,836)    (2,905,446)

       Other expenses                                   (189,421)                     (189,421)
                                                    -------------------------------------------
       Net loss                                     $ (2,901,031)  $   (193,836)  $( 3,094,867)
                                                    ===========================================

       Basic and diluted net loss per common share  $      (0.11)  $      (0.01)  $      (0.12)
                                                    ===========================================
</TABLE>

     In  November 2006, the Company sold its interests in Burleson County, Texas
     for  proceeds  of  $509,015.  The  transaction  has  been  reflected in the
     accompanying financial statements as a reduction of capitalized oil and gas
     properties  as  required by accounting principles generally accepted in the
     United  States  of  America.  Proformas  are not included as this was not a
     producing  property.

3.   INTERESTS  IN  OIL  AND  GAS  PROPERTIES
     ----------------------------------------

     BARNETTSHALE  PROJECT,  8  COUNTIES,  TEXAS
     -------------------------------------------

     Effective December 15, 2006, the Company's wholly owned subsidiary, Barnett
     Petrosearch  LLC  ("Barnett"),  joined  in  the formation of a Partnership,
     DDJET  Limited  LLP,  ("Partnership")  for the development of Barnett Shale
     properties in the Fort Worth Basin, Texas. Barnett owns a 5.54% interest in
     the  Partnership along with partners, Metroplex Barnett Shale LLC (a wholly
     owned subsidiary of Exxon Mobil Corporation), which will direct operations,
     and  Cinco  County  Barnett  Shale  LLC,  (a  privately  held  Dallas-based
     company).  The decision to hold the Company's ownership interest in the oil
     and  gas  leases  and


                                      F-12
<PAGE>
     infrastructure  assets of the Barnett Shale project in a partnership was to
     ensure the alignment of the interests of all the owners and to simplify the
     operations  relative  to  the  project.

     The  Partnership's  assets  include  all  leases acquired to date within an
     8-county  contract area, under a previous agreement among affiliates of the
     three partners, along with associated facilities including nearly 100 miles
     of pipeline and options on separate pipeline rights of way. Pursuant to the
     Partnership  agreement  the  Company  takes  its  gas in-kind and is billed
     separately  each month for its proportionate share of the leasing, drilling
     and  completion costs as if our interest was a working interest. ExxonMobil
     has  agreed  to  market  the  Company's  gas  for  the  first  year  of the
     partnership.

     The  Partnership  Agreement provides for an initial agreed capital and cash
     and non-cash operating expense budget which runs through calendar 2008. The
     Initial  budget  cannot  be  amended  unless  unanimously  agreed to by the
     partners.  In  addition  to  the $5,500,000 investment through December 31,
     2006,  the  Company's capital requirement through 2008 based upon Barnett's
     Partnership  percentage  is approximately $18,300,000. The Partnership will
     continue  its leasing activities within the 8-county contract area, but the
     current  oil  and  gas  lease  inventory  is  sufficient  to  support  all
     Partnership  drilling  activities  through  the  initial  budget  period.

     The  Partnership  Agreement  provides  that  if a partner does not meet its
     financial  obligations  on  a  timely basis, the defaulting partner can be,
     among  other  available  remedies,  expelled  from the Partnership. If this
     occurs  and  if  unanimous  agreement  as  to  the  value of the defaulting
     partner's  Partnership  interest  cannot be reached, then the value of that
     partner's  interest  will  be  determined using the Partnership's appraisal
     methods.  All  accrued  obligations and fees related to the valuation would
     then  be deducted. The resulting figure would then be further reduced by an
     additional  thirty  percent  (30%)  to achieve a figure which is the amount
     which  would  be  paid  to  the  defaulting  partner  for its interest upon
     expulsion.

     SOUTHWEST  GARWOOD  PROJECT,  COLORADO  COUNTY,  TEXAS
     ------------------------------------------------------

     Effective  November  1, 2006, the Company exercised its option to acquire a
     100%  working interest (68% after payout working interest) from Rock Energy
     Partners Operating, L.P. in the Anthony Kallina et al lease covering 438.16
     acres  and the existing Kallina 46#1 well in the Southwest Garwood Field of
     Colorado  County, Texas. As part of this transaction, the Company gave up a
     20% working interest in 240 acres and a 21.5% after payout working interest
     in  445  acres.

     In  connection with Petrosearch's exercise of the option and acquisition of
     these interests into its newly formed subsidiary, Garwood Petrosearch, Inc.
     ("Garwood"),  Garwood  executed  an agreement with Laurus Master Fund, Ltd.
     ("Laurus")  for Laurus to provide financing for the acquisition, payment of
     the previous working interest owner's vendor obligations and the completion
     costs  for  the  Kallina  46#1  well  (Note  6).

     On  November  13,  2006, Garwood farmed out a 12.5% working interest in the
     Kallina  lease and the Kallina 46 #1 well to an industry partner on a heads
     up  basis.  Garwood  retains an 87.5% working interest in the Kallina lease
     and the Kallina 46 #1 well before payout and a 59.5% working interest after
     payout.

     In  the  SW Garwood project, as a result of the exercise of this option and
     the  sale  of  the  interest  in the entire SW Garwood Project, Petrosearch
     entities  now  own  a 16% working interest in 640 acres; a 16% after payout
     working  interest  in 640 acres; and an 87.5% before payout and 75.5% after
     payout  working  interest  in  438  acres.

     The  net cost to exercise the Company's option after the 12.5% farm-out was
     approximately  $4,500,000.  Included  in  unproved  property  costs  as  of
     December  31,  2006,  is  approximately  $5,400,000 of costs related to the
     Southwest  Garwood  Project.

     NORTH  TEXAS/PANHANDLE  WATER  FLOOD  PROJECT
     ---------------------------------------------

     Effective  November  15,  2005,  the  Company  entered into an agreement to
     purchase  a  100%  working interest in 1755 acres of leases in the Quinduno
     Field  located  in  Roberts  County,  Texas  from  Quinduno  Energy, L.L.C,
     ("Quinduno").  The agreement provides for the payment of the purchase price
     of  $2,000,000  cash  and 3,000,000 shares of unregistered common shares of
     the Company to occur in three phases as the project progresses. The Company
     is  currently  in  the first phase of the project and has paid $750,000 and
     issued


                                      F-13
<PAGE>
     1,000,000  shares  of  stock  to  Quinduno.  Should  the  Company decide to
     progress  into  Phase  II  of  the  project,  the Company's next payment to
     Quinduno of $500,000 and 500,000 shares of common stock of the Company will
     be  due  on May 15, 2007. Upon completion of the entire project, the seller
     will  back  in for a 10% working interest after Petrosearch has been repaid
     all  capital  expenditure  costs  plus  $9.5  million.

