FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549

MARK ONE
             [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 2006

                                       OR

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

               For the transition period from ________ to ________

                          Commission File Number 0-9494

                          ASPEN EXPLORATION CORPORATION
                          -----------------------------
                (Exact Name of Aspen as Specified in its Charter)

                    Delaware                                84-0811316
                    --------                                ----------
         (State or other jurisdiction of                (IRS Employer
         incorporation or organization)                 Identification No.)

         Suite 208, 2050 S. Oneida St.,
                 Denver, Colorado                       80224-2426
                 ----------------                       ----------
     (Address of Principal Executive Offices)           (Zip Code)

                    Issuer's telephone number: (303) 639-9860

Indicate by check mark whether Aspen (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Aspen was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
                                Yes [ X ] No [ ]

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

Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the latest practicable date.

            Class                              Outstanding at February 14, 2007
            -----                              --------------------------------
Common stock, $.005 par value                              7,159,622

Transitional small business disclosure format: [ ] Yes [X] No

<PAGE>
<TABLE>
<CAPTION>

Part One. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

                          ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
                              CONDENSED CONSOLIDATED BALANCE SHEETS



                                                                      December 31,      June 30,
                                                                          2006            2006
                                                                      ------------    ------------
                                                                      (unaudited)
                                             ASSETS
<S>                                                                   <C>             <C>
Current Assets:
  Cash and cash equivalents                                           $  2,957,849    $  6,466,010
  Short-term investments                                                 1,201,729       1,002,527
  Accounts and trade receivables, net of allowance
   of $170,000, and $0 at December 31, 2006, and 2005, respectively      3,271,211       2,119,758
  Accounts receivable - related party                                        1,273           1,273
  Prepaid expenses                                                         374,829         338,000
  Precious metals                                                           18,823          18,823
                                                                      ------------    ------------

Total Current Assets                                                     7,825,714       9,946,391
                                                                      ------------    ------------

Investment in oil and gas properties, at cost (full cost method
  of accounting)                                                        16,446,462      14,274,642

  Less accumulated depletion and impairment                             (7,078,073)     (6,118,879)
                                                                      ------------    ------------

                                                                         9,368,389       8,155,763
                                                                      ------------    ------------

Property and Equipment, at cost:
  Furniture, fixtures, and vehicles                                        184,151         122,576

  Less accumulated depreciation                                            (38,376)        (54,710)
                                                                      ------------    ------------

                                                                           145,775          67,866
                                                                      ------------    ------------

Other Assets:
    Deposits                                                               250,000         250,000
    Deferred income taxes                                                1,278,000         771,000
                                                                      ------------    ------------

                                                                         1,528,000       1,021,000
                                                                      ------------    ------------

Total Assets                                                          $ 18,867,878    $ 19,191,020
                                                                      ============    ============


                                      (Statement Continues)

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

                                                2
<PAGE>

                          ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
                        CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)



                                                                     December 31,     June 30,
                                                                         2006           2006
                                                                     ------------   ------------
                                                                     (unaudited)

                              LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued expenses                              $  4,160,339   $  3,823,298
  Advances from joint interest owners                                     444,496      2,187,147
  Asset retirement obligation, current portion                             20,700         62,800
                                                                     ------------   ------------

Total Current Liabilities                                               4,625,535      6,073,245
                                                                     ------------   ------------

Asset Retirement Obligation, net of current portion                       385,336        331,823

Deferred Income Taxes                                                   3,267,000      2,685,000
                                                                     ------------   ------------

Total Long Term Liabilities                                             3,652,336      3,016,823
                                                                     ------------   ------------

Total Liabilities                                                       8,277,871      9,090,068
                                                                     ------------   ------------
Commitments and Contingencies (Note 6)

Stockholders' Equity:

  Common stock, $.005 par value:
    Authorized: 50,000,000 shares
    Issued and outstanding: At December 31, 2006, 7,159,622 shares
    and June 30, 2006, 7,094,641 shares                                    35,723         35,473
  Capital in excess of par value                                        7,393,672      7,283,914
  Retained earnings                                                     3,160,612      2,900,798
  Deferred compensation                                                      --         (119,233)
                                                                     ------------   ------------

Total Stockholders' Equity                                             10,590,007     10,100,952
                                                                     ------------   ------------

Total Liabilities and Stockholders' Equity                           $ 18,867,878   $ 19,191,020
                                                                     ============   ============



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

                                                3
<PAGE>

                           ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
                            CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                            (Unaudited)


                                               Three Months Ended             Six Months Ended
                                                  December 31,                  December 31,
                                           --------------------------    --------------------------
                                               2006           2005           2006           2005
                                           -----------    -----------    -----------    -----------

Revenues:
  Oil and gas                              $ 1,053,839    $ 2,017,233    $ 2,016,772    $ 3,079,776
  Management fees                              135,839         82,162        231,942        203,086
  Interest and other income                     14,469          9,328         35,886         20,029
                                           -----------    -----------    -----------    -----------

Total Revenues                               1,204,147      2,108,723      2,284,600      3,302,891
                                           -----------    -----------    -----------    -----------

Costs and Expenses:
  Oil and gas production                       138,062        121,151        329,242        192,170
  Accretion, and Depreciation, Depletion
    and Amortization                           499,877        254,704        980,154        509,040
  Interest expense                                  23           --            4,768           --
  Selling, general and administrative          286,769        235,946        780,337        463,062
                                           -----------    -----------    -----------    -----------

Total Costs and Expenses                       924,731        611,801      2,094,501      1,164,272
                                           -----------    -----------    -----------    -----------

Operating Income                               279,416      1,496,922        190,099      2,138,619

Gain on Investments                            228,160           --          490,696           --
Gain on Sale of Equipment                         --             --           12,000           --
                                           -----------    -----------    -----------    -----------

Total Other Income                             228,160           --          502,696           --
                                           -----------    -----------    -----------    -----------

Income Before Income Taxes                     507,576      1,496,922        692,795      2,138,619

Income Tax Benefit (Provision)                (161,000)      (391,659)       (75,000)      (572,054)
                                           -----------    -----------    -----------    -----------

Net Income                                 $   346,576    $ 1,105,263    $   617,795    $ 1,566,565
                                           ===========    ===========    ===========    ===========


Basic Earnings Per Common Share            $      0.05    $      0.16    $      0.09    $      0.23
                                           ===========    ===========    ===========    ===========

Diluted Earnings Per Common Share          $      0.05    $      0.16    $      0.08    $      0.22
                                           ===========    ===========    ===========    ===========


Weighted average number of common
  shares outstanding:
      Basic                                  7,144,898      6,756,351      7,144,898      6,756,351
                                           ===========    ===========    ===========    ===========

      Diluted                                7,367,926      7,125,295      7,367,926      7,125,295
                                           ===========    ===========    ===========    ===========



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

                                                4
<PAGE>

                       ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (UNAUDITED)

                                                                Six Months Ended December 31,
                                                                ----------------------------
                                                                     2006           2005
                                                                 -----------    -----------

