**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON,D.C. 20549**

 

**FORM 10-KSB**

** **
| **ý**                                      | ** ** | **ANNUAL REPORT UNDER SECTION 13  OR 15(D) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                           |
|-------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                            |       |                                                                                                                                                                                                                                                           |
| **For the fiscal year ended December 31, 2004** |
| ** **                                      | ** ** | ** **                                                                                                                                                                                                                                                     |
| **o**                                           | ** ** | **TRANSITION REPORT UNDER SECTION  13 OR 15(d) OF THE EXCHANGE ACT**                                                                                                                                                                                           |
| ** **                                      | ** ** | ** **                                                                                                                                                                                                                                                     |
| ** **                                      | ** ** | **For  the transition period  from                  to                  ** |

 

**Commission file number: 000-30598**

 

**WHITTIER ENERGY CORPORATION**

(Exact Name of Registrant asSpecified in Its Charter)

 
| **Nevada**                                 | ** ** | **20-0539412**                     |
|--------------------------------------------|------------|------------------------------------|
| (State of Incorporation)                   |       | (IRS Employer Identification  No.) |
|                                       |       |                               |
| **333 Clay Street, Suite 1100**            | ** ** | ** **                         |
| **Houston, Texas**                         | ** ** | **77002**                          |
| (Address of Principle  Executive  Offices) |       | (Zip Code)                         |

 

**(713) 850-1880**

(Registrant’s telephonenumber, including area code)

 

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:

 

**Common Stock, $.001 par value**

(Title of class)

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days Yes  ý   No  o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B is not contained in this form, and no disclosurewill be contained, to the best of registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB. ý

 

The issuer’s revenues for its most recent fiscal year were $10,132,121.

 

The aggregate market value of the voting Common Stock held bynon-affiliates as of March 30, 2005 was $10,543,940.  The number of shares of $0.001 par valueCommon Stock outstanding as of March 30, 2005 was 11,523,402.

 

This Form 10-KSB is not eligible for and is not in transitional smallbusiness disclosure format.

 

 

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### **TABLE OF CONTENTS**

 
| **PART I.**   |                                                                                           |
|---------------|------------------------------------------------------------------------------------------------|
|          |                                                                                           |   |
| **Item  1.**  | **Business**                                                                                   | ** ** |
|          | The Company                                                                                    |   |
|          | History                                                                                        |   |
|          | Business  Strategy                                                                             |   |
|          | Acquisitions and Dispositions of Oil and  Gas Properties                                       |   |
|          | Marketing                                                                                      |   |
|          | Hedging Activities                                                                             |   |
|          | Competition                                                                                    |   |
|          | Title to Properties                                                                            |   |
|          | Government Regulation                                                                          |   |
|          | Forward-Looking Statements                                                                     |   |
|          | Risks of Oil and Gas Activities                                                                |   |
|          | Employees                                                                                      |   |
|          | Our Executive Offices and Website                                                              |   |
|          | Available Information                                                                          |   |
|          |                                                                                           |   |
| **Item 2.**   | **Description of Properties**                                                                  | ** ** |
|          | Oil and Gas Properties                                                                         |   |
|          | Oil and Gas Reserves                                                                           |   |
|          | Net Quantities of Oil and Gas Produced                                                         |   |
|          | Productive Wells and Acreage                                                                   |   |
|          |                                                                                           |   |
| **Item 3.**   | **Legal Proceedings**                                                                          | ** ** |
|          |                                                                                           |   |
| **Item 4.**   | **Submission of Matters to a Vote of Security  Holders**                                       | ** ** |
|          |                                                                                           |   |
| **PART II.**  |                                                                                           |
|          |                                                                                           |   |
| **Item 5.**   | **Market for Common Equity and Related  Stockholder Matters**                                  | ** ** |
|          | Market Information and Holders of Common  Stock                                                |   |
|          | Dividend  Policy                                                                               |   |
|          | Securities Authorized for Issuance Under  Equity Compensation Plans                            |   |
|          |                                                                                           |   |
| **Item 6.**   | **Management’s Discussion and Analysis of  Financial Condition  and Supplementary  Data** | ** ** |
|          | Executive Summary                                                                              |   |
|          | Liquidity and Capital Resources                                                                |   |
|          | 2004 Oil and Gas Property Acquisitions                                                         |   |
|          | Capital Commitments and Contingencies                                                          |   |
|          | Results of Operations                                                                          |   |
|          |                                                                                           |   |
| **Item 7.**   | **Financial Statements**                                                                       | ** ** |
|          |                                                                                           |   |
| **Item 8.**   | **Changes in and Disagreements with  Accountants on Accounting  and Financial Disclosure**     | ** ** |
|          |                                                                                           |   |
| **Item 8A.**  | **Controls and Procedures**                                                                    | ** ** |
|          |                                                                                           |   |
| **Item 8B.**  | **Other Information**                                                                          | ** ** |
|          |                                                                                           |   |
| **PART III.** |                                                                                           |
|          |                                                                                           |   |
| **Item 9.**   | **Directors and Executive Officers of the  Registrant**                                        | ** ** |
|          |                                                                                           |   |
| **Item 10.**  | **Executive Compensation**                                                                     | ** ** |
|          |                                                                                           |   |
| **Item  11.** | **Security  Ownership of Certain Beneficial Owners and Management**                            | ** ** |
|          |                                                                                           |   |
| **Item 12.**  | **Certain Relationships and Related  Transactions**                                            | ** ** |
|          |                                                                                           |   |
| **Item 13.**  | **Exhibits**                                                                                   | ** ** |
|          |                                                                                           |   |
| **Item 14.**  | **Principal Accounting Fees and Services**                                                     | ** ** |
|               |                                                                                                |  |  |

 

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### **PART I**

 

**Item1.  Business**

 

**The Company**

** **

Whittier Energy Corporation, a Nevadacorporation (the “Company” or “Whittier”), is an independent oil and gasexploration and production company primarily engaged in the acquisition,exploration and development of oil and gas properties in the continental UnitedStates.  Whittier’s assets consist ofoperated and non-operated working interests, royalty interests, partnershipinterests, and mineral acreage in various oil and gas properties, principallylocated in Texas, Louisiana, Oklahoma, and California, with additional propertyinterests in Colorado, Utah, New Mexico, Wyoming and Pennsylvania.  As of December 31, 2004, Whittier had threewholly owned subsidiaries:  WhittierEnergy Company (“WEC”), a Nevada corporation; Whittier Operating, Inc. (“WhittierOperating”), a Texas corporation; and Olympic Resources (Arizona) Ltd. (“OlympicArizona”), an Arizona corporation. Whittier Operating is a direct subsidiary ofWEC. References to “Whittier,” the “Company,” “we,” “us,” and “our” refer toWhittier and its subsidiaries as of December 31, 2004, unless otherwiseindicated. 

 

**History**

** **

Whittier was originally incorporated in theProvince of British Columbia, Canada, in 1986, under the name Global Data SystemsCorp. Global Data Systems was later renamed Comtron Enterprises Inc. inNovember 1989. In October 1993, Comtron Enterprises changed its name to OlympicResources Ltd. (“Olympic”).  Olympicdivested most of its Canadian assets in 2000 and began focusing its attentionon gas producing properties in the United States.

 

Olympic re-incorporated into the State ofWyoming from the Province of British Columbia on January 8, 2003.  Our reincorporation into the United Stateswas driven by the fact our principal business activities were and continue tobe carried on in the continental United States, and because re-incorporation asa U.S. company would make available certain U.S. federal tax benefits in theevent Olympic chose to enter into a future business combination or merger withanother domestic corporation.  No suchreorganization was proposed at the time of the reincorporation, however. 

 

On September 10, 2003, Olympic’s wholly ownedsubsidiary, WEC Acquisition, Inc., a Wyoming corporation, merged into WEC withWEC surviving the merger to replace WEC Acquisition as a wholly ownedsubsidiary of Olympic. In exchange for their WEC common stock, the WECshareholders received shares of Olympic’s voting common stock and non-votingSeries A Convertible Preferred Stock. The business combination triggered a change in control of Olympic andresulted in a significant change in Olympic’s management.

 

At the time of the merger, WEC and Olympic wereboth engaged in the exploration, acquisition and development of oil and gasproperties located in the continental United States. The primary purpose forthis merger was to improve the combined entity’s access to capital markets andto acquire and develop oil and gas properties in the future, both of which webelieve are necessary for long-term growth and enhancement of stockholdervalue.

 

In December 2003, Olympic’s stockholdersapproved a one-for-ten reverse stock split of Olympic’s outstanding commonstock and the merger of Olympic into a newly formed, wholly owned subsidiary,Whittier Energy Corporation, a Nevada corporation. On December 31, 2003,Olympic effected the one-for-ten reverse split of its common stock andconsummated the merger of Olympic with and into Whittier Energy Corporation. Asa result of the reverse split, the outstanding Series A Preferred Stockautomatically converted into shares of Whittier’s split-adjusted common stockand WEC’s former shareholders owned approximately 85% of Whittier’s outstandingvoting common stock.  As of December 31,2004, WEC’s former shareholders now own approximately 79% of Whittier’soutstanding common stock. 

 

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**Business Strategy**

** **

Our business strategy is focused on the following:

 

•                  Pursuit ofStrategic Acquisitions. We continually review opportunities to acquireproducing properties, leasehold acreage and drilling prospects. We seek toacquire operational control of properties that we believe have significantexploitation and exploration potential. We are especially focused on increasingour holdings in fields and basins in which we already own an interest. We havehistorically expended between 70% - 80% of available capital on the acquisitionof producing oil and gas properties. 

 

•                  Participationin Development, Exploitation, and Exploration Activities. We continuallyreview development, exploitation and exploration opportunities generated byindustry partners. We have historically expended up to 30% of our availablecapital on these opportunities. 

 

•                  FurtherDevelopment of Existing Properties. We will continue development of ourproperties that have proved reserves and exploration opportunities. We seek toadd proved reserves and increase production through detailed technical analysisof our properties, by drilling in-fill locations, selectively recompletingexisting wells, and identifying and drilling low to medium risk explorationprospects. We also plan to drill step-out wells to expand known field limitswhere applicable. We intend to enhance the efficiency and quality control ofthese value-added activities by operating the majority of our properties withdevelopment potential.

 

•                  Rationalizationof Property Portfolio. We actively pursue opportunities to reduce andcontrol operating costs of our existing properties and properties we mayacquire in the future through the consolidation of overlapping operations andthe sale of marginal properties.

 

•                  Maintenanceof Financial Flexibility. We believe our base of internally generated cashflow and other financial resources, including our existing credit facility andthe potential proceeds from the exercise of outstanding warrants, will provideus with the financial flexibility to acquire additional acquisitions ofproducing properties, develop project inventory, and participate in third partyand internally generated exploration projects. 

 

**Acquisitions and Dispositionsof Oil and Gas Properties**

** **

In February and March 2004, we acquired anadditional 10% working interest in the Bonnie View Field for approximately$195,000, utilizing proceeds from our February 2004 sale of our non-operatinginterest in the Cascade Unit for $525,000.

 

In May 2004, the Company acquired anapproximate 73% operated working interest in the Cut Off Field in LafourcheParish, Louisiana for approximately $1.65 million. The Company funded theacquisition utilizing a combination of working capital and $1.0 million inadditional principal borrowed under our bank credit facility (the “CreditFacility”). We acquired an additional 14% working interest in the Cut Off Fieldin July 2004 from two third party sellers for approximately $400,000,increasing our overall interest in the field to approximately 87%.

 

In June 2004, we acquired various operatedworking interests in three gas fields in South Texas for approximately $7.5million (the “Properties”), of which approximately 50% is consideredundeveloped. We acquired an average 78% working interest in the Properties’existing wells and an average 61% working interest in any future undevelopedlocations. The Properties consist of working interests in the Tom Lyne Field inLive Oak County, Texas, the Scott & Hopper Field in Brooks County, Texas,and the North Rincon Field in Starr County, Texas.

 

We financed the acquisition of the Propertiesusing a combination of operating cash flow, equity financing, bank financing,and convertible subordinated debt. The consideration paid for the Propertiesconsisted of i) the

 

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payment of approximately $5.7 million in cash; ii) the issuance of asix-year, approximate $1.8 million subordinated note bearing interest at a rateof 7% per annum and convertible into our common stock at a conversion price of$2.00 per share (the “Convertible Subordinated Note”); iii) a commitment todrill four wells over a 24 month period and pay certain drilling costspertaining to the seller’s retained working interests in those wells (the “DrillingCommitment”); iv) certain future price sharing arrangements through June 30,2008 in the event actual prices per Mcf received by Whittier exceed agreed uponpricing levels; and v) the issuance of a three-year warrant to purchase 300,000shares of the our common stock at an exercise price of $2.50 per share.

 

The $5.7 million cash portion of the purchaseprice was funded through $3.05 million in additional borrowings under the ourCredit Facility, cash proceeds from the sale of equity in a private offering,and available working capital, including Whittier’s net revenues from theProperties from the March 1, 2004 effective date of the transaction. In June2004, the Company closed the private placement, raising total gross proceeds ofapproximately $2.4 million through the issuance of 1.38 million shares of theCompany’s common stock for a purchase price of $1.75 per share and anaccompanying three-year warrant to purchase 1.38 million shares of common stockat an exercise price of $2.50 per share. We also issued 29,813 shares of common stock and a related warrant topurchase an additional 29,813 shares of common stock at an exercise price of$2.50 per share to Global Resource Investments Ltd., a registeredbroker/dealer, as payment for services rendered as a placement agent inconnection with the private offering.

 

In October 2004, we acquired an additional 11%working interest in the Rayne Field for approximately $174,000, increasing ourtotal working interest in the field to 33%. We financed the acquisition usingadditional borrowings of $180,000 from our Credit Facility.

 

**Marketing**

** **

We market the natural gas and oil produced from our properties throughtypical channels for these products. We generally sell our oil at local fieldprices paid by the principal purchasers of the oil produced. The majority ofour natural gas production is sold at current market rates. Both natural gasand oil are purchased by marketing companies, pipelines, major oil companies,public utilities, industrial customers and other users and processors ofpetroleum products. During 2004, approximately 36% of our oil and gas revenuewas attributable to one purchaser, Shell Trading (US) Company. We are not,however, confined to, or dependent upon, any one purchaser or small group ofpurchasers. Accordingly, the loss of a single purchaser, or a few purchasers,would not have a long-term material effect on our business because theregenerally are numerous purchasers in the areas in which we sell our production.We currently hedge a portion of our natural gas and oil production to manageour exposure to commodity price volatility in the marketing of our productionand we intend to do so in the future. 

 

**HedgingActivities**

 

We regularly hedge a portion of our production to reduce our exposureto oil and gas price volatility, as well as to achieve more predictable cashflows from our oil and gas properties. Our current policy is to hedge between50% and 70% of the Company’s anticipated future production, either when webelieve it is justified by available future oil and gas prices or in order tofinance a planned acquisition of producing oil and gas properties.  Gains or losses on both realized andunrealized hedging transactions are determined as the difference between thecontract price and an applicable settlement or reference price. Settlementgains and losses are determined monthly and are included as increases ordecreases in oil and gas revenues in the period the hedged production is sold.Any ineffective portion of unrealized gains or losses of such hedges isrecognized in earnings in the period they occur.

 

**Competition**

** **

We compete in the exploration and productionsegment of the oil and gas industry with a number of other companies.  These companies include large multinationaloil and gas companies and other independent operators with greater financialresources and more experience than Whittier. We do not hold a significant competitive position in the oil and gasindustry.  We compete both with major oiland gas companies and with independent

 

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producers for, among other things, rights to develop oil and gasproperties, access to limited pipeline capacity, procurement of availablematerials and resources, and the hiring and retention of qualified personnel.We have not experienced any significant difficulties in sourcing and acquiringthe services and raw materials necessary to conduct our operations and do nothave any suppliers that we are principally dependent upon with regards toproviding such services or raw materials. 

 

**Title to Properties**

** **

Title to Whittier’s oil and gas properties issubject to royalty, overriding royalty, carried and other similar interests andcontractual arrangements customary in the industry, liens incident to operatingagreements and for current property taxes not yet due and other comparativelyminor encumbrances. When acquiring its oil and gas properties, the Companytypically obtains a title opinion verifying the applicable ownership interestsacquired. For exploration projects, a detailed title examination is typicallyconducted and curative work is performed with respect to identified titledefects prior to the commencement of drilling operations.

 

#### **Government Regulation**

 

#### Federaland State Regulatory Requirements

####  

We are a public company subject to the rules and regulations of theSEC. Recently enacted and proposed changes in the laws and regulationsaffecting public companies, including the provisions of the Sarbanes-Oxley Actof 2002 and rules adopted by the SEC, could result in increased costs to us aswe evaluate the implications of these new rules and respond to their requirements.The new rules could make it more difficult for us to obtain certain types ofinsurance, including director and officer liability insurance, and we may beforced to accept reduced policy limits and coverage or incur substantiallyhigher costs to obtain the same or similar coverage. The impact of these eventscould also make it more difficult for us to attract and retain qualifiedpersons to serve on our board of directors, our board committees, or asexecutive officers. We are currently evaluating and monitoring developmentswith respect to new and proposed rules and cannot predict or estimate theamount of the additional costs we may incur or the timing of such costs.

 

Our operations are subject to numerous laws and regulations governingthe operation and maintenance of our facilities and the discharge of materialsinto the environment or otherwise relating to environmental protection. Theselaws and regulations may:

 

•                  require that weacquire permits before commencing drilling; 

•                  restrict the substancesthat can be released into the environment in connection with drilling andproduction activities; 

•                  limit orprohibit drilling activities on protected areas such as wetlands or wildernessareas; or

•                  require remedialmeasures to mitigate pollution from former operations, such as pluggingabandoned wells.

 

Under these laws and regulations, we could be liable for personalinjury and clean-up costs and other environmental and property damages, as wellas administrative, civil and criminal penalties. These laws and regulationshave been changed frequently in the past. In general, these changes haveimposed more stringent requirements that increase operating costs or requirecapital expenditures in order to remain in compliance. It is also possible thatunanticipated developments could cause us to make environmental expendituresthat are significantly different from those we currently expect. Existing lawsand regulations could be changed, and any changes could have an adverse effecton our business.

 

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Environmental Regulations

 

The oil and gas business is subject to environmental hazards, such asoil spills, gas leaks and ruptures and discharges of petroleum products andhazardous substances, and historic disposal activities. These environmentalhazards could expose us to material liabilities for property damages, personalinjuries or other environmental harm, including costs of investigating andremediating contaminated properties. In addition, we also may be liable forenvironmental damages caused by the previous owners or operators of propertiesthat we have purchased or are currently operating. A variety of stringentfederal, state and local laws and regulations govern the environmental aspectsof our business and impose strict requirements for, among other things:

 

•                  well drilling orworkover, operation and abandonment;

•                  wastemanagement;

•                  landreclamation;

•                  financialassurance under the Oil Pollution Act of 1990; and

•                  controlling air,water and waste emissions.

 

Any noncompliance with these laws and regulations could subject us tomaterial administrative, civil or criminal penalties or other liabilities.Additionally, our compliance with these laws may, from time to time, result inincreased costs to our operations or decreased production, and may affect ourcosts of acquisitions. Environmental laws may, in the future, cause a decreasein our production or an increase in the costs of production, development orexploration. Pollution and similar environmental risks generally are not fullyinsurable.

 

We have not incurred any material costs relating to our compliance withfederal, state or local laws during the year ended December 31, 2004, or duringthe subsequent interim period. 

 

**Forward-LookingStatements**

 

Statements that are not historical facts included in this annual reporton Form 10-KSB constitute “forward-looking statements” within the meaning ofthe Private Securities Litigation Reform Act of 1995 that involve risks anduncertainties that could cause actual results to differ from projected results.All statements other than statements of historical facts included in thisannual report that address activities, events or developments that Whittierexpects or anticipates will or may occur in the future, including such thingsas estimated future net revenues from oil and gas reserves and the presentvalue thereof, future capital expenditures (including the amount and naturethereof), business strategy and measures to implement strategy, competitive strength,goals, expansion and growth of Whittier’s business and operations, plans,references to future success, reference to intentions as to future matters andother such matters are forward-looking statements. These statements are basedon certain assumptions and analyses made by Whittier in light of its experienceand its perception of historical trends, current conditions and expected futuredevelopments as well as other factors it believes are appropriate in thecircumstances. However, whether actual results and developments will conformwith Whittier’s expectations and predictions is subject to a number of risksand uncertainties, general economic, market, or business conditions; theopportunities (or lack thereof) that may be presented to and pursued byWhittier; competitive actions by other oil and gas companies; changes in lawsor regulations; and other factors, many of which are beyond the control ofWhittier. Consequently, all of the forward-looking statements made in thisannual report are qualified by these cautionary statements and there can be noassurances that the actual results or developments anticipated by Whittier willbe realized, or even if realized, that they will have the expected consequencesto or effects on Whittier, its business or operations. We have no intention,and disclaim any obligation, to update or revise any forward lookingstatements, whether as a result of new information, future results orotherwise.

 

**Risks ofOil and Gas Activities**

 

*Estimates of Proved Oil and Gas Reserves.*Petroleumengineering is a subjective process of estimating underground accumulations ofoil and gas that cannot be measured in an exact manner. Estimates ofeconomically

 

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recoverable oil and gas reserves and of future net cash flows dependupon a number of variable factors and assumptions, including:

 

•                  historicalproduction from the area compared with production from other analogousproducing properties;

•                  theassumed effects of regulations by governmental agencies;

•                  assumptionsconcerning future oil and gas prices; and

•                  assumptionsconcerning future operating costs, severance and excise taxes, developmentcosts and workover and remedial costs.

 

Because all reserve estimates are to somedegree subjective, each of the following items may differ materially from thoseassumed in estimating reserves:

 

•                  thequantities of oil and gas that are ultimately recovered;

•                  the timingof the recovery of oil and gas reserves;

•                  theproduction and operating costs incurred; and

•                  the amountand timing of future development expenditures.

 

Furthermore, different reserve engineers may make different estimatesof reserves and cash flows based on the same available data. Actual production,revenues and expenditures with respect to reserves will vary from estimates andthe variances may be material.

 

The estimated discounted future net revenues included in this documentshould not be considered as the market value of the reserves attributable toour properties. As required by the U.S. Securities and Exchange Commission (“SEC”),the estimated discounted future net revenues from proved reserves are generallybased on prices and costs as of the date of the estimate, while actual futureprices and costs may be materially higher or lower. Actual future net revenueswill also be affected by factors such as:

 

•                  the amount andtiming of actual production;

•                  supply anddemand for oil and gas; and

•                  changes ingovernmental regulations or taxation.

 

In addition, the 10% discount factor, which the SEC requires to be usedto calculate discounted future net revenues for reporting purposes, is notnecessarily the most appropriate discount factor based on the cost of capitalin effect from time to time and risks associated with our business and the oiland gas industry in general.

 

*ReserveReplacement.*The future success of the Company depends on ourability to find, develop and acquire additional oil and gas reserves that areeconomically recoverable which, in itself, is dependent on oil and gas prices.Without continued successful exploitation, acquisition or explorationactivities, our reserves and revenues will decline as a result of our currentreserves being depleted by production. Whittier may not be able to find oracquire additional reserves at acceptable costs.

 

*Volatility of Oil and Gas Prices.*Our futuresuccess is largely dependent on oil and gas prices, which are extremelyvolatile. Any substantial or extended decline in the price of oil and gas belowcurrent levels could have a material adverse effect on our business operationsand future revenues. Moreover, oil and gas prices depend on factors we cannotcontrol, such as:

 

•                  supply anddemand for oil and gas and expectations regarding supply and demand;

•                  weather;

•                  actions bythe Organization of Petroleum Exporting Countries, or OPEC;

•                  politicalconditions in other oil-producing and gas-producing countries including thepossibility of insurgency or war in such areas;

•                  generaleconomic conditions in the United States and worldwide; and

 

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•                  governmentalregulations.

 

With respect to our business, prices of oil and gas will affect:

 

•                  our revenues,cash flows and earnings;

•                  our ability toattract capital to finance our operations and the cost of such capital;

•                  the amount thatwe are allowed to borrow; and

•                  the value of ouroil and gas properties.

 

We have hedged a portion of our production to reduce our exposure tooil and gas price volatility, as well as to achieve more predictable cash flowsfrom our oil and gas properties. Hedging will prevent Whittier from receivingthe full advantage of increases in oil or gas prices above the fixed amountspecified in the hedge agreement. In a typical hedge transaction, we have theright to receive from the hedge counterparty the excess of the fixed pricespecified in the hedge agreement over a floating price based on a market index,multiplied by the quantity hedged. If the floating price exceeds the fixedprice, we must pay the counterparty this difference multiplied by the quantityhedged even if we had insufficient production to cover the quantities specifiedin the hedge agreement. Accordingly, if we have less production than we havehedged when the floating price exceeds the fixed price, we must make paymentsagainst which there are no offsetting sales of production. If these paymentsbecome too large, the remainder of our business may be adversely affected. 

 

*MarketDemand for Oil and Gas.*Our success is also materially dependent uponthe demand for oil and gas. The availability of a ready market for our oil andgas production depends on a number of factors beyond Whittier’s control,including the demand for and supply of oil and gas, the availability ofalternative energy sources, the proximity of reserves to, and the capacity of,oil and gas gathering systems, pipelines or trucking and terminal facilities.If there is no market for the oil and gas that we produce, Whittier will beunable to sell its production. We may also have to shut-in some of our wellstemporarily due to a lack of market or adverse weather conditions includinghurricanes. If the demand for oil and gas diminishes, Whittier’s financialresults would be negatively impacted.

 

In addition, there are limited methods of transportation for ourproduction. Substantially all of our oil and gas production is transported bypipelines, trucks and barges owned by third parties. The inability orunwillingness of these parties to provide transportation services to Whittierfor a reasonable fee could result in management having to find transportationalternatives, increased transportation costs or involuntary curtailment of asignificant portion of its oil and gas production, any of which could have anegative impact on our results of operation and cash flows.

 

*Risks ofOperating Oil & Gas Properties.*The oil and gasbusiness involves certain operating hazards such as:

 

•                  wellblowouts;

•                  cratering;

•                  explosions;

•                  uncontrollableflows of oil, gas or well fluids;

•                  fires;

•                  pollution;and

•                  releasesof toxic gas.

 

Any of these operating hazards could causeserious injuries, fatalities or property damage, which could expose Whittier toliabilities. The payment of any of these liabilities could reduce, or eveneliminate, the funds available for exploration, development and acquisition, orcould result in a loss of Whittier’s properties.