     At  any time after completion of the first phase of the project, should the
     Company,  in  the Company's sole discretion, determine to terminate further
     operations,  then the Company must offer Quinduno the Company's interest in
     the  leases for a purchase price equal to an internal rate of return to the
     Company  of  twenty-two  and  one half percent (22.5%), calculated monthly,
     using  the  closing  date under the Agreement as the commencement date and,
     taking  into account all acquisition cash, all capital expenditures, plus a
     sum  of  $7,500,000  and the net income received from the project. Quinduno
     will  have  45  days  to  exercise  its  right of refusal to repurchase the
     leases,  at  which time, upon Quinduno's refusal to repurchase, the Company
     may  sell  the  Company's  interest  in  the  leases  to  a  third  party.

     GRUMAN #18-1 WELL AND GRUMAN LEASES
     -----------------------------------

     Effective  September  28,  2005, the Company purchased an additional 21.25%
     working  interest in the producing Gruman #18-1 Well, and Gruman Leases for
     $637,500, increasing the Company's working interest in the property to 85%.
     In March, 2006, the Company began drilling the Gruman 18-3 well intended to
     be  a  water  injection well. The well reached total depth of 9,890 feet on
     April  14,  2006.

     In  October 2006, the Company undertook certain remedial work on the Gruman
     18-1  which  has  improved  the  production  on  the  well.  The Company is
     currently  assessing  the  positive  impact  on  the  long term production.

     On  February  1,  2007  we  began  injecting produced water into the Gruman
     18-3  well.  The result has been to reduce the cost of operating the Gruman
     18-1.  The  Company  is considering supplementing this injection with water
     from  the  Dakota  for  pressure  maintenance in the mound. The Company has
     established  that  the  Gruman  18-3  is in pressure communication with the
     Gruman 18-1. Further testing or stimulation may be necessary to achieve the
     desired  future  injection  rates.

4.   PREPAID  EXPENSES  AND  OTHER  CURRENT  ASSETS
     ----------------------------------------------

     Prepaid  expenses  and  other  current  assets  consist of the following at
     December  31,  2006  and  2005:

<TABLE>
<CAPTION>
                                             2006      2005
                                           --------  --------
<S>                                        <C>       <C>
       Prepaid expenses                    $244,775  $152,386
       Prepaid bonds                        285,022   277,000
       Current portion of financing costs   235,429    42,890
       Other receivables                     63,878    45,206
                                           --------  --------

                                           $829,104  $517,482
                                           ========  ========
</TABLE>


5.   ACCRUED  LIABILITIES
     --------------------

     Accrued liabilities consist of the following at December 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                                             2006       2005
                                                          ----------  --------
<S>                                                       <C>         <C>
       Revenue payable and operated prepayment liability  $  367,915  $ 21,297
       Accrued interest payable                              169,060    36,794
       Accrued liabilities for capital additions             604,449   500,000
       Financing costs payable                               193,050         -
       Accrued liability for professional fees                84,778    50,000
       Other accrued expenses                                112,944   141,945
                                                          ----------  --------

                                                          $1,532,196  $750,036
                                                          ==========  ========
</TABLE>


                                      F-14
<PAGE>
6.   LONG-TERM  DEBT  AND  NOTES
     ---------------------------

     At December 31, 2006, principal payments due over the next five-year period
     and  thereafter  are  following:

<TABLE>
<CAPTION>
                                     2007        2008        2009        Total
                                  ----------  ----------  ----------  -----------
<S>                               <C>         <C>         <C>         <C>
       Revolving Credit Facility  $2,130,000  $2,135,000           -  $ 4,265,000

       Secured Term Note          $  298,806  $  507,714  $6,455,980  $ 7,262,500

       Trade Note Payable         $  409,819           -           -  $   409,819
                                  ----------  ----------  ----------  -----------

         Total Payments           $2,838,625  $2,642,714  $6,455,980  $11,937,319
                                  ==========  ==========  ==========  ===========
</TABLE>

     REVOLVING  CREDIT  AGREEMENT
     ----------------------------

     On  September  29,  2005,  the Company entered into an amended and restated
     revolving  credit  agreement  to  borrow  up to $10,000,000 over a two-year
     period to October 1, 2007, from a private, non-public entity. The agreement
     has  supplemental  terms  that were effective on October 16, 2006 through a
     separate  letter  agreement as discussed below. Proceeds of the credit line
     are to be used to finance activity related to eight new prospects including
     costs  associated  with  acquisitions  of  oil  and gas leases, oil and gas
     drilling,  reworking,  production,  transportation,  marketing and plugging
     activities  under  the  leases,  and  all lender charges and fees. Advances
     under  the amended and restated revolving credit agreement bear interest at
     a  rate  of  the Wall Street Journal Prime Rate plus three percent (3%) per
     year.  Each advance of principal under the amended facility is treated as a
     separate  loan  and  is  repayable  in  six  (6) interest only installments
     followed  by  up  to  twenty  four (24) principal and interest installments
     based  upon  a  30-month  amortization.  The Company will be assessed a one
     quarter  of  one  percent (.25%) standby fee on available undrawn principal
     each  quarter.  The note matures on April 1, 2008. As of December 31, 2006,
     the  balance outstanding under the line of credit agreement was $4,265,000,
     $2,130,000  of  which  is  due  in the next twelve months and $2,135,000 of
     which  is  due  in  2008.

     The  loan  is  collateralized by a first lien on the particular oil and gas
     leases  acquired  with  the  funds,  but  the Company is entitled to obtain
     partial  releases  if  the ratio of proved developed and proved undeveloped
     reserves  underlying  the collateral base meets certain criteria. According
     to the terms of the agreement, the unused available funds under the line of
     credit  will  only be available for draw by the Company if at all times the
     Company's  proved  developed  reserves  equal or exceed twenty-five percent
     (25%)  of  the  outstanding  principal  and interest indebtedness under the
     agreement  and  if  the principal balance of the note outstanding after the
     requested  draw  is less than the sum of 1) the actual costs of the oil and
     gas  lease  purchased and or funded, and 2) the sum of 75% of the Company's
     proved  developed  reserves  and  50%  of  the Company's proved undeveloped
     reserves  from  all  sources  pledged  as  collateral.