Cash Flows from Operating Activities:
-------------------------------------
  Net income                                                     $   617,795    $ 1,566,565
  Adjustments to reconcile net income to net cash provided
    (used) by operating activities:
    Accretion and depreciation, depletion, and amortization          980,154        509,040
    Deferred income taxes                                             75,000        572,054
    Amortization of deferred compensation                            119,233         43,904
    Compensation expense related to stock options granted             81,508           --
    Realized gain on investments                                    (147,969)          --
    Unrealized gain on investments                                  (342,728)          --
    Proceeds from sale of investments                                291,495           --
    Gain on sale of vehicle                                          (12,000)          --
  Changes in assets and liabilities:
    Decrease (increase) in receivable, prepaid expenses, and
       deposits                                                   (1,188,281)      (917,175)
    Increase (decrease) in accounts payable, accrued expenses,
     deferred taxes, and advances from joint owners               (1,405,612)       351,970
                                                                 -----------    -----------

Net Cash Provided (Used) by Operating Activities                    (931,405)     2,126,358
                                                                 -----------    -----------

Cash Flows from Investing Activities:
-------------------------------------
  Additions to oil and gas properties                             (2,170,214)    (2,194,123)
  Additions to property and equipment                                (89,061)        (8,500)
  Sale of property and equipment                                      12,000          2,000
                                                                 -----------    -----------

Net Cash Used by Investing Activities                             (2,247,275)    (2,200,623)
                                                                 -----------    -----------

Cash Flows from Financing Activities:
-------------------------------------
  Proceeds from exercise of stock options                             28,500         14,250
  Payment of cash dividends                                         (357,981)          --
                                                                 -----------    -----------

Net Cash Provided (Used) by Financing Activities                    (329,481)        14,250
                                                                 -----------    -----------

Net Increase (Decrease) in Cash and Cash Equivalents              (3,508,161)       (60,015)

Cash and Cash Equivalents, beginning of year                       6,466,010      3,430,146
                                                                 -----------    -----------

Cash and Cash Equivalents, end of year                           $ 2,957,849    $ 3,370,131
                                                                 ===========    ===========

Other Information:
------------------
  Interest paid                                                  $     4,768    $      --
                                                                 ===========    ===========

Non-Cash Investing and Financing Activities:
--------------------------------------------
  Asset retirement obligation                                    $      --      $    26,000

  Stock issued for deferred consulting services                  $      --      $    64,000


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

                                             5
</TABLE>
<PAGE>
                          ASPEN EXPLORATION CORPORATION

              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
                                December 31, 2006


NOTE 1 - BASIS OF PRESENTATION
         ---------------------

The accompanying financial statements of Aspen Exploration Corporation (the
Company) are unaudited. However, in the opinion of management, the accompanying
financial statements reflect all adjustments, consisting of only normal
recurring adjustments, necessary for fair presentation for the interim period.

The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
Management believes the disclosures made are adequate to make the information
not misleading and suggests that these condensed financial statements be read in
conjunction with the financial statements and notes hereto included in the
Company's Form 10-KSB for the year ended June 30, 2006.

This Form 10-QSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this Form 10-QSB, including, without
limitation, the statements under both "Notes to Consolidated Financial
Statements" and "Item 2. Management's Discussion and Analysis" located elsewhere
herein regarding the Company's financial position and liquidity, its strategies,
financial instruments, and other matters, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in this Form 10-QSB in conjunction with the forward-looking
statements.


NOTE 2   - SIGNIFICANT ACCOUNTING POLICIES
           -------------------------------

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
revenues and expenses during the reporting period. The Company bases its
estimates on historical experience and on various other assumptions it believes
to be reasonable under the circumstances. Although actual results may differ
from these estimates under different assumptions or conditions, the Company
believes that its estimates are reasonable and that actual results will not vary
significantly from the estimated amounts.


NOTE 3 - SHARE-BASED COMPENSATION
         ------------------------

Stock Options
-------------

Effective July 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standard 123(R) "Share-Based
Payment" ("SFAS 123(R)") using the modified prospective transition method. In
addition, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107 "Share-Based Payment" ("SAB 107") in March, 2005, which
provides supplemental SFAS 123(R) application guidance based on the views of the
SEC. Under the modified prospective transition method, compensation cost
recognized in the quarterly period ended December 31, 2006 includes: (a)
compensation cost for all share-based payments granted prior to, but not yet
vested as of July 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123, and (b) compensation
cost for all share-based payments granted beginning July 1, 2006, based on the
grant date fair value estimated in accordance with the provisions of SFAS
123(R). In accordance with the modified prospective transition method, results
for prior periods have not been restated.

                                       6
<PAGE>

NOTE 3 - SHARE-BASED COMPENSATION (Continued)
         ------------------------

The Company currently has two share-based employee compensation plans, which are
described in the Notes to Consolidated Financial Statements in the company's
Annual Report on Form 10-KSB for the year ended June 30, 2006.

There was an aggregate of 936,000 common shares reserved for issuance under our
stock option plans effective at April 22, 2005, and March 14, 2002. These plans
provided for the issuance of 260,000 and 676,000 common shares, respectively,
pursuant to stock option exercises. The fair value of each option grant, as
opposed to its exercise price, is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield, expected volatility of 76%, risk free interest
rates of 3.92% and expected lives of 4.5 years. Expected volatility was
calculated based upon actual historical stock price movements over the most
recent periods ending June 30, 2006 equal to the expected option term. Expected
pre-vesting forfeitures were assumed to be zero. The expected option term was
calculated using the "simplified" method permitted by SAB 107.

The adoption of SFAS 123(R) resulted in stock compensation expense for the three
and six months ended December 31, 2006 of $27,000, and $81,508, respectively to
income from continuing operations and income before income taxes. This expense
did not have a significant effect on diluted earnings per share for the quarter.

Prior to July 1, 2006, the Company accounted for this plan under the recognition
and measurement provisions of Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations, as
permitted by Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. No stock-based employee compensation
expense was recognized in the Company's Consolidated Statement of Operations
prior to July 1, 2006, as all options granted under the Company's stock-based
compensation plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. Effective July 1, 2006, the
Company adopted the fair value recognition provisions of SFAS No. 123 (R), Share
Based Payment, using the modified-prospective transition method as described in
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure. Under this method, compensation cost recognized in the first quarter
of fiscal 2007 is the same as that which would have been recognized had the
recognition provisions of Statement 123 been applied from its original effective
date.

A summary of the pro forma effects to reported net income and earning per share,
as if the Company had elected to recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123 for all
periods presented:

                                                               Six Months Ended
                                                               December 31, 2005
                                                               -----------------

Net income, as reported                                         $   1,566,565
Add: Stock-based employee
compensation expense included in
reported net income, net of related tax effects                          --
Deduct: Total stock-based compensation
expense determined under fair value based method
for all awards, net of related tax effects                            (54,000)
                                                                -------------

Pro forma net income                                            $   1,512,565
                                                                =============


Basic Earnings Per Share
   As Reported                                                           0.23
   Pro Forma                                                             0.22

Diluted Earnings Per Share
   As Reported                                                           0.22
   Pro Forma                                                             0.21


                                       7
<PAGE>

NOTE 3 - SHARE-BASED COMPENSATION (Continued)
         ------------------------

On August 11, 2006, the Board Chairman exercised his option for 50,000 shares of
our common stock granted March 14, 2002 at a price of $0.57 per share. As
consideration for the option shares purchased, Mr. Bailey paid cash
consideration of $28,500.