 

We maintain insurance against many potentiallosses and liabilities arising from our operations in accordance with customaryindustry practices and in amounts that we believe to be prudent. However, ourinsurance does not protect us against all operational risks. The insurancemarket in generaland the energy insurance market in

 

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particular has been a difficult market over the past several years.Insurance costs are expected to continue to increase over the next few yearsand Whittier may decrease coverage and retain more risk to mitigate future costincreases. If Whittier incurs substantial liability and the damages are notcovered by insurance or are in excess of policy limits, or if Whittier incursliability at a time when Whittier is not able to obtain liability insurance,then its business, results of operations and financial condition could bematerially adversely affected.

 

**Employees**

 

As of March 30, 2005, we had six full-time employees. We believe thatour relationship with our employees is good. None of our employees are coveredby a collective bargaining agreement. We use the services of independent consultantsand contractors to perform various professional services, particularly in theareas of operational accounting, field level production, construction, design,well-site surveillance, permitting and environmental assessment.

 

**Our Executive Offices andWebsite**

 

Our principal executive offices are located at 333 Clay Street, Suite1100, Houston, Texas 77002 and our telephone number  is (713) 850-1880. Our website is http://www.whittierenergy.com.

 

**AvailableInformation**

** **

We file information statements and annual, quarterly and specialreports with the SEC. You may read and copy any document that we file at theSEC’s public reference room in Washington, D.C. located at 450 Fifth StreetN.W., Washington, D.C. 20549. You may also call the SEC at 1-800-SEC-0330 forfurther information on the public reference rooms. The SEC maintains a web sitethat contains reports, proxy statements and information statements and otherinformation regarding registrants that file electronically with the SEC,including us. Our SEC filings are also available to you free of charge at theSEC’s web site at www.sec.gov.

 

**Item 2.  Description of Properties**

 

**Oiland Gas Properties**

** **

Our assets consist of operated and non-operated working interests,royalty interests, partnership interests, and mineral acreage in various oiland gas properties, principally located in Louisiana, Texas, Oklahoma, andCalifornia, with minor property interests in Colorado, Utah, New Mexico,Wyoming and Pennsylvania. Our material properties are described below:

 

*Operated Properties*

* *

Beaver Dam Creek Unit

 

This property, located 40 miles northeast BatonRouge in St Helena Parish, Louisiana, was acquired by Whittier in April 2002.There are six producing oil wells and two saltwater disposal wells. We own an89% working interest with a 69.5% revenue interest. The field produces from theupper and lower sands of the Tuscaloosa formation at approximately 14,500 feet.During 2004, gross daily production averaged approximately 237****barrels of oil per day (“Bopd”) and 35thousand cubic feet per day (“Mcfd”) and net production was 165****Bopd and 24 Mcfd. During March 2005, our grossdaily production was affected by several downhole mechanical failures that havebeen repaired.  As of March 30, 2005,gross daily production was 250 barrels of oil equivalent (“Boe”) (174 Boe,net).  Beaver Dam Creek’s proved reservesas of December 31, 2004 are 100% oil and accounted for approximately 22.5% ofour total year-end proved reserves on a Boe basis. Year-end proved gas reserveswere not recognized due to the loss of our commercial gas market for the fieldin October 2004. 

 

10

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Big Wells Field

 

Whittieracquired a 100% working interest (75% revenue interest) in this field in DimmitCounty, Texas, in July 2002. It has 15 active oil wells and is located 45 milessouthwest of San Antonio. The wells produce from the San Miguel and Lo Eastsands between 5,500’ and 6,000’. During 2004, gross production averaged 155Bopd and 19****Mcfd and net productionaveraged 116 Bopd and 14****Mcfd.During March 2005, gross daily production has averaged 142 Bopd and 18 Mcfd(107 Bopd and 14 Mcfd, net). Big Wells underlying proved reserves as ofDecember 31, 2004 were 98% oil and represent 15.9% of our total year-end provedreserves.  

** **

Bonnie View Field

 

Whittier owns a 71.38% working interest (58.53% revenue interest) inthis field located in Refugio County, Texas, 45 miles north of Corpus Christi.Whittier acquired a 61.38% working interest in November 2003 and an additional10% working interest in February 2004. There are also three shut-in wells and asalt water disposal well.  The fieldproduces from depths of approximately 4700’ - 5600’. In July 2004, wesuccessfully drilled and completed the Schirmer #19, an infill developmentwell, which was brought on production at over 50 Bopd (30 Bopd, net). During2004, the field had average gross daily production of approximately 92 Bopd and378 Mcfd and net production of 54 Bopd and 221 Mcfd, from four producing wells.During March 2005, gross daily production has averaged 105 Bopd and 450 Mcfd(61 Bopd and 260 Mcfd, net). Bonnie View’s proved reserves as of December 31,2004, consisted of 48% gas and 52% oil and represented approximately 8.2% ofour total proved reserves. 

 

Cut Off Field

 

In May and July 2004, Whittier acquired an 87% working interest (63%net revenue interest) in seven wells in the Cut Off Field, located in LafourcheParish, Louisiana. The field is approximately 45 miles west of New Orleans. Thepurchase, which had an effective date of March 1, 2004, included four producingoil wells, one salt water disposal well and two shut-in wells. During 2004,average gross production was approximately 180 Bopd and 150 Mcfd (112 Bopd and22****Mcfd, net). During March 2005,gross daily production has averaged 195 Bopd and 122 Mcfd (123 Bopd and 77Mcfd, net). In addition to the producing reserves, we are reviewing a potentialbehind pipe interval and a possible infill development well in the field. CutOff’s proved reserves as of December 31, 2004, were 94% oil and representapproximately 12.4% of our total proved reserves. 

 

North Rincon Field

 

In June 2004, we acquired a 98.5% working interest (73% net revenueinterest) in the North Rincon Field (Cameron lease). The field is located inStarr County, Texas, approximately 45 miles north of McAllen. Average grossproduction from June through December 2004 from the 640-acre lease wasapproximately 500 Mcfd gross and 367****Mcfdnet from two wells producing from the Frio formation. During March 2005, grossdaily production has averaged 500 Mcfd (367 Mcfd, net). Based on 3D seismicpurchased in September 2004, Whittier believes this field holds opportunitiesto add additional production and reserves through drilling in both the Frio andVicksburg formations. The field’s proved reserves as of December 31, 2004, were95% gas and represent approximately 4.4% of our year-end total proved reserves.

 

Whittier holds a 74% working interest (54.8% net revenue interest) inany future wells drilled in North Rincon, subject to a commitment to drill twowells in the field. The first well must be drilled on or before June 18, 2005,or Whittier must reassign the undeveloped acreage in the field to the seller. Asubsequent well must be drilled by June 18, 2006, or Whittier will reassign 50%of its remaining undeveloped acreage rights in the field to the sellers.Whittier has staked and permitted the location for the initial commitment welland is attempting to contract a rig to spud a well in May or June of 2005.

 

11

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Rayne Field

 

We hold a 33% working interest (26% net revenue interest) in this fieldlocated in Acadia Parish, Louisiana, near Lafayette. Gross daily productionduring 2004 from the three operated active wells in the field was approximately700 Mcfd and 35 Bopd, and net production was 180 Mcfd and 10****Bopd. During March 2005, gross dailyproduction has averaged 700 Mcfd and 35 Bopd (180 Mcfd and 10 Bopd, net). Thereare 14 inactive wells and one saltwater disposal well in this field. Whittierbelieves that additional production may be gained in this field by testingpreviously bypassed potential pay sands and working over shut-in wells todetermine if they will produce at economic rates under compression. One suchwell was brought online in May 2004 with gross production of 20 Bopd and 60Mcfd. Whittier is also reviewing a location that would test an unproduced faultblock updip of an existing oil show. The Rayne field accounts for less than 4%of our total year-end proved reserves and is approximately 81% gas. 

 

Scott & Hopper Field

 

In June 2004, Whittier acquired a 68.5% working interest (51% netrevenue interest) in this field. The Scott & Hopper field is located nearLa Gloria in Brooks County, Texas. Average gross production from June throughDecember 2004 from two wells from the field was approximately 500 Mcfd and 10barrels of condensate per day (“Bcpd”) and net production was 255****Mcfd and 5 Bcpd from the Vicksburgformation at 9,500'. During March 2005, gross daily production was impacted bymechanical problems in the field, which have since been corrected.  Average daily gross production as of March30, 2005 was 450 Mcfd and 10 Bcpd (230 Mcfd and 5 Bcpd, net). Based on 3Dseismic interpretation and well control, Whittier believes the Scott &Hopper field holds opportunities to add additional production and reservesthrough drilling at least two additional proved undeveloped locations includedin our year-end reserves. The Scott & Hopper field’s proved reserves as ofDecember 31, 2004 were 93% gas and represent approximately 7.5% of our year-endtotal proved reserves and 56% of year-end proved undeveloped reserves. 

 

Whittier holds a 42.5% working interest (31.9% net revenue interest) inany future wells drilled in Scott & Hopper, subject to a commitment todrill two new wells in the field. Whittier successfully drilled the first Scott& Hopper #4 commitment well during February 2005, after having increasedits working interest in the well to 56% (42% revenue interest) by acquiring anadditional 13% non-consent working interest. Based on well logs, the Companyhas identified additional behind pipe reserves apart from the original targetedproved undeveloped sand in the Scott & Hopper #4, and is in the process ofevaluating the well prior to completing and bringing the well into production.Under the terms of the drilling commitment, Whittier must begin drilling thenext well before December 18, 2005, or reassign 50% of the remaining undevelopedacreage rights in the field to the sellers. 

 

Tom Lyne Field

 

We acquired a 73% working interest (55% net revenue interest) in thisfield in June 2004. The Tom Lyne field is located in Live Oak County, Texas,approximately 50 miles west of Corpus Christi. During 2004, the field had grossproduction from three wells of 652 Mcfd and 9 Bcpd and net production of 359Mcfd and 5 Bcpd from the Frio and Wilcox sands from 8,000’ to 10,600’,respectively. During March 2005, gross daily production has averaged 600 Mcfdand 8 Bcpd (350 Mcfd and 5 Bcpd, net). Based on 3D seismic interpretation andwell control, Whittier believes the Tom Lyne acreage holds opportunities to addadditional production and reserves through drilling and recompletions,including one proved undeveloped and one proved behind pipe location includedin our year-end reserve report. As of December 31, 2004, the field’s provedreserves were 95% gas, representing approximately 6.1% of our year-end totalproved reserves and 44% of year-end proved undeveloped reserves. 

 

Owen Field 

 

Whittier leased 386 acres (116 acres net) in Webb County, Texas, inAugust 2004, and retained a 30% working interest (22.5% revenue interest) inthe lease. We successfully drilled and cased the Rachal #1 well in December2004, identifying approximately 15 feet of pay. The well was completed andfracced and put on production in mid-March 2005. As of March 30, 2005, the wellwas producing at a rate of 350 Mcfd (90

 

12

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Mcfd, net) on a small diameterchoke. If the well proves successful, we have identified two additionaldrilling locations on the lease.

 

*Non-Operated Properties*

* *

Hamel Field

 

TheHamel Field in Colorado County, Texas, is located about 60 miles southwest ofHouston. During 2004, six wells had average net production of approximately 147Mcfd and 6 Bopd from Wilcox sands between 8,500’ and 9,800’. One additionalwell produces from the deeper Edwards sand at approximately 12,000’. Whittierfirst invested in this field in 1986, seeing an opportunity to explore forbypassed reserves in a field that had been abandoned by a major oil company.Since 1986, the operator has drilled or re-entered four wells and performedapproximately a dozen recompletion procedures. Whittier’s average workinginterest is 22% (18% net revenue interest). Hamel’s reserves were 89% gas andrepresented 5.8% of Whittier’s total proved reserves as of December 31, 2004.

 

Lost Dome Field

 

The Lost Dome unit lies in Natrona County, Wyoming, about 40 milesnorthwest of Casper. The six well field had net average production during 2004of 48 Bopd from the Tensleep formation at about 5,600’. We participated in thediscovery of this field in 1998 and own an 18.75% working interest (15% netrevenue interest). No additional development in the field is currently planned.Lost Dome’s underlying proved reserves are 100% oil and are approximately 2.8%of our total year-end proved reserves.

 

Greater Mayfield Area

 

Whittier has small working interests (1% orless) in 13 producing wells in Beckham County, Oklahoma. We participated in thedrilling of these deep (18,500’-24,000’), geo-pressured gas wells over the lastfour years. Average net production for 2004 was approximately 481****Mcfd per day. These wells produce from theHunton, Morrow and Springer formations. In addition to the producing wells,Whittier has similar working interests in six additional wells, which are invarious stages of drilling, completing, or testing. These Greater Mayfield Areawells accounted for approximately 2.3% of our end of year proved reserves. 

 

Round Mountain Unit

 

Whittier has a small interest in the RoundMountain Unit thermal development project in Kern County, California,representing 0.2% working interest before payout and a 0.7% after payout. TheCompany expects payout to occur during the fourth quarter of 2005, which isexpected to result in more significant returns from the Company’s investment inthis long-lived tertiary oil recovery project. As of December 31, 2004, theRound Mountain Unit accounted for approximately 6% of our year-end provedreserves. 

 

Other Non-OperatedProperties

 

We own working interests and royalties directlyand through partnerships in numerous wells and fields that individually are notsignificant, but in the aggregate contribute meaningfully to our cash flow andaccounted for approximately 3% of Whittier’s proved reserves as of December 31,2004. The operators range from major oil companies to small privateindependents and the assets are located in California, Colorado, Utah, NewMexico, Oklahoma and Texas. In some cases there are opportunities to makeincremental additional investments in developing certain properties or workingover wells or to buy the interests of other owners. We are continually monitoringthese assets and will add to them or dispose of them when favorableopportunities arise or they are found to be under-performing. 

 

13

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**Oil and Gas Reserves**

** **

Thefollowing table presents the Company’s net proved and proved developed reservesas of December 31, 2004, 2003 and 2002, respectively, and the net presentvalues as of such dates (based on an annual discount rate of 10%) of theestimated future net revenues from the production and sale of those reserves.All of our oil and gas properties are located in the United States. 

 
| ** **                                                                                             | ** ** | **As of the Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                             | ** ** | **2004**                              | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Total Proved Reserves:**                                                                             | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Oil (Bbls)                                                                                             |       | 1,734,985                             |       | 1,462,770 |   | 1,568,404 |   |
| Gas (Mcf)                                                                                              |       | 5,559,030                             |       | 2,988,550 |   | 1,406,188 |   |
| Total Barrel of Oil Equivalent (Boe)                                                                   |       | 2,661,490                             |       | 1,960,862 |   | 1,802,769 |   |
|                                                                                                   |       |                                  |       |   |   |   |   |
| Present value of estimated future net  revenues before income taxes,  discounted at 10% (in thousands) |       | $                                     | 33,458     |   | $ | 21,250 |   | $ | 17,283 |   |
|                                                                                                   |       |                                  |       |   |   |   |   |
| **Total Proved Developed Reserves:**                                                                   | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Oil (Bbls)                                                                                             |       | 1,603,964                             |       | 1,462,770 |   | 1,559,029 |   |
| Gas (Mcf)                                                                                              |       | 4,094,890                             |       | 2,676,060 |   | 1,397,800 |   |
| Total Barrel of Oil Equivalent (Boe)                                                                   |       | 2,286,446                             |       | 1,908,780 |   | 1,791,996 |   |
|                                                                                                        |            |                                       |            |  |  |  |  |  |  |  |

 

The Company’s estimates of proved reserves for the years ended December31, 2004, 2003, and 2002, respectively, were taken from independent evaluationsprepared in accordance with the requirements established by the SEC by H.J.Gruy and Associates, Inc. Additionally, WZI, Inc. prepared an independent evaluationwith respect to the Company’s interest in the Round Mountain Unit only for theyear ended December 31, 2004.  Furthermore,internal estimates of proved reserves were utilized for certain royaltyinterests representing less than 1% of Whittier’s total year end estimatedproved reserves. No reserve estimates have been filed with any Federalauthority or other agency since January 1, 2004.

 

14

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**Net Quantities of Oil and Gas Produced**

 

The following table summarized sales volumes,sales prices and production cost information for our net oil and gas productionfor each of the three years ended December 31, 2004:

 
| ** **                          | ** ** | **As of the Year Ended December 31,** | ** ** |
|-------------------------------------|------------|---------------------------------------|------------|
| ** **                          | ** ** | **2004**                              | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net sales volumes                   | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Oil (bbls)                          |       | 178,303                               |       | 166,510 |   | 129,613 |   |
| Gas (mcf)                           |       | 794,831                               |       | 446,760 |   | 160,508 |   |
| Average sales price                 |       |                                  |       |   |   |   |   |
| Oil (per Bbl)                       |       | $                                     | 30.56      |   | $ | 24.36 |   | $ | 23.55 |   |
| Gas (per Mcf)                       |       | $                                     | 5.89       |   | $ | 4.72 |   | $ | 3.65 |   |
| Average production costs (per Boe): |       |                                  |       |   |   |   |   |
| Production taxes                    |       | $                                     | 3.96       |   | $ | 2.66 |   | $ | 2.34 |   |
| Lease operating expense             |       | 9.53                                  |       | 8.79 |   | 10.44 |   |
| Total average production costs      |       | $                                     | 13.49      |   | $ | 11.45 |   | $ | 12.78 |   |
|                                     |            |                                       |            |  |  |  |  |  |  |  |  |

 

**Productive Wells and Acreage**

** **

*Productive Wells and Developed Acreage*

* *

Whittier owns various working and royaltyinterests in productive oil and gas wells, as well as developed and undevelopedoil and gas acreage, all of which are located onshore in the UnitedStates.  Productive wells are wellscurrently producing commercial quantities of crude oil or natural gas, or wellscapable of producing commercial quantities, which do not require significantadditional capital investment to bring onto production. Developed acreageconsists of lease acres spaced or assignable to production, including leasesheld by production, where wells have been drilled to allow the production ofcommercial quantities of oil or natural gas. 

 

As of December 31, 2004, Whittier hadinterests in 122 gross productive wells and one unit (43 net wells), of which45 were gross oil wells (27 net oil wells) and 77 were gross gas wells (16 netgas wells). There was only 1 productive multiple completion well.  Whittier operated 39 gross productive wellsas of December 31, 2004. Production was from approximately 38,733 grossdeveloped acres (8,087****net acres).

** **

*Undeveloped Acreage*

* *

As of December 31, 2004, we held interests inapproximately 18,002****grossundeveloped acres (3,175****netundeveloped acres). 

 

15

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*Drilling Activity*

* *

During the three years ended December 31,2004, our net interests in exploratory and development wells drilled were asfollows:

 
| ** **      | ** ** | **2004**       | ** ** | **2003** | ** ** | **2002**       | ** ** |
|-----------------|------------|----------------|------------|----------|------------|----------------|------------|
| ** **      | ** ** | **Productive** | ** ** | **Dry**  | ** ** | **Productive** | ** ** | **Dry** | ** ** | **Productive** | ** ** | **Dry** | ** ** |
| **Gross Wells** |       |           |       |     |       |           |       |   |   |   |   |   |   |
| Exploratory     |       | 3              |       | 1        |       | 3              |       | — |   | 2 |   | 1 |   |
| Development     |       | 6              |       | —   |       | 3              |       | — |   | 3 |   | — |   |
| Total           |       | 9              |       | 1        |       | 6              |       | — |   | 5 |   | 1 |   |
|            |       |           |       |     |       |           |       |   |   |   |   |   |   |
| **Net Wells**   |       |           |       |     |       |           |       |   |   |   |   |   |   |
| Exploratory     |       | .42            |       | .20      |       | .22            |       | — |   | .11 |   | .10 |   |
| Development     |       | .76            |       | —   |       | .07            |       | — |   | .21 |   | — |   |
| Total           |       | 1.18           |       | .20      |       | .29            |       | — |   | .32 |   | .10 |   |

 

A well is considered productive when adetermination is made during the drilling of the well that it is capable ofproducing commercial quantities of oil or natural gas and should therefore becompleted. All of the Company’s wells are located in the United States. 

 

Present Activities

 

As of March 30, 2005,we are in the process of completing the Scott & Hopper #4 well in BrooksCounty, Texas, and are participating in four****deep gas wells (0.05 net wells) in theGreater Mayfield Area, which are in various stages of drilling, completing, ortesting. The Rachal #1 well was brought into production in March 2005 and iscurrently being evaluated. 

** **

**Item3. Legal Proceedings**

 

Management is not aware of any legal proceedings contemplated by anygovernmental authority or any other party involving us or our properties. Noneof our directors, officers or affiliates (i) are a party adverse to us in anylegal proceedings, or (ii) have an adverse interest to us in any legalproceedings. Management is not aware of any other legal proceedings pending orthat have been threatened against us or our properties.

 

**Item 4. Submission of Matters to a Vote ofSecurity Holders**

 

On July 20, 2004, Whittier held the 2004 Annual Meeting of Stockholders(the “Annual Meeting”) whereby our stockholders approved:  (i) the election of Charles O. Buckner, DavidA. Dahl, James A. Jeffs, Daryl Pollock, Bryce W. Rhodes, and Arlo Sorensen tothe Company’s Board of Directors for a term of one year, and (ii) the adoptionof Whittier Energy Corporation’s Long-Term Incentive Plan.

 

16

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The number of shares voted and withheld with respect to each particularmatter voted upon by Whittier’s shareholders was as follows:

 

1)             Approval of theelection of Board of Directors:

 
| **For**   | ** ** | **Against** | ** ** | **Withheld** | ** ** | **Broker Non-Votes** |
|-----------|------------|-------------|------------|--------------|------------|----------------------|
|      |       |        |       |         |       |                 |
| 7,775,397 |       | None        |       | 9,411        |       | None                 |

 

2)             Approval of theLong-Term Incentive Plan:

 
| **For**   | ** ** | **Against** | ** ** | **Withheld** | ** ** | **Broker Non-Votes** |
|-----------|------------|-------------|------------|--------------|------------|----------------------|
|      |       |        |       |         |       |                 |
| 7,316,662 |       | 2,471       |       | 465,675      |       | None                 |

 

### **PART II**

### ** **

**Item 5. Market for Common Equity and RelatedStockholder Matters**

 

**Market Information and Holders of CommonStock**

** **

Our common stock has been traded on OTC Bulletin Board under the symbol“WHIT.OB” since January 2, 2004. From December 6, 2001 to January 2, 2004 ourcommon stock was reported on the OTC Bulletin Board under our prior name “OlympicResources, Ltd.” under the symbol “OLYR”. The table below sets forth, for theperiods indicated, the high and low closing prices per share of the commonstock as reported on the OTC Bulletin Board at http://www.otcbb.com:

 

**Year Ended December 31, 2004**

 

| **Quarter**     | ** ** | **High Bid** | ** ** | **Low Bid** | ** ** |
|-----------------|------------|--------------|------------|-------------|------------|
|            |       |         |       |        |       |
| First  Quarter  |       |         | $          | 2.50        |       | $ | 1.00 |   |
| Second  Quarter |       |         | $          | 2.30        |       | $ | 1.50 |   |
| Third  Quarter  |       |         | $          | 2.25        |       | $ | 1.50 |   |
| Fourth  Quarter |       |         | $          | 2.00        |       | $ | 1.44 |   |

 

**Year Ended December 31, 2003**

 

| **Quarter**     | ** ** | **High Bid** | ** ** | **Low Bid** | ** ** |
|-----------------|------------|--------------|------------|-------------|------------|
| ** **      | ** ** | ** **   | ** ** | ** **  | ** ** |
| First  Quarter  |       |         | $          | 2.10        |       | $ | 1.20 |   |
| Second  Quarter |       |         | $          | 2.80        |       | $ | 1.40 |   |
| Third  Quarter  |       |         | $          | 3.20        |       | $ | 1.50 |   |
| Fourth  Quarter |       |         | $          | 2.50        |       | $ | 1.30 |   |

 

The above quotations reflect inter-dealer prices, without retail mark-up,mark-down or commissions and may not represent actual transactions.  Quotations prior to January 1, 2004, havebeen adjusted to reflect the one-for-ten reverse split of our outstandingcommon stock effective December 31, 2003.

 

17

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**Holders of Record**

 

As of March 30, 2005, there were approximately 147 holders of recordand approximately 1,100 non-registered shareholders of the Company’s commonstock. Whittier had 11,523,402 shares outstanding as of December 31, 2004. 

** **

**DividendPolicy**

 

Whittier has not paid dividends on its common stock within the last twofiscal years. We currently intend to retain all earnings to fund our operationsand do not intend to pay any cash dividends in the foreseeable future. In addition,the terms of our existing Credit Facility prohibit the payment of any dividendsto the holders of our common stock without the bank’s consent. 

 

**Securities Authorized for Issuance Under Equity CompensationPlans**

 

Asof December 31, 2004, the following equity securities were authorized forissuance under the Company’s existing compensation plans: 

 
| **Plan Category**                                           | ** ** | **Number of Securities to  be Issued upon Exercise  of Outstanding Options,  Warrants and Rights** | ** ** | **Weighted-Average  Exercise Price of  Outstanding Securities** | ** ** | **Number of Securities  Remaining Available for  Future Issuance** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                                                                                         | ** ** | ** **                                                      | ** ** | ** **                                                         | ** ** |
| Equity Compensation Plans Approved by  Security Holders     |       | 911,500                                                                                            |       | $                                                               | 1.79       |                                                               | 786,500    |   |
|                                                        |       |                                                                                               |       |                                                            |       |                                                               |       |
| Equity Compensation Plans Not Approved by  Security Holders |       | N/A                                                                                                |       | N/A                                                             |       | N/A                                                                |       |
|                                                        |       |                                                                                               |       |                                                            |       |                                                               |       |
| **Total**                                                   | ** ** | **911,500**                                                                                        | ** ** | ** **                                                      | ** ** | **786,500**                                                        | ** ** |
|                                                             |            |                                                                                                    |            |                                                                 |            |                                                                    |            |  |

 

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(1)                                  Reflects AmendedFixed Number Stock Option Plan approved by the Company’s stockholders in August2002 and the Long Term Incentive Plan approved by the Company’s stockholders onJuly 20, 2004. 

 

On December 16, 2003, our board of directorsadopted the Whittier Energy Corporation Long-Term Incentive Plan for thepurposes of attracting and retaining able persons and providing incentives andreward opportunities to employees, advisors, outside directors and consultantsthrough the ownership and performance of our common stock.  The Long Term Incentive Plan was approved byour shareholders on July 20, 2004 and is administered by the CompensationCommittee of our board of directors.