     As  consideration  for  entering into the agreement, the lender received an
     overriding  royalty  in each oil and gas lease acquired with facility funds
     equal  to  2%  of the Company's acquired net revenue interest in the lease.
     The  overriding  royalty  interests  were earned when the lender funds have
     been  utilized  by  the  Company  for  direct  and  or indirect acquisition
     expenses  or  drilling  expenses.  In addition, the lender received 100,000
     warrants  (2005  warrants)  to  purchase  common stock of the Company at an
     exercise  price  of  $2.00  per share and an expiration date of November 1,
     2007.

     Under the terms of the credit facility, the Company is required to offer to
     the  lender  the opportunity to participate in up to a minimum of 33.3% and
     up  to  100%  based  on  the  sole  discretion  of  the  Company.

     On  October  16, 2006, the Company entered into a Letter Agreement to amend
     its  existing  revolving  credit  facility  with  the lender. The principal
     available under the revolving borrowing base remains $10,000,000. Under the
     terms  of  the  transaction,  Fortuna advanced the Company $780,000 for the
     purpose  of  paying  amounts  due  for  the Barnett Shale Project which was
     repaid  to Fortuna in December, 2006. As part of the financing, the Company
     pledged  additional  interests in its oil and gas properties as collateral.
     The  lender  also


                                      F-15
<PAGE>
     agreed to relinquish all of its past and future overriding royalty interest
     assignments  delivered to the lender other than assignments associated with
     the  Blue  Ridge Field upon debt repayment. In addition, the Company agreed
     to issue to Fortuna 475,000 five year warrants with a strike price of $0.92
     per  share  (2006  warrants).  The Warrants contain a "put" provision which
     will allow Fortuna to "put" the warrants to the Company at a price of $0.65
     per  share for two (2) years. Additionally, as part of the transaction, the
     Company  agreed  to issue 100,000 new warrants, which expire five (5) years
     from  the  date  of issue, at a price of $0.92 per share (2006 warrants) to
     replace  100,000  warrants previously issued to Fortuna at a price of $2.00
     per  share,  which  were  previously set to expire on November 1, 2007. The
     warrants have piggyback registration rights. All other terms of the amended
     and  restated  revolving  credit agreement remain in full force and effect.

     The  Company  allocates  the  proceeds  received  from debt with detachable
     warrants  using  the  relative fair value of the individual elements at the
     time  of  issuance. The amount allocated to the 2006 and 2005 warrants as a
     debt  discount  was  calculated  at $338,500 and $88,422, respectively. The
     unamortized  debt  discount  was  $335,395  at  December 31, 2006. The debt
     discount  is recognized as interest expense over the period until the notes
     mature.  In  the  event  the debt is settled prior to the maturity date, an
     expense  will  be  recognized  based on the difference between the carrying
     amount  and  the  amount  of  the  payment.

     SECURED  TERM  NOTE
     -------------------

     Garwood  Petrosearch,  Inc.  ("Garwood"),  a wholly-owned subsidiary of the
     Company,  executed  a  Securities  Purchase Agreement and Secured Term Note
     with  an  entity to provide financing for payment of obligations related to
     the drilling of the Kallina 46 #1 well and payment of the future completion
     costs  for  the Kallina 46 #1. The note is for the amount of $8,300,000 and
     matures  on November 1, 2009. Advances under the note bear interest at Wall
     Street  Journal  Prime  plus  2%  with  a minimum interest rate of 8% and a
     maximum interest rate of 15%. Payments under the note will be paid from 90%
     of net production revenues beginning on the earlier to occur of (i) receipt
     of  actual  proceeds from production from the Kallina 46 #1 well and (ii) a
     date  which  is  120  days  after  the  closing date of the transaction and
     require  a  minimum  monthly payment of $87,500. Upon any event of default,
     the lender would be entitled to receive 100% of the net production revenues
     relating  to  oil and gas properties of Garwood. The note is collateralized
     by  Garwood's  recently acquired interest in the Kallina 46 #1 well and the
     related  Section  46  acreage.  The  note  has  a  balance  of  $7,262,500
     outstanding  as  of  December  31,  2006.

     As a part of the financing arrangement, Garwood issued the lender a warrant
     to  acquire,  upon  payout  of  the  note  indebtedness,  45%  of Garwood's
     outstanding  common  stock  such that upon exercise of the warrant, Garwood
     would  be owned 55% by the Company and 45% by the lender. The fair value of
     the  warrant  at  the  time  of  the  transaction  was  deemed  to  be  of
     insignificant  value  due  to  the  lack of proved reserves and the initial
     stages  of  the  subsidiary.

     TRADE  NOTE  PAYABLE
     --------------------

     Effective  October  24,  2006,  the  Company  entered  into  a note payable
     agreement  with  a  vendor in the amount of $487,293 bearing interest at an
     annual  rate of 11.25% and a maturity date of November 1, 2007. The note is
     not collateralized and has a balance outstanding of $409,819 as of December
     31,  2006.

7.   INCOME  TAXES
     -------------

     Through  December  31,  2006,  the  Company  has  incurred losses since its
     inception  and, therefore, has not been subject to federal income taxes. As
     of  December  31,  2006,  the  Company  had  net  operating  loss  ("NOL")
     carryforwards  for  income  tax purposes of approximately $21,300,000 which
     expire  in  various tax years through 2026. Under the provisions of Section
     382  of the Internal Revenue Code, the ownership change in the Company that
     resulted from the recapitalization of the Company could limit the Company's
     ability to utilize its NOL carryforward to reduce future taxable income and
     related tax liabilities. Additionally, because United States tax laws limit
     the  time  during  which  NOL  carryforwards  may be applied against future
     taxable income, the Company may be unable to take full advantage of its NOL
     for federal income tax purposes should the Company generate taxable income.