On August 14, 2006, an employee exercised her option for 17,000 shares of our
common stock granted March 14, 2002 at a price of $0.57 per share. As
consideration for the option shares purchased, the employee surrendered 2,019
shares equal to the exercise price.

Additionally, 10,000 options were granted to a non-employee Director on
September 11, 2006. The fair value of those options was estimated using the
Black-Scholes option-pricing model with the following assumptions: no dividend
yield, expected volatility of 73%, risk free interest rates of 4.97% and
expected life of 5 years. As a result, $23,500 was recognized as Director Fees
during the first quarter.

A summary of option activity under the plans as of December 31, 2006, and
changes during the six months then ended, is presented below:

<TABLE>
<CAPTION>

                                                                                          Weighted-
                                                                                           Average
                                                                     Weighted-            Remaining           Aggregate
                                                Number of             Average            Contractual          Intrinsic
                                                  Shares           Exercise Price            Term               Value
                                              ---------------    -------------------    ---------------    ----------------

<S>                                               <C>                      <C>
Outstanding at June 30, 2006                         484,000                  $1.56

   Granted                                            10,000                   3.70
   Exercised                                         (64,981)                  0.57
   Forfeited or expired                              (99,019)                  0.57
                                              ---------------

Outstanding at December 31, 2006                     330,000                  $1.75               2.44            $627,000
                                              ===============    ===================    ===============    ================

Exercisable at December 31, 2006                     166,667                  $1.47               2.29            $363,334
                                              ===============    ===================    ===============    ================
</TABLE>

The grant-date fair value of options granted during the period was $2.35. The
total intrinsic value of options exercised during the period was $269,960.

A summary of the status of the Company's nonvested shares as of December 31,
2006, and changes during the six months ended December 31, 2006, is presented
below:

                                                                    Weighted-
                                                                     Average
                                                 Number of         Grant-Date
                                                  Shares           Fair Value
                                                -----------        ----------

Nonvested at June 30, 2006                        256,666          $   1.85

   Granted                                           --                --
   Vested                                         (50,000)             0.57
   Forfeited                                      (43,333)             2.67
                                                 --------

Nonvested at December 31, 2006                    163,333          $   2.03
                                                 ========          ========

The total compensation cost related to nonvested awards not yet recognized on
December 31, 2006 is approximately $34,000 net of tax, and the weighted average
period over which this cost is expected to be recognized is .62 years. The total
fair value of options vested during the period was $25,000.

                                       8
<PAGE>

NOTE 3 - SHARE-BASED COMPENSATION (Continued)
         ------------------------

The following information summarizes information with respect to options granted
under equity plans:

<TABLE>
<CAPTION>

                                                    Outstanding                              Exercisable
                                       --------------------------------------    ------------------------------------
                                           Weighted
                                            Average             Weighted                                 Weighted
                                           Remaining             Average                                  Average
   Exercise            Number             Contractual          Exercisable           Number             Exercisable
    Price            Outstanding       Life in Years (1)          Price            Exercisable             Price
---------------    ----------------    ------------------    ----------------    ----------------     ---------------

<S>      <C>               <C>                      <C>                <C>               <C>                    <C>
         $0.57             150,000                  1.62               $0.57             100,000                $0.57

          2.67             170,000                  3.03                2.67              56,667                 2.67

          3.70              10,000                  4.70                3.70              10,000                 3.70
                   ----------------    ------------------    ----------------    ----------------     ----------------

                           330,000                  2.44               $1.75             166,667                $1.47
                   ================    ==================    ================    ================     ================

(1) The term of the option will be the earlier of the contractual life of the
    options or 90 days after the date the optionee is no longer an employee,
    consultant or director of the Company.


NOTE 4 - EARNINGS PER SHARE
         ------------------

The Company's calculation of earnings per share of common stock is as follows:

                                                                Six Months Ending December 31,
                                 --------------------------------------------------------------------------------------------
                                                    2006                                             2005
                                 --------------------------------------------    --------------------------------------------
                                     Net                          Per Share           Net                           Per Share
                                    Income          Shares          Amount          Income           Shares          Amount
                                 -------------    ------------    -----------    --------------    ------------     ---------

Basic Earnings Per Share:
   Net income and
     share amounts                  $ 617,795       7,144,898         $ 0.09       $ 1,566,565       6,756,351         $ 0.23
Effect of Dilutive Securities:
   Stock Options                            -         223,028         (0.01)                 -         368,944              -
                                 -------------    ------------    -----------    --------------    ------------     ----------

Diluted Earnings Per Share:
   Net income and assumed
     share conversion               $ 617,795       7,367,926         $ 0.08       $ 1,566,565       7,125,295         $ 0.23
                                 =============    ============    ===========    ==============    ============     ==========
</TABLE>


NOTE 5 - INCOME TAXES
         ------------

The Company uses the asset and liability method of accounting for deferred
income taxes. Deferred tax assets and liabilities are determined based on the
temporary differences between the financial statement and tax basis of assets
and liabilities. Deferred tax assets or liabilities at the end of each period
are determined using the tax rate in effect at that time.

The total future deferred income tax liability is extremely complicated for any
energy company to estimate due in part to the long-lived nature of depleting oil
and gas reserves and variables such as product prices. Accordingly, the
liability is subject to continual recalculation, revision of the numerous
estimates required, and may change significantly in the event of such things as
major acquisitions, divestitures, product price changes, changes in reserve
estimates, changes in reserve lives, and changes in tax rates or tax laws.

                                       9
<PAGE>


NOTE 6 - CONTINGENCIES AND DRILLING COMMITMENTS
         --------------------------------------

On December 20, 2005 Calpine Corporation, one of our major purchasers of natural
gas (currently purchases about 10% of our gas), filed for Chapter 11 bankruptcy
protection in New York. At the time of the filing, Calpine Corporation owed the
Company, exclusive of outside owner participation, approximately $193,000. The
Company has signed a letter of intent to accept an offer to factor the
receivable for 80.25% of the total. As such the Company established an allowance
account to reduce the receivable to the approximate net realizable value.

On July 31, 2006, the Company entered into a gas sales contract to sell Enserco
2,000 MMBTU of gas per day at a fixed price of $10.15 less transportation and
other expenses. The contract is for the term November 1, 2006 through March 31,
2007, requires Enserco to purchase the stated quantities at the stated prices,
and contains monetary penalties for non-delivery of the gas. On October 4, 2006,
the Company entered into a gas sales contract to sell Enserco 2,000 MMBTU of gas
per day at a fixed price of $7.30 less transportation and other expenses. The
contract is for the term December 1, 2006 through March 31, 2007, requires
Enserco to purchase the stated quantities at the stated prices, and contains
monetary penalties for non-delivery of the gas. These contracts were designated
as normal sales contracts.