 

We have reserved 1,560,000 shares of commonstock for issuance upon the exercise of options granted under the Long TermIncentive Plan. As of March 4, 2005, options for a total of 773,500 shares ofcommon stock have been granted under the Long Term Incentive Plan, with aweighted average exercise price of $1.74 per share. 

 

18

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**Item 6. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Executive Summary**

 

Whittier is a rapidly growing independent oiland gas exploration and production company primarily engaged in theacquisition, exploration and development of oil and gas properties in thecontinental United States.  Our assetsconsist of operated and non-operated working interests, royalty interests, partnershipinterests, and mineral acreage in various oil and gas properties, principallylocated in Texas, Louisiana, Oklahoma, and California, with minor propertyinterests in Colorado, Utah, New Mexico, Wyoming, and Pennsylvania. The Companyprimarily invests in operated working interests in onshore properties in theGulf Coast area. 

 

Whittierintends to increase its reserves, production, revenues, net income and cashflows principally through the: (i) acquisition and development of producingproperties, leasehold acreage, and drilling prospects with exploitation andexploration potential; (ii) accelerated development of our existing provedproperties and identified exploration prospects; (iii) continued participationin attractive third-party generated development, exploitation and explorationprojects; (iv) identification and pursuit of corporate merger and acquisitionopportunities, and (v) disposition of marginally performing and other non-corebusiness assets. 

 

Highlightsof Whittier’s 2004 activities are as follows:

 

•                       Average daily production increased 29% from660 barrels of oil equivalent (“Boe”) per day in 2003 to 849 Boe per day in2004. The Company’s 2004 acquisitions of the Cut Off field in May and July2004, and the North Rincon, Tom Lyne and Scott & Hopper fields in June2004, represented approximately 89% of the increase.  Average daily production for the quarterended December 31, 2004 was approximately 982 Boe per day. 

 

•                        Revenues increased 65% from $6.2 million in2003 to $10.1 million in 2004, primarily due to a 29% increase in productionand a 28% increase in higher realized oil and gas prices per unit ofproduction. Whittier recognized net income of $1,147,000 in 2004 compared to anet loss of $222,000 in 2003, an increase of 617%. Cash flows from operationsincreased 103% from $2.2 million in 2003 to $4.4 million in 2004. 

 

•                        Proved reserves increased 36% from 1.96million Boe as of December 31, 2003 to 2.66 million Boe as of December 31,2004, including acquisitions of 931,218 Boe and revisions/extensions of 127,854Boe, offset by production of 310,774 Boe and property sales of 47,669 Boe. 

 

•                        Investment in oil and gas propertiesincreased 179% from approximately $4.3 million in 2003 to $12.1 million in2004, including approximately $9.8 million in acquisition costs, $693,000 inexploration costs, and $1.6 million in development costs. 

 

Wehave currently identified approximately $5.5 million in capital exploration anddevelopment projects on existing oil and gas properties for 2005, of whichapproximately $1.5 million has already been incurred as of March 30, 2005.  We intend to fund our 2005 capitalexpenditures using operating cash flows, sales of marketable securities,additional borrowings under our existing debt facility with Compass Bank (the “CreditFacility”), and/or through the issuance of additional equity or debtsecurities. 

 

**Liquidity and CapitalResources**

** **

During the year ended December 31, 2004, we generated approximately $4.4million in net cash flows from operations and had a net working capital deficitof approximately $1.1 million. Not considering the current portion of ourCredit Facility, which includes anticipated principal payments of $1.65 millionthrough December 31, 2005, as well as the non-cash current portion of our hedgeliabilities of $1.1 million, net of a current tax asset of $376,000, we hadpositive net working capital of approximately $1.25****million as of December 31, 2004.  As of March 2005, our

 

19

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average net daily production wasapproximately 1,030 Boe per day, including 540 barrels of oil per day (“Bopd”)and 2.9****million cubic feet of gasper day (“Mmcfd”), and we are generating net positive cash flow from ouroperations. 

 

The Credit Facility provides for a total potential revolving creditline of $15 million, the availability of which is determined based on the valueof our proved oil and gas reserves. During the year ended December 31, 2004, weborrowed a total of $4.23 million in principal from the Credit Facility tofinance various producing property acquisitions and repaid $990,000 inprincipal during the year. The Credit Facility is collateralized bysubstantially all of Whittier’s assets and subjects us to various covenants,representations and warranties as established by the underlying creditagreement. Additionally, the Company issued a convertible subordinated note for$1.8 million (“Convertible Subordinated Note”) as part of the $7.5 millionpurchase price for three gas fields in South Texas in June 2004. The SouthTexas acquisition is discussed further below. The terms and conditions of theCredit Facility and the subordinated convertible note are more fully describedin Note 6 to our financial statements included with this annual report. 

 

As of December 31, 2004, we had $7.75 million in principal outstandingunder the Credit Facility, of which $1.65 million was classified as a currentliability payable on or before December 31, 2005. Whittier is required to repayprincipal at a rate of $150,000 per month which commenced November 1, 2004, andis subject to adjustment at Whittier’s next borrowing base review by the bankscheduled for April 2005. We expect to fund our future principal paymentsrequired on the Credit Facility using cash flows generated from operations. TheConvertible Subordinated Note does not require any principal payments prior toJune 2006 and will not have any significant impact on Whittier’s short-termliquidity.

 

Whittier’s future liquidity, in both the short and long-term, is principallydependent upon the volume of our oil and gas production, as well as the marketprice we receive on future sales of that production. Our proved reserves areapproximately 86% proved developed, which we believe provides a core basis offuture production and internal cash flow necessary to fund our day-to-daybusiness activities. 

 

We have hedged a portion of our production to manage our exposure tooil and gas price volatility, as well as to achieve more predictable cash flowsfrom our oil and gas properties. We have also utilized hedges to support ahigher borrowing base under the Credit Facility, allowing us access toadditional debt financing for our producing oil and gas property acquisitions.Hedging limits us from receiving the full advantage of increases in oil or gasprices above the fixed amount specified in the underlying hedge agreement. 

 

For 2005, Whittier has hedged total production of 90,000 barrels of oil(“Bbls”) with an effective ceiling/swap price of $31.87 per Bbl and 528,000 thousandcubic feet of gas (“Mcf”) with an effective ceiling/swap price of $6.72 perMcf.  Certain oil hedge contracts with aceiling price of $22.75 per barrel are due to expire as of April 30, 2005,reducing Whittier’s monthly hedged oil volumes by 2,750 Bbls of oil per monthfor the remainder of the year. As a result, we expect to realize the futureavailable crude oil market price for an additional 2,750 Bbls of oil productionper month for the period from May 2005 to December 2005. Whittier’s outstandinghedge positions as of December 31, 2004 are more fully described in Note 10 toour financial statements included with this annual report. 

 

Whittier’s long-term growth depends on our ability to replace andextend our existing proved oil and gas reserve base, as well as to increaserates of production from new and existing properties to generate higher oil andgas revenues. We seek to accomplish steady and sustainable growth of our provedreserves and future production rates through the acquisition, exploration anddevelopment of additional oil and gas properties, as well as continuedexploitation and development of existing properties. We expect to fund futuregrowth using a combination of available working capital, third party debtfinancing, and the issuance of our equity and/or debt securities. 

 

In June 2004, we closed a private placement, raising $2.3 million, net,through the issuance of 1.38 million shares of our common stock and anaccompanying warrant to purchase 1.38 million shares of common stock at anexercise price of $2.50 per share. Whittier utilized the proceeds from theprivate placement to partially fund the June 2004 acquisition of the SouthTexas properties described below. 

 

20

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Furthermore, we are considering alternatives for disposing of ourinvestments in certain marketable securities with a current fair market valueas of March 30, 2005 of approximately $1.5 million. There is no assurance,however, that we will be able to realize the current market value upon thedisposition of such securities. 

 

**2004 Oil and Gas Property Acquisitions**

 

During 2004, Whittier’s principal use ofavailable cash flow from operations, borrowings from the Credit Facility andConvertible Subordinated Note, and proceeds from its private placement ofWhittier’s common stock and common stock warrants was to acquire producing oiland gas properties. 

 

In February and March 2004, we acquired anadditional 10% working interest in the Bonnie View Field for approximately $195,000,utilizing a portion of the proceeds from the February 2004 sale of ournon-operating interest in the Cascade Unit for $525,000.

 

In May 2004, we acquired an approximate 73% operated working interestin the Cut Off Field in Lafourche Parish, Louisiana, for approximately $1.65million. The property has four producing oil wells, one salt water disposalwell, and two shut-in wells. We funded the acquisition utilizing a combinationof working capital and $1.0 million in additional principal borrowed under ourcredit facility. We acquired an additional 14% working interest in the Cut OffField in July 2004 for approximately $400,000, increasing our overall interestin the field to approximately 87%. 

 

In June 2004, we acquired various operated working interests in threegas fields in South Texas for approximately $7.5 million. The propertiesconsist of working interests in the Tom Lyne Field in Live Oak County, theScott & Hopper Field in Brooks County, and the North Rincon Field in StarrCounty.  Our average working interest inthe properties’ existing wells is 78% and we will have an average 61% workinginterest in any future undeveloped locations. The acreage acquired in thetransaction was approximately 50% undeveloped.

 

We financed the South Texas property acquisition using a combination ofoperating cash flow, equity financing, bank financing, and the issuance of theConvertible Subordinated Note. The consideration paid for the propertiesconsisted of i) the payment of approximately $5.7 million in cash; ii) theissuance of the Convertible Subordinated Note, a six-year, $1.8 millionsubordinated note bearing an interest rate of 7%, convertible into our commonstock at a conversion price of $2.00 per share; iii) a commitment to drill fourwells over a 24-month period and pay certain drilling costs which pertain tothe seller’s retained working interest in those wells; iv) certain future pricesharing arrangements through June 30, 2008 in the event actual prices per Mcfwe receive exceed agreed upon levels; and v) the issuance of a warrant topurchase 300,000 shares of our common stock at an exercise price of $2.50 pershare. 

 

The $5.7 million cash portion of the purchase price was funded through$3.05 million in additional borrowings under our credit facility, cash proceedsfrom the sale of equity in our June 2004 private offering, and availableworking capital including our net revenues from the acquired properties fromthe March 1, 2004, effective date of the transaction. The terms of the SouthTexas property acquisition are more fully described in Note 14 to our financialstatements included in this annual report. 

 

In October 2004, we borrowed an additional $180,000 from the CreditFacility, which was utilized to acquire an additional 11% working interest inthe Rayne Field for approximately $174,000 increasing our total workinginterest to approximately 33%.

 

21

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**Capital Commitments and Contingencies**

** **

In connectionwith our June 2004 acquisition of three gas fields in South Texas, weagreed to drill four wells over a two-year period and pay certain drillingcosts on behalf of the seller’s retained working interests in those wells.  Under the terms of the drilling commitment,we agreed to drill two wells each in the Scott & Hopper Field and theNorth Rincon Field, or reassign a portion of the undeveloped acreage each fieldto the seller of the properties. The drilling commitment requires Whittier tobegin drilling the two Scott & Hopper wells on or before March 18,2005 and December 18, 2005, respectively, and the two North Rincon wellson or before June 18, 2005 and June 18, 2006, respectively, in orderfor us to retain the undeveloped acreage rights in each field.  The first commitment well in each field earns50% of the undeveloped acreage rights for that particular property, while the secondcommitment well earns the remaining 50%. We have also agreed to pay the seller’sportion of the drilling costs for the four wells to the “casing election point”(i.e. the decision point on whether to complete the well or abandon it as a dryhole). The estimated capital costs to drill these wells, net to our interestand including the sellers’ carried interests, is approximately $3.1 million,which we expect to fund using future cash flows from operations. In the eventwe do not drill the required wells, our interests in existing wells on theproperties will be unaffected, along with our undeveloped acreage in the TomLyne Field which is not subject to the drilling commitment.

 

Whittiersuccessfully drilled the first Scott & Hopper #4 commitment wellduring February 2005 and has staked the drilling location and is attemptingto contract a drilling rig for the initial commitment well in the North RinconField. The Company identified additional behind pipe reserves apart from theoriginal targeted proved undeveloped sand in the Scott & Hopper #4,and is in the process of evaluating the well prior to completing and bringing itinto production. The Company has an approximate 56% working interest (42%revenue interest) in the well. 

 

Whittiersuccessfully drilled and cased the Rachal #1 well in December 2004,identifying approximately 15 feet of pay. We completed and stimulated the wellin early March 2005, and began production in mid-March 2005. The wellwas producing at a choked back rate of 400 Mcfd (90 Mcfd, net) as of March 30,2005. If the well proves to be commercially successful, the Company hasidentified two additional potential drilling locations on the lease. Whittierhas a 30% working interest (22.5% revenue interest) in the well, which should bereflected in the Company’s production and revenues in the second quarter of2005.

 

**Resultsof Operations**

 

*For the Year Ended December 31, 2004 compared with the Year Ended December 31,2003*

 

We generatednet income of approximately $1,147,000, or $0.11 per share, for the year ended December 31,2004, compared to a net loss of $222,000, or $0.02 per share, for thecomparable period ended December 31, 2003. The $1.4 million favorable variance wasprimarily attributable to higher oil and gas production and revenues and$599,000 in lease bonus income realized in the fourth quarter of 2004. The significant components of Whittier’sresults of operations for the years ended December 31, 2004 and 2003 areas follows:

 

Oil and GasRevenues. Oil and gas revenues increased 65% from approximately $6.2 million,or $25.54 per Boe, in 2003 to $10.1 million, or $32.60 per Boe, in 2004, based upon a 29% increase in annualproduction and 28% increase in realized commodity prices per Boe after hedgesettlements. Whittier recognized pre-tax losses in oil and gas revenues of$1,519,775 and $703,252 during 2004 and 2003, respectively, due to realizedsettlements of its price hedge contracts during the respective periods.Whittier produced 310,774 Boe during 2004, consisting of 178,303 Bbls of oiland 794,831 Mcf of gas, compared to 2003 annual production of 240,970 Boe,consisting of 166,510 Bbls of oil and 446,760 Mcf of gas. The increase inproduction was principally due to our 2004 oil and gas property acquisitions,including the May and July 2004 acquisition of the Cut Off Field andthe June 2004 acquisition of three gas fields in South Texas.

 

OtherOperating Income. During 2004, Whittier recognized lease bonus income of$599,000 and a gain of $241,000 from the sale of our investment in the CascadeUnit for $525,000. In comparison, Whittier recognized a gain of $24,000 during2003 from the sale of two non-operated oil and gas property interests for$116,000.

 

Costs andExpenses. Total operating costs and expenses increased by 69% from $5.6 millionin 2003 to $9.5 million in 2004, principally due to Whittier’s increasedacquisition, development, and exploration activity from the prior year, as wellas a complete year of corporate overhead costs for 2004 operating as a publiclytraded entity. The breakdown of variances for the components of operating costsand expenses is as follows:

 

•                  Lease operatingexpenses increased 40% from $2.1 million, or $8.79 per Boe, in 2003 to $3.0million, or $9.53 per Boe, in 2004, reflecting Whittier’s 100% increase fromfour to eight operated properties and 78% increase in investment in gross oiland gas assets between the two periods;

•                  Production taxesincreased 92%, from $642,000, or $2.66 per Boe, in 2003 to $1.2 million, or $3.96per Boe, in 2004. The 49% increase in production taxes per Boe from 2003 wasattributable to higher taxes incurred on Louisiana production, which is basedon a percentage of revenue versus actual production volumes, and a larger ratioof natural gas production compared to overall production from the prior year;

•                  Depreciation,depletion and amortization (“DD&A”) increased by 81%, from $1.4 million, or$5.68 per Boe, in 2003 to $2.5 million, or $7.95 per Boe, in 2004. The 40%increase in DD&A per Boe is related to greater total production during thecurrent period as a result of acquisitions completed in late 2003 and in 2004,as well as a higher DD&A rate per Boe for our California and South Texasgas properties;

•                  Exploration expensefor 2004 totaled $891,000, including $659,000 in dry hole costs and $232,000 ingeological and geophysical costs, principally to evaluate Whittier’s unprovedacreage in South Texas. Dry hole costs primarily consisted of $463,000 for ournon-operated interest in the Anvil Bar #75-26 well drilled in the San Antonioprospect in Monterey County, California and $129,000 for our unsuccessfulattempt to sidetrack the Cavenham Forest 5-1 well in the Beaver Dam CreekField; and

•                  General andadministrative expense increased from $1.3 million in 2003 to $1.9 million in2004, reflecting our enhanced operational activity from the prior year,including establishing our corporate headquarters in Houston, Texas, operatingfor a full year as a public company, and increasing the Company’s staff fromone to six full-time employees.

 

Impairment ofMarketable Securities. During the first quarter of 2004, Whittier recognized anon-cash impairment of $645,000 on its investment in Chaparral Resources, Inc.,reclassing the recurring unrealized loss in the investment as “other thantemporary.” Subsequent to the impairment, our investment in Chaparral hassubstantially appreciated and had a fair market value as of March 30, 2005in excess of our original cost basis in the stock. In accordance with GAAPaccounting, however, our unrealized gain in the stock is recorded as acomponent of other comprehensive income. We are currently evaluating ouroptions to dispose of our investment in Chaparral and utilize the proceeds forthe acquisition, exploration and development of oil and gas properties.

 

Impairment ofPartnership Investments. During 2003, the Company recognized a $733,000 loss onthe total impairment of our investment in the Odin Spirit and the Odin Neptunedrilling rig partnerships. The general partner of the Odin Neptune partnershipdisposed of its principal asset, a semi-submersible rig, for nominal value in July 2003,and the partnership was fully liquidated. The Odin Spirit partnership’sprincipal assets, two jack-up drilling rigs, were disposed of to satisfy itsthird party creditor, which had foreclosed on the rigs in May 2003.Consequently, we fully impaired both investments as of the quarter ended June 30,2003.

 

Deferred Tax Benefit. During 2004, Whittier recognized a $257,000 deferred taxbenefit, principally due to additional percentage depletion in excess of basisrecognized in the current year and the reduction of the valuation allowance ofcertain net operating loss tax carryforwards acquired as part of the September 2003merger of Whittier and Olympic Resources Ltd.

 

**Off-Balance Sheet Arrangements**

** **

We are not a party to any off balance sheet arrangements.

 

**Item 7. FinancialStatements**

** **

Theinformation required under Item 310(a) of Regulation S-B is included inthis report as set forth in the “Index to Financial Statements”.

 

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**Index to ConsolidatedFinancial Statements**

 
|   | Independent Auditor’s  Reports                                                                                   |   |
|--------|-----------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                  |   |
|   | Consolidated Balance Sheets  as of December 31, 2004 and December 31, 2003                                  |   |
|   |                                                                                                                  |   |
|   | Consolidated  Statements of Operations for the years ended December 31, 2004 and 2003                            |   |
|   |                                                                                                                  |   |
|   | Consolidated  Statements of Cash Flows for the years ended December 31, 2004 and 2003                            |   |
|   |                                                                                                                  |   |
|   | Consolidated  Statements of Changes in Stockholders’ Equity for the years ended  December 31, 2004 and 2003 |   |
|   |                                                                                                                  |   |
|   | Notes to Consolidated  Financial Statements                                                                           |   |
|   |                                                                                                                  |   |
|   | Supplemental  Information – Disclosures About Oil and Gas Producing Activities – Unaudited                  |   |

 

**Item 8. Changes in and Disagreements withAccountants on Accounting and Financial Disclosure**

 

None.

 

**Item 8A. Controls and Procedures**

 

### The term “disclosure controls and procedures” (definedin Rule 13a-15(e)) refers to the controls and procedures of a company thatare designed to ensure that information required to be disclosed by a companyin the reports that it files under the Securities and Exchange Act of 1934 (the“Exchange Act”) is recorded, processed, summarized and reported within requiredtime periods.  Whittier’s Chief ExecutiveOfficer and Chief Financial Officer, who also serves as the principal accountingofficer, have evaluated the effectiveness of the Company’s disclosure controlsand procedures as of December 31, 2004, and they concluded that, as ofsuch date, Whittier’s controls and procedures were effective. There were nochanges in the Company's internal control over financial reporting occuringduring the last quarter that have materially affected, or are reasonably likelyto materially affect, the Company's internal control over financial reporting.

### ** **

In designingand evaluating Whittier’s disclosure controls and procedures, managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable, and not absolute, assurance that theobjectives of the control system will be met. In addition, the design of anycontrol system is based in part upon certain assumptions about the likelihoodof future events and the application of judgment in evaluating the cost-benefitrelationship of possible controls and procedures. Because of these and otherinherent limitations of control systems, there is only reasonable assurancethat the Company’s controls will succeed in achieving their goals under allpotential future conditions.

 

**Item 8B. Other Information**

 

None.

 

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### **PART III**

### ** **

**Item 9. Directors,Executive Officers, and Control Persons of the Registrant******

 

As of March 30, 2005, the following table and discussion setsforth the names and ages of the directors and executive officers of Whittier,the principal offices and positions with Whittier held by each person and thedate such person became a director or executive officer.  The executive officers are elected annuallyby the board of directors.  Executiveofficers serve terms of one year or until their death, resignation or removalby the board of directors.  The presentterm of office of each director will expire at the next annual meeting ofstockholders.  Each executive officerwill hold office until his successor duly is elected and qualified, until hisresignation or until he is removed in the manner provided by our bylaws.

 
| **Name**                                | ** ** | **Age**    | ** ** | **Position**                                           |
|-----------------------------------------|------------|------------|------------|--------------------------------------------------------|
| ** **                              | ** ** | ** ** | ** ** | ** **                                             |
| James A.  Jeffs                         |       | 52         |       | Chairman of  the Board                                 |
|                                    |       |       |       |                                                   |
| Bryce W. Rhodes                         |       | 51         |       | Director, President & Chief Executive Officer |
|                                    |       |       |       |                                                   |
| David A. Dahl                           |       | 43         |       | Director                                               |
|                                    |       |       |       |                                                   |
| Charles O.  (“Chuck”) Buckner |       | 60         |       | Director                                               |
|                                    |       |       |       |                                                   |
| Arlo G.  Sorensen                       |       | 65         |       | Director                                               |
|                                    |       |       |       |                                                   |
| Daryl  Pollock                          |       | 53         |       | Director                                               |
|                                    |       |       |       |                                                   |
| Daniel Silverman                        |       | 42         |       | Chief Operating Officer                                |
|                                    |       |       |       |                                                   |
| Michael B.  Young                       |       | 37         |       | Chief  Financial Officer                               |
|                                    |       |       |       |                                                   |
| Dallas  Parker                          |       | 57         |       | Corporate  Secretary                                   |

 

JAMES A. JEFFShas been Chairman of the Board of Whittier since September 2003 and servedas a director of Whittier Energy Company since 1997. Mr. Jeffs has servedas Managing Director and Chief Investment Officer for The Whittier TrustCompany, a company providing financial and fiduciary services to high net worthindividuals, since 1994. Mr. Jeffs also served as the Co-Chairman of theBoard of Chaparral Resources, Inc., an oil and gas exploration andproduction company, from May 1999 until May 2002, and as Chairman andChief Executive Officer from May 2002 until October 2002. From 1993to 1994, Mr. Jeffs was a Senior Vice President of Union Bank ofCalifornia. Mr. Jeffs was the Chief Investment Officer of Northern Trustof California, N.A., a trust and investment management company, from 1992 to1993. Mr. Jeffs was Chief Investment Officer and Senior Vice President ofTrust Services of America, a trust and investment management company, from 1988to 1992 and served as President and Chief Executive Officer of TSA CapitalManagement, an institutional investment management company, during that period.

 

BRYCE W.RHODES has served on Whittier’s Board of Directors and as President and ChiefExecutive Officer since September 2003. Mr. Rhodes was a VicePresident of Whittier Energy Company since its incorporation in 1991 through September 2003.In that capacity, he managed all aspects of its acquisitions and explorationinvestments and its day to day activities. Since April 1999, he has servedon the Board of Directors of PYR Energy Corporation, a public oil and gasexploration company. Mr. Rhodes also served as an investment analyst forthe M.H. Whittier Corporation, an independent oil company, from 1985 until1991.

 

DAVID A. DAHLhas been a director of Whittier since September 2003. Mr. Dahl servedWhittier Energy Company as a director since 1997, as President from 1997 until September 2003,and as Secretary from August 1997 until May 1998. Since 1996, Mr. Dahlhas served as the President of Whittier Ventures LLC, a private investmententity. Since 1993, Mr. Dahl has been a Vice President of The WhittierTrust Company, a company providing financial and fiduciary services to high networth individuals. From 1990 to 1993, Mr. Dahl was a Vice President ofMerus Capital management, an investment firm.

 

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CHARLES O.BUCKNER has served as a director of Whittier since September 2003. Mr. Bucknerretired from Ernst & Young LLP, a public accounting firm, in 2002after serving 35 years in a variety of direct client service and administrativeroles while based in Houston, Texas, Cleveland, Ohio and Moscow, Russia. Mr. Buckner’sclient service roles were largely accounting and audit related, serving as thecoordinating partner to a variety of clients, primarily in the energy businessas producers, refiners, pipelines, and service companies. Mr. Buckner’sadministrative duties included co-chairmanship of Ernst & Young’sglobal energy group and chairmanship of the US, Houston, and Russian energy,chemical and utility practices. Mr. Buckner has also served as a directorof Horizon Offshore, Inc., a provider of marine construction services tothe oil and gas industry, since December 2003 and is presently active withpersonal investment projects and charitable activities.

 

ARLO G.SORENSEN has been a director of Whittier since September 2003. Mr. Sorensenhas served the Whittier family in many capacities over his career, as the ChiefExecutive Officer of the Whittier family office, as a trustee and consultant onvarious family initiatives and as an officer and director of several privatefoundations. Mr. Sorensen has been the Chairman of The Whittier TrustCompany since its founding in 1989. Mr. Sorensen was the President of theM.H. Whittier Corporation, an independent oil company, from 1984 until 1996. Mr. Sorensenwas also a Vice President and Chief Financial Officer of Belridge Oil Company,an independent oil company, from 1968 to 1979, when it was sold to Shell Oil. Mr. Sorensenserves on the Board of Directors of St. Martin’s Land Company and severalprivate start-up entities. He has served as a member on the President’sNational Petroleum Council, Director of the Western States PetroleumAssociation, and as a President and Director of the Independent Oil ProducersAgency.

 

DARYL POLLOCKhas served as a director of Whittier since 1993 and as the President and ChiefExecutive Officer of Olympic Resources Ltd. from 1993 until September 2003.Mr. Pollock also serves as President of S&P Capital Corp. and PBEnergy Partners Ltd., both private companies. He has been the sole owner of DWPConsultants, a private management consulting company, since 1986.