                                      F-16
<PAGE>
     The  composition  of  deferred  tax  assets  and the related tax effects at
     December  31,  2006  and  2005  are  as  follows:

<TABLE>
<CAPTION>
                                                    2006          2005
                                                ------------  ------------
<S>                                             <C>           <C>
       Deferred tax assets:
         Net operating loss carry-forward       $ 7,246,463   $ 3,874,325
         Allowance for doubtful accounts             28,245        42,868
         Contribution carryover                       3,515         2,346
                                                --------------------------

           Total deferred tax assets              7,278,223     3,919,539

         Less valuation allowance                (2,416,054)   (1,628,636)
                                                --------------------------

         Net deferred tax asset                   4,862,169     2,290,903
                                                --------------------------

       Deferred tax liabilities:
         Book/tax basis difference in oil and
           Gas properties                        (4,851,493)   (2,277,366)
         Book/tax basis difference in property
           and equipment                            (10,676)      (13,537)
                                                --------------------------

           Total deferred tax liability          (4,862,169)   (2,290,903)
                                                --------------------------

             Net deferred tax                   $         -   $         -
                                                ==========================
</TABLE>

     The difference between the income tax benefit in the accompanying statement
     of  operations  and  the  amount  that  would  result  if  the U.S. Federal
     statutory  rate  of  34%  were  applied to pre-tax loss for the years ended
     December  31,  2006  and  2005  is  as  follows:

<TABLE>
<CAPTION>
                                                                 2006                 2005
                                                           AMOUNT       %       AMOUNT       %
                                                         ----------  -------  ----------  -------
<S>                                                      <C>         <C>      <C>         <C>
       Benefit for income tax at federal statutory rate  $(789,455)  (34.0)%  $(986,351)  (34.0)%
       Non-deductible expenses and other                     2,037       0.0      5,347       0.0
       Increase in valuation allowance                     787,418      34.0    981,004      34.0
                                                         ----------------------------------------
                                                         $       -     -   %  $       -     -   %
                                                         ========================================
</TABLE>

8.   COMMITMENTS AND CONTINGENCIES
     -----------------------------

     OPERATING LEASE
     ---------------

     The  Company  rents  office space under long-term office leases that expire
     through  2010.  The  future  minimum  lease  payments  required  under  the
     operating  leases that have initial non-cancelable lease terms in excess of
     one year amount to $398,881 of which $96,234 is to be paid in 2007, $99,989
     is  to  be paid in 2008, $101,888 is to be paid in 2009, and $100,770 is to
     be  paid  in  2010. Rent expense incurred under operating leases during the
     years  ended  December  31,  2006  and  2005  was  $95,152  and  $101,321,
     respectively.

     LEGAL  PROCEEDINGS
     ------------------

     We  are  currently  not  a party to any material pending legal proceedings.

9.   STOCKHOLDERS'  EQUITY
     ---------------------

     The  Company  has the authority to issue up to 120,000,000 shares of stock,
     consisting  of  100,000,000  shares  of  common  stock, par value $.001 per
     share, and 20,000,000 shares of preferred stock, par value $1.00 per share.


                                      F-17
<PAGE>
     PREFERRED  STOCK
     ----------------

     The  Company's  articles  of  incorporation authorize the issuance of up to
     20,000,000 shares of preferred stock with characteristics determined by the
     Company's  board  of  directors.

     As  of  December  31,  2006  and  2005, the Company has 1,000,000 shares of
     Series  A  8% Convertible Preferred Stock ("Series A Preferred") authorized
     and  483,416  shares outstanding. The shares have a par and stated value of
     $1.00 per share. If declared by the Board of Directors, dividends are to be
     paid  quarterly in cash or in common stock of the Company to the holders of
     shares of the Series A Preferred. The shares of the Series A Preferred rank
     senior  to  the  common  stock both in payment of dividends and liquidation
     preference.  The Series A Preferred is convertible into common stock of the
     Company  at  a  conversion  price  of $6.50 per share. Beginning August 19,
     2003,  the  Company  had  the  right to redeem all or part of the shares of
     Series  A Preferred for cash at a redemption price equal to $6.50 per share
     plus  all  accrued and unpaid dividends on the shares to be redeemed. As of
     December  31,  2006,  no  dividends  have  been  declared and approximately
     $170,000  of dividends were in arrears related to the Series A Preferred if
     the  Company  decided  to  declare  dividends.

     As of December 31, 2006 and 2005, the Company has 100,000 shares authorized
     and  43,000 shares issued and outstanding of Series B Convertible Preferred
     Stock  ("Series  B  Preferred").  The shares have a par and stated value of
     $1.00  per  share.  The shares of the Series B Preferred rank senior to the
     common  stock  in  liquidation  preference.  The  Series  B  Preferred  is
     convertible into common stock of the Company at an initial conversion price
     of  $2.14 per share at the option of the holder. Beginning October 1, 2003,
     the  Company  had the right to redeem all or part of the shares of Series B
     Preferred  for  cash  at  a  redemption  price  equal  to  $6.50 per share.

     STOCK  WARRANTS
     ---------------

     The  Company  periodically  issues  incentive stock warrants to executives,
     officers,  directors  and  employees  to  provide  additional incentives to
     promote the success of the Company's business and to enhance the ability to
     attract  and retain the services of qualified persons. The issuance of such
     warrants  are  approved  by the Board of Directors. The exercise price of a
     warrant  granted is determined by the fair market value of the stock on the
     date  of grant. For purposes of determining compensation expense associated
     with stock warrants in 2005, the intrinsic value of the Company's stock was
     determined based upon the quoted market price of the Company's common stock
     for  executives,  officers  and  directors  and fair value of the Company's
     stock  was determined based upon the Black-Scholes option pricing model for
     non-employees.  For purposes of determining compensation expense associated
     with  stock  warrants  in  2006,  the fair value of the Company's stock was
     determined  based  upon  the  Black-Scholes  option  pricing  model  for
     non-employees and employees. The Company issues shares of authorized common
     stock  upon  exercise  of  warrants.

     The Company issued the following warrants in 2006 and 2005:

     Pursuant  to a private placement done in February, 2006, the Company issued
     964,285  three  year  warrants  to  purchase shares of the Company's common
     stock  with  an  exercise  price  of  $2.00  per  share  to  the accredited
     investors.  In  addition,  the  Company  issued 96,429 warrants to purchase
     shares  of the Company's common stock to the placement agency. The warrants
     issued  to  the placement agent are exercisable for three years and have an
     exercise  price  of  $2.00 per share. The shares of common stock underlying
     the  warrants  have  piggyback  registration  rights. The fair value of the
     warrants  of  $674,084 was recorded in equity as a cost of raising capital.