The Company has the following commitments for drilling and completion for the
period January 2007 through March 2007:

<TABLE>
<CAPTION>

                                                            Drilling           Completion and
             Area                        Wells                Costs           Equipment Costs            Total
--------------------------------    ----------------     ----------------    -------------------    -----------------

<S>                                                          <C>                  <C>                   <C>
Poplar Field                          Production
Roosevelt County, MT                  Acquisition             $1,075,000                $63,000           $1,138,000

Clarksburg Gas Field
Yolo County, CA                            1                           -                150,000              150,000
                                    ----------------     ----------------    -------------------    -----------------

Total Expenditures                         1                  $1,075,000               $213,000           $1,288,000
                                    ================     ================    ===================    =================

</TABLE>


NOTE 7 - DIVIDENDS
         ---------

On November 8, 2006, the Company declared a cash dividend in the amount of $0.05
per share. The total of $357,981 was paid to the shareholders on December 6,
2006 to shareholders of record as of November 20, 2006.

                                       10
<PAGE>


NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
         --------------------------------

In September 2006, Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements was issued by the Financial Accounting Standards Board
(FASB). This statement defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. SFAS No. 157
will become effective for the Company's fiscal year beginning after November 15,
2007, and the Company is currently assessing the potential impact of this
Statement on its financial statements.

In September 2006, Staff Accounting Bulletin ("SAB") No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements. Registrants must quantify the impact on current
period financial statements of correcting all misstatements, including both
those occurring in the current period and the effect of reversing those that
have accumulated from prior periods. This SAB will be applied beginning with the
first fiscal year ending after November 15, 2006. The adoption of SAB No. 108
should have no effect to the financial position and result of operations of the
Company.

In June 2006, the FASB issued Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return, and provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. This Interpretation is effective for fiscal years beginning after
December 15, 2006. The Company is currently assessing the potential impact of
this Interpretation on its financial statements.


NOTE 9 - SUBSEQUENT EVENTS
         -----------------

Aspen passed a Board Resolution on December 19, 2006 approving Aspen's
participation in Nautilus Technical Group, LLC's acquisition of the East Poplar
Unit and the Northwest Poplar Field in Roosevelt County, Montana located in the
Williston Basin. The Unit and Field contain a total of 38 producing oil wells, 7
salt water disposal wells, and 22,600 acres. Current production is 230 gross
BOPD and 190 net BOPD from the Charles "B" reservoir. The average net revenue
interest is greater than 80%. The crude oil is 40o API sweet and is readily
marketed at the lease boundary. All produced water is disposed within the Unit
boundary.

Aspen's participation in the acquisition will provide the Company with
diversification into long-lived oil reserves. There is also upside reserve
potential via increased water disposal capacity, re-activation of old wells,
water shut off techniques, behind-pipe potential in the Charles A, B, & C, and
drilling potential in the Mission Canyon and Nisku. This acquisition also
provides ownership in 3-D seismic data over 22,600 acres. This acquisition is
not expected to generate any significant cash flow for Aspen for the first two
years.

Aspen will pay 12.5% of the costs for a 10% working interest in the project.
During the first year, Aspen will also receive 12.5% of the net revenues (after
deduction for royalties, taxes, operating expenses, etc.) until 110% payout, at
which time Aspen's working interest reverts to 10%. After the first year, even
if 110% payout has not occurred, Aspen will only pay 10% of the costs and
receive 12.5% of the net revenues until 110% payout. After 110% payout, Aspen
will have a 10% working interest and receive 10% of the net revenues. The
initial cost to Aspen for its 12.5% before payout working interest (including
its share of the acquisition costs) will be approximately $1,450,000, which is
approximately $1,075,000 after deduction of $375,000 (12.5% of the $3,000,000
loan proceeds obtained by Nautilus in connection with the purchase), with an
additional $400,000 of anticipated capital expenditures during the first year.
Aspen funded its participation in this project with a combination of bank debt
($600,000), cash on hand and the sale of approximately 100,000 shares of UR
Energy stock (which yielded about $330,000). Closing of this acquisition
occurred on February 13, 2007.

                                       11
<PAGE>


NOTE 9 - SUBSEQUENT EVENTS (Continued)
         -----------------

Aspen passed a Board Resolution on January 19, 2006 authorizing a secured
Promissory Note on behalf of the Company in the amount of $600,000 in favor of
Wells Fargo Bank, NA payable over thirty-six months at an interest rate of
8.10%. Principal of $16,667 plus interest payments are due monthly beginning
February 15, 2007 and continuing to January 15, 2010. Collateral consists of a
blanket filing on Accounts Receivable.

In January 2007 Aspen entered into a venture to explore for gold in Alaska with
Hemis Corporation, with offices in Las Vegas, Nevada, whereby Hemis will provide
all funding and be the operator of a venture to carry out permit acquisition and
exploration for commercial quantities of gold. If such deposits are found, Hemis
intends to produce and sell the gold as well as any other commercially valuable
minerals that may occur with the gold. Hemis intends to commence work to obtain
permits for the project in January 2007.

At signing Aspen was paid $50,000 and will be paid this amount on each
anniversary of the agreement so long as Hemis continues work in the area. The
payment ceases when and if production begins. Aspen retained a 5% production
royalty, which may be taken in kind or in cash as Aspen prefers. Aspen provided
to Hemis exploration data assembled and gathered by Aspen over a period of
several years in the 1980's. Permits will be required before Hemis may commence
work and there is no assurance such needed permits will be issued by the State
of Alaska or by the Federal government.

Aspen participated for a 15% non-operated working interest in a deep
high-potential well located in the Clarksburg Gas Field, Yolo County, CA. The
drillpipe was cemented in the hole as the production string. The well was
perforated and tested at a gas rate of 480 MCFPD. The shut in tubing pressure
was 3,457 psig. Further testing will be performed and an acid job is currently
being contemplated.

On January 30, 2007, the Company entered into a gas sales contract to sell
Enserco 2,000 MMBTU of gas per day at a fixed price of $7.65 less transportation
and other expenses. The contract is for the term April 1, 2007 through October
31, 2007, requires Enserco to purchase the stated quantities at the stated
prices, and contains monetary penalties for non-delivery of the gas. This
contract was designated as a normal sales contract.

                                       12


<PAGE>


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

General
-------

The following discussion provides information on the results of operations for
the periods ended December 31, 2006 and 2005 and our financial condition,
liquidity and capital resources as of December 31, 2006 and June 30, 2006. The
financial statements and the notes thereto contain detailed information that
should be referred to in conjunction with this discussion.

The profitability of our operations in any particular accounting period will be
directly related to the realized prices of oil and gas sold, the type and volume
of oil and gas produced and the results of development, exploitation,
acquisition, and exploration activities. The realized prices for natural gas
will fluctuate from one period to another due to regional market conditions and
other factors, while oil prices will be predominantly influenced by world supply
and demand. The aggregate amount of oil and gas produced may fluctuate based on
the success of development and exploitation of oil and gas reserves pursuant to
current reservoir management. Accordingly, our results of operations may
fluctuate from period to period based on the foregoing principal factors, among
others.