 

DANIELSILVERMAN has served as Whittier’s Chief Operating Officer since September 2003and was a consultant to Whittier Energy Company and a Vice President ofWhittier Operating, Inc. since April 2002. Mr. Silverman servedas a consultant for Regent Energy Corporation from September 2000 until April 2002and as an Executive Vice President of Business Development and Chief OperatingOfficer of Petrominerals Corporation, a publicly traded oil company, from September 1999until September 2000. From 1995 until March 1999, Mr. Silvermanwas the Managing Director of Acquisitions and Divestitures and a member of theBoard of Directors of Torch Energy Advisors, an oil and gas acquisition andconsulting company. From 1992 to 1995, Mr. Silverman was Manager ofAcquisitions and Divestitures at Apache Corporation, an international oil andgas company.

 

MICHAEL B.YOUNG has served as Whittier’s Chief Financial Officer and Principal AccountingOfficer since September 2003. Mr. Young was engaged as a financialconsultant to various private clients, including Whittier Energy Company, from January 2003through September 2003. Mr. Young was the Vice President and ChiefFinancial Officer of Chaparral Resources, Inc. from May 2002 until November 2002.Mr. Young also served as the Treasurer, Controller and Principal Financialand Accounting Officer of Chaparral from February 1998 until May 2002.From June 1991 until January 1998, Mr. Young worked in variouscapacities in the oil and gas tax practice of Arthur Andersen LLP, leaving thefirm as a Tax Manager.

 

DALLAS PARKERwas appointed Corporate Secretary of Whittier in September 2003. Mr. Parkeris a partner at the law firm of Thompson & Knight LLP in the corporatepractice area, a position he has held for more than the past five years. He isa member and past Chairman of the Advisory Board of Directors of the HoustonTechnology Center, a technology accelerator. Mr. Parker is a Member of theAmerican, Texas, and Houston Bar Associations.

 

*AuditCommittee*

* *

The Company’sAudit Committee has the responsibility of selecting our independent auditors,pre-approving all audit and non-audit services, reviewing with management andthe independent auditors the Company’s

 

25

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financial statements, significant accounting andfinancial policies and practices, audit scope and adequacy of internal auditand control systems. The Audit Committee is presently comprised of Messrs. Buckner,Sorensen, and Dahl, all of whom are are able to read and understand fundamentalfinancial statements. Mr. Buckner, a former audit partner at Ernst &Young LLP, is Chairman of the committee. The Company’s board of directors has determined that Mr. Buckner isa financial expert and is independent, as that term is used in Item 7(d)(3)(iv) ofSchedule 14A under the Exchange Act.

** **

*Board of DirectorNomination Procedures for Company Stockholders*

* *

The Company’sindependent directors will consider proposals for nominees for director fromstockholders that are made in writing to Mr. Michael B. Young, AssistantCorporate Secretary, Whittier Energy Corporation, 333 Clay Street, Suite 1100,Houston, Texas 77002. In order to nominate a director at the Company’s nextannual meeting of stockholders, the Company’s Bylaws require that a stockholderfollow the procedures set forth in Section 2.2 of the Company’s By-Laws,incorporated by reference herein as Exhibit Number 3.2 of the Company’s Form 8-Kdated January 2, 2004. 

 

In order torecommend a nominee for a director position, a stockholder must be astockholder of record at the time it gives its notice of recommendation andmust be entitled to vote for the election of directors at the meeting at whichsuch nominee will be considered. The stockholder recommendation will be deemedtimely if it is received not later than 90 days prior to the actual meetingdate or the tenth day following the public announcement of the meeting date. 

 

Thestockholder notice must set forth the following:

 

•                  As to each person the stockholder proposes to nominate for electionas a director, all information relating to such person that would be requiredto be disclosed in solicitations of proxies for the election of such nomineesas directors pursuant to Regulation 14A under the Exchange Act and such person’swritten consent to serve as a director if elected, and

 

•                  As to the nominating stockholder and the beneficial owner, if any,on whose behalf the nomination is made, such stockholder’s and beneficial owner’s,name and address as they appear on the Company’s books, the class and number ofshares of the Company’s common stock which are owned beneficially and of recordby such stockholder and such beneficial owner, and an affirmative statement ofwhether either such stockholder or such beneficial owner intends to deliver aproxy statement and form of proxy to a sufficient number of stockholders toelect such nominee or nominees.

 

In addition tocomplying with the foregoing procedures, any stockholder nominating a directormust also comply with all applicable requirements of the Exchange Act and the rules andregulations thereunder.

 

*Compliance with Section 16(a) ofthe Exchange Act*

* *

Section 16(a) ofthe Exchange Act requires the Company’s executive officers and directors andpersons who beneficially own more than 10 percent of a registered class of theCompany’s equity securities to file initial reports of ownership and changes inownership with the SEC. Such officers, directors and stockholders are requiredby SEC regulations to furnish the Company with copies of all Section 16(a) formsthey file.  To our knowledge, basedsolely on a review of the copies of the reports furnished to the Company, all Section 16(a) filingrequirements applicable to our directors, officers and more than 10 percent beneficialowners were complied with during the year ended December 31, 2004. 

 

*Code of Ethics*

* *

 In April 2004, the Board of Directorsadopted the Code of Business Conduct (Code of Conduct) for our directors,officers and employees that satisfies the requirements of a code of ethicsunder Item 406 of Regulation S-B.

 

26

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You can access the Company’s Code of Conduct on theInvestor Relations page of the Company’s website atwww.whittierenergy.com. Any stockholder who so requests may obtain a printedcopy of the Code of Conduct without charge by submitting a request to theCompany’s Corporate Secretary. Changes in and waivers to the Code of Conduct forthe Company’s directors, chief executive officer and chief financial officerand controller will be posted on the Company’s website within five businessdays and maintained for at least 12 months. 

** **

**Item 10.Executive Compensation**

 

The followingtable sets forth the compensation information earned during 2004, 2003 and 2002by the Chief Executive Officer and by the two other most highly compensatedexecutive officers of Whittier whose annual salary and bonus exceeded $100,000(the “named executives”), in all capacities in which they served during thatperiod.

 
| ** **                       | ** ** | **Annual  Compensation** | ** ** | **Long-Term  Compensation** | ** ** | ** **     | ** ** |
|----------------------------------|------------|--------------------------|------------|-----------------------------|------------|----------------|------------|
| ** **                       | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **     | ** ** | ** ** | ** ** | **Awards** | ** ** | **Payouts** | ** ** | ** ** | ** ** |
| **Name and  Principal Position** | ** ** | **Year**                 | ** ** | **Salary  ($)**             | ** ** | **Bonus  ($)** | ** ** | **Other  Annual  Compen-  sation  ($)** | ** ** | **Restricted  Stock\  Award(s)****($)** | ** ** | **Securities  Underlying  Options/  SARs  (#)** | ** ** | **LTIP  Payouts  ($)** | ** ** | **All Other  Compen- sation  ($)** | ** ** |
|                             | * *   |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Bryce W. Rhodes                  |       | 2004                     |       | $                           | 175,000    |           | $          | 64,000 |   | None |   | None |   | 229,000 | (1) | None |   | None |   |
| President and Chief Executive    |       | 2003                     | (4)        | $                           | 115,966    |           | $          | 20,000 |   | None |   | None |   | None |   | None |   | None |   |
| Officer                          |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| (9/03 to Present)                |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
|                             |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Daryl Pollock               |       | 2003                     | (5)        | $                           | 78,966     |           | $          | 17,000 |   | None |   | None |   | 15,000 |   | None |   | $ | 212,445 |   |
| President and Chief Executive    |       | 2002                     |       | $                           | 63,687     |           | $          | 15,995 |   | None |   | None |   | 50,000 | (6) | None |   | None |   |
| Officer                          |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| (1993 - 9/03)                    |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
|                             |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Daniel Silverman                 |       | 2004                     |       | $                           | 155,000    |           | $          | 64,000 |   | None |   | None |   | 187,000 | (2) | None |   | None |   |
| Chief Operating Officer          |       | 2003                     | (7)        | $                           | 151,667    |           | $          | 20,000 |   | None |   | None |   | None |   | None |   | None |   |
| (9/03 to Present)                |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
|                             |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Michael B. Young                 |       | 2004                     |       | $                           | 150,000    |           | $          | 64,000 |   | None |   | None |   | 156,000 | (3) | None |   | None |   |
| Chief Financial Officer,         |       | 2003                     | (8)        | $                           | 102,065    |           | $          | 20,000 |   | None |   | None |   | None |   | None |   | None |   |
| Treasurer, Controller and        |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| Assistant Secretary              |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
| (9/03 to Present)                |       |                     |       |                        |       |           |       |   |   |   |   |   |   |   |   |   |   |
|                                  |            |                          |            |                             |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  Includes stock options granted to Mr. Rhodeson January 8, 2004 to acquire 229,000 shares of Whittier’s common stock atan exercise of $1.75 per share, which expire in January 2009 and vestratably over a three-year period.

 

(2)                                  Includes stock options granted to Mr. Silvermanon January 8, 2004 to acquire 187,000 shares of Whittier’s common stock atan exercise of $1.75 per share, which expire in January 2009 and vestratably over a three-year period.

 

(3)                                  Includes stock options granted to Mr. Youngon January 8, 2004 to acquire 156,000 shares of Whittier’s common stock atan exercise of $1.75 per share, which expire in January 2009 and vestratably over a three-year period.

 

(4)                                  Includes compensation paid by WECto Mr. Rhodes as Vice President of WEC for the period January 1, 2003through August 31, 2003 and as President and Chief Executive Officer of Whittierfor the period September 1, 2003 through December 31, 2003.

 

(5)                                  Includes compensation paid byWhittier to Mr. Pollock in his capacity as President and Chief ExecutiveOfficer of Whittier prior to the September 2003 merger of Olympic and WEC,as well as compensation paid to Mr. Pollock under a consulting agreemententered into between Whittier and Mr. Pollock as a condition to the mergerof Olympic’s wholly owned subsidiary, WEC Acquisition, Inc., a newlyformed Wyoming corporation, into WEC, a Nevada corporation, on September 10,2003, which triggered a change in control of Olympic. The consulting agreementprovided for Mr. Pollock to receive $10,217 Canadian dollars per month inconsulting fees for the six months prior to April 10, 2004, as well as thegrant of a fully vested warrant to purchase 45,000 shares of Whittier’s commonstock at an exercise price of $2.00 per share, which exercised automaticallypursuant to its terms on September 10, 2004, resulting in the issuance of45,000 shares of common stock to Mr. Pollock. The consulting agreementalso provides for Mr. Pollock to receive

 

27

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severance payments of $5,108 Canadian dollars per month through March 2006,as well as $90,000 U.S. Dollars in accrued compensation, which was used to paythe aggregate exercise price of Mr. Pollock’s warrant on September 10,2004. The estimated value of the severance portion of Mr. Pollock’sconsulting agreement was recorded as “Other Compensation” during 2003, includingthe estimated fair value of the warrant on the date of grant of $32,445.Securities underlying options includes stock options granted to Mr. Pollockon February 7, 2003 to acquire 15,000 shares of Whittier’s common stock atan exercise of $2.00 per share, which expire in September 2005.

 

(6)                                  Includes 50,000 stock optionsgranted to Mr. Pollock during 2002, including options to acquire 10,000shares of Whittier’s common stock granted on April 9, 2002 with anexercise price of $1.93 per share and a total of 40,000 options granted to Mr. Pollockduring fiscal years 2001 and 2002, which were amended on April 9, 2002, toreflect an exercise price of $1.93 per share. Of the total options granted andrepriced on April 9, 2002, 20,000 expired on March 12, 2004 and30,000 expire in September 2005.

 

(7)                                  Includes compensation paid by WECto Mr. Silverman as an independent consultant to WEC for the period January 1,,2003 through August 31, 2003 and as Chief Operating Officer of Whittierfor the period September 1, 2003 through December 31, 2003.

 

(8)                                  Includes compensation paid by WECto a Texas limited liability company wholly owned by Mr. Young forconsulting services provided to WEC during the period from May 2003through August 31, 2003, and as Chief Financial Officer of Whittier forthe period September 1, 2003 through December 31, 2003.

 

Stock Options Granted in 2004

 

During January 2004,the named executive officers below were granted an aggregate of 572,000 optionsto purchase shares of our common stock at an exercise price of $1.75 per share underthe Whittier Long Term Incentive Plan as follows:

 
| **Name**         | ** ** | **Number of  Securities  Underlying  Options  Granted (1)** | ** ** | **Percent of  Total Options  Granted to  Employees in  2004** | ** ** | **Exercise  Price  ($ /Share)** | ** ** | **Expiration  Date** | ** **            |
|------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------|------------|----------------------|-----------------------|
| ** **       | ** ** | ** **                                                  | ** ** | ** **                                                    | ** ** | ** **                           | ** ** | ** **           | ** **            |
| Bryce W. Rhodes  |       | 229,000                                                     |       | 29.6                                                          | %          | $                                    | 1.75       |                 | January 8,  2009 |   |
|             |       |                                                        |       |                                                          |       |                                 |       |                 |                  |
| Daniel Silverman |       | 187,000                                                     |       | 24.2                                                          | %          | $                                    | 1.75       |                 | January 8,  2009 |   |
|             |       |                                                        |       |                                                          |       |                                 |       |                 |                  |
| Michael B. Young |       | 156,000                                                     |       | 20.2                                                          | %          | $                                    | 1.75       |                 | January 8,  2009 |   |

 

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(1)           The Company’s stockholders approved the Long Term Incentive Plan on July 20,2004. The options vest in three equal installments beginning on January 8,2005.

 

28

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*Fiscal Year-End OptionValues and Stock Option Exercises*

* *

The followingtables contain information concerning the number and value of exercisable andunexercisable options as of December 31, 2004, as well as stock optionsexercised by the named executive officers during 2004.

 
| ** **        | ** ** | ** **                              | ** ** | ** **          | ** ** | **Number of Securities  Underlying Unexercised  Options at December 31, 200****4** | ** ** | **Value of Unexercised  In-The-Money  Options  at December 31, 200****4** | ** ** |
|-------------------|------------|-----------------------------------------|------------|---------------------|------------|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| **Name**          | ** ** | **Shares  Acquired  on  Exercise  (#)** | ** ** | **Value  Realized** | ** ** | **Exercisable**                                                                         | ** ** | **Unexercisable**                                                              | ** ** | **Name** | ** ** | **Shares  Acquired  on  Exercise  (#)** | ** ** |
|              |       |                                    |       |                |       |                                                                                    |       |                                                                           |       |   |   |   |   |
| Bryce W.  Rhodes  |       | None                                    |       | None                |       | None                                                                                    |       | 229,000                                                                        |       | None |   | N/A |   |
|              |       |                                    |       |                |       |                                                                                    |       |                                                                           |       |   |   |   |   |
| Daniel  Silverman |       | None                                    |       | None                |       | None                                                                                    |       | 187,000                                                                        |       | None |   | N/A |   |
|              |       |                                    |       |                |       |                                                                                    |       |                                                                           |       |   |   |   |   |
| Michael  B. Young |       | None                                    |       | None                |       | None                                                                                    |       | 156,000                                                                        |       | None |   | N/A |   |

 

The Company did not grant any long-term incentive plan awards in 2004.

 

*Compensation of Directors*

 

Whittier hasno standard arrangement to provide cash compensation to its employee andnon-employee directors for their service on the board or its committees and didnot provide any cash compensation to its non-employee directors during 2004.Both employee and non-employee directors are reimbursed for reasonableout-of-pocket expenses incurred in attending meetings of the board or itscommittees and for other reasonable expenses related to the performance oftheir duties as directors.  In addition,each non-employee director is eligible to receive stock option grants underWhittier’s Amended Stock Option Plan and Long-term Incentive Plan, subject torecommendation by Whittier’s compensation committee and approval by Whittier’sindependent directors. 

 

During fiscalyear 2004, Whittier granted to non-employee directors a total of 157,000options to acquire our common stock at an average exercise price of $1.76 per share, including 30,000options granted each to Messrs. Jeffs, Dahl, and Sorensen, 52,000 optionsgranted to Mr. Buckner, and 15,000 options granted to Mr. Pollock.

 

*Employment Agreements*

* *

As a conditionto the merger of our subsidiary, WEC Acquisition, Inc., into WEC, Mr. Pollock’semployment agreement was terminated and he resigned as our President andCEO.  Concurrent with the merger, heentered into a new consulting agreement with Whittier and remains on our boardof directors. The terms of the new consulting agreement provided for Mr. Pollockto receive $10,217 Canadian dollars per month through March 2004 and awarrant to purchase 45,000 shares of Whittier’s common stock at an exerciseprice of $2.00 per share. The warrant exercised automatically pursuant to itsterms, and 45,000 shares of common stock were issued to Mr. Pollock on September 10,2004. The consulting agreement also provided for Mr. Pollock to receive$5,108 Canadian dollars per month until March 2006, as well as $90,000 inaccrued compensation, which was applied toward the aggregate exercise price ofthe warrant on September 10, 2004.

 

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**Item 11.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

 

Under Section 13(d) of the Exchange Act, a beneficial ownerof a security is any person who directly or indirectly has or shares voting orinvestment power over such security. The following are the shareholdings ofWhittier’s directors and any stockholders who are known by Whittier to ownbeneficially more than 5% of any class of its voting shares of as of March 30,2005:

 
| **Name and Address of  Beneficial Owner**                                                     | ** ** | **Amount and Nature of  Beneficial Ownership** | ** ** | **Percent  of Class** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------|------------|
|                                                                                          |       |                                           |       |                  |       |
| Charles  Oliver Buckner  333 Clay Street, Suite 1100  Houston, Texas 77002               |       | 82,000                                         | (1)        | 0.7                   | %          |
|                                                                                          |       |                                           |       |                  |       |
| David A. Dahl  1600 Huntington Drive  South Pasadena, California 91030                        |       | 30,000                                         | (2)        | 0.3                   | %          |
|                                                                                          |       |                                           |       |                  |       |
| James A.  Jeffs  1600 Huntington Drive  South Pasadena, California 91030                      |       | 30,000                                         | (3)        | 0.3                   | %          |
|                                                                                          |       |                                           |       |                  |       |
| Daryl  Pollock  999 West Hastings Street, Suite 525  Vancouver, B.C. Canada V6C2W2       |       | 237,400                                        | (4)        | 2.1                   | %          |
|                                                                                          |       |                                           |       |                  |       |
| Bryce W.  Rhodes  333 Clay Street, Suite 1100  Houston, Texas 77002                      |       | 609,106                                        | (5)        | 5.1                   | %          |
|                                                                                          |       |                                           |       |                  |       |
| Daniel  Silverman  333 Clay Street, Suite 1100  Houston, Texas 77002                     |       | 217,000                                        | (6)        | 1.9                   | %          |
|                                                                                          |       |                                           |       |                  |       |
| Arlo G. Sorensen  1600 Huntington Drive  South Pasadena, California 91030                     |       | 3,791,466                                      | (7)        | 32.9                  | %          |
|                                                                                          |       |                                           |       |                  |       |
| Michael B.  Young  333 Clay Street, Suite 1100  Houston, Texas 77002                     |       | 186,000                                        | (8)        | 1.6                   | %          |
|                                                                                          |       |                                           |       |                  |       |
| Arthur  Richards Rule  7770 El Camino Real  Carlsbad, California 92009                        |       | 854,626                                        | (9)        | 7.2                   | %          |
|                                                                                          |       |                                           |       |                  |       |
| Whittier  Holdings, Inc.  100 W. Liberty Street, Suite 890  Reno, Nevada 89501-1952 |       | 3,459,802                                      | (10)       | 30.1                  | %          |

 

30

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| **Name and Address of  Beneficial Owner**                                                                        | ** ** | **Amount and Nature of  Beneficial Ownership** | ** ** | **Percent  of Class** |   |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------|--------|
| ** **                                                                                                       | ** ** | ** **                                     | ** ** | ** **            |   |
| Whittier  Trust Company  1600 Huntington Drive  South Pasadena, California 91030                                 |       | 2,563,385                                      | (11)       | 22.3                  | %      |
|                                                                                                             |       |                                           |       |                  |   |
| The Whittier  Trust Company of Nevada, Inc.  100 W. Liberty Street, Suite 890  Reno, Nevada 89501-1952 |       | 896,418                                        | (12)       | 7.8                   | %      |
|                                                                                                             |       |                                           |       |                  |   |
| Whittier  Ventures LLC  1600 Huntington Drive  South Pasadena, California 91030                                  |       | 3,761,466                                      | (13)       | 31.8                  | %      |
|                                                                                                             |       |                                           |       |                  |   |
| Laura-Lee W.  Woods  1600 Huntington Drive  South Pasadena, California 91030                                     |       | 841,253                                        | (14)  | 7.3                   | %      |
|                                                                                                             |       |                                           |       |                  |   |
| Robert J.  Woods, Jr.  1600 Huntington Drive  South Pasadena, California 91030                              |       | 841,253                                        | (15)       | 7.3                   | %      |
|                                                                                                             |       |                                           |       |                  |   |
| Frederick W.  Zimmerman  1600 Smith Street, Suite 3800  Houston, Texas 77002                                |       | 1,193,665                                      | (16)       | 9.42                  | %      |
|                                                                                                             |       |                                           |       |                  |   |
| All  Officers and Directors as a Group

(9  persons)                                                             |       | 5,182,506                                      |       | 40.9                  | %      |

 

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(1)                                  Represents (i) an option to purchase 52,000 shares of common stockgranted to Mr. Buckner on January 8, 2004; and (ii) 15,000shares of common stock and a three-year warrant to purchase up to 15,000 sharesof common stock at an exercise price of $2.50 per share, purchased by Mr. Buckneron June 16, 2004.  The option willvest in three equal installments beginning on January 8, 2005.

 

(2)                                  Representsan option to purchase 30,000 shares of common stock granted to Mr. Dahl onJanuary 8, 2004.  The option will vest in three equal installmentsbeginning on January 8, 2005.

 

(3)                                  Represents an option to purchase30,000 shares of common stock granted to Mr. Jeffs on January 8, 2004.  The option will vest in three equal installmentsbeginning on January 8, 2005.

 

(4)                                  Asdisclosed in a filing on Schedule 13G filed with the SEC on December 27,2001, and in a Form 4 filed with the SEC on September 11, 2003, andadjusted to reflect the one-for-ten reverse split of our outstanding common stockeffective December 31, 2003. Represents (i) 222,400 shares of common stock;and (ii) an option to purchase 15,000 shares of common stock, which vestsin three equal installments beginning on July 20, 2005.

 

(5)                                  Represents (i) 245,106 sharesof common stock owned by the Bryce W. Rhodes 1975 Trust, of which Mr. Rhodesis a trustee and the beneficiary, including 60,000 shares of common stockpurchased on June 16, 2004; (ii) a three-year warrant to purchase upto 60,000 shares of common stock at $2.50 per share, purchased by the Bryce W.Rhodes 1975 Trust on June 16, 2004; and (iii) an option to purchase229,000 shares of common stock, granted to Mr. Rhodes on January 8, 2004. The option vests in three equal installments beginning on January 8,2005.

 

(6)                                  Represents (i) 15,000 sharesof common stock and a three-year warrant to purchase up to 15,000 shares ofcommon stock purchased by Mr. Silverman on June 16, 2004; and (ii) anoption to purchase 187,000 shares of common stock granted to Mr. Silvermanon January 8, 2004, which vests in three equal installments beginning on January 8,2005.

 

31

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(7)                                  As disclosed in a joint filing on Schedule 13D filed with theSEC on September 22, 2003, and adjusted to reflect the one-for-ten reversesplit of our outstanding common stock effective December 31, 2003.Represents shares owned by Whittier Ventures, LLC described in footnote 13 below, which Mr. Sorensen isdeemed to share voting and dispositive power of such shares as co-trustee ofseventeen trusts that are the sole members of Whittier Ventures, LLC. Also represents an option to purchase 30,000 shares of common stockgranted to Mr. Sorensen on January 8, 2004, which will vest in threeequal installments on January 8, 2005.

 

(8)**                                 **Represents (i) 15,000 shares of common stock and a three-yearwarrant to purchase up to 15,000 shares of common stock purchased by Mr. Youngon June 16, 2004; and (ii) an option to purchase 156,000 shares ofcommon stock granted to Mr. Young on January 8, 2004, which vests inthree equal installments beginning on January 8, 2005.

 

(9)                                  As disclosed in a joint filing on Schedule 13Gfiled with the SEC on August 9, 2004, represents (i) 397,500 sharesof common stock and a three-year warrant to purchase up to 397,500 shares of commonstock at $2.50 per share purchased by Exploration Capital Partners LimitedPartnership on June 16, 2004; and (ii) 29,813 shares of common stockand a three-year warrant to purchase up to 29,813 shares of common stock at$2.50 per share issued to Global Resource Investments Ltd. as a brokerage feein a private placement of Whittier’s securities.  Mr. Rule beneficially owns theshares by virtue of his beneficial voting and dispositive control ofExploration Capital Partners Limited Partnership and Global ResourceInvestments Ltd., respectively

 

(10)                            As disclosed in a joint filing on Schedule 13Dfiled with the SEC on September 22, 2003, and adjusted to reflect theone-for-ten reverse split of our outstanding common stock effective December 31,2003. Represents shares beneficially owned by The Whittier Trust Company ofNevada, Inc., and Whittier Trust Company described in footnotes 11 and 12 below.  Asthe sole stockholder of each of The Whittier Trust Company of Nevada Inc., andWhittier TrustCompany, Whittier Holdings, Inc. may be deemed to share voting anddispositive power with respect to the shares of common stock owned by each ofThe Whittier Trust Company of Nevada, Inc. and Whittier Trust.

 

(11)                            As disclosed in a joint filing on Schedule 13Dfiled with the SEC on September 22, 2003, and adjusted to reflect theone-for-ten reverse split of our outstanding common stock effective December 31,2003. Represents shares of common stock owned by various trusts of whichWhittier Trust Company is the sole trustee or a co-trustee.

 

(12)                            As disclosed in a joint filing on Schedule 13Dfiled with the SEC on September 22, 2003, and adjusted to reflect theone-for-ten reverse split of our outstanding common stock effective December 31,2003. Represents shares of common stock owned by various trusts of which TheWhittier Trust Company of Nevada, Inc. is the sole trustee or aco-trustee.

 

(13)                            As disclosed in an amendment to Schedule 13Dfiled with the SEC on August 23, 2004, including 352,500 shares of commonstock and a three-year warrant to purchase up to 352,500 shares of common stockpurchased by Whittier Ventures on June 16, 2004.