     In  connection with the modification of the Revolving Credit Agreement with
     Fortuna  (Note  6), the Company modified the terms of 100,000 warrants held
     by  Fortuna  by  extending  the  expiration  date  from November 1, 2007 to
     October  15,  2011,  and by lowering the exercise price from $2.00 to $0.92
     per  share. The difference in value between the new and revised warrants of
     $37,302  was  based  on  the  Black-Scholes  Option  Pricing  Model and was
     recorded  as  additional debt discount with an offset to additional paid in
     capital.  In  addition to the modification of warrants, the Company granted
     Fortuna  475,000  warrants at an exercise price of $0.92 for a term of five
     years.  The  warrants  are  "puttable"  back to Fortuna for a period of two
     years, commencing 180 days from issuance, at a price of $0.65 per share. In
     addition, there are piggyback registration rights for the warrants upon the
     Company's  next  registration of any securities. In compliance with FAS 150
     "Accounting


                                      F-18
<PAGE>
     for  Certain Financial Instruments with Characteristics of both Liabilities
     and  Equity",  the fair value of the warrants of $301,198 was recorded as a
     liability in the accompanying financial statements and was marked-to-market
     as  of  December  31, 2006 to $317,752. The warrants were valued by a third
     party  using  the  Black-Scholes  Option  Pricing Formula with a put option
     floor.  If settlement would have occurred at December 31, 2006, the Company
     would  have paid $308,750, which is the maximum amount the Company could be
     required  to  pay  to  redeem  the  instrument.

     Pursuant  to a private placement done in December, 2006, the Company issued
     6,440,000  five  year  warrants  to purchase shares of the Company's common
     stock  with  an  exercise  price  of  $0.92  per  share  to  the accredited
     investors.  The  shares  of  common  stock  underlying  the  warrants  have
     piggyback  registration rights. The value of the warrants of $3,359,104 was
     recorded  in  equity  as  a  cost  of  raising  capital.

     During  2005,  the Company granted warrants to purchase 1,215,000 shares of
     common  stock  of  the  Company  to  board  of  directors and employees for
     services  performed  during  2005.  The warrants expire in 2008 and have an
     exercise price of $1.95, which exceeded the fair market value of the common
     stock  at  the  date of grant and, thus, no compensation cost was recorded.

     In September, 2005, the Company granted warrants to purchase 100,000 shares
     of  common  stock  of  the  Company  with an exercise price of $2.00 and an
     expiration date in 2007 to a lender for financing costs associated with the
     Company's  amended  credit  facility  with  the  lender (Note 6). The value
     allocated  to  the  warrants  as  a  debt  discount  was  $88,422.

     During December, 2005, the Company extended the expiration date of warrants
     held by an officer of the Company to purchase 92,308 shares of common stock
     of  the  Company  at  an  exercise price of $0.98 per share from August 28,
     2006,  to  November  15,  2008. The exercise price exceeded the fair market
     value  of  the common stock at the modification date, thus, no compensation
     cost  was  recorded.

     During  2005,  the Company cancelled warrants to purchase 153,847 shares of
     common  stock  of the Company valued at $88,392 to reduce a note receivable
     from  a  former  officer  of  the  Company.

     A  summary  of the Company's stock warrant activity and related information
     for  the  years  ended  December  31,  2006  and  2005  follows:

<TABLE>
<CAPTION>
                                                                      WEIGHTED       TOTAL
                                                                       AVERAGE     INTRINSIC
                                 NUMBER OF                WEIGHTED      GRANT        VALUE
                                  SHARES                   AVERAGE    DATE FAIR     WARRANT
                                   UNDER      EXERCISE    EXERCISE      VALUE      EXERCISES
                                  WARRANT       PRICE       PRICE     ($/SHARE)       (1)
                                -------------------------------------------------------------
<S>                             <C>          <C>          <C>        <C>          <C>
       Warrants outstanding at
       December 31, 2004         7,333,905   $0.98-$9.75  $    3.77

         Issued                  1,407,308   $0.98-$2.00  $    1.89  $      0.66
         Cancelled                (246,155)  $      0.98  $    0.98
                                -------------------------------------------------------------

       Warrants outstanding at
       December 31, 2005         8,495,058   $0.98-$9.75  $    3.57

         Issued                  8,075,714   $0.92-$2.00  $    1.06  $      0.54
         Exercised                (178,233)  $      0.98  $    0.98               $   84,082
         Cancelled              (2,244,849)  $0.98-$1.63  $    5.41
                                -------------------------------------------------------------

       Warrants outstanding at
       December 31, 2006        14,147,690   $0.98-$9.75  $    1.88
                                ===================================
</TABLE>


                                      F-19
<PAGE>
     All  outstanding  stock  warrants  are  exercisable at December 31, 2006. A
     summary  of  outstanding  stock  warrants  at  December  31,  2006 follows:

<TABLE>
<CAPTION>
                                                 WEIGHTED
      NUMBER OF                    REMAINING     AVERAGE                  WEIGHTED
       COMMON                     CONTRACTED    REMAINING                  AVERAGE    AGGREGATE
        STOCK     EXPIRATION         LIFE      CONTRACTUAL    EXERCISE    EXERCISE    INTRINSIC
     EQUIVALENTS   DATE             (YEARS)    TERM (YEARS)     PRICE       PRICE     VALUE (1)
     -----------  --------------  -----------  ------------  -----------  ---------  -----------
<S>               <C>             <C>          <C>           <C>          <C>        <C>

         211,541   February 2007          .17                $      9.75  $    9.75
          30,770      March 2007          .25                $      9.75  $    9.75
         300,004      April 2007          .34                $      9.75  $    9.75
         161,538        May 2007          .42                $6.50-$9.75  $    7.27
          76,923       July 2007          .50                $5.20-$6.50  $    6.24
         269,231  September 2007          .67                $4.88-$5.20  $    5.15
         150,000      March 2008         1.25                $      1.95  $    1.95
          20,000     August 2008         1.62                $      1.95  $    1.95
       4,851,969   November 2008         1.92                $0.98-$1.95  $    1.93
       1,060,714   February 2009         2.17                $      2.00  $    2.00
         575,000    October 2011         4.88                $       .92  $     .92
       6,440,000   December 2011         4.92                $       .92  $     .92
     -----------                               ------------                          -----------

      14,147,690                                       3.31                          $   420,900
     ===========                               ============                          ===========
</TABLE>

     (1)  The  intrinsic  value  of a warrant is the amount by which the current
     market  value  of  the  underlying  stock exceeds the exercise price of the
     warrant,  or  the  market  price at the end of the period less the exercise
     price.