Overview
--------

Aspen Exploration Corporation was organized in 1980 for the purpose of
acquiring, exploring and developing oil and gas and other mineral properties.
Since 1996, we have focused our efforts on the exploration, development and
operation of natural gas properties in the Sacramento Valley of northern
California. We are currently the operator of 55 gas wells and have a
non-operated interest in 20 additional gas wells.

We currently have offices in Bakersfield, California and Denver, Colorado and
have 2 full time employees as well as the Chairman of the Board who allocates a
portion of his time to the Company. We also make extensive use of consultants
for the conduct of our business, ranging from financial, engineering, land,
legal, and geological and geophysical specialists.

Where possible, we attempt to be the operator of each property in which we
invest. Our knowledge of drilling and operating wells in the Sacramento Valley
allows us to maximize the potential return of each property. Administrative
charges to the properties help cover approximately 47% and 30% of our selling,
general and administrative expenses for the three and six-month periods ended
December 31, 2006, respectively.

Outlook and Trends
------------------

Total production for the year will depend on the number of wells successfully
completed, the date they commence gas sales, their initial rate of production,
and their production decline rates. Over the past five years we have been able
to replace the majority of our produced reserves. We have also benefited from a
general increase in natural gas prices over the past three years, from a low of
$4.64 per MMBTU average during the second quarter of fiscal 2004 to $10.02 per
MMBTU during the second quarter of fiscal 2006. We also anticipate that the
average price for our product will be in the range of $4.00 to $8.00 per million
British Thermal Unit (MMBTU) for the fiscal year ended June 30, 2007 as compared
to the average gas price of $8.03 received during our 2006 fiscal year. We
received an average of $6.76 per MMBTU for the three months ended December 31,
2006 as compared to an average of $10.02 per MMBTU during the second quarter of
our 2006 fiscal year.

Quantitative and Qualitative Disclosure About Risk
--------------------------------------------------

The prices that we receive for the oil and natural gas (including natural gas
liquids) produced are impacted by many factors that are outside of our control.
Historically, these commodity prices have been volatile and we expect them to
remain volatile. Prices for oil and natural gas are affected by changes in
market demands, overall economic activity, weather, pipeline capacity
constraints, inventory storage levels, the world political situation, basis
differentials and other factors. As a result, we cannot accurately predict
future natural gas and NGL (natural gas liquids) prices, and therefore, we
cannot determine what effect increases or decreases in production volumes will
have on future revenues.

                                       13
<PAGE>


On regulatory and operational matters, we actively manage our exploration and
production activities. We value sound stewardship and strong relationships with
all stakeholders in conducting our business. We attempt to stay abreast of
emerging issues to effectively anticipate and manage potential impacts to our
operations.

To manage commercial risk, we may use financial tools to hedge the price we will
receive for our product. The primary purpose of hedging is to provide adequate
return on our investments, grow our reserves while leaving as much commodity
price upside as possible. Effective November 1, 2006 through March 31, 2007, we
are contractually obligated to deliver 2,000 MMBTU per day at $10.15 per MMBTU,
effective December 1, 2006 through March 31, 2007, we are contractually
obligated to deliver an additional 2,000 MMBTU per day at $7.30 per MMBTU, and
effective April 1, 2007 through October 31, 2007, we are contractually obligated
to deliver an additional 2,000 MMBTU per day at $7.65 per MMBTU to one of our
natural gas purchasers. These contracts were designated as normal sales
contracts.

Liquidity and Capital Resources
-------------------------------

We have historically financed our operations with internally generated funds and
limited borrowings from banks and third parties, and farmout arrangements, which
permit third parties (including some related parties) to participate in our
drilling prospects. Our principal uses of cash are for operating expenses, the
acquisition, drilling, completion and production of prospects, the acquisition
of producing properties, working capital, servicing debt and the payment of
income taxes. During the first six months of our 2007 fiscal year, we used more
than $3.5 million of cash in our operations, investing activities and financing
activities as compared to $60,000 during the same period of our 2006 fiscal
year.

We used cash of $931,405 in our operations for the six months ended December 31,
2006, as compared to $2,126,358 cash provided by operating activities for the
six months ended December 31, 2005. This negative change of approximately $3
million was due to increased accounts receivable, prepaid expenses and deposits
(a negative change of approximately $270,000) and using our cash to reduce
accounts payable and other current liabilities (a negative change of
approximately $1.8 million). Other factors that impacted our cash flow were a
reduction in net income and realized and unrealized gain on investments that
substantially offset the amount received from the sale of that investment.

Investing activities used cash to increase capitalized oil and gas costs and
office equipment of $2,247,275 and $2,200,623 in the six months ended December
31, 2006 and 2005. Cash in the current six month period ended December 31, 2006
was used for lease acquisition, seismic work, intangible drilling and well
workovers ($2,170,214), and equipment of ($89,061). These expenditures are net
of the sale of interests in wells to be drilled charged to third party
investors.

We have a proposed drilling budget for the period January 2007 through March
2007. The budget includes drilling one well and acquiring property in Montana.
Our share of the estimated costs to complete this program is set forth in the
following table:
<TABLE>
<CAPTION>

                                                         Drilling           Completion and
            Area                       Wells               Costs            Equipment Costs            Total
------------------------------     ---------------    ----------------    --------------------    -----------------

<S>                                                       <C>               <C>                   <C>
Poplar Field                         Production
Roosevelt County, MT                Acquisition            $1,075,000                 $63,000           $1,138,000

Clarksburg Gas Field
Yolo County, CA                          1                          -                 150,000              150,000
                                   ---------------    ----------------    --------------------    -----------------

Total Expenditures                       1                 $1,075,000                $213,000           $1,288,000
                                   ===============    ================    ====================    =================
</TABLE>


Our working capital (current assets less current liabilities) at December 31,
2006, was $3.2 million, which reflects an approximate $673,000 decrease from our
working capital at June 30, 2006. Our working capital decreased by 21% during
the first six months of our 2007 fiscal year because of our negative cash flow
of more than $3.5 million and a resulting reduction of current assets by an
amount greater than the reduction in our current liabilities.

                                       14
<PAGE>


Because of our working capital reduction (which resulted from our negative cash
flow as described above), our total current assets decreased by approximately
$2.1 million from June 30, 2006 through December 31, 2006. This reduction was
partially offset by an increase in our investment in oil and gas properties of
approximately $2.2 million during the period (as compared to approximately $2.25
million negative cash flow from investing activities during the quarter).
Notwithstanding the decrease in total assets and the issuance of a cash dividend
totaling approximately $360,000, our stockholders' equity increased by
approximately $490,000 during the period.