 

(14)                            As disclosed in a joint filing on Schedule 13Dfiled with the SEC on September 22, 2003, and adjusted to reflect theone-for-ten reverse split of our outstanding common stock effective December 31,2003. Represents shares of common stock owned by Laura-Lee W. Woods 1992 Trustand Robert J. Woods, Jr. 1992 Trust. Ms. Woods is the co-trustee ofLaura-Lee W. Woods 1992 Trust and is the spouse of Robert J. Woods, Jr.,the co-trustee of Robert J. Woods, Jr. 1992 Trust.

 

(15)                            Asdisclosed in a joint filing on Schedule 13D filed with the SEC on September 22,2003, and adjusted to reflect the one-for-ten reverse split of our outstanding commonstock effective December 31, 2003. Represents shares of common stock ownedby Laura-Lee W. Woods 1992 Trust and Robert J. Woods, Jr. 1992 Trust. Mr. Woodsis the co-trustee of Robert J. Woods, Jr. 1992 Trust and is the spouse ofLaura-Lee W. Woods, the co-trustee of Laura-Lee W. Woods 1992 Trust.

 

(16)                            Represents893,665 shares of common stock underlying a $1,787,330 subordinated convertiblepromissory note beneficially owned by Mr. Zimmerman and convertible intoWhittier common stock at a conversion price of $2.00 per share.  Also represents 300,000 shares underlying athree-year warrant to purchase Whittier common stock at an exercise price of$2.50 per share.

 

*Securities Authorized forIssuance Under Equity Compensation Plans*

 

See “Item5. Market for Common Equity and Related Stockholder Matters.”

 

**Item 12.Certain Relationships and Related Transactions**

 

Whittier paidCK Cooper & Company, Inc., an investment banking firm,approximately $140,000 in fees relating to advisory services provided inconnection with the September 2003 merger of Olympic and Whittier EnergyCompany. Although CK Cooper & Company was not deemed to be anaffiliate of Olympic at that time, Mr. Montano is an officer andshareholder of CK Cooper and was a member of the Company’s board of directorsprior to the merger. The board received the written opinion of Howard, Frazier,Barker & Elliott, a nationally recognized valuation advisory andinvestment banking firm, stating that the merger consideration received by theOlympic shareholders was fair, from a financial point of view, to thoseshareholders, and unanimously approved the merger transaction. Mr. Montanoresigned from the board of directors of Olympic (now Whittier) as a conditionto the

 

32

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merger and, as of the date of this annual report,neither he nor CK Cooper are presently employed or otherwise engaged by, andare not affiliates of, Whittier.

 

Whittier’sChief Operating Officer, Daniel Silverman, received a 4.63% net profits interest(“NPI”) in Whittier’s investment in the Beaver Dam Creek Field upon completionof WEC’s acquisition of that property in 2002. The NPI entitled Mr. Silvermanto 4.63% of our net operational cash flow from the field (i.e., revenues lessoperating costs and capital investment) after deducting related principal andinterest payments under Whittier’s credit facility with Compass Bank. In March 2004,Whittier acquired the NPI from Mr. Silverman for $70,000.

 

In June 2004,Whittier closed a private placement with accredited investors for 1.38 millionshares of our common stock priced at $1.75 per share and warrants to purchasean additional 1.38 million shares of common stock at an exercise price of $2.50per share. The private offering was fully subscribed and resulted in totalgross proceeds to Whittier of $2,415,000. Certain directors and officers of Whittier participated in the privateplacement, including Messrs. Rhodes, Silverman, Young, Buckner, andParker, who acquired a total of 180,000 shares of common stock and warrants toacquire an additional 180,000 shares of common stock. Whittier Ventures, LLC.,an affiliate of Whittier, acquired 352,500 shares of common stock and warrantsto acquire an additional 352,500 shares of common stock at $2.50 per share. 

 

ExplorationCapital Partners Limited Partnership acquired 397,500 shares of common stockand warrants to acquire an additional 397,500 shares of common stock at $2.50per share. All officers, directors and beneficial owners of Whittier whoparticipated in the offering, participated on the same terms and conditions asthe non-affiliated investors. We also issued 29,613 shares of common stock anda related warrant to purchase an additional 29,613 shares of common stock at anexercise price of $2.50 per share to a registered broker/dealer, GlobalResource Investments Ltd., as payment for services rendered as a placementagent in connection with the private offering. Mr. Rule beneficiallyowns 854,626 shares of our common stock by virtue of his voting and investmentcontrol of Exploration Capital Partners Limited Partnership and Global ResourceInvestments Ltd., which participated in the private offering on the same termsand conditions as the other investors.

** **

In June 2004,we acquired various operated working interests in three gas fields in SouthTexas for approximately $7.5 million from Texas Independent ExplorationLimited, GulfCoast Acquisitions Limited, Frederick W. Zimmerman, and FrederickW. Zimmerman d/b/a Island Resources. Texas Independent Exploration Limited and GulfCoast Acquisitions Limitedare controlled by Mr. Zimmerman, who as a result of this transactionbecame a beneficial owner of 1,193,665 shares of our common stock. Neither Mr. Zimmermannor any of the other sellers were affiliates of Whittier at any time prior tothe acquisition of the South Texas properties, the terms of which werenegotiated on an arm’s-length basis.

 

Dallas Parker,Corporate Secretary of Whittier, is a partner at the law firm of Thompson &Knight LLP, which provides legal services to Whittier and its subsidiaries. Forthe fiscal year ended December 31, 2003, the total legal fees paid byWhittier to Thompson & Knight LLP represented less than one percent ofthe gross revenue of the firm.

 

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**Item 13. Exhibitsand Reports on Form 8-K**

 

(a)                                  The following exhibits are filed aspart of this Annual Report:

 
| **Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                                                               |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                     |
| 2.1        |       | Agreement,  dated July 8, 2003, among Whittier, WEC Acquisition, Inc. and  Whittier Energy Company, incorporated by reference to Exhibit 2.1 of  Olympic Resources Ltd.’s Quarterly Report, as amended, on Form 10-QSB/A  for the quarterly period ended May 31, 2003                                                      |
| 2.2        |       | First  Amendment to the Agreement dated August 28, 2003, among Whittier, WEC  Acquisition, Inc. and Whittier Energy Company, incorporated by reference  to Exhibit 2.2 of Whittier’s Form 8-K dated September 25, 2003                                                                                                     |
| 2.3        |       | Second  Amendment to the Agreement dated September 9, 2003, among Whittier, WEC  Acquisition, Inc. and Whittier Energy Company, incorporated by reference  to Exhibit 2.3 of Whittier’s Form 8-K dated September 25, 2003                                                                                                  |
| 2.4        |       | Agreement  and Plan of Merger, dated July 8, 2003, between WEC  Acquisition, Inc. and Whittier Energy Company, incorporated by reference  to Exhibit 2.2 of Olympic Resources Ltd.’s Quarterly Report, as amended,  on Form 10-QSB/A for the quarterly period ended May 31, 2003                                           |
| 2.5        |       | First  Amendment to the Agreement and Plan of Merger, dated August 29, 2003,  between WEC Acquisition, Inc. and Whittier Energy Company, incorporated  by reference to Exhibit 2.5 of Whittier’s Form 8-K dated  September 25, 2003                                                                                        |
| 2.6        |       | Second  Amendment to the Agreement and Plan of Merger, dated September 9, 2003,  between WEC Acquisition, Inc. and Whittier Energy Company, incorporated  by reference to Exhibit 2.6 of Whittier’s Form 8-K dated  September 25, 2003                                                                                     |
| 2.7        |       | Plan and  Agreement of Merger, dated December 17, 2003, between Olympic Resources  Ltd. and Whittier Energy Corporation, incorporated by reference to  Exhibit 2.7 of Whittier’s Form 10-KSB for the year ended  December 31, 2003                                                                                              |
| 3.1        |       | Articles of  Incorporation, dated November 13, 2003, for Whittier Energy Corporation,  incorporated by reference to Exhibit 3.1 of Whittier’s Form 8-K  dated January 2, 2004                                                                                                                                                   |
| 3.2        |       | Corporate  Bylaws, dated November 13, 2003, for Whittier Energy Corporation,  incorporated by reference to Exhibit 3.2 of Whittier’s Form 8-K  dated January 2, 2004                                                                                                                                                            |
| 4.1        |       | Registration  Rights Agreement, dated September 9, 2003, by and among Whittier Energy  Company on behalf of its shareholders and Olympic Resources Ltd. on behalf of  certain holders of Whittier’s warrants, options, or both, incorporated by  reference to Exhibit 4.1 of Whittier’s Form 8-K dated  September 25, 2003 |
| 4.2        |       | Warrant  Agreement between Olympic Resources Ltd. and Daryl Pollock, dated  September 9, 2003, incorporated by reference to Exhibit 4.2 of  Whittier’s Form 8-K dated September 25, 2003                                                                                                                                        |
| 4.3        |       | Credit  Agreement by and among Whittier Energy Company, Whittier Operating, Inc.  and Compass Bank dated July 17, 2002, incorporated by reference to  Exhibit 4.3 of Whittier’s Form 10-KSB for the year ended  December 31, 2003                                                                                          |
| 4.4        |       | First  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  March 10, 2003, incorporated by reference to Exhibit 4.4 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                           |
| 4.5        |       | Second  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  September 9, 2003, incorporated by reference to Exhibit 4.5 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                       |

 

34

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| 4.6  |   | Unlimited  Guarantee by Olympic Resources Ltd. for the benefit of Compass Bank dated  September 26, 2003, incorporated by reference to Exhibit 4.6 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                        |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.7  |   | Stock Pledge  Agreement between Olympic Resources Ltd. and Compass Bank dated  September 26, 2003, incorporated by reference to Exhibit 4.7 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                               |
| 4.8  |   | Stock Pledge  Agreement between Whittier Energy Company and Compass Bank dated  September 26, 2003, incorporated by reference to Exhibit 4.8 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                              |
| 4.9  |   | Third  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  April 15, 2004 previously filed as an Exhibit 4.9 to Form SB-2  on September 16, 2004                                                                                                                                             |
| 4.10 |   | Fourth  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  May 12, 2004 previously filed as an Exhibit 4.10 to Form SB-2  on September 16, 2004                                                                                                                                             |
| 4.11 |   | Fifth  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  June 22, 2004 previously filed as an Exhibit 4.11 to Form SB-2  on September 16, 2004                                                                                                                                             |
| 4.12 | *      | Sixth Amendment  to Credit Agreement, dated July 17, 2002, by and among Whittier Energy  Company, Whittier Operating, Inc. and Compass Bank dated  November 30, 2004                                                                                                                                                                                                                                |
| 10.1 |   | Consulting  Agreement between Olympic Resources Ltd. and Daryl Pollock dated  September 9, 2003, incorporated by reference to Exhibit 10.3 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                                |
| 10.2 |   | Stock  Option Plan dated effective August 21, 2002, incorporated by reference  to Olympic Resources Ltd.’s Form 10-KSB for the year ended February 28,  2003                                                                                                                                                                                                                                   |
| 10.3 |   | Offer  to Sell Agreement by and between Texas Independent Exploration Limited,  GulfCoast Acquisitions Limited, Frederick W. Zimmerman, Frederick W.  Zimmerman d/b/a Island Resources, and Whittier Energy Company, dated  June 15, 2004, incorporated by reference to Exhibit 10.1 of  Whittier’s Form 8-K filed on July 2, 2004                                                        |
| 10.4 |   | Upside  Sharing Payment Agreement by and between Texas Independent Exploration  Limited, GulfCoast Acquisitions Limited, Frederick W. Zimmerman, Frederick W.  Zimmerman d/b/a Island Resources, and Whittier Energy Company, dated  June 16 2004, incorporated by reference to Exhibit 10.2 of  Whittier’s Form 8-K filed on July 2, 2004                                                |
| 10.5 |   | Drilling  Commitment included as Exhibit C to the Offer to Sell Agreement by and  between Texas Independent Exploration Limited, GulfCoast Acquisitions  Limited, Frederick W. Zimmerman, Frederick W. Zimmerman d/b/a Island  Resources, and Whittier Energy Company, dated June 15, 2004,  incorporated by reference to Exhibit 10.3 of Whittier’s Form 8-K filed  on July 2, 2004 |
| 10.6 |   | Convertible  Subordinated Note by and between Texas Independent Exploration Limited,  GulfCoast Acquisitions Limited, Frederick W. Zimmerman, Frederick W.  Zimmerman d/b/a Island Resources, Whittier Energy Company, and Whittier Energy  Corporation dated June 16 2004, incorporated by reference to  Exhibit 10.4 of Whittier’s Form 8-K filed on July 2, 2004                       |
| 10.7 |   | Long  Term Incentive Plan dated effective December 16, 2003 and approved by  Whittier’s stockholders on July 20, 2004 previously filed as an  Exhibit 10.9 to Form SB-2 on September 16, 2004                                                                                                                                                                                        |
| 14   | *      | Code  of Ethics of Whittier Energy Corporation                                                                                                                                                                                                                                                                                                                                                                     |
| 21   |   | Subsidiaries  of Whittier Energy Corporation, incorporated by reference to Exhibit 21  of Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                                                                                          |

 

35

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| 23.1 | * | Consent of  H.J. Gruy and Associates, Inc.                                                                    |
|------|---|--------------------------------------------------------------------------------------------------------------------|
| 23.2 | * | Consent of  WZI, Inc.                                                                                         |
| 31.1 | * | Certification  of Chief Executive Officer, pursuant to Rule 13a-14(a) under the  Securities Exchange Act |
| 31.2 | * | Certification  of Chief Financial Officer, pursuant to Rule 13a-14(a) under the  Securities Exchange Act |
| 32.1 | * | Certification  of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350                                 |
| 32.2 | * | Certification  of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350                                      |

 

----

* Filed herewith.

 

(b)                                 The following reports on Form 8-Kwere filed during the quarter ended December 31, 2004:

 

(i)                                     Form 8-K/Afiled on October 5, 2004 - Item 9.01. Financial Statements of BusinessesAcquired. 

 

(ii)                                  Form 8-Kfiled on November 8, 2004 - Item 8.01. Other Events. 

 

(iii)                               Form 8-Kfiled on December 21, 2004 - Item 8.01. Other Events.  

 

(iv)                              Form 8-Kfiled on December 30, 2004 – Item 8.01. Other Events.

 

**Item 14.Principal Accountant Fees and Services**

 

Audit Fees

 

The Company’sprincipal accountants billed fees of approximately $93,900 and $90,889 for thefiscal years ended December 31, 2004 and 2003, respectively, for the auditof the Company’s annual financial statements and review of quarterly financialstatements reported on Form 10-QSB. The audit fees for 2003 include theaudit and quarterly reviews for the Company prior to the Merger, based upon a February 28,2003 fiscal year end, as well as the Company’s 2003 audit and quarterly reviewfor the quarter ended September 30, 2003.

 

Audit RelatedFees 

 

The Company’sprincipal accountants billed audit related fees of $6,777 and $31,057 for thefiscal years ended December 31, 2004 and 2003, respectively. Audit relatedfees during 2004 were for the audit and review of the financial statementsrelating to the Company’s material acquisition of three South Texas gasproperties in June 2004 and due to a registration statement filed by theCompany on Form SB-2 in September 2004, which went effective in December 2004.The 2003 audit related fees were related to the audit and review of WhittierEnergy’s historical financial statements included in regulatory filingsrequired as a result of the Company’s Merger of Olympic and Whittier Energy. 

 

Tax Fees 

 

The Company’sprincipal accountants did not bill the Company for any fees during fiscal years2004 and 2003 for tax compliance, advice or planning services.

 

All Other Fees

 

The Companywas not billed for any other fees by its principal accountants during thefiscal years ended December 31, 2004 or 2003.

 

36

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The AuditCommittee requires that all audit and non-audit services performed by theCompany’s principal accountants are pre-approved by the entire Audit Committeeor by one or more members delegated to do so by the entire Committee.

 

37

----

 

**SIGNATURES**

 

Inaccordance with the Section 13 or 15(d) of the Exchange Act, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                       | WHITTIER ENERGY CORPORATION. |
|----------------------------|------------------------------|
|                       |                         |
| Dated: March 30, 2005 | * *                     | /s/ Bryce W. Rhodes | * * |
|                       |                         | Bryce W. Rhodes, President,  CEO and Director |
|                       |                         |
| * *                   | * *                     | /s/ Michael B. Young | * * |
|                       |                         | Michael B. Young, CFO, Treasurer,  and Principal Accounting Officer |

 

Inaccordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 
| **Date**             | ** ** | **Name and Title**                                   | ** ** | **Signature**          |
|----------------------|------------|------------------------------------------------------|------------|------------------------|
|                 |       |                                                 |       |                   |
|                 |       |                                                 |       |                   |
| March 30,  2005 |       | Charles  O. Buckner, Director                        |       | /s/ Charles O. Buckner |
|                 |       |                                                 |       |                   |
|                 |       |                                                 |       |                   |
| March 30,  2005 |       | David  A. Dahl, Director                             |       | /s/ David A. Dahl      |
|                 |       |                                                 |       |                   |
|                 |       |                                                 |       |                   |
| March 30,  2005 |       | James  A. Jeffs, Chairman                            |       | /a/ James A. Jeffs     |
|                 |       |                                                 |       |                   |
|                 |       |                                                 |       |                   |
| March 30,  2005 |       | Daryl  Pollock, Director                             |       | /s/ Daryl Pollock      |
|                 |       |                                                 |       |                   |
|                 |       |                                                 |       |                   |
| March 30,  2005 |       | Bryce  W. Rhodes, Director, President & CEO |       | /s/ Bryce W. Rhodes    |
|                 |       |                                                 |       |                   |
|                 |       |                                                 |       |                   |
| March 30,  2005 |       | Arlo  G. Sorensen, Director                          |       | /s/ Arlo G. Sorensen   |

 

38

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**EXHIBITINDEX**

 
| **Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                                                               |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                     |
| 2.1        |       | Agreement,  dated July 8, 2003, among Whittier, WEC Acquisition, Inc. and  Whittier Energy Company, incorporated by reference to Exhibit 2.1 of  Olympic Resources Ltd.’s Quarterly Report, as amended, on Form 10-QSB/A  for the quarterly period ended May 31, 2003                                                      |
| 2.2        |       | First  Amendment to the Agreement dated August 28, 2003, among Whittier, WEC  Acquisition, Inc. and Whittier Energy Company, incorporated by reference  to Exhibit 2.2 of Whittier’s Form 8-K dated September 25, 2003                                                                                                     |
| 2.3        |       | Second  Amendment to the Agreement dated September 9, 2003, among Whittier, WEC  Acquisition, Inc. and Whittier Energy Company, incorporated by reference  to Exhibit 2.3 of Whittier’s Form 8-K dated September 25, 2003                                                                                                  |
| 2.4        |       | Agreement  and Plan of Merger, dated July 8, 2003, between WEC  Acquisition, Inc. and Whittier Energy Company, incorporated by reference  to Exhibit 2.2 of Olympic Resources Ltd.’s Quarterly Report, as amended,  on Form 10-QSB/A for the quarterly period ended May 31, 2003                                           |
| 2.5        |       | First  Amendment to the Agreement and Plan of Merger, dated August 29, 2003,  between WEC Acquisition, Inc. and Whittier Energy Company, incorporated  by reference to Exhibit 2.5 of Whittier’s Form 8-K dated  September 25, 2003                                                                                        |
| 2.6        |       | Second  Amendment to the Agreement and Plan of Merger, dated September 9, 2003,  between WEC Acquisition, Inc. and Whittier Energy Company, incorporated  by reference to Exhibit 2.6 of Whittier’s Form 8-K dated  September 25, 2003                                                                                     |
| 2.7        |       | Plan  and Agreement of Merger, dated December 17, 2003, between Olympic  Resources Ltd. and Whittier Energy Corporation, incorporated by reference to  Exhibit 2.7 of Whittier’s Form 10-KSB for the year ended  December 31, 2003                                                                                              |
| 3.1        |       | Articles  of Incorporation, dated November 13, 2003, for Whittier Energy  Corporation, incorporated by reference to Exhibit 3.1 of Whittier’s  Form 8-K dated January 2, 2004                                                                                                                                                   |
| 3.2        |       | Corporate  Bylaws, dated November 13, 2003, for Whittier Energy Corporation,  incorporated by reference to Exhibit 3.2 of Whittier’s Form 8-K  dated January 2, 2004                                                                                                                                                            |
| 4.1        |       | Registration  Rights Agreement, dated September 9, 2003, by and among Whittier Energy  Company on behalf of its shareholders and Olympic Resources Ltd. on behalf of  certain holders of Whittier’s warrants, options, or both, incorporated by  reference to Exhibit 4.1 of Whittier’s Form 8-K dated  September 25, 2003 |
| 4.2        |       | Warrant  Agreement between Olympic Resources Ltd. and Daryl Pollock, dated  September 9, 2003, incorporated by reference to Exhibit 4.2 of  Whittier’s Form 8-K dated September 25, 2003                                                                                                                                        |
| 4.3        |       | Credit  Agreement by and among Whittier Energy Company, Whittier Operating, Inc.  and Compass Bank dated July 17, 2002, incorporated by reference to  Exhibit 4.3 of Whittier’s Form 10-KSB for the year ended  December 31, 2003                                                                                          |
| 4.4        |       | First  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  March 10, 2003, incorporated by reference to Exhibit 4.4 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                           |
| 4.5        |       | Second  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  September 9, 2003, incorporated by reference to Exhibit 4.5 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                       |
| 4.6        |       | Unlimited  Guarantee by Olympic Resources Ltd. for the benefit of Compass Bank dated  September 26, 2003, incorporated by reference to Exhibit 4.6 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                              |

 

39

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| 4.7   |   | Stock  Pledge Agreement between Olympic Resources Ltd. and Compass Bank dated  September 26, 2003, incorporated by reference to Exhibit 4.7 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                               |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.8   |   | Stock  Pledge Agreement between Whittier Energy Company and Compass Bank dated  September 26, 2003, incorporated by reference to Exhibit 4.8 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                              |
| 4.9   |   | Third  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  April 15, 2004 previously filed as an Exhibit 4.9 to Form SB-2  on September 16, 2004                                                                                                                                             |
| 4.10  |   | Fourth  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  May 12, 2004 previously filed as an Exhibit 4.10 to Form SB-2  on September 16, 2004                                                                                                                                             |
| 4.11  |   | Fifth  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  June 22, 2004 previously filed as an Exhibit 4.11 to Form SB-2  on September 16, 2004                                                                                                                                             |
| 4.12* |   | Sixth  Amendment to Credit Agreement, dated July 17, 2002, by and among  Whittier Energy Company, Whittier Operating, Inc. and Compass Bank dated  November 30, 2004                                                                                                                                                                                                                                |
| 10.1  |   | Consulting  Agreement between Olympic Resources Ltd. and Daryl Pollock dated  September 9, 2003, incorporated by reference to Exhibit 10.3 of  Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                                |
| 10.2  |   | Stock  Option Plan dated effective August 21, 2002, incorporated by reference  to Olympic Resources Ltd.’s Form 10-KSB for the year ended  February 28, 2003                                                                                                                                                                                                                                   |
| 10.3  |   | Offer  to Sell Agreement by and between Texas Independent Exploration Limited,  GulfCoast Acquisitions Limited, Frederick W. Zimmerman, Frederick W.  Zimmerman d/b/a Island Resources, and Whittier Energy Company, dated  June 15, 2004, incorporated by reference to Exhibit 10.1 of  Whittier’s Form 8-K filed on July 2, 2004                                                        |
| 10.4  |   | Upside  Sharing Payment Agreement by and between Texas Independent Exploration  Limited, GulfCoast Acquisitions Limited, Frederick W. Zimmerman, Frederick W.  Zimmerman d/b/a Island Resources, and Whittier Energy Company, dated  June 16 2004, incorporated by reference to Exhibit 10.2 of  Whittier’s Form 8-K filed on July 2, 2004                                                |
| 10.5  |   | Drilling  Commitment included as Exhibit C to the Offer to Sell Agreement by and  between Texas Independent Exploration Limited, GulfCoast Acquisitions  Limited, Frederick W. Zimmerman, Frederick W. Zimmerman d/b/a Island  Resources, and Whittier Energy Company, dated June 15, 2004,  incorporated by reference to Exhibit 10.3 of Whittier’s Form 8-K  filed on July 2, 2004 |
| 10.6  |   | Convertible  Subordinated Note by and between Texas Independent Exploration Limited,  GulfCoast Acquisitions Limited, Frederick W. Zimmerman, Frederick W.  Zimmerman d/b/a Island Resources, Whittier Energy Company, and Whittier  Energy Corporation dated June 16 2004, incorporated by reference to Exhibit 10.4  of Whittier’s Form 8-K filed on July 2, 2004                       |
| 10.7  |   | Long  Term Incentive Plan dated effective December 16, 2003 and approved by  Whittier’s stockholders on July 20, 2004 previously filed as an  Exhibit 10.9 to Form SB-2 on September 16, 2004                                                                                                                                                                                        |
| 14*   |   | Code  of Ethics of Whittier Energy Corporation                                                                                                                                                                                                                                                                                                                                                                     |
| 21    |   | Subsidiaries  of Whittier Energy Corporation, incorporated by reference to Exhibit 21  of Whittier’s Form 10-KSB for the year ended December 31, 2003                                                                                                                                                                                                                                          |
| 23.1* |   | Consent  of H.J. Gruy and Associates, Inc.                                                                                                                                                                                                                                                                                                                                                                    |

 

40

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| 23.2* |   | Consent  of WZI, Inc.                                                                                         |
|-------|--------|--------------------------------------------------------------------------------------------------------------------|
| 31.1* |   | Certification  of Chief Executive Officer, pursuant to Rule 13a-14(a) under the  Securities Exchange Act |
| 31.2* |   | Certification  of Chief Financial Officer, pursuant to Rule 13a-14(a) under the  Securities Exchange Act |
| 32.1* |   | Certification  of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350                                 |
| 32.2* |   | Certification  of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350                                      |

 

----

* Filed herewith

 

41

----

 

**CONSOLIDATED FINANCIALSTATEMENTS**

**WITH**

**INDEPENDENT AUDITORS’ REPORT**

 

**YEARS ENDED DECEMBER 31, 2004 AND 2003**

 

**FOR**

 

**WHITTIER ENERGY CORPORATION**

 

----

 

**WHITTIER ENERGY CORPORATION**

 

**CONSOLIDATED FINANCIAL STATEMENTS**

 

**TABLE OF CONTENTS**

 
| Report of Independent Registered Public  Accounting Firm                                             |   |
|------------------------------------------------------------------------------------------------------|--------|
|                                                                                                 |   |
| Independent Auditor’s Report                                                                    |   |
|                                                                                                 |   |
| Consolidated Financial Statements                                                                    |   |
|                                                                                                 |   |
| Consolidated Balance Sheets                                                                          |   |
|                                                                                                 |   |
| Consolidated Statements of Operations                                                                |   |
|                                                                                                 |   |
| Consolidated Statements of Cash Flows                                                                |   |
|                                                                                                 |   |
| Consolidated Statement of Changes in  Stockholders’ Equity                                      |   |
|                                                                                                 |   |
| Notes to Consolidated Financial Statements                                                           |   |
|                                                                                                 |   |
| Supplemental Information – Disclosures  About Oil and Gas Producing Activities – Unaudited |   |

 

----

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors andStockholders

Whittier EnergyCorporation

 

We have audited theaccompanying consolidated balance sheet of Whittier Energy Corporation (aNevada corporation) and subsidiaries as of December 31, 2004, and the relatedconsolidated statements of operations, stockholders’ equity, and cash flows forthe year then ended.  These financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements*,*****assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Whittier Energy Corporation andsubsidiaries as of December 31, 2004, and the results of their operations andtheir cash flows for the year then ended in conformity with accountingprinciples generally accepted in the United States of America.