     In  December 2004, the FASB issued SFAS 123(R), which is a revision of SFAS
     123.  SFAS 123(R) requires all share-based payments to employees, including
     grants  of  employee  stock  warrants,  to  be  recognized  as  stock-based
     compensation expense in the Company's Consolidated Statements of Operations
     based  on  their  fair  values.  Proforma  disclosure  is  no  longer  an
     alternative,  as  was  permitted  by  SFAS  123.  Until the adoption of the
     provisions of SFAS 123(R) on January 1, 2006, the Company elected to follow
     Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
     Employees"  (APB  25)  and  related  Interpretations  in accounting for its
     employee  stock  options  and  warrants  because the alternative fair value
     accounting  provided  for  under  FASB  Statement  No. 123, "Accounting for
     Stock-Based  Compensation",  required  use  of option valuation models that
     were  not  developed for use in valuing employee stock options or warrants.
     Under  APB  25,  if  the  exercise  price  of  the Company's employee stock
     warrants  is  greater  than  or equal to the market price of the underlying
     stock  on  the  date  of  grant,  no  compensation  expense was recognized.

     The adoption of SFAS 123(R) has not resulted in any compensation charges in
     2006  related  to  warrants  outstanding  at December 31, 2005, because all
     employee  stock  warrants  were  vested  as  of  December  31,  2005.

     Although  it  is  no  longer  required  due to the adoption of SFAS 123(R),
     proforma  information  regarding  net  income  and  earnings  per share was
     required  by  Statement 123 and 148 (included for purposes of 2005 proforma
     comparison),  and  has  been determined as if the Company had accounted for
     its  employee  stock  warrants  under  the  fair  value  method  of  these
     Statements.  For warrants granted to employees or directors during 2006 and
     2005,  the  fair  value of such warrants was estimated at the date of grant
     using  a Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                2006          2005
                            -------------  ----------
<S>                         <C>            <C>
       Dividend yield            -0-          -0-

       Expected volatility   70% - 100%       70%

       Risk free interest   3.00% - 4.79%    3.00%

       Expected lives         3-5 years    2-4 years
</TABLE>


                                      F-20
<PAGE>
     The  Black-Scholes  option  valuation  model  was  developed  for  use  in
     estimating  fair  value  of traded options or warrants that have no vesting
     restrictions  and  are  fully  transferable.  In addition, option valuation
     models  require  the  input  of highly subjective assumptions including the
     expected  stock  price  volatility.  Because  the  Company's employee stock
     warrants  have characteristics significantly different from those of traded
     options/warrants,  and  because changes in the subjective input assumptions
     can materially affect the fair value estimate, in management's opinion, the
     existing models do not necessarily provide a reliable single measure of the
     fair  value  of  its  employee  stock  warrants.

     For  purposes  of  proforma  disclosures,  the  estimated fair value of the
     warrants is included in expense over the vesting period or expected life of
     the  warrant.

<TABLE>
<CAPTION>
                                                                        2006          2005
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
     Net loss as reported                                           $(2,321,925)  $(2,901,031)

     Add: Stock-based employee compensation expense  included in
     reported net loss, net of tax                                      240,000        60,000

     Deduct: Stock-based employee compensation expense  determined
     under the fair value method, net of tax                           (240,000)     (893,855)
                                                                    ------------  ------------

     Proforma net loss                                              $(2,321,925)  $(3,734,886)
                                                                    ============  ============

     Basic and diluted net loss per common share, as reported       $     (0.08)  $     (0.11)
                                                                    ============  ============

     Proforma basic and diluted net loss per common share           $     (0.08)  $     (0.15)
                                                                    ============  ============
</TABLE>

     No  tax  effects  were  included  in the determination of proforma net loss
     because  the  deferred  tax  asset  resulting  from  stock-based  employee
     compensation  would  be  offset  by  an  additional valuation allowance for
     deferred  tax  assets.

     The  following table provides a detail of stock-based compensation incurred
     during  the  years  ended  December  31,  2006,  and  2005:

<TABLE>
<CAPTION>
                                                                       2006          2005
                                                                   ------------  ------------
<S>                                                                <C>           <C>
     Warrants                                                      $ 4,371,688   $    88,422
     Restricted stock                                                  294,584     1,150,000
                                                                   ------------  ------------
       Total stock-based compensation                                4,666,272     1,238,422
     Less amounts offset in equity as syndication costs             (4,033,188)            -
     Less amounts recorded as a debt discount                         (338,500)      (88,422)
     Less amounts capitalized                                          (15,383)   (1,090,000)
                                                                   ------------  ------------
       Stock compensation expense, net of amounts capitalized      $   279,201   $    60,000
                                                                   ============  ============
</TABLE>

     Amounts  capitalized  in  2006  are  for  prepaid  expenses,  and  amounts
     capitalized  in  2005 are for leasehold acquisition costs. Amounts expensed
     are  included  as  a  component  of general and administrative expense. The
     above  table  excludes  common  stock  issued  for  cash.

10.  RELATED  PARTY  TRANSACTIONS
     ----------------------------

     During  the year ended December 31, 2006, the Company did not engage in any
     transactions with related parties. During the year ended December 31, 2005,
     the  Company  was  engaged  in several transactions with related parties as
     follows:

     During  the year ended December 31, 2005, a vendor owned by the spouse of a
     director  of  the  Company


                                      F-21
<PAGE>
     through  December  8, 2005, at which time he resigned as director, provided
     drilling  services  totaling  $485,570. The balance owed to this vendor was
     $-0-  at  December  31,  2005.  The  director's  spouse was also a 15 - 30%
     working  interest owner in the Fort Bend County Prospect (Blue Ridge) which
     the  Company  sold  in  2005. Accounts receivable from the spouse for joint
     interest  billings  was  $-0-  as  of  December  31,  2005.

     Mr. Wayne Beninger, who became the Company's Chief Operating Officer on May
     16,  2005, is the owner of Southwest Oil & Gas Management (Southwest) which
     has  provided  engineering  and  geological  consulting  services  for  the
     Company's  projects.  When  Mr. Beninger became an employee of the Company,
     the  agreement  with  Southwest was terminated. From January 1, 2005, until
     the  agreement  was  terminated on May 15, 2005, the Company paid Southwest
     approximately  $365,000 for engineering and geological consulting services.
     Mr.  Beninger  has  an  option  to  purchase for $1.00 a 5% interest (after
     payout to the Company and its drilling partner) in the Company's subsidiary
     that  holds  the  Jefferson  County, Mississippi project. The first well on
     that  prospect was a dry hole and the Company does not intend to pursue any
     other  wells  in  that  prospect.