We anticipate that our working capital and anticipated cash flow from operations
and future successful drilling activities will be sufficient to pay our
obligations. Based on national and international concerns, we anticipate that
our gas production will continue to provide us with sufficient cash flow through
our current fiscal year and beyond. As discussed herein, this is dependent, in
part, on maintaining or increasing our level of production and the national and
world market maintaining its current prices for our gas production.

We believe that internally generated funds will be sufficient to finance our
drilling and operating expenses for the next twelve months. If our drilling
efforts are successful, the anticipated increased cash flow from the new gas
discoveries, in addition to our existing cash flow, should be sufficient to fund
our share of planned future completion and pipeline costs.

Results of Operations
---------------------

December 31, 2006 Compared to December 31, 2005
-----------------------------------------------

For the six months ended December 31, 2006, our operations continued to be
focused on the production of oil and gas, and the investigation for possible
acquisition of producing oil and gas properties in California and Montana.
During the six months ended December 31, 2006, our oil and gas production
decreased from 347,816 MMBTU sold to 314,393 MMBTU sold (a decrease of
approximately 10%). This production decrease as well as lower gas prices reduced
our revenues by approximately $1.1 million.

Oil and gas production costs increased $137,072, or 71%, for the six months
ended December 31, 2006. The increase can be attributed to the addition of 4
gross wells, from 51 wells to 55 wells and our percentage working interests in
these wells were somewhat higher than the average of wells owned at December 31,
2005. The increase was also due to the payment of a full year of ad valorem
taxes in several of the counties where Aspen's gas wells are located. Equipment
rental and water disposal fees increased due to the addition of compressors and
increased water production in our more mature wells. Additionally, all of the
costs for the service companies who perform work on Aspen's wells increased
dramatically during the past twelve months.

Depletion, depreciation and amortization expense increased approximately
$471,000 for the six months ended December 31, 2006. This increase of 93% was
the result of using the approximate same depletion rate as fiscal 2006, but
applying it to a larger full cost pool which resulted in the higher total
depletion taken.

Our general and administrative expenses increased by approximately $317,000 from
that for the same period in our fiscal 2006 (an increase of about 69%) because
of increased audit and accounting fees, officers salaries including a non-cash
charge of $58,000 as a result of recognition of additional share-based
compensation expense in accordance with the implementation of FAS 123(R), a
non-cash charge of $23,500 for stock options issued to a Director, and the
amortization of deferred compensation for the initiation of an investor
relations service of $119,000 settled in shares of our common stock in the prior
year.

                                       15
<PAGE>


The following table sets forth certain items from our Condensed Consolidated
Statements of Operations as expressed as a percentage of total revenues, shown
for the six months of fiscal 2006, 2005 and 2004:
<TABLE>
<CAPTION>

                                                                     For the Six Months Ended
                                              ------------------------------------------------------------------------
                                                December 31, 2006        December 31, 2005        December 31, 2004
                                              ----------------------    ---------------------    ---------------------

<S>                                                          <C>                      <C>                      <C>
Total Revenues                                               100.0%                   100.0%                   100.0%

Oil and Gas Production Costs                                  14.4%                     5.8%                     8.3%
                                              ----------------------    ---------------------    ---------------------

Income from Operations                                        85.6%                    94.2%                    91.7%
                                              ----------------------    ---------------------    ---------------------
Cost and expenses
   Depreciation and depletion                                 42.9%                    15.4%                    15.7%
   Selling, general and administrative                        34.2%                    14.0%                    19.0%
   Interest expense                                            0.2%                     0.0%                     0.2%
                                              ----------------------    ---------------------    ---------------------

Total Costs and Expenses                                      91.7%                    35.2%                    43.2%
                                              ----------------------    ---------------------    ---------------------

Operating Income                                               8.3%                    64.8%                    56.7%

Other Income                                                  22.0%                     0.0%                     0.0%

Provision for Income Taxes                                    -3.3%                   -17.3%                   -22.1%
                                              ----------------------    ---------------------    ---------------------

Net Income (Loss)                                             27.0%                    47.4%                    34.6%
                                              ======================    =====================    =====================

</TABLE>
                                                           16


<PAGE>


To facilitate discussion of our operating results for the six months ended
December 31, 2006 and 2005, we have included the following selected data from
our Condensed Consolidated Statements of Operations:

<TABLE>
<CAPTION>

                                             Comparison of the Fiscal Six
                                              Months Ended December 31,                    Increase (Decrease)
                                        ---------------------------------------    ------------------------------------
                                              2006                 2005                Amount            Percentage
                                        -----------------    ------------------    ----------------    ----------------
<S>                                      <C>                   <C>                    <C>               <C>
Revenues:
   Oil and gas sales                          $2,016,772            $3,079,776        $(1,063,004)                -35%
   Management fees                               231,942               203,086              28,856                 14%
   Interest and other                             35,886                20,029              15,857                 79%
                                        -----------------    ------------------    ----------------    ----------------

   Total Revenues                              2,284,600             3,302,891         (1,018,291)                -31%
                                        -----------------    ------------------    ----------------    ----------------

Cost and Expenses:
   Oil and gas production                        329,242               192,170             137,072                 71%
   Depreciation and depletion                    980,154               509,040             471,114                 93%
   General and administrative                    780,337               463,062             317,275                 69%
   Interest expense                                4,768                     -               4,768                100%
                                        -----------------    ------------------    ----------------    ----------------

   Total Costs and Expenses                    2,094,501             1,164,272             930,229                 80%
                                        -----------------    ------------------    ----------------    ----------------


Operating Income                                 190,098             2,138,619         (1,948,521)                -91%

Other Income                                     502,696                     -             502,696                100%

Income Tax Benefit (Provision)                  (75,000)             (572,054)             497,054                -87%
                                        -----------------    ------------------    ----------------    ----------------

Net Income (Loss)                               $617,795            $1,566,565          $(948,770)                -61%
                                        =================    ==================    ================    ================
</TABLE>

Total revenue decreased $1,018,291 or 31% when comparing the two periods, while
operating and production costs increased $930,229, or 80%.

A significant ratio presented is the percentage of management fees charged to
operated wells versus our general and administrative costs. This ratio coverage
of general and administrative costs decreased from approximately 44% during the
six months ended December 31, 2005 to approximately 30% at December 31, 2006.