 

 
| /s/GRANT  THORNTON LLP |       |
|------------------------|------------|
|                   |       |
|                   |       |
| Houston,  Texas        |       |
| **March  29, 2005**    | ** ** |

** **

**F-1**

----

** **

**INDEPENDENTAUDITOR’S REPORT**

** **

The Board of Directors

Whittier Energy Corporation

Houston, Texas

 

 

We have audited the accompanying consolidated balance sheet of WhittierEnergy Corporation and its subsidiaries as of December 31, 2003, and therelated consolidated statements of operations, shareholders’ equity, and cashflows for the year then ended.  Thesefinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audit.

 

We conducted our audit in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we planand perform the audit to obtain reasonable assurance about whether thefinancial 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 theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, the 2003 consolidated financial statements referred toabove present fairly in all material respects the financial position ofWhittier Energy Corporation and its subsidiaries at December 31, 2003, and theresults of its operations and cash flows for the year then ended, in conformitywith accounting principles generally accepted in the United States of America.

 

As discussed in Note 1 to the financial statements, the Company adoptedStatement of Financial Accounting Standards No. 143, Accounting for AssetRetirement Obligations, as of January 1, 2003.

 

### BROWN ARMSTRONG PAULDEN

McCOWN STARBUCK & KEETER

ACCOUNTANCY CORPORATION

 

 

Bakersfield, California

March 5, 2003

 

F-2

----

 

**WHITTIER ENERGY CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

(InThousands)

 
| ** **                                                                                    | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                    | ** ** | **2004**               | ** ** | **2003** | ** ** |
| ** **                                                                                    | ** ** | ** **             | ** ** | ** ** | ** ** |
| **Assets**                                                                                    |       |                   |       |   |   |
| Current assets:                                                                               |       |                   |       |   |   |
| Cash and cash equivalents                                                                     |       | $                      | 1,461      |   | $ | 1,037 |   |
| Accounts receivable, net of allowances                                                        |       | 2,491                  |       | 1,199 |   |
| Income tax receivable (Note 5)                                                                |       | 28                     |       | 38 |   |
| Current tax asset, commodity price hedging  contracts (Note 5)                                |       | 376                    |       | 171 |   |
| Prepaid assets                                                                                |       | 108                    |       | 76 |   |
|                                                                                          |       |                   |       |   |   |
| Total current assets                                                                          |       | 4,464                  |       | 2,521 |   |
|                                                                                          |       |                   |       |   |   |
| Investments in partnerships (Note 3)                                                          |       | 284                    |       | 240 |   |
| Investments in marketable securities (Note  2)                                                |       | 1,054                  |       | 775 |   |
| Oil and gas properties (successful efforts  method), and equipment and fixtures, net (Note 4) |       | 19,244                 |       | 10,369 |   |
|                                                                                          |       |                   |       |   |   |
| Total assets                                                                                  |       | $                      | 25,046     |   | $ | 13,905 |   |

 

*See accompanying notes.*

 

F-3

----

 

**WHITTIER ENERGY CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

(InThousands, Except Share Data)

 
| ** **                                                                                                                                                                                                              | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                              | ** ** | **2004**               | ** ** | **2003** | ** ** |
|                                                                                                                                                                                                                    |       |                   |       |   |   |
| **Liabilities and stockholders’ equity**                                                                                                                                                                           |       |                   |       |   |   |
| Current liabilities:                                                                                                                                                                                                    |       |                   |       |   |   |
| Accounts payable                                                                                                                                                                                                        |       | $                      | 2,814      |   | $ | 1,304 |   |
| Taxes payable                                                                                                                                                                                                           |       | 29                     |       | 19 |   |
| Commodity price hedging contracts, current  portion (Note 10)                                                                                                                                                           |       | 1,087                  |       | 489 |   |
| Revolving credit facility current portion  (Note 6)                                                                                                                                                                     |       | 1,650                  |       | 560 |   |
| Total current liabilities                                                                                                                                                                                               |       | 5,580                  |       | 2,372 |   |
|                                                                                                                                                                                                                    |       |                   |       |   |   |
| Deferred income tax liability (Note 5)                                                                                                                                                                                  |       | 650                    |       | 801 |   |
| Revolving credit facility (Note 6)                                                                                                                                                                                      |       | 6,095                  |       | 3,945 |   |
| Convertible subordinated note payable (Note  6)                                                                                                                                                                         |       | 1,787                  |       | — |   |
| Asset retirement obligation                                                                                                                                                                                             |       | 121                    |       | 69 |   |
| Commodity price hedging contracts (Note 10)                                                                                                                                                                             |       | 737                    |       | 85 |   |
| Total liabilities                                                                                                                                                                                                       |       | 14,970                 |       | 7,272 |   |
|                                                                                                                                                                                                                    |       |                   |       |   |   |
| Commitments and contingencies (Note 12)                                                                                                                                                                                 |       |                   |       |   |   |
|                                                                                                                                                                                                                    |       |                   |       |   |   |
| Stockholders’ equity (Note 7):                                                                                                                                                                                     |       |                   |       |   |   |
| Common stock, $.001 par value, 100,000,000  shares authorized and 11,523,402 and 10,046,296 shares issued and outstanding  as of December 31, 2004 and December 31, 2003, respectively                                  |       | 12                     |       | 10 |   |
| Additional paid-in capital                                                                                                                                                                                              |       | 5,171                  |       | 2,694 |   |
| Accumulated other comprehensive income  (loss), unrealized gain (loss) on marketable securities, net of taxes of  ($64) and $271, for the periods ended December 31, 2004 and December 31,  2003, respectively (Note 2) |       | 119                    |       | (503 | ) |
| Accumulated other comprehensive loss,  hedging contracts, net of taxes of $634 and $201 for the periods ended December  31, 2004 and December 31, 2003, respectively (Note 10)                                          |       | (1,178                 | )          | (373 | ) |
| Retained earnings                                                                                                                                                                                                       |       | 5,952                  |       | 4,805 |   |
| Total stockholders’ equity                                                                                                                                                                                         |       | 10,076                 |       | 6,633 |   |
|                                                                                                                                                                                                                    |       |                   |       |   |   |
| Total liabilities and stockholders’ equity                                                                                                                                                                         |       | $                      | 25,046     |   | $ | 13,905 |   |

 

*Seeaccompanying notes.*

 

F-4

----

 

**WHITTIER ENERGY CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(InThousands, Except Share Data)

 
| ** **                                                                                 | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                 | ** ** | **2004**                    | ** ** | **2003** | ** ** |
|                                                                                       |       |                        |       |   |   |
| Oil and gas revenues                                                                       |       | $                           | 10,132     |   | $ | 6,154 |   |
| Gain from property sales                                                                   |       | 241                         |       | 24 |   |
| Lease bonus income                                                                         |       | 599                         |       | — |   |
|                                                                                       |       |                        |       |   |   |
| Gross income from operations                                                               |       | 10,972                      |       | 6,178 |   |
|                                                                                       |       |                        |       |   |   |
| Costs and expenses:                                                                        |       |                        |       |   |   |
| Lease operating expenses                                                                   |       | 2,962                       |       | 2,117 |   |
| Production taxes                                                                           |       | 1,230                       |       | 642 |   |
| Depreciation, depletion, and amortization                                                  |       | 2,470                       |       | 1,368 |   |
| Exploration expense                                                                        |       | 891                         |       | 156 |   |
| General and administrative expenses                                                        |       | 1,930                       |       | 1,316 |   |
|                                                                                       |       |                        |       |   |   |
| Total costs and expenses                                                                   |       | 9,483                       |       | 5,599 |   |
|                                                                                       |       |                        |       |   |   |
| Income from operations                                                                     |       | 1,489                       |       | 579 |   |
|                                                                                       |       |                        |       |   |   |
| Other income/(expense):                                                                    |       |                        |       |   |   |
| Interest and dividend income                                                               |       | 2                           |       | 3 |   |
| Interest expense                                                                           |       | (398                        | )          | (204 | ) |
| Partnership income                                                                         |       | 219                         |       | 19 |   |
| Impairment of partnership investments                                                      |       | —                      |       | (733 | ) |
| Impairment of marketable securities                                                        |       | (645                        | )          | — |   |
| Litigation settlement income                                                               |       | 235                         |       | — |   |
| Other                                                                                      |       | (12                         | )          | — |   |
|                                                                                       |       |                        |       |   |   |
| Other income/(expense)                                                                     |       | (599                        | )          | (915 | ) |
|                                                                                       |       |                        |       |   |   |
| Income/(loss) before income taxes and  cumulative effect of change in accounting principle |       | 890                         |       | (336 | ) |
| Income tax benefit                                                                         |       | 257                         |       | 120 |   |
| Income/(loss) before cumulative effect of  change in accounting principle                  |       | 1,147                       |       | (216 | ) |
| Cumulative effect of change in accounting  principle                                       |       | —                      |       | (6 | ) |
| Net income/(loss)                                                                          |       | $                           | 1,147      |   | $ | (222 | ) |

 

*Seeaccompanying notes.*

 

F-5

----

 
| ** **                                                                            | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                            | ** ** | **2004**                    | ** ** | **2003** | ** ** |
| ** **                                                                            | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Basic earnings per share:                                                             | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Income/(loss) per share before cumulative effect  of change in accounting principle   |       | $                           | .11        |   | $ | (.02 | ) |
| Cumulative effect of change in accounting  principle                                  |       | —                      |       | (.00 | ) |
| Net income/(loss) per share                                                           |       | $                           | .11        |   | $ | (.02 | ) |
|                                                                                  |       |                        |       |   |   |
| Weighted average number of shares outstanding  (basic)                                |       | 10,837,717                  |       | 10,046,296 | ** ** |
| ** **                                                                            | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Dilutive earnings (loss) per share:                                                   | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Earnings (loss) per share before cumulative  effect of change in accounting principle |       | $                           | .10        |   | $ | (.02 | ) |
| Cumulative effect of change in accounting  principle                                  |       | —                      |       | (.00 | ) |
| Net income (loss) per share                                                           |       | $                           | .10        |   | $ | (.02 | ) |
|                                                                                  |       |                        |       |   |   |
| Weighted average number of shares outstanding  (diluted)                              |       | 11,562,998                  |       | 10,046,296 | ** ** |
| ** **                                                                            | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Basic shares outstanding                                                              |       | 10,837,717                  |       | 10,046,296 |   |
| Dilutive securities outstanding:                                                      |       |                        |       |   |   |
| Stock options and warrants                                                            |       | 725,281                     |       | — |   |
| Diluted shares outstanding, assuming  conversion of dilutive securities               |       | 11,562,998                  |       | 10,046,296 |   |

 

*Seeaccompanying notes.*

 

F-6

----

 

**WHITTIER ENERGY CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(InThousands)

 
| ** **                                                                            | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                            | ** ** | **2004**                    | ** ** | **2003** | ** ** |
|                                                                                  |       |                        |       |   |   |
| **Cash flows from operating activities**                                              |       |                        |       |   |   |
| Net income/(loss)                                                                     |       | $                           | 1,147      |   | $ | (222 | ) |
| Adjustments to reconcile net income/(loss)  to net cash used in operating activities: |       |                        |       |   |   |
| Depreciation, depletion, and amortization                                             |       | 2,470                       |       | 1,368 |   |
| Deferred income tax provision (benefit)                                               |       | (257                        | )          | 30 |   |
| (Gain)/loss on the sale of oil and gas  properties                                    |       | (241                        | )          | (24 | ) |
| Exploration expense                                                                   |       | 659                         |       | 156 |   |
| Partnership income                                                                    |       | (219                        | )          | (19 | ) |
| Impairment of marketable securities                                                   |       | 645                         |       | — |   |
| Impairment of partnership investments                                                 |       | —                      |       | 733 |   |
| Allowance for doubtful accounts                                                       |       | 64                          |       | — |   |
| Cumulative effect of change in accounting  principle                                  |       | —                      |       | 6 |   |
| (Increase)/decrease in restricted cash                                                |       | —                      |       | 25 |   |
| (Increase) in accounts receivable                                                     |       | (1,356                      | )          | (568 | ) |
| (Increase)/decrease in prepaids and other receivables                                 |       | (32                         | )          | 132 |   |
| Increase in accounts payable                                                          |       | 1,510                       |       | 911 |   |
| Increase in taxes payable                                                             |       | 10                          |       | 3 |   |
| Net current liabilities acquired in  acquisition of Olympic Resources Ltd.            |       | —                      |       | (359 | ) |
| Net cash provided from operating activities                                           |       | 4,400                       |       | 2,172 |   |
|                                                                                  |       |                        |       |   |   |
| **Cash flows from investing activities**                                              |       |                        |       |   |   |
| Investment in oil and gas properties                                                  |       | (10,230                     | )          | (3,299 | ) |
| Proceeds from sale of oil and gas  properties                                         |       | 525                         |       | 30 |   |
| Cash acquired in merger with Olympic                                                  |       | —                      |       | 765 |   |
| Investments in partnerships                                                           |       | (109                        | )          | (141 | ) |
| Distributions from partnerships                                                       |       | 284                         |       | 222 |   |
| Proceeds from the sale of marketable  securities                                      |       | 31                          |       | 31 |   |
| Net cash used in investing activities                                                 |       | (9,499                      | )          | (2,392 | ) |
|                                                                                       |            |                             |            |  |  |  |  |

 

*See accompanying notes.*

 

F-7

----

 
| ** **                                                                                  | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                  | ** ** | **2004**                    | ** ** | **2003** | ** ** |
| **Cash flows from financing activities**                                                    |       |                        |       |   |   |
| Net proceeds from private placement                                                         |       | 2,283                       |       | — |   |
| Proceeds from revolving credit facility                                                     |       | 4,230                       |       | 1,160 |   |
| Payments on revolving credit facility                                                       |       | (990                        | )          | (205 | ) |
| Net cash provided from financing activities                                                 |       | 5,523                       |       | 955 |   |
|                                                                                        |       |                        |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                       |       | $                           | 424        |   | $ | 735 |   |
| Cash and cash equivalents at beginning of  period                                           |       | 1,037                       |       | 302 |   |
|                                                                                        |       |                        |       |   |   |
| Cash and cash equivalents at end of period                                                  |       | $                           | 1,461      |   | $ | 1,037 |   |
|                                                                                        |       |                        |       |   |   |
| **Supplemental cash flow disclosure**                                                       |       |                        |       |   |   |
| Interest paid                                                                               |       | $                           | 330        |   | $ | 204 |   |
|                                                                                        |       |                        |       |   |   |
| **Supplemental schedule of non-cash investing  and financing activities**                   |       |                        |       |   |   |
| Unrealized (gain)/loss on marketable  securities                                            |       | $                           | (23        | ) | $ | (95 | ) |
| Oil and gas properties acquired in Olympic  Merger                                          |       | $                           | —     |   | $ | 1,009 |   |
| Convertible subordinated note issued for  purchase of South Texas Properties                |       | $                           | 1,787      |   | $ | — |   |
| Value of stock warrants issued for purchase  of South Texas Properties                      |       | $                           | 135        |   | $ | — |   |
| Issuance of common stock in exchange for  settlement of outstanding investment banking fees |       | $                           | 40         |   | $ | — |   |
| Exercise of common stock warrant                                                            |       | $                           | 90         |   | $ | — |   |

 

*See accompanying notes.*

 

F-8

----

 

**WHITTIERENERGY CORPORATION**

**CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**

(In Thousands)

 
| ** **                                                                                   | ** ** | **Common  Stock**       | ** ** | ** ** | ** ** | ** **                    | ** ** | ** **           | ** ** | ** **             | ** ** | ** **                                           | ** ** | ** **                       | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------|------------|-------------------------------|------------|----------------------|------------|------------------------|------------|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                   | ** ** | **Shares  Outstanding** | ** ** | ** ** | ** ** | **Series A  Preferred Stock** | ** ** | **Paid in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Total**

**Stockholders'**

**Equity** | ** ** |
|                                                                                         |       |                    |       |       |       |                          |       |                 |       |                   |       |                                                 |       |                             |       |   |   |
| Balance at  December 31, 2002                                                                |       | 10,046,296              |       | $          | 10         |                          | $          | —               |       | $                      | 1,412      |                                                 | $          | 5,027                            |       | $ | (880 | ) |   |   | $ | 5,569 |   |
| Comprehensive  income / (loss):                                                              |       |                    |       |       |       |                          |       |                 |       |                   |       |                                                 |       |                             |       |   |   |
| Net income/(loss)                                                                            |       | —                  |       | —     |       | —                        |       | —               |       | (222                   | )          | —                                               |       | $                                | (222       | ) | (222 | ) |
| Unrealized  holding gain on available for sale marketable securities, net of deferred  taxes |       | —                  |       | —     |       | —                        |       | —               |       | —                 |       | 95                                                   |       | 95                               |       | 95 |   |
| Unrealized loss  on fair value of hedging contracts, net of deferred taxes                   |       | —                  |       | —     |       | —                        |       | —               |       | —                 |       | (91                                                  | )          | (91                              | )          | (91 | ) |
| Comprehensive  income (loss)                                                                 |       |                    |       |       |       |                          |       |                 |       |                   |       |                                                 |       | $                                | (218       | ) |   |   |
| Paid-in-capital  from the acquisition of Olympic Resources Ltd.                              |       | —                  |       | —     |       | —                        |       | 1,282                |       | —                 |       | —                                               |       |                             |       | 1,282 |   |
| Issuance of  Series A Preferred Stock                                                        |       | —                  |       | —     |       | 83                            |       | —               |       | —                 |       | —                                               |       |                             |       | 83 |   |
| Conversion of  Series A Preferred Stock                                                      |       | —                  |       | —     |       | (83                           | )          | —               |       | —                 |       | —                                               |       |                             |       | (83 | ) |
| Balance at  December 31, 2003                                                                |       | 10,046,296              |       | 10         |       | —                        |       | 2,694                |       | 4,805                  |       | (876                                                 | )          |                             |       | 6,633 |   |
| Comprehensive  income:                                                                       |       |                    |       |       |       |                          |       |                 |       |                   |       |                                                 |       |                             |       |   |   |
| Net income                                                                                   |       | —                  |       | —     |       | —                        |       | —               |       | 1,147                  |       | —                                               |       | $                                | 1,147      |   | 1,147 |   |
| Unrealized  holding gain on available for sale marketable securities, net of deferred  taxes |       | —                  |       | —     |       | —                        |       | —               |       | —                 |       | 203                                                  |       | 203                              |       | 203 |   |
| Impairment of  marketable securities, net of deferred taxes                                  |       | —                  |       | —     |       | —                        |       | —               |       | —                 |       | 419                                                  |       | 419                              |       | 419 |   |
| Unrealized loss  on fair value of hedging contracts, net of deferred taxes                   |       | —                  |       | —     |       | —                        |       | —               |       | —                 |       | (805                                                 | )          | (805                             | )          | (805 | ) |
| Comprehensive  income                                                                        |       |                    |       |       |       |                          |       |                 |       |                   |       |                                                 |       | $                                | 964        |   |   |   |
| Common stock  issuance in private placement, net of issuance costs                           |       | 1,409,813               |       | 2          |       | —                        |       | 2,281                |       | —                 |       | —                                               |       |                             |       | 2,283 |   |
| Issuance of  common stock warrants in property acquisition                                   |       | —                  |       | —     |       | —                        |       | 135                  |       | —                 |       | —                                               |       |                             |       | 135 |   |
| Issuance of  common stock in exchange for settlement of outstanding investment banking fees  |       | 22,293                  |       | —     |       | —                        |       | 40                   |       | —                 |       | —                                               |       |                             |       | 40 |   |
| Purchase price  adjustment on acquisition of Olympic Resources                               |       | —                  |       | —     |       | —                        |       | (69                  | )          | —                 |       | —                                               |       |                             |       | (69 | ) |
| Exercise of  common stock warrant                                                            |       | 45,000                  |       | —     |       | —                        |       | 90                   |       | —                 |       | —                                               |       |                             |       | 90 |   |
| Balance at  December 31, 2004                                                                |       | 11,523,402              |       | $          | 12         |                          | $          | —               |       | $                      | 5,171      |                                                 | $          | 5,952                            |       | $ | (1,059 | ) |   |   | $ | 10,076 |   |

 

*See accompanying notes.*

 

F-9

----

 

**WHITTIERENERGY CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Whittier Energy Corporation, formerly Olympic Resources Ltd, a Nevadacorporation (“Whittier”), is an independent oil and gas exploration andproduction company engaged in the acquisition, exploration and development ofoil and gas properties in the continental United States. As of December 31,2004, Whittier had three wholly owned subsidiaries, including Whittier EnergyCompany (“Whittier Energy”), a Nevada corporation, Whittier Operating, Inc. (“WhittierOperating”), a Texas Corporation, and Olympic Resources (Arizona) Ltd. (“OlympicArizona”), an Arizona corporation. Whittier Operating is a direct subsidiary ofWhittier Energy. References to the “Company” refer to Whittier and itssubsidiaries.

 

Whittier was originally incorporated in the Province of British Columbia,Canada, in 1986, under the name Global Data Systems Corp., a Canadiancorporation. Global Data Systems was later renamed Comtron Enterprises Inc. inNovember 1989. In October 1993, Comtron Enterprises changed its name to OlympicResources Ltd. (“Olympic”).

 

In January 2003, Olympic re-incorporated into the State of Wyoming fromthe Province of British Columbia, as the Company’s principal activities werecarried on in the U.S. and re-incorporation as a U.S. company would providevarious U.S. tax benefits in the event Olympic was to enter into a futurebusiness combination or merger with another U.S. corporation. No suchreorganization was proposed at the time of the re-incorporation, however.

 

On September 10, 2003, Olympic’s wholly owned subsidiary, WECAcquisition, Inc. (“WEC”), a Wyoming corporation, merged into Whittier Energy,triggering a change in control of the Company (the “Merger”). WEC was formed byOlympic during the quarter ended September 30, 2003, solely for the Merger,whereby WEC merged with and into Whittier Energy with Whittier Energy survivingthe Merger to become the wholly owned subsidiary of the Company. In exchangefor their Whittier Energy common stock, the Whittier Energy shareholdersreceived shares of the Company’s voting common stock and Series A ConvertiblePreferred Stock (“Series A Preferred Stock”). The Merger is more fullydiscussed in Note 13.

 

As part of the corporate restructuring of the Company, in December 2003the Company’s stockholders approved a one-for-ten reverse stock split of theCompany’s common stock and the merger of Olympic into a newly formed, whollyowned subsidiary, “Whittier Energy Corporation,” a Nevada corporation. OnDecember 31, 2003, Olympic affected the one-for-ten reverse split of its commonstock and consummated the merger of Olympic with and into Whittier EnergyCorporation. As a result of the reverse split, the Company’s Series A PreferredStock automatically converted into shares of the Company’s split-adjustedcommon stock and Whittier Energy’s former shareholders owned approximately 85%of the Company’s outstanding voting common stock.  In June 2004, the Company issued warrants and1.38 million shares of common stock in a private offering.  As a result, Whittier Energy’s formerstockholders presently own approximately 79% of the Company’s outstandingcommon stock (see Note 7).

 

This summary of significant accounting policies of the Company arepresented to assist in understanding its financial statements. The financialstatements and notes are representations of the Company’s management, which isresponsible for their integrity and objectivity.  These accounting policies conform toaccounting principles generally accepted in the United States and have beenconsistently applied in the preparation of the financial statements.

 

Nature of Operations and Organization

 

The Company’s assets consist primarily of operated and non-operatedworking interests, royalty interests, partnership interests, and mineralacreage in nine states. In March 2002, Whittier Energy formed WhittierOperating to manage the Company’s operated oil and gas properties, includingtwo oil and gas properties acquired by Whittier Energy during 2002, twoadditional operated properties acquired during 2003, and four operated propertiesacquired during the year ended December 31, 2004.

 

F-10

----

 

Principles of Consolidation and Combination

 

Although the Company was the legal acquirer of Whittier Energy andcontinues as a publicly traded entity, Whittier Energy was the acquirer foraccounting purposes. As a result, the Company has conformed to Whittier Energy’saccounting methods on a prospective basis, including the use of a calendaryear-end and reporting its oil and gas activities using the successful effortsmethod of accounting. For SEC reporting purposes, the Company presents WhittierEnergy’s historical financial statements up to the effective date of the Mergerand combined financial results thereafter. Accordingly, the consolidated financialstatements for the year ended December 31, 2003, include the financial resultsof Whittier and Olympic Arizona, from the effective date of the Merger throughDecember 31, 2003, as well as the accounts of Whittier Energy and WhittierOperating for the entire calendar year 2003. All intercompany transactions havebeen eliminated.

 

The Company accounts for its investments in oil and gas partnershipsand joint ventures using the proportionate consolidation method, whereby ourproportionate share of each entity’s assets, liabilities, revenues, andexpenses are included in the appropriate classification in the consolidatedfinancial statements. Investment interests in partnerships less than 20%, wherethe Company has limited liability and no significant influence over theinvestee, are accounted for using the cost method, whereby the investment isrecorded at the lower of cost or fair market value and cash distributions aretreated as return of capital and are only recognized in income when cumulativedistributions exceed the Company’s cost basis in the investment.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of these financial statements requires the use ofestimates by management in determining the Company’s assets, liabilities,revenues and expenses. Actual results could differ from those estimates.Material estimates that are particularly susceptible to significant changerelate to the estimate of the Company’s proved oil and gas reserves prepared byan independent engineering consultant. Such estimates are subject to variousuncertainties inherent in the estimation of quantities of proved reserves.Estimated reserves are used in the calculation of depletion, depreciation andamortization as well as the Company’s assessment of proved oil and gasproperties for impairment.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and on deposit, andhighly liquid debt instruments with original maturities of three months orless.