11.  EARNINGS  PER  SHARE
     --------------------

     Following  is  a  reconciliation  of the numerators and denominators of the
     basic  and  diluted  EPS computations for the years ended December 31, 2006
     and  2005:

<TABLE>
<CAPTION>
                                                                   2006          2005
                                                               ------------  ------------
<S>                                                            <C>           <C>
       Net loss                                                $(2,321,925)  $(2,901,031)
       Less:  Preferred stock dividends                            (38,673)      (38,673)
                                                               ------------  ------------

       Net loss available to common  stockholders (numerator)  $(2,360,598)  $(2,939,704)
                                                               ============  ============

       Weighted average shares of common stock                  31,253,819    25,409,348
                                                               ============  ============

       Basic and diluted net loss per share                    $     (0.08)  $     (0.11)
                                                               ============  ============
</TABLE>

12.  NON-CASH  INVESTING  AND  FINANCING  ACTIVITIES
     -----------------------------------------------

     During  the  years ended December 31, 2006 and 2005, the Company engaged in
     various  non-cash  financing  and  investing  activities  as  follows:

<TABLE>
<CAPTION>
                                                                          2006       2005
                                                                        --------  ----------
<S>                                                                     <C>       <C>
     Transfer of overriding royalty interest for debt issuance costs    $      -  $   64,784
                                                                        ========  ==========

     Reduction in note receivable for property costs                    $282,532  $        -
                                                                        ========  ==========

     Issuance of common stock for acquisition of property               $      -  $1,090,000
                                                                        ========  ==========

     Reduction in financing costs for transfer of overriding royalty
     interest                                                           $ 46,348  $        -
                                                                        ========  ==========

     Increase in accounts payable and accrued liabilities for property
     costs                                                              $870,080  $  500,000
                                                                        ========  ==========

     Increase in property costs associated with asset retirement
     obligation                                                         $243,172  $  633,455
                                                                        ========  ==========

     Increase in accrued liabilities for costs of raising capital       $193,050  $        -
                                                                        ========  ==========

     Issuance of warrants with debt                                     $338,500  $   88,422
                                                                        ========  ==========

     Cancellation of warrants for reduction in note receivable          $      -  $   88,392
                                                                        ========  ==========

     Transfer of automobile for reduction in liability                  $      -  $   15,346
                                                                        ========  ==========
</TABLE>


                                      F-22
<PAGE>
13.  IMPAIRMENT  AND  SALE  OF  OIL  AND  GAS  PROPERTIES
     ----------------------------------------------------

     At  December  31,  2006  and  2005,  the net capitalized costs of crude oil
     and natural gas properties included in the amortization base did not exceed
     the  present  value  of  the estimated reserves; as such, no write-down was
     recorded.

14.  SUPPLEMENTAL OIL AND GAS INFORMATION - UNAUDITED
     ------------------------------------------------

     The following supplemental information regarding the oil and gas activities
     of  the  Company  is  presented  pursuant  to  the  disclosure requirements
     promulgated  by the Securities and Exchange Commission ("SEC") and SFAS No.
     69,  Disclosures  About  Oil and Gas Producing Activities (`Statement 69").

     ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
     ---------------------------------------------------

     Set  forth below is a summary of the changes in the estimated quantities of
     the  Company's  crude  oil and condensate, and gas reserves for the periods
     indicated,  as estimated by the Company as of December 31, 2006. All of the
     Company's  reserves  are  located within the United States. Proved reserves
     cannot  be  measured  exactly  because  the estimation of reserves involves
     numerous  judgmental determinations. Accordingly, reserve estimates must be
     continually  revised  as a result of new information obtained from drilling
     and  production history, new geological and geophysical data and changes in
     economic  conditions.

     Proved reserves are estimated quantities of gas, crude oil, and condensate,
     which  geological  and  engineering  data  demonstrate,  with  reasonable
     certainty,  to  be  recoverable in future years from known reservoirs under
     existing  economic  and operating conditions. Proved developed reserves are
     proved reserves that can be expected to be recovered through existing wells
     with  existing  equipment  and  operating  methods.

<TABLE>
<CAPTION>
                                                    OIL         GAS
     QUANTITY OF OIL AND GAS RESERVES              (BBLS)      (MCF)
     --------------------------------            ----------  ----------
<S>                                              <C>         <C>
     Total proved reserves at December 31, 2004    373,797   1,247,037

     Extensions and discoveries                  2,033,869   1,121,000
     Production                                    (33,676)     (4,725)
     Sale of Assets                                (64,771)      - 0 -
     Revisions to previous estimate                 36,575    (519,565)
                                                 ----------  ----------

     Total proved reserves at December 31, 2005  2,345,794   1,843,747
                                                 ==========  ==========

     Extensions and discoveries                      3,421     455,000
     Production                                    (16,489)    (17,504)
     Revisions to previous estimate               (575,085)   (971,834)
                                                 ----------  ----------

     Total proved reserves at December 31, 2006  1,757,641   1,309,409
                                                 ==========  ==========


     PROVED DEVELOPED RESERVES:

       December 31, 2006                           263,604     557,409
                                                 ==========  ==========

       December 31, 2005                           330,838     229,747
                                                 ==========  ==========
</TABLE>


                                      F-23
<PAGE>
     CAPITALIZED COSTS OF OIL AND GAS PRODUCING ACTIVITIES
     -----------------------------------------------------

     The  following  table sets forth the aggregate amounts of capitalized costs
     relating  to  the  Company's  oil  and  gas  producing  activities  and the
     aggregate  amount  of  related  accumulated  depletion,  depreciation  and
     amortization  as  of  December  31,  2006  and  2005:

<TABLE>
<CAPTION>
                                                                       2006          2005
                                                                   ------------  ------------
<S>                                                                <C>           <C>
       Unevaluated properties, not subject to amortization         $ 6,309,169   $ 3,513,597
       Properties subject to amortization                           23,462,639    11,849,520
                                                                   ------------  ------------

         Total capitalized costs                                    29,771,808    15,363,117

       Less accumulated depletion, depreciation  and amortization   (2,307,020)   (1,929,727)
                                                                   ------------  ------------

         Net capitalized costs                                     $27,464,788   $13,433,390
                                                                   ============  ============
</TABLE>

     COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
     --------------------------------------------------

     The  following  table  reflects  the costs incurred in oil and gas property
     acquisition,  exploration and development activities during the years ended
     December  31,  2006  and  2005:

<TABLE>
<CAPTION>
                                             2006        2005
                                          ----------  ----------
<S>                                       <C>         <C>
       Acquisition costs                  $3,884,783  $4,079,919
                                          ==========  ==========