                                       17

<PAGE>


Central to the issue of success of the six months operations ended December 31,
2006 is the discussion of changes in oil and gas sales, volumes of natural gas
sold and the price received for those sales. We present them here in tabular
form:

<TABLE>
<CAPTION>

                                                      Oil & Gas               MMBTU                  (1)
                                                        Sales                 Sold               Price/MMBTU
                                                   -----------------     ----------------     -------------------
            2007
------------------------------
<C>                                                        <C>                   <C>                       <C>
1st Quarter                                                $962,933              158,391                  $6.08
2nd Quarter                                               1,053,839              156,002                  $6.76
                                                   -----------------     ----------------     -------------------

   Year to date                                           2,016,772              314,393                   6.41
                                                   -----------------     ----------------     -------------------

            2006
------------------------------
1st Quarter                                               1,062,543              146,445                   7.26
2nd Quarter                                               2,018,233              201,371                  10.02
3rd Quarter                                               1,496,427              182,987                   8.18
4th Quarter                                                 823,747              141,840                   5.81
                                                   -----------------     ----------------     -------------------

   Year to date                                           5,400,950              672,643                   8.03
                                                   -----------------     ----------------     -------------------

            2005
------------------------------
1st Quarter                                                 697,553              130,000                   5.31
2nd Quarter                                               1,132,359              177,350                   6.37
3rd Quarter                                               1,103,687              169,150                   6.52
4th Quarter                                                 919,578              145,500                   6.30
                                                   -----------------     ----------------     -------------------

   Year to date                                           3,853,177              622,000                   6.20
                                                   -----------------     ----------------     -------------------

            2004
------------------------------
1st Quarter                                                 341,926               72,600                   4.75
2nd Quarter                                                 362,942               79,900                   4.64
3rd Quarter                                                 401,941               71,900                   5.28
4th Quarter                                                 481,441               80,600                   5.97
                                                   -----------------     ----------------     -------------------

   Year to date                                           1,588,250              305,000                   5.17
                                                   -----------------     ----------------     -------------------

Second Quarter Change
------------------------------
            2007
------------------------------
Amount                                                   $(964,394)            $(45,369)                 $(1.18)
Percentage                                                     -92%                 -29%                    -17%

            2006
------------------------------
Amount                                                     $364,990              $16,445                  $1.95
Percentage                                                      32%                   9%                     31%
</TABLE>

(1) Price per MMBTU may not agree with oil and gas sales because of the
inclusion of oil and NGL sales.

                                       18

<PAGE>



Oil and gas revenue and volumes sold of our product have shown a general
decrease over the first six months of fiscal 2007. As the table above notes,
revenue has decreased approximately 53% when comparing the six month periods
ended December 31, 2006 and 2005. Volumes sold decreased approximately 10%,
while the price received for our product decreased 35%.

Contractual Obligations
-----------------------

We maintain office space in Denver, Colorado, our principal office, and
Bakersfield, California. The Denver office consists of approximately 1,108
square feet with an additional 750 square feet of basement storage. We entered
into a one-year lease agreement on the Denver office through December 31, 2004
at a lease rate of $1,261 per month. We are currently leasing this space on a
month to month basis. The Bakersfield, California office has 546 square feet and
lease payments are $901 to $934 over the term of the lease, which expires July
31, 2008. Rent expense for the six months ended December 31, 2006 and 2005 was
$13,292 and $12,474, respectively.

Effective November 1, 2006 through March 31, 2007, we are contractually
obligated to deliver 2,000 MMBTU per day at $10.15 per MMBTU, effective December
1, 2006 through March 31, 2007, an additional 2,000 MMBTU per day at $7.30 per
MMBTU, and effective April 1, 2007 through October 31, 2007, we are
contractually obligated to deliver an additional 2,000 MMBTU per day at $7.65
per MMBTU to one of our natural gas purchasers. These contracts were designated
as normal sales contracts.

Critical Accounting Policies and Estimates
------------------------------------------

The Company believes the following accounting policies and estimates are
critical in the preparation of its consolidated financial statements: the
carrying value of its oil and natural gas properties, the accounting for oil and
gas reserves, and the estimate of its asset retirement obligations.

Oil and Gas Properties
----------------------

The Company uses the full cost method of accounting for costs related to its oil
and natural gas properties. Capitalized costs included in the full cost pool are
depleted on an aggregate basis using the units-of-production method.
Depreciation, depletion and amortization is a significant component of oil and
natural gas properties, but does not impact cash flow. A change in proved
reserves without a corresponding change in capitalized costs will cause the
depletion rate to increase or decrease.

Both the volume of proved reserves and any estimated future expenditures used
for the depletion calculation are based on estimates such as those described
under "Reserve Estimates" below.

The capitalized costs in the full cost pool are subject to a quarterly ceiling
test that limits such pooled costs to the aggregate of the present value of
future net revenues attributable to proved oil and natural gas reserves
discounted at 10 percent plus the lower of cost or market value of unproved
properties less any associated tax effects. If such capitalized costs exceed the
ceiling, the Company will record a write-down to the extent of such excess as a
non-cash charge to earnings. Any such write-down will reduce earnings in the
period of occurrence and result in lower depreciation and depletion in future
periods. A write-down may not be reversed in future periods, even though higher
oil and natural gas prices may subsequently increase the ceiling.

Changes in oil and natural gas prices have historically had the most significant
impact on the Company's ceiling test. In general, the ceiling is lower when
prices are lower. Even though oil and natural gas prices can be highly volatile
over weeks and even days, the ceiling calculation dictates that prices in effect
as of the last day of the test period be used and held constant. The resulting
valuation is a snapshot as of that day and, thus, is generally not indicative of
a true fair value that would be placed on the Company's reserves by the Company
or by an independent third party. Therefore, the future net revenues associated
with the estimated proved reserves are not based on the Company's assessment of
future prices or costs, but rather are based on prices and costs in effect as of
the end the test period.

                                       19
<PAGE>


Reserve Estimates
-----------------

Our estimates of oil and natural gas reserves, by necessity, are projections
based on geologic 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 therefrom 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.

Many factors will affect actual future net cash flows, including:

      - The amount and timing of actual production;
      - Supply and demand for natural gas;
      - Curtailments or increases in consumption by natural gas purchasers; and
      - Changes in governmental regulations or taxation.

Accounts Receivable
-------------------

Accounts receivable balances are evaluated on a continual basis and allowances
are provided for potentially uncollectible accounts based on management's
estimate of the collectibility of customer accounts. If the financial condition
of a customer were to deteriorate, resulting in an impairment of its ability to
make payments, an additional allowance may be required. Allowance adjustments
are charged to operations in the period in which the facts that give rise to the
adjustments become known.

Asset Retirement Obligations
----------------------------

We recognize the future cost to plug and abandon gas wells over the estimated
useful life of the wells in accordance with the provision of SFAS No. 143. SFAS
No. 143 requires that we record a liability for the present value of the asset
retirement obligation with a corresponding increase to the carrying value of the
related long-lived asset. We amortize the amount added to the oil and gas
properties and recognize accretion expense in connection with the discounted
liability over the remaining lives of the respective gas wells. Our liability
estimate is based on our historical experience in plugging and abandoning gas
wells, estimated well lives based on engineering studies, external estimates as
to the cost to plug and abandon wells in the future and federal and state
regulatory requirements. The liability is discounted using a credit-adjusted
risk-free rate of 5%. Revisions to the liability could occur due to changes in
well lives, or if federal and state regulators enact new requirements on the
plugging and abandonment of gas wells.

                                       20

<PAGE>


Deferred Taxes
--------------

Deferred income taxes have been determined in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." At
December 31, 2006 the Company recorded income tax expense of $75,000.
Projections of future income taxes and their timing require significant
estimates with respect to future operating results. Accordingly, the net
deferred tax liability is continually re-evaluated and numerous estimates are
revised over time. As such, the net deferred tax liability may change
significantly as more information and data is gathered with respect to such
events as changes in commodity prices, their effect on the estimate of oil and
gas reserves, and the depletion of these long-lived reserves.