 

Accounts Receivable

 

The Company carries its accounts receivables at their fair value,recording allowances for doubtful accounts into earnings when they are deemedto be uncollectible. As of December 31, 2004 and 2003, the Company had recordedan estimated allowance for doubtful accounts of approximately $64,000 and $0,respectively.

 

Marketable Securities

 

The Company classifies its investments in marketable securities asavailable for sale.  Such investments arecarried in the financial statements at fair value.  Realized gains and losses, determined usingthe first-in, first-out (FIFO) method, are included in earnings, and unrealizedholding gains and losses are excluded from net income (loss) and reported inother comprehensive income (loss). The Company periodically reviews its investmentsin marketable securities to determine if a permanent impairment exists,recognizing any resulting permanent impairment in earnings in the period such adetermination is made.

 

F-11

----

 

 

Oil and Gas Property and Equipment (Successful Efforts)

 

Oil and gas properties are accounted for using the successful effortsmethod.  Under this method, explorationcosts (drilling costs of unsuccessful exploration wells, geological andgeophysical costs, and non-producing leasehold amortization and delay rentals)are charged to expense when incurred. Costs to develop producing properties, including drilling costs andapplicable leasehold acquisition costs, are capitalized.  Costs to drill exploratory wells that resultin additions to reserves are also capitalized.

 

Depreciation, depletion and amortization of producing properties,including depreciation of well and support equipment and amortization ofrelated lease costs, are determined by using a unit-of-production method basedupon estimated proved reserves. Acquisition costs of unproved properties are carried at cost untilexploration activities commence.

 

Under the successful efforts method of accounting for oil and gasproperties, the Company periodically assesses its proved properties forimpairments by comparing the aggregate net book value of its proved propertieswith their aggregate undiscounted future net cash flows. The Company performs aperiodic review, at least annually, for impairment of proved properties on afield by field basis. Unamortized capital costs are measured on a field basisand are reduced to fair value if it is determined that the sum of expectedundiscounted future net cash flows is less than the net book value. The Companydetermines if an impairment has occurred through either adverse changes, suchas a large decrease in oil and gas reserves or production on a property or if adry hole is drilled on or near one of its properties, or as a result of itsperiodic review for impairment. Impairment is measured on discounted cash flowsutilizing a discount rate appropriate for risks associated with the relatedproperties or based on fair market values.

 

Sales of proved and unproved oil and gas properties are recognized inincome as gain or loss on property sales, equal to the difference between theproceeds received less the net remaining book basis of the propertiestransferred. The Company determines net book basis as the difference betweenthe gross cost basis of the property less accumulated depletion, depreciationand amortization through the date of sale.

 

# **Equipment and Fixtures**

# ** **

Equipmentand fixtures are stated at cost and depreciated over the estimated useful livesof the assets, which range from three to seven years, using the straight-linemethod.  When assets are sold or retired,the cost and related accumulated depreciation are removed from the accounts andany resulting gains or losses are included in income.

 

Maintenance and repairs, which neither materially add to the value ofthe property nor appreciably prolong its life, are charged to expense asincurred.  Gains or losses on thedispositions of property and equipment, other than oil and gas, are reflectedin the Company’s results from operations.

 

F-12

----

 

# **Deferred Income Taxes**

# ** **

# **Under Statement of FinancialAccounting Standard (SFAS) No. 109, “Accounting for Income Taxes,” deferredtaxes are determined based on the estimated future tax effects of differencesbetween the financial statement and tax basis of assets and liabilities, giventhe provision of the applicable tax laws in effect at that time. The Companyrecords a valuation allowance when the Company determines it is more likelythan not that the deferred tax assets will not be realized.  See “Note 5–Income Taxes”.**

# ** **

# **Revenue Recognition**

# ** **

Crude oil and natural gas revenues are recognized after productiontakes place, when the sale is completed and the risk of loss transfers to athird party purchaser. The Company utilizes the entitlement method to accountfor its revenues from sales of its oil and gas production. The Company does nothave any gas imbalances relating to its oil and gas properties. Undistributedoil and gas revenues due to third parties from the properties the Company operatesare included in current accounts payable on the Company’s consolidated balancesheet.

 

Management of Commodity Price Risk

 

The Companyfrom time to time enters into commodity price hedging contracts with respect toits oil and gas production to achieve a more predictable cash flow, as well asreduce its exposure to price volatility. The Company accounts for its hedgingcontracts in accordance with SFAS No. 133 “Accounting for DerivativeInstruments and Hedging Activities.”

 

SFAS No. 133,as amended, establishes accounting and reporting standards requiring that everyderivative instrument (including certain derivative instruments embedded inother contracts) be recorded in the balance sheet as either an asset orliability measured at its fair value regardless of the purpose or intent forholding the instrument. The statement requires that changes in the derivative’sfair value be recognized currently in earnings unless specific hedge criteriaare met. Special accounting for qualifying hedges allows a derivative’s gainsand losses to offset related results on the hedged item in the incomestatement, and requires the Company formally document, designate and assess theeffectiveness of transactions that receive hedge accounting. Based on thenature of the Company’s derivative instruments currently outstanding and thehistorical volatility of oil and gas commodity prices, the Company expects thatthe adoption of SFAS No. 133 could increase volatility in the Company’searnings and other comprehensive income for future periods. SFAS No. 133provides that the effective portion of the gain or loss on a derivativeinstrument designated and qualifying as a cash flow hedge be reported as acomponent of other comprehensive income, net of deferred taxes, while the ineffectiveportion is reflected in earnings during the applicable period. The effectivegain or loss will be reclassified from other comprehensive income into earningsin the period in which the sales of the applicable oil and gas production thehedge relates to are recognized in the Company’s income statement.

 

F-13

----

 

Earnings (Loss) per Common Share

 

Basic earnings/(loss) per common share is calculated by dividing netincome or loss by the aggregate weighted average number of shares outstandingduring the period. Diluted earnings/(loss) per share considers the dilutiveeffect of the average number of common stock equivalents, consisting of theCompany’s common stock options and warrants and common stock underlying aconvertible note (see Note 6), that were outstanding during the period. TheCompany’s total weighted average number of dilutive and anti-dilutive commonstock equivalents outstanding as of December 31, 2004 were 725,281 and1,537,073, respectively. The Company had a total of 352,500 common stockequivalents outstanding as of December 31, 2003, all of which wereanti-dilutive.

 

All share amounts have been adjusted to reflect the Company’sone-for-ten reverse stock split and conversion of its Series A Preferred Stockinto common stock on December 31, 2003. See Note 7.

 

Accounting for Stock Based Compensation 

 

The Company accounts for stock based compensation using the intrinsicvalue method under APB Opinion No. 25, “Accounting for Stock Issued to Employees.”SFAS No. 123, “Accounting for Stock-based Compensation” requires that pro formainformation regarding net income and earnings per share be determined as if theCompany had accounted for its employee stock options under the fair valuemethod as defined in SFAS No. 123. We estimate the fair value for optionsissued during the period, if any, as of the date of grant using theBlack-Scholes option pricing model by using weighted average assumptions,volatility factors of the expected market price of the Company’s common stock,and the weighted average life expectancy of the options.

 

In December 2003, the Company’s Board of Directors approved a Long TermIncentive Plan (the “Plan”), which was ratified by the Company’s stockholdersin July 2004. The Plan sets aside a total of 1.56 million shares of the Company’scommon stock for issuance to the Company’s officers, directors, employees, andconsultants. During January 2004, the Company granted a total of 729,000options to purchase the Company’s common stock at an average exercise price of$1.75 per share to certain directors, officers, and employees of the Company,of which 15,000 options were cancelled in May 2004. The options vest ratablyover a three-year period from the date of grant and have a term of five years.The fair market value of the net options outstanding on the date of grant wasestimated to be $1,088,611, or $1.52 per share, using the Black-Scholes optionpricing model with the following weighted average assumptions: risk freeinterest rate of 4%, dividend yield of 0%, volatility factors of the expectedmarket price of the Company’s common stock of 1.58, and a weighted average lifeexpectancy of the options of 3.5 years. The Company issued an additional 59,500options to various employees of the Company during the year ended December 31,2004, with an average exercise price of $1.64 per share, also subject to threeyear ratable vesting with a term of five years. The fair market value of theoptions on the date of grant was estimated to be approximately $51,000, or$0.86 per share, using the Black Scholes option pricing model using weightedaverage assumptions applicable on the date of grant.

 

As part of the Merger in 2003, the Company acquired 187,500 optionspreviously issued by Olympic, of which 49,500 options expired unexercisedduring 2004. The remaining 138,000 shares acquired as part of the Merger arefully vested.

 

F-14

----

 

For purposes of pro forma disclosures, the estimated fair value of theoptions is amortized to expense over the option’s vesting period. The Company’spro forma information, in thousands, is as follows:

 
| ** **                                                                                         | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                         | ** ** | **2004**                    | ** ** | **2003** | ** ** |
|                                                                                               |       |                        |       |   |   |
| Net income/(loss) under APB No. 25                                                                 |       | $                           | 1,147      |   | $ | (222 | ) |
|                                                                                               |       |                        |       |   |   |
| Deduct: Total stock-based compensation  expense determined under the fair value method, net of tax |       | (367                        | )          | — |   |
|                                                                                               |       |                        |       |   |   |
| Pro forma net income (loss)                                                                        |       | $                           | 780        |   | $ | (222 | ) |
|                                                                                               |       |                        |       |   |   |
| Pro forma basic earnings (loss) per share                                                          |       | $                           | .07        |   | $ | (.02 | ) |
|                                                                                               |       |                        |       |   |   |
| Pro forma diluted earnings (loss) per share                                                        |       | $                           | .07        |   | $ | (.02 | ) |

 

In December 2004, the FASB issued SFAS No. 123(R), “Share–BasedPayment,” a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.”SFAS No. 123R supercedes APB Opinion No. 25, “Accounting for Stock Issued toEmployees” and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123(R)requires a company to recognize equity based compensation, including stockoption grants, at fair value in the income statement, and discontinuesaccounting for equity based compensation under APB Opinion No. 25, theintrinsic value method. The requirements of this pronouncement are effectivefor fiscal periods beginning after June 15, 2005. Whittier currently accountsfor equity based compensation using APB Opinion No. 25 in which no compensationcost for employee stock options is recognized. SFAS No. 123(R) also requiresthe benefits of tax deductions in excess of recognized compensation cost to bereported as cash flow from financing activities rather than as cash flow fromoperations, as required currently. The Company will adopt SFAS No. 123(R) inthe third quarter of 2005. The Company is currently evaluating the impact ofthe adoption of SFAS No. 123(R) on its financial statements.

 

New AccountingStandards

 

In June 2001,the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”The Statement requires entities to record the fair value of a liability forlegal obligations associated with the retirement obligations of tangiblelong-lived assets in the period in which it is incurred. When the liability isinitially recorded, the entity increases the carrying amount of the relatedlong-lived asset. Over time, accretion of the liability is recognized eachperiod, and the capitalized cost is depreciated over the useful life of therelated asset. Upon settlement of the liability, an entity either settles theobligation for its recorded amount or incurs a gain or loss upon settlement.SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. TheCompany adopted SFAS No. 143 for the calendar year beginning January 1, 2003.As a result of the adoption, the Company recorded an asset retirementobligation of approximately $35,546, an increase to oil and gas properties of$32,156 and a non-cash charge of $6,361, which was recorded as a CumulativeEffect of Change in Accounting Principle at January 1, 2003.

 

As of December31, 2004, the Company’s future abandonment obligation was estimated to be$121,411, including $101,380 in costs capitalized to oil and gas propertiessubject to depletion and $20,031 in cumulative accretion expense.Comparatively, the Company had a total future abandonment obligationoutstanding as of December 31, 2003, of $68,698 including $60,168 in costscapitalized to oil and gas properties and $8,530 in cumulative accretionexpense.

 

F-15

----

 

Theactivity related to the Company’s future asset retirement obligations for theyears ended December 31, 2004 and 2003 is as follows (in thousands):

 
| ** **                             | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | **2004**                    | ** ** | **2003** | ** ** |
| Beginning asset retirement obligation  |       | $                           | 68,698     |   | $ | 35,546 |   |
| Liabilities incurred during the period |       | 41,212                      |       | 28,012 |   |
| Liabilities  settled during the period |       | —                      |       | — |   |
| Accretion expense                      |       | 11,501                      |       | 5,140 |   |
| Ending asset retirement obligation     |       | $                           | 121,411    |   | $ | 68,698 |   |

 

In April 2003, the FASB issued SFAS No. 149, “Amendmentof Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No.149 amends SFAS No.133, “Accounting for Derivative Instruments and HedgingActivities.” SFAS No. 149 requires that contracts with comparablecharacteristics be accounted for similarly. In addition, SFAS No. 149 also clarifies under what circumstances acontract with an initial net investment meets the characteristic of aderivative and clarifies when a derivative contains a financing component. Thisstatement became effective for contracts entered into or modified after June30, 2003. The adoption of this statement did not have any material impact onthe Company’s financial position, results of operations, or cash flows.

 

In March 2004,the Emerging Issues Task Force (“EITF”) reached a consensus clarifying itsposition on whether acquisition costs relating to underlying oil and gasreserves should be classified as “intangible costs,” concluding that mineralrights are tangible assets. The FASB, ratifying the EITF’s consensus, issuedFASB Staff Position 141-1 and 142-1 in April 2004, amending SFAS No. 141,"Business Combinations," and SFAS No. 142, "Goodwill and IntangibleAssets" to define mineral rights as tangible assets. In September 2004,the FASB staff issued an additional FASB Staff Position affirming that oil andgas mineral rights held under lease and other contractual arrangementsrepresenting the right to extract reserves for both undeveloped and developedleaseholds need not be classified separately from oil and gas properties.Therefore, the Company will continue to include amounts related to undevelopedand developed leaseholds in oil and gas properties on its consolidatedfinancial statements.

 

Prior YearReclassification

 

Current yearamounts have been reclassified to conform with current year presentation,including netting deferred tax assets and liabilities on the Company's consolidatedbalance sheet and reclassifying the Company’s liability for its commodity hedgingcontracts between current and long-term liabilities.  Such reclassification had no effect on theCompany's net income or stockholders’ equity.

 

F-16

----

** **

**NOTE 2 – MARKETABLE SECURITIES**

 

The Company’s investments in marketable securities are classified as “available-for-sale”in accordance with SFAS No. 115, “Accounting for Certain Investments in Debtand Equity Securities.”  As a result,these investments are carried at fair market value as of the relevant balancesheet dates.  Unrealized gains and lossesare excluded from net income and reported in a separate component ofstockholder’s equity as cumulative other comprehensive income (loss).

 

The carrying amount and estimated market value of the investments as ofDecember 31, 2004 and December 31, 2003 are as follows:

 
| ** **                                | ** ** | **As of December 31, 2004** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|
| ** **                                | ** ** | **Cost**                    | ** ** | **Fair Value** | ** ** |
|                                      |       |                        |       |   |   |
| Chaparral Resources, Inc., 543,850 Shares |       | $                           | 543,850    |   | $ | 870,160 |   |
|                                      |       |                        |       |   |   |
| PYR Energy, Inc., 173,625 Shares          |       | 327,723                     |       | 184,042 |   |
|                                      |       |                        |       |   |   |
| Total                                     |       | $                           | 871,573    |   | $ | 1,054,202 |   |
|                                      |       |                        |       |   |   |
| ** **                                | ** ** | **As of December 31, 2003** | ** ** |
| ** **                                | ** ** | **Cost**                    | ** ** | **Fair Value** | ** ** |
|                                      |       |                        |       |   |   |
| Chaparral Resources, Inc., 543,850 Shares |       | $                           | 1,189,326  |   | $ | 549,288 |   |
|                                      |       |                        |       |   |   |
| PYR Energy, Inc., 173,625 Shares          |       | 327,723                     |       | 168,416 |   |
|                                      |       |                        |       |   |   |
| Vangold Resources, Inc., 100,000 Shares   |       | 31,765                      |       | 57,160 |   |
|                                      |       |                        |       |   |   |
| Total                                     |       | $                           | 1,548,814  |   | $ | 774,864 |   |

 

The Companyrecognizes any unrealized gain or loss on its marketable securities when thesecurities are sold or when the Company determines that a permanent impairmenthas occurred. As of March 31, 2004, the Company reclassified its unrealizedloss in Chaparral Resources, Inc. (“Chaparral”) as “other than temporary” andrecognized an impairment of $645,476, reducing the Company’s book basis in thesecurities to $543,850. The Company intends to dispose of its investment inChaparral in order to utilize the proceeds for the acquisition, exploration anddevelopment of oil and gas properties.

 

After consideringthe write-down of the Chaparral common stock, the Company has classified theremaining unrealized gains and losses in its marketable securities as temporaryin nature. As of December 31, 2004, the Company’s investment in Chaparral hadappreciated from the Company’s cost basis in the stock after recognition of thepermanent impairment. The Company recorded an unrealized gain as a component ofother comprehensive income (loss) of $118,708, net of deferred taxes of$63,920, for the period ended December 31, 2004, and an unrealized loss$503,068, net of deferred tax of $270,882, for the period ended December 31,2003.

 

The Company issubject to certain trading restrictions for its investment in PYR due to SECregulations regarding stock traded by an affiliate of a public company, whichmay limit or prohibit the Company’s ability to dispose of its investment in thefuture. The Company’s President and Chief Executive Officer currently serves asan independent director on PYR’s Board of Directors, making him an insider ofPYR.

 

F-17

----

 

A reconciliation of the pre and post-tax impact of theCompany’s marketable securities on accumulated other comprehensive income forthe period ended December 31, 2004 is as follows.

 

| ** **                                                      | ** ** | **Pre-tax**        | ** ** | **After-tax**      | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                      | ** ** | **(in thousands)** | ** ** | **(in thousands)** | ** ** |
| Accumulated other comprehensive loss, December 31,  2003   |       | $                  | (774       | )                  | $          | (503 | ) |
| Reclassified into  earnings                                     |       | (24                | )          | (16                | )          |
| Impairment of stock investment                                  |       | 645                |       | 419                |       |
| Change in fair market value                                     |       | 336                |       | 219                |       |
| Accumulated other comprehensive income, December 31,  2004 |       | $                  | 183        |               | $          | 119 |   |

 

**NOTE 3 -INVESTMENTS IN PARTNERSHIPS**

 

The original cost basis, cumulativedistributions and book value of the Company’s partnership investments as of December 31,2004 and December 31, 2003, were as follows:

 
| ** **                                                           | ** ** | **Investment  Cost Basis** | ** ** | **Cumulative  Distributions** | ** ** | **December 31, 2004  Net Book Value** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|
|                                                                 |       |                       |       |                          |       |                                       |       |
| KAB Acquisition L.P. - II, 8.0% Limited Partnership  Interest        |       | $                          | 150,000    |                          | $          | (246,951                                   | )          | $ | — |   |
| KAB Acquisition L.P. - III, 6.4286% Limited  Partnership Interest    |       | 150,000                    |       | (177,620                      | )          | —                                     |       |
| KAB Acquisition L.L.L.P. - IV, 7.2% Limited  Partnership Interest    |       | 150,000                    |       | (217,805                      | )          | —                                     |       |
| KAB Acquisition L.L.L.P. - V, 7.5% Limited  Partnership Interest     |       | 150,000                    |       | (138,884                      | )          | 11,116                                     |       |
| KAB Acquisition L.L.L.P. - VI, 2.1825% Limited  Partnership Interest |       | 150,000                    |       | (52,433                       | )          | 97,567                                     |       |
| Avalanche Royalty Partners LLC, 8.925% Membership  Interest          |       | 341,000                    |       | (431,960                      | )          | —                                     |       |
| Rincon Energy Partners, LLC, 10% Membership Interest                 |       | 175,057                    |       | —                        |       | 175,057                                    |       |
|                                                                 |       |                       |       |                          |       |                                       |       |
| Total                                                                |       | $                          | 1,266,057  |                          | $          | (1,265,653                                 | )          | $ | 283,740 |   |

 
| ** **                                                           | ** ** | **Investment  Cost Basis** | ** ** | **Cumulative  Distributions** | ** ** | **December 31, 2003  Net Book Value** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|
|                                                                 |       |                       |       |                          |       |                                       |       |
| KAB Acquisition L.P. - II, 8.0% Limited Partnership  Interest        |       | $                          | 150,000    |                          | $          | (198,781                                   | )          | $ | — |   |
| KAB Acquisition L.P. - III, 6.4286% Limited  Partnership Interest    |       | 150,000                    |       | (150,258                      | )          | —                                     |       |
| KAB Acquisition L.L.L.P. - IV, 7.2% Limited  Partnership Interest    |       | 150,000                    |       | (165,735                      | )          | —                                     |       |
| KAB Acquisition L.L.L.P. - V, 7.5% Limited  Partnership Interest     |       | 150,000                    |       | (108,860                      | )          | 41,140                                     |       |
| KAB Acquisition L.L.L.P. - VI, 2.1825% Limited Partnership  Interest |       | 150,000                    |       | (20,085                       | )          | 129,915                                    |       |
| Avalanche Royalty Partners LLC, 8.925% Membership  Interest          |       | 341,000                    |       | (338,027                      | )          | 2,973                                      |       |
| Rincon Energy Partners, LLC, 10% Membership Interest                 |       | 66,000                     |       | —                        |       | 66,000                                     |       |
|                                                                 |       |                       |       |                          |       |                                       |       |
| Total                                                                |       | $                          | 1,157,000  |                          | $          | (981,746                                   | )          | $ | 240,028 |   |

 

F-18

----

 

The Company records its book value inpartnership investments at the lower of cost or fair market value, lesscumulative cash distributions from each investment. Cash distributions inexcess of basis are recorded as partnership income and any impairment ofpartnership investment is recorded as a charge to income.  The Company periodically reviews itspartnership investments for impairment by comparing each investment’s bookvalue against its fair value. Management uses its best efforts to estimate fairvalue in its partnership investments, based on the historical and expectedfuture performance of each investment, as well as consideration of anysignificant events affecting the underlying assets of each partnership, whichmay limit the Company’s ability to recover its investment. Any resultingimpairment is recorded in earnings in the period the Company determines that animpairment exists.

 

The Companyrecognized partnership income of $218,561 for the year ended December 31,2004, compared to partnership income of $19,469 for the year ended December 31, 2003. TheCompany also recognized a loss from partnership investments of $733,244 for theyear ended December 31, 2003, due to the total impairment of the Company’sinvestments in the Odin Spirit and the Odin Neptune drilling partnerships. Thegeneral partner of the Odin Neptune partnership disposed of its principalasset, a semi-submersible rig, for nominal value in July 2003 and the partnershipwas fully liquidated. The Odin Spirit partnership’s principal assets, twojack-up drilling rigs, were disposed of to satisfy its third party creditor,which had foreclosed on the rigs in May 2003. Consequently, the Companyfully impaired both investments as of the quarter ended June 30, 2003.

 

**NOTE 4 -OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES**

 

Oil and gas properties,equipment and fixtures consist of the following as of December 31, 2004and December 31, 2003, respectively:

 

| ** **                                           | ** ** | **As of December 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                           | ** ** | **2004**                    | ** ** | **2003** | ** ** |
|                                                 |       |                        |       |   |   |
| Oil and Gas Properties                               |       |                        |       |   |   |
|                                                 |       |                        |       |   |   |
| Proved oil and gas properties                        |       | $                           | 23,299,000 |   | $ | 13,455,275 |   |
| Unproved oil and gas properties                      |       | 1,950,851                   |       | 694,802 |   |
| Asset retirement obligation                          |       | 101,380                     |       | 60,168 |   |
|                                                 |       |                        |       |   |   |
| Total oil and gas assets                             |       | 25,351,231                  |       | 14,210,245 |   |
|                                                 |       |                        |       |   |   |
| Accumulated depreciation, depletion and amortization |       | (6,191,954                  | )          | (3,863,081 | ) |
|                                                 |       |                        |       |   |   |
| Net oil and gas properties                           |       | 19,159,277                  |       | 10,347,164 |   |
|                                                 |       |                        |       |   |   |
| Corporate and Other                                  |       |                        |       |   |   |
|                                                 |       |                        |       |   |   |
| Furniture and equipment                              |       | 118,756                     |       | 35,680 |   |
| Accumulated depreciation                             |       | (33,755                     | )          | (13,495 | ) |
|                                                 |       |                        |       |   |   |
| Total corporate assets                               |       | 85,001                      |       | 22,185 |   |
|                                                 |       |                        |       |   |   |
| Net oil and gas properties, furniture and equipment  |       | $                           | 19,244,278 |   | $ | 10,369,349 |   |

 

The Company recognized depletion,depreciation and amortization expense of $2,469,850 and $1,368,484 for the yearsended December 31, 2004 and 2003, respectively. The Company’s unevaluatedoil and gas properties include investments in ongoing exploratory drillingprojects, which are reviewed quarterly to determine if there is an impairmentof their carrying value or if they should be transferred into proved oil andgas properties.  The Company recorded explorationexpense of $890,907 and $155,712 for the years ended December 31, 2004 andDecember 31, 2003, respectively.

 

F-19

----

 

**NOTE 5 -INCOME TAXES**

 

 

 

| **The Provision for Income Taxes (Benefits)**                      | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------|------------|
| **Consists of the Following:**                                     | ** ** | **2004**                    | ** ** | **2003** | ** ** |
|                                                               |       |                        |       |   |   |
| Current Income Tax Benefit                                         |       | $                           | —     |   | $ | (38,161 | ) |
| Deferred Income Tax Benefit                                        |       | (257,321                    | )          | (81,539 | ) |
|                                                               |       |                        |       |   |   |
| Total Income Tax Benefit                                           |       | $                           | (257,321   | ) | $ | (119,700 | ) |
|                                                               |       |                        |       |   |   |
| Current Tax Assets                                                 |       |                        |       |   |   |
| Unrealized  Losses on Price Hedging Contracts                      |       | $                           | 376,498    |   | $ | 171,101 |   |
|                                                               |       |                        |       |   |   |
| Total Current Tax Assets                                           |       | $                           | 376,498    |   | $ | 171,101 |   |
|                                                               |       |                        |       |   |   |   |   |
| Deferred Tax Assets                                                |       |                        |       |   |   |
| Unrealized Losses on Marketable Securities                         |       | $                           | 161,996    |   | $ | 270,882 |   |
| Unrealized Losses on Price Hedging Contracts                       |       | 257,829                     |       | 29,811 |   |
| Temporary Difference in Book/Tax Basis of Partnership  Investments |       | 157,017                     |       | 220,740 |   |
| Net Operating Loss Carryforwards                                   |       | 900,348                     |       | 968,855 |   |
| Valuation Allowance - Net Operating Loss Carryforwards             |       | (340,259                    | )          | (820,834 | ) |
| Carryforward of Percentage Depletion in Excess of  Basis           |       | 127,925                     |       | 42,528 |   |
| Other                                                              |       | 36,742                      |       | — |   |
|                                                               |       |                        |       |   |   |
| Total Deferred Tax Assets                                          |       | $                           | 1,301,598  |   | 711,982 |   |
|                                                               |       |                        |       |   |   |
| Deferred Tax Liabilities:                                          |       |                        |       |   |   |
| Excess Book Basis over Tax Basis for Oil and Gas  Properties       |       | $                           | (1,951,603 | ) | (1,513,469 | ) |
|                                                               |       |                        |       |   |   |
| Total Deferred Tax Liabilities                                     |       | (1,951,603                  | )          | (1,513,469 | ) |
|                                                               |       |                        |       |   |   |
| Net Deferred Tax Liabilities                                       |       | $                           | (650,005   | ) | $ | (801,487 | ) |

 

Deferred taxes have beenprovided for on the differences between the book and tax basis of oil and gasproperties, principally generated by the current deductibility of intangibledrilling costs allowed for income tax purposes. The Company also provided fordeferred taxes on the unrealized gains and losses on marketable securities,unrealized gains and losses on its commodity pricing hedge instruments, thetemporary differences between the book and tax basis of the Company’sinvestment in partnerships accounted for using the cost method for financialstatement purposes, and percentage depletion carryforwards in excess of basis.

 

Net operating loss (“NOL”)carryforwards included in deferred tax assets in the current period all relateto NOL’s from prior years, including operating losses for the year ended December 31,2003 and approximately $2.5 million in NOL carryforwards that were acquired asa result of the Merger in September 2003. A portion of the Company’sunrestricted operating loss for 2003 was carried back to offset taxable incomefrom 2001, generating an income tax receivable of $38,161. The NOLcarryforwards acquired in the Merger expire between 2017 and 2022 and arepartially restricted from offsetting the future taxable income of the Companydue to Internal Revenue Code ("IRC") §382 ownership changelimitations.

 

As of December 31,2004, the Company had total deferred tax assets from NOL carryforwards of $900,348,of which $77,811 are unrestricted and $822,538 are partially restricted underIRC §382. The Company has recorded a valuation allowance of $340,259, orapproximately 41%, on its deferred tax asset related to its restricted NOLcarryforwards due to uncertainties regarding the future recoverability of itsrestricted NOL carryforwards. The net change in the Company’s valuationallowance from December 31, 2003 to December 31, 2004 was $480,575. TheCompany has recorded the tax benefit of its NOL carryforwards, net of theapplicable valuation allowance, as a deferred tax asset as of December 31,2004.

 

F-20

----

 

| ** **                                                                    | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------|------------|
| **Effective Tax Rate Reconciliation:**                                        | ** ** | **2004**                    | ** ** | **2003** | ** ** |
| ** **                                                                    | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Tax Expense (Benefit) on Book Income Computed at 35%                          |       | $                           | 311,460    |   | $ | (119,701 | ) |
| Increases (decreases) in Taxes Resulting From:                                |       |                        |       |   |   |
| Percentage depletion in excess of tax basis,  currently deductible            |       | (88,661                     | )          | — |   |
| Reduction in valuation allowance related to net  operating loss carryforwards |       | (480,575                    | )          | — |   |
| Other                                                                         |       | 455                         |       | — |   |
|                                                                          |       |                        |       |   |   |
| Income Tax Benefit, as adjusted                                               | ** ** | $                           | (257,321   | ) | $ | (119,701 | ) |
|                                                                          |       |                        |       |   |   |
| Effective Tax Rate                                                            |       | (28.92                      | )%         | 35.00 | % |

 

**NOTE6 – NOTES PAYABLE**

 

Revolving CreditAgreement

 

On July 17, 2002,the Company signed a revolving credit agreement with a financial institution toborrow up to $15 million, based upon the amount of proved reserves attributableto the Company’s oil and gas properties. Interest expense is payable monthly atan interest rate equal to 1/4% over prime, as published by the Wall StreetJournal, which was 5.5% at December 31, 2004. The credit agreement was amendedin November 2004 to extend its maturity date to October 1, 2007.

 

The Company had netborrowings under the credit agreement of $7,745,000 and $4,505,000 as of December 31,2004 and December 31, 2003, respectively. The Company incurred interestexpense of $328,810 and $203,947 for the years ended December 31, 2004 and2003, respectively, all of which was expensed as incurred. As of December 31,2004, the Company's total borrowing base was $8.1 million, of which $90,000 wasavailable for borrowing.

 

As of December 31,2004 and December 31, 2003, the Company utilized a total of $265,000 and$165,000, respectively, of its available borrowing base under the creditfacility to provide letters of credit against required state bonds in Louisianaand Texas relating to the Company’s operated oil and gas properties. The costsof maintaining the letters of credit, which are not reflected as principal drawdowns under the credit facility, are included in interest expense.

 

During the year ended December 31,2004, the Company borrowed a total of $4.23 million under the credit agreementto finance the May 2004 acquisition of the Cut Off field ($1.0 million), theJune 2004 acquisition of three South Texas gas properties furtherdescribed in Note 14 ($3.05 million), and additional property interest in theRayne Field ($180,000).  The Company alsorepaid $990,000 in principal for the year ended December 31, 2004, inaccordance with the terms of the credit agreement.

 

F-21

----

 

The credit agreement iscollateralized by substantially all of the Company’s assets and the Company issubject to various covenants, representations and warranties as established bythe credit agreement. The primary covenants agreed to by the Company under thecredit agreement, as amended, include the following:

 

•                  The Companywill maintain a total Tangible Net Worth of not less than $7,300,000, plus (a) fiftypercent (50%) of net income (excluding losses) subsequent to June 30, 2004,and (b) one hundred (100%) of any increases in shareholders’ equityresulting from the sale or issuance of equity interests subsequent to June 30,2004.

 

•                  The Company will maintain a ratio ofquarterly EBITDAX (net income before interest expenses, taxes, depreciation,depletion, amortization, exploration costs, and other non-cash expenses lessnon-cash income and capitalized expenses) to quarterly interest expense of notless than 3.00.

 

•                  The Company will maintain a currentratio, determined quarterly, of Current Assets to Current Liabilities, exclusiveof any current portion of principal outstanding under the credit agreement, ofat least one to one.

 

The Company was incompliance with these covenants as of December 31, 2004 and December 31,2003.

 

As of December 31,2004 and December 31, 2003, the Company classified $1,650,000 and$560,000, respectively, of the outstanding principal under the credit agreementas a current liability, based on monthly principal payments required as aresult of the Company’s latest applicable borrowing base review performed bythe bank. The bank reviews the Company’s borrowing base every six months or inconjunction with a material acquisition. The Company’s next borrowing basereview is scheduled for April 2005.

 

ConvertibleSubordinated Note

 

As discussed in Note 14,the Company issued to the Sellers of the Properties a Convertible Subordinated Notein the amount of $1,787,330, bearing interest at a rate of 7%. The ConvertibleSubordinated Note, including any accrued interest thereon, is convertible atany time during its term at a conversion price of $2.00 per share into 893,665shares of the Company’s common stock. The Convertible Subordinated Note isfully subordinated to the Company’s existing credit agreement and may be paidoff at any time without penalty to the Company. No principal payments arerequired on the Convertible Subordinated Note during the first two years it isoutstanding. In the event the Convertible Subordinated Note is not convertedinto the Company’s common stock during this two year period, the Company willrepay the principal outstanding ratably over 48 months until either theConvertible Subordinated Note has been fully repaid or the remaining principaloutstanding on the Convertible Subordinated Note is converted into the Company’scommon stock. The Company granted “piggy back” registration rights for theshares of common stock underlying the Convertible Subordinated Note andregistered the underlying shares in December 2004. The Company incurred $68,812in interest expense on the Convertible Subordinated Note for the year ended December 31,2004.

 

Anticipated futurematurities of the credit agreement and the Convertible Subordinated Note, basedon principal outstanding as of December 31, 2004, are as follows:

 

| **Year**   | ** ** | **Amount** | ** ** |
|------------|------------|------------|------------|
| 2005       |       | $          | 1,650,000  |   |
| 2006       |       | 2,060,652  |       |
| 2007       |       | 2,246,833  |       |
| 2008       |       | 2,246,833  |       |
| Thereafter |       | 1,328,012  |       |
|       |       |       |       |
| Total      |       | $          | 9,532,330  |   |

 

F-22

----

 

**NOTE 7 – COMMON STOCK AND COMMON STOCK EQUIVALENTS**

 

In December 2003,the Company’s stockholders approved a corporate reorganization of the Company, whichincluded a one-for-ten reverse stock split, the reincorporation of the Companyfrom Wyoming to Nevada, and the change of the Company’s legal name from OlympicResources Ltd. to Whittier Energy Corporation. All common stock and commonstock equivalents have been retroactively adjusted to reflect the one-for-tenreverse split, which was consummated as of December 31, 2003.

 

Asdiscussed in Note 13, on September 10, 2003, the Company’s wholly ownedsubsidiary, WEC, a Wyoming corporation, merged with and into Whittier Energy,effecting a change in control of the Company. As a result of the “reverse”merger, Whittier Energy became the wholly owned subsidiary of the Company. Inexchange for their 100,000 shares of outstanding Whittier Energy common stock,the former Whittier Energy shareholders received 7,939,358 shares of theCompany’s voting common stock and 100,000 shares of the Company’s Series APreferred Stock, which was automatically convertible into 600,000 shares of theCompany’s common stock on the availability of enough additional authorized butunissued shares necessary to effect the conversion. The Series A PreferredStock automatically converted into the Company’s common stock upon completionof the reverse split on December 31, 2003. Whittier Energy’s formershareholders owned approximately 85% of the Company’s 10,046,296 shares ofcommon stock outstanding as of December 31, 2003.

 

As a condition to theMerger, the Company terminated its existing employment agreement with Mr. Pollock,the former President and CEO, and a current director, of the Company, andentered into a new consulting agreement with him for an initial term of sixmonths from the closing date of the Merger. The terms of the new consultingagreement provide for Mr. Pollock to receive $10,217 Canadian dollars permonth during the initial term and a warrant to purchase 45,000 shares of theCompany’s common stock at an exercise price of $2.00 per share (the “Warrant”).The consulting agreement also provides for Mr. Pollock to receive $5,108Canadian dollars per month for 24 months following the initial term, as well as$90,000 in accrued compensation to be used to pay the aggregate exercise priceof the Warrant on the one year anniversary date of the Merger. The costs of theWarrant and the $180,000 severance portion of Mr. Pollock’s consulting agreementwere recorded as part of Whittier Energy’s purchase price of Olympic. TheCompany estimated the fair value of the Warrant on the date of grant to be$32,445, based on the following weighted average assumptions: risk freeinterest rate of 1.20%, dividend yield of 0%, volatility factors of theexpected market price of the Company’s common stock of 1.24, and a weightedaverage life expectancy of the Warrant of one year. The Warrant was fullyexercised in September 2004.

 

Although the Company wasconsidered the legal acquirer in the transaction, Whittier Energy acquired theCompany for accounting purposes and the Company has conformed to WhittierEnergy’s accounting methods, including use of a calendar year-end and thesuccessful efforts method of accounting for its oil and gas properties.Whittier Energy had 100,000 shares of common stock outstanding at the time of theMerger and has never issued any form of common stock equivalents. Olympic,however, had a total of 187,500 stock options and 290,000 common stock warrantsoutstanding at the time of the Merger, including the Warrant issued as part ofthe Merger, all of which were fully vested and exercisable. The details of theCompany’s options and warrants acquired as part of the merger are below.

 

Prior to the Merger, theCompany (i.e. Olympic) had repriced 88,000 options to reflect an exercise priceof $1.93 per share, subjecting the options to variable accounting treatment forthe recognition of compensation expense. The Company’s stock price as of December 31,2003 and December 31, 2004, respectively, was below the exercise price ofthe options and no additional compensation expense was recognized during the respectiveperiods.

 

In October 2003,125,000 warrants to purchase the Company’s common stock at an exercise price of$4.00 per share expired unexercised.

 

In December 2003,the Company’s Board of Directors approved a Long Term Incentive Plan (the “Plan”),which sets aside a total of 1.56 million shares of the Company’s common stockfor issuance to the Company’s officers, directors, employees, and consultants. Duringthe year ended December 31, 2004, the Company granted a total of 788,500 optionsto purchase the Company’s common stock at an average exercise price of $1.74per share to certain employees and directors of the Company, of which 15,000were cancelled in May 2004. The options vest ratably over a three yearperiod from the date of grant and have a term of 5 years. The Plan was ratifiedby the Company’s stockholders at the Company’s annual meeting held in July 2004.

 

F-23

----

 

In January 2004, theCompany issued 22,293 shares of its common stock valued at $1.80 per share toCK Cooper & Company, an investment banking firm, as payment ofapproximately $40,127 in outstanding investment banking fees related to themerger of Olympic and Whittier Energy. Alex Montano, a former director of theCompany, is also a managing director of CK Cooper.

 

In 2004, 49,500 optionsto acquire the Company’s common stock at an exercise price of $1.93 per shareexpired unexercised.

 

In June 2004,warrants to purchase 120,000 shares of the Company’s common stock at anexercise price of $2.70 per share expired unexercised.

 

In June 2004, theCompany closed a private placement with accredited investors for 1.38 millionshares of the Company’s common stock priced at $1.75 per share and three-yearwarrants to purchase an additional 1.38 million shares of common stock at anexercise price of $2.50 per share. The private offering was fully subscribedand resulted in net proceeds to the Company of $2.3 million.  The Company also issued 29,813 shares ofcommon stock and a related warrant to purchase an additional 29,813 shares ofcommon stock at an exercise price of $2.50 per share to a registeredbroker/dealer as payment for services rendered as a placement agent inconnection with the private placement. The Company used a significant portionof the net proceeds from the private placement to finance, in part, its June 2004acquisition of various operated working interests in three gas fields in SouthTexas. See Note 14.

 

The Company has filed aregistration statement on Form SB-2 with the U.S. Securities andExchange Commission to register a portion of (i) the common stock and (ii) commonstock underlying the warrants, issued in the private offering, as well as thecommon stock underlying the warrant and Convertible Subordinated Note issued tothe Sellers in connection with the Company’s acquisition of the South TexasProperties. The registration statement was declared effective prior to December 31,2004.

 

As discussed in Note 14,in June 2004, the Company issued to the sellers of certain gas properties athree-year warrant to purchase 300,000 shares of the Company’s common stock atan exercise price of $2.50 per share. The fair market value of the warrant onthe date of grant was estimated to be $135,000 using the Black-Scholes optionpricing model with the following weighted average assumptions: risk freeinterest rate of 3.26%, dividend yield of 0%, volatility factors of theexpected market price of the Company’s common stock of .71, and a weightedaverage life expectancy of the options of 1.5 years.

 

F-24

----

 

A summary of the Company’sstock option activity and related information for the periods ended is asfollows:

 

| ** **                                                                              | ** ** | **Shares  Underlying  Options** | ** ** | **Weighted  Average Exercise  Price** | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------------|------------|
| Options Outstanding as of  December 31, 2002                                       |       | —                          |       | —                                |       |
| Options Acquired in Merger                                                              |       | 187,500                         |       | $                                     | 1.95       |   |
| Options Issued                                                                          |       | —                          |       | —                                |       |
| Options Exercised                                                                       |       | —                          |       | —                                |       |
| Options Expired                                                                         |       | —                          |       | —                                |       |
| Options Outstanding as of  December 31, 2003                                       |       | 187,500                         |       | $                                     | 1.95       |   |
| Options Issued                                                                          |       | 788,500                         |       | $                                     | 1.74       |   |
| Options Exercised                                                                       |       | —                          |       | —                                |       |
| Options Cancelled                                                                       |       | (15,000                         | )          | $                                     | 1.75       |   |
| Options Expired                                                                         |       | (49,500                         | )          | $                                     | 1.93       |   |
| Options Outstanding as of  December 31, 2004                                       |       | 911,500                         |       | $                                     | 1.79       |   |
|                                                                                    |       |                            |       |                                  |       |
| Exercise price range $1.50 –  1.85  (Average life of 4.1 years) (None exercisable) |       | 773,500                         |       | $                                     | 1.74       |   |
| Exercise price of $2.07 ($2.50  Canadian)  (Average life of 3 months) (All exercisable) |       | 78,000                          |       | $                                     | 2.07       |   |
| Exercise price of $2.00  (Average life of 9 months) (All exercisable)                   |       | 60,000                          |       | $                                     | 2.00       |   |
|                                                                                    |       |                            |       |                                  |       |
| Exercisable options                                                                     |       |                            |       |                                  |       |
| December 31, 2003                                                                  |       | 187,500                         |       | $                                     | 1.95       |   |
| December 31, 2004                                                                  |       | 138,000                         |       | $                                     | 2.04       |   |

 

The weighted average fairvalue of all options acquired by the Company as a result of the Merger was $1.04per share as of September 10, 2003.

 

F-25

----

 

The following tablesummarizes all common stock warrants:

 
| ** **                          | ** ** | **Number of  Stock  Warrants** | ** ** | **Exercise  Price  Range** | ** **       |
|-------------------------------------|------------|--------------------------------|------------|----------------------------|------------------|
| Outstanding, December 31, 2002 |       | —                         |       | —                     |             |
| Acquired in Merger                  |       | 245,000                        |       | $                          | 2.70 – 4.63 |   |
| Issued                              |       | 45,000                         |       | $                          | 2.00             |   |
| Expired                             |       | (125,000                       | )          | $                          | 4.63             |   |
| Outstanding, December 31, 2003 |       | 165,000                        |       | $                          | 2.00 – 2.70 |   |
| Issued                              |       | 1,709,813                      |       | $                          | 2.50             |   |
| Expired                             |       | (120,000                       | )          | $                          | 2.70             |   |
| Exercised                           |       | (45,000                        | )          | $                          | 2.00             |   |
| Outstanding, December 31, 2004 |       | 1,709,813                      |       | $                          | 2.50             |   |

 

The following tablesummarizes the price ranges of all common stock warrants outstanding as of December 31,2004, all of which were fully vested and exercisable:

 

| **Number of Warrants** | ** ** | **Exercise Price** | ** ** | **Expiration Date** | ** **             |
|------------------------|------------|--------------------|------------|---------------------|------------------------|
| 1,709,813              |       | $                  | 2.50       |                | 6/17/07 – 6/30/07 |   |
|                        |            |                    |            |                     |                        |  |

 

**NOTE 8 -RELATED PARTY TRANSACTIONS**

 

The Company’s ChiefOperating Officer, Mr. Daniel Silverman, received a 4.63% net profitsinterest (“NPI”) in the Company’s investment in the Beaver Dam Creek Field uponcompletion of the transaction in 2002. The NPI entitled Mr. Silverman to4.63% of the Company’s net operational cash flow from the field (i.e. revenuesless operating costs and capital investment) after deducting related principaland interest payments under the Company’s Credit Facility described in Note 6.The Company did not make any distributions to Mr. Silverman for the NPI in2003 and paid Mr. Silverman a total of $16,408 in net profits in 2002. In March 2004,the Company acquired the NPI from Mr. Silverman for $70,000.

 

**NOTE 9 -COMMODITY PRICE RISKS AND CONCENTRATIONS OF CREDIT RISK**

 

The Company’s activitiesinclude the selling of oil and gas.  Suchcommodities are subject to significant price volatility.  Consequently, the Company’s revenues willfluctuate based on the current prices of oil and gas.

 

Financial instrumentsthat potentially subject the Company to concentrations of credit risk consistprincipally of temporary cash investments, trade accounts receivable, andderivative instruments.

 

F-26

----

 

The Company places itsexcess cash investments with high quality financial institutions. The Company’sreceivables relate to customers in the oil and gas industry, and as such, theCompany is directly affected by the economy of the industry. The credit riskassociated with the receivables is minimized by the customer base andmonitoring of the customer credit worthiness. The Company has not experiencedany losses from its receivables or cash investments and does not believe it hasany significant concentration of credit risk. For the period ending December 31,2004, the Company generated approximately 36% of its oil and gas revenue fromcrude oil sales to Shell Trading (US) Company. The Company had no othercustomers responsible for a minimum of 10% of its oil and gas revenues for 2004or 2003.

 

**NOTE 10 –FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES**

 

The Companyheld various derivative instruments, including crude oil and natural gas optionagreements known as “swaps” and “collars” during the year ended December 31,2004 and 2003, respectively. Swaps are designed to fix the price of anticipatedsales of future production, while collars are designed to establish floor andceiling prices on anticipated sales of future production. The Company enteredinto the contracts at the time it acquired certain operated oil and gasproperty interests as a means to reduce the future price volatility on itssales of oil and gas production, as well as to achieve a more predictable cashflow from its oil and gas properties. The Company has designated its pricehedging instruments as cash flow hedges in accordance with SFAS No. 133.

 

Further details relatingto the Company’s hedging activities are as follows:

 

Hedging Contracts Held asof December 31, 2004:

 

| ** **                                  | ** ** | ** **        | ** ** | **Nymex Contract Price** | ** ** | ** **              | ** ** |
|---------------------------------------------|------------|-------------------|------------|--------------------------|------------|-------------------------|------------|
| **Contract Period and Type**                | ** ** | **Total  Volume** | ** ** | **Floor**                | ** ** | **Ceiling/Swap  Price** | ** ** | **Fair Value** | ** ** |
|                                        |       |              |       |                     |       |                    |       |   |   |
| **Crude Oil Contracts (barrels)**           |       |              |       |                     |       |                    |       |   |   |
| Swap Contracts:                             |       |              |       |                     |       |                    |       |   |   |
| January 2005 – December 2005 |       | 36,000            |       | N/A                      |       | $                       | 34.75      |   | $ | (278,197 | ) |
|                                        |       |              |       |                     |       |                    |       |   |   |
| Collar Contracts:                           |       |              |       |                     |       |                    |       |   |   |
| January 2005 – April 2005    |       | 15,000            |       | $                        | 19.75      |                    | $          | 22.75 |   | (308,966 | ) |
| January 2005 – December 2005 |       | 12,000            |       | $                        | 26.00      |                    | $          | 29.20 |   | (160,152 | ) |
| April 2005 – December 2005   |       | 9,000             |       | $                        | 26.00      |                    | $          | 28.95 |   | (119,227 | ) |
| January 2005 – December 2005 |       | 18,000            |       | $                        | 31.00      |                    | $          | 36.95 |   | (121,512 | ) |
| January 2006 – December 2006 |       | 96,000            |       | $                        | 30.00      |                    | $          | 34.25 |   | (681,650 | ) |
|                                        |       |              |       |                     |       |                    |       |   |   |
| **Natural Gas Contracts (mmbtu)**           |       |              |       |                     |       |                    |       |   |   |
| Swap Contracts                              |       |              |       |                     |       |                    |       |   |   |
| January 2005 – December 2005 |       | 120,000           |       | N/A                      |       | $                       | 6.02       |   | (27,465 | ) |
|                                        |       |              |       |                     |       |                    |       |   |   |
| Collar Contracts:                           |       |              |       |                     |       |                    |       |   |   |
| January 2005 – December 2005 |       | 120,000           |       | $                        | 4.00       |                    | $          | 7.20 |   | (38,576 | ) |
| January 2005 - March 2005         |       | 72,000            |       | $                        | 6.20       |                    | $          | 8.40 |   | 23,068 |   |
| April 2005 - September 2005       |       | 144,000           |       | $                        | 5.75       |                    | $          | 6.05 |   | (34,090 | ) |
| October 2005 - December 2005      |       | 72,000            |       | $                        | 5.75       |                    | $          | 6.75 |   | (22,668 | ) |
| January 2006 – December 2006 |       | 120,000           |       | $                        | 5.00       |                    | $          | 6.45 |   | (55,005 | ) |
|                                        |       |              |       |                     |       |                    |       |   |   |   |   |
|                                        |       |              |       |                     |       | Total                   |       | $ | (1,824,440 | ) |

 

F-27

----

 

Hedging Contracts Held asof December 31, 2003:

 

| ** **                                   | ** ** | ** **        | ** ** | **Nymex Contract Price** | ** ** | ** **              | ** ** |
|----------------------------------------------|------------|-------------------|------------|--------------------------|------------|-------------------------|------------|
| **Contract Period and Type**                 | ** ** | **Total  Volume** | ** ** | **Floor**                | ** ** | **Ceiling/Swap  Price** | ** ** | **Fair Value** | ** ** |
|                                         |       |              |       |                     |       |                    |       |   |   |
| **Crude Oil Contracts (barrels)**            |       |              |       |                     |       |                    |       |   |   |
| Swap Contracts:                              |       |              |       |                     |       |                    |       |   |   |
| January 2004 – December 2004  |       | 15,000            |       | N/A                      |       | $                       | 22.15      |   | $ | (119,712 | ) |
|                                         |       |              |       |                     |       |                    |       |   |   |
| Collar Contracts:                            |       |              |       |                     |       |                    |       |   |   |
| January 2004 – September 2004 |       | 9,000             |       | $                        | 24.50      |                    | $          | 29.55 |   | (20,542 | ) |
| January 2004 – December 2004  |       | 35,000            |       | $                        | 18.00      |                    | $          | 22.00 |   | (292,861 | ) |
| January 2004 – December 2004  |       | 24,000            |       | $                        | 24.00      |                    | $          | 29.25 |   | (53,239 | ) |
| January 2005 – April 2005     |       | 15,000            |       | $                        | 19.75      |                    | $          | 22.75 |   | (85,174 | ) |
|                                         |       |              |       |                     |       |                    |       |   |   |
| **Natural Gas Contracts (mmbtu)**            |       |              |       |                     |       |                    |       |   |   |
| Collar Contracts:                            |       |              |       |                     |       |                    |       |   |   |
| January 2004 – March 2004     |       | 39,900            |       | $                        | 4.00       |                    | $          | 8.75 |   | (2,506 | ) |
|                                         |       |              |       |                     |       |                    |       |   |   |
|                                         |       |              |       |                     |       | Total                   |       | $ | (574,034 | ) |

 

The Company accounts forits derivatives as cash flow hedging instruments, and recognizes gains orlosses on settlement of its hedging instruments in oil and gas revenues