       Exploration and development costs  $8,345,181  $1,147,816
                                          ==========  ==========

       Development costs                  $2,687,742  $1,096,124
                                          ==========  ==========
</TABLE>

     STANDARDIZED  MEASURE  OF  DISCOUNTED  FUTURE  NET  CASH  FLOWS
     ---------------------------------------------------------------

     The  following table reflects the Standardized Measure of Discounted Future
     Net  Cash  Flows  relating  to the Company's interest in proved oil and gas
     reserves  as  of  December  31,  2006  and  2005:

<TABLE>
<CAPTION>
                                                            2006           2005
                                                        -------------  -------------
<S>                                                     <C>            <C>
       Future cash inflows                              $110,627,480   $158,565,979
       Future development and production costs           (50,421,345)   (59,263,004)
                                                        -------------  -------------

       Future net cash inflows before income taxes        60,206,135     99,302,975
       Future income taxes                                (9,611,255)   (27,804,833)
                                                        -------------  -------------

       Future net cash flows                              50,594,880     71,498,142
       10% discount factor                               (25,820,824)   (36,654,786)
                                                        -------------  -------------

         Standardized measure of discounted future net
           cash inflow                                  $ 24,774,056   $ 34,843,356
                                                        =============  =============
</TABLE>


                                      F-24
<PAGE>
     The  following  are  the  principal  sources  of change in the standardized
     measure  of  discounted  future  net  cash  flows  during  2006:

<TABLE>
<CAPTION>
<S>                                                                      <C>
     Beginning of year                                                   $ 34,843,356
     Sales of oil and gas produced, net of production costs                  (496,028)
     Net changes in prices and production costs                            (4,126,970)
     Extensions, discoveries, and improved recovery, less related costs     1,672,043
     Development costs incurred during the period                           2,498,278
     Revisions of estimated development costs                              (1,190,277)
     Revisions of previous quantity estimates                             (20,819,265)
     Accretion of discount                                                  3,484,336
     Net change in income taxes                                             8,908,583
                                                                         -------------
                                                                         $ 24,774,056
                                                                         =============
</TABLE>

     Total  standardized  measure  of  discounted  future  net  cash  inflow
     decreased  to  $24,774,056  as  of December 31, 2006 from $34,843,356 as of
     December  31,  2005.  The two main factors that caused the decrease in both
     reserve  quantities  and  PV-10 value from 2005 to 2006 were related to the
     Company's  Texas Panhandle waterflood project. The reasons were as follows:
     1)  the  price  of  natural gas used to calculate the PV-10 value decreased
     from  $13.08  to  $5.24  as  of the years ended December 31, 2005 and 2006,
     respectively;  and  2)  our  independent  reserve engineer made an internal
     decision  in  their  reserve estimation process for the year ended December
     31,  2006  to place greater confidence on different areas of available data
     related  to  the  waterflood  as  compared  to  the  year  end 2005 reserve
     estimate.  This  shift  in  focus  on other data by the independent reserve
     engineer  caused  a  decrease  in  the  estimate  of our Proved Undeveloped
     reserves in the Texas Panhandle project of approximately 570,000 barrels of
     oil  equivalent.

     STANDARDIZED  MEASURE  OF  DISCOUNTED  FUTURE  NET  CASH  FLOWS
     ---------------------------------------------------------------

     Future  net cash flows at each year end, as reported in the above schedule,
     were determined by summing the estimated annual net cash flows computed by:
     (1)  multiplying  estimated  quantities  of  proved reserves to be produced
     during  each  year  by  current  prices,  and  (2)  deducting  estimated
     expenditures  to  be  incurred  during each year to develop and produce the
     proved  reserves  (based  on  current  costs).

     Income  taxes  were computed by applying year-end statutory rates to pretax
     net  cash  flows,  reduced by the tax basis of the properties and available
     net  operating  loss  carryforwards.  The annual future net cash flows were
     discounted,  using  a  prescribed  10%  rate,  and  summed to determine the
     standardized  measure  of  discounted  future  net  cash  flow.

     The  Company  cautions  readers  that  the standardized measure information
     which  places  a  value on proved reserves is not indicative of either fair
     market  value  or  present  value  of  future  cash  flows.  Other  logical
     assumptions  could  have  been used for this computation which would likely
     have  resulted  in  significantly  different  amounts.  Such information is
     disclosed  solely  in  accordance  with  Statement  69 and the requirements
     promulgated  by  the  SEC  to provide readers with a common base for use in
     preparing  their  own  estimates  of  future  cash  flows and for comparing
     reserves  among companies. Management of the Company does not rely on these
     computations  when  making  investment  and  operating  decisions.

15.  SUBSEQUENT EVENTS
     -----------------

     CONVERTIBLE DEBT AGREEMENT

     On  February  1,  2007  the  Company  executed  a Note and Warrant Purchase
     Agreement  with an Institutional Investor for the sale of a $10,000,000, 8%
     Senior  Secured  Convertible  Promissory  Note  and  a four-year warrant to
     purchase 5,000,000 shares of common stock at an exercise price of $1.40 per
     share for total proceeds of $10,000,000. At the option of the investor, the
     three-year Convertible Note will be convertible into shares of common stock
     at  a  price  of  $1.00  per  share  after the earlier of one year from the
     closing  of  the transaction or three months after a registration statement
     relating  to  this  transaction  becomes  effective.  The


                                      F-25
<PAGE>
     Warrant  is  exercisable  one  year  after  the closing of the transaction.

     The  Company may elect to redeem part or all of the outstanding Convertible
     Note  at  the  later  of  (i)  such  time  as the investor has the right to
     convert;  and  (ii)  twelve months from the date of closing, at one-hundred
     ten  percent  (110%)  of  the  principal  amount  of  the Convertible Note,
     provided however that such redemption right only applies if, upon receiving
     notice  of  redemption,  the lender has the right to convert all the shares
     the  Company  intends  to redeem at the applicable conversion price and the
     applicable  registration  statement for the resale of such shares of common
     stock  is  effective.

     The  Convertible  Note  is  collateralized  by  a  security  interest  in
     twenty-five  percent  of  the  membership  interest of the Company's wholly
     owned  subsidiary,  Exploration  Holding  Co.,  LLC, which owns one-hundred
     percent  of Barnett Petrosearch, LLC. Barnett Petrosearch is the subsidiary
     which  owns  a  5.54%  interest in DDJET, Ltd, LLP, and participates in the
     Barnett  Shale  Project.


                                      F-26