Off Balance Sheet Arrangements
------------------------------

We have no off balance sheet arrangements and thus no disclosure is required.

Forward Looking Statements
--------------------------

"Safe harbor under the Private Securities Litigation Reform Act of 1995:" Any
statements in this Form 10-QSB that are not historical facts are forward-looking
statements that involve risks and uncertainties. Words such as "estimate,"
"will," "intend," "continue," "target," "expect," "achieve," "strategy,"
"future," "may," "goal(s)," or other comparable words or phrases or the negative
of those words, and other words of similar meaning indicate forward-looking
statements and important factors which could affect actual results.
Forward-looking statements are made based on Management's current expectations
and beliefs concerning future developments and their potential effects upon
Aspen Exploration Corporation. These items are discussed at length in Part I, on
page 25 of Aspen's Form 10-KSB filed with the Securities and Exchange
Commission, under the heading "Factors That May Affect Future Operating Results"
in the section titled "Management's Discussion and Analysis of Financial
Condition or Plan of Operation." No material changes are have been noted as of
the filing of this 10-QSB.


Item 3. CONTROLS AND PROCEDURES

As of December 31, 2006, we have carried out an evaluation under the supervision
of, and with the participation of the Chief Executive Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities and Exchange Act of
1934, as amended.

Based on the evaluation as of December 31, 2006, the Chief Executive Officer
(who is also our principal financial officer) has concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the
Securities Exchange Act of 1934) are effective to ensure that the information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.

There was no change in our internal control over financial reporting during the
most recently completed calendar quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

                                       21
<PAGE>


PART II


Item 1.  LEGAL PROCEEDINGS

There are no material pending legal or regulatory proceedings against Aspen
Exploration Corporation, and it is not aware of any that are known to be
contemplated.


Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following sets forth the information required by Item 701 of Regulation S-B
with respect to the unregistered sale of equity securities:

On August 11, 2006, our Board chairman, R. V. Bailey, exercised options for
50,000 shares of our common stock granted March 14, 2002, at an average price of
$0.57 per share. Mr. Bailey paid us $28,500 to exercise his options on the
50,000 shares.

(a)  The options were exercised on August 11, 2006, to purchase 50,000 shares of
     our common stock.

(b)  No underwriter, placement agent, or finder was involved in the transaction.
     The Board chairman is an accredited investor.

(c)  The total exercise price for the options was $28,500, which was paid in
     cash. No underwriting discounts or commission were paid.

(d)  We relied on the exemption from registration provided by Section 4(2) and
     4(6) under the Securities Act of 1933 for this transaction and Regulation D
     for the issuance. We did not engage in any public advertising or general
     solicitation in connection with this transaction, and we provided the
     accredited investor with disclosure of all aspects of our business,
     including providing the accredited investor with our reports filed with the
     Securities and Exchange Commission, our press releases, access to our
     auditors, and other financial, business, and corporate information. Based
     on our investigation, we believe that the accredited investor obtained all
     information regarding Aspen Exploration it requested, received answers to
     all questions it (and its advisors) posed, and otherwise understood the
     risks of accepting our securities for investment purposes.

(e)  The common stock issued in this transaction is not convertible or
     exchangeable.

(f)  We will use the proceeds for working capital, as well as expenses of
     drilling and (if warranted) completing oil and gas wells.


On August 14, 2006, an employee surrendered 2,019 mature shares of common stock
to exercise a stock option resulting in the net issue of 14,981 shares. The
option to acquire 17,000 shares was originally granted March 14, 2002, at an
exercise price of $0.57 per share.

(a)  The options were exercised on August 14, 2006, to purchase 17,000 shares of
     our common stock. The option holder exercised options to acquire 17,000
     shares in the cashless exercise which had a value of $9,690 by surrendering
     2,019 shares of Aspen's common stock with a fair value based on a ten-day
     average bid price immediately prior to the exercise date of $4.80.

(b)  No underwriter, placement agent, or finder was involved in the transaction.
     The employee is an accredited investor.

(c)  The total exercise price for the options was $9,690, which was paid by
     surrendering 2,019 shares to purchase 17,000 shares. No underwriting
     discounts or commission were paid.

                                       22

<PAGE>


(d)  We relied on the exemption from registration provided by Section 4(2) under
     the Securities Act of 1933 for this transaction and Regulation D for the
     issuance. We did not engage in any public advertising or general
     solicitation in connection with this transaction, and we provided the
     accredited investor with disclosure of all aspects of our business,
     including providing the accredited investor with our reports filed with the
     Securities and Exchange Commission, our press releases, access to our
     auditors, and other financial, business, and corporate information. Based
     on our investigation, we believe that the accredited investor obtained all
     information regarding Aspen Exploration it requested, received answers to
     all questions it (and its advisors) posed, and otherwise understood the
     risks of accepting our securities for investment purposes.

(e)  The common stock issued in this transaction is not convertible or
     exchangeable.

(f)  We received no proceeds from the exercise of this transaction.

Option to Director
------------------

Aspen appointed Kevan B. Hensman a director of Aspen effective September 11,
2006. In connection with that appointment, Aspen granted Mr. Hensman an option
to purchase 10,000 shares of Aspen common stock.

(a)  On September 11, 2006, we issued an option to purchase 10,000 shares of
     Aspen's common stock to Kevan B. Hensman. The options are exercisable at
     $3.70, expire September 11, 2011 and vested immediately.

(b)  No underwriters were involved in this transaction.

(c)  The stock options were issued in consideration of Mr. Hensman joining the
     board of directors and Aspen received no cash therefore.

(d)  The transaction was exempt from registration under the Securities Act of
     1933, as amended by reason of Section 4(2) and 4(6) of the Securities Act
     of 1933.

(e)  The options are exercisable to purchase shares of common stock as described
     above.

(f)  No proceeds were received.


Item 3. DEFAULTS UPON SENIOR SECURITIES

None.


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the first quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.


Item 5. OTHER INFORMATION

None.

                                       23

<PAGE>



Item 6. EXHIBITS

(a) Exhibits

Exhibit No.   Document
-----------   ------------------------------------------------------------------
     31       Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
              of 2002 (Robert A. Cohan, Chief Executive Officer).

     32       Certification Pursuant to 18 U.S.C. ss.1350, as Adopted Pursuant
              to Section 906 of the Sarbanes-Oxley Act of 2002 (Robert A. Cohan,
              Chief Executive Officer).

Other exhibits and schedules are omitted because they are not applicable, not
required or the information is included in the financial statements or notes
thereto.

(b) Reports on Form 8-K

None.

In accordance with the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned,
thereunto duly authorized.

                                 ASPEN EXPLORATION CORPORATION




Date:  February 14, 2007         /s/ Robert A. Cohan
                                 -----------------------------------------------
                                 Robert A. Cohan, Chief Executive Officer and
                                 Chief Financial Officer
                                 (principal executive and financial officer)


                                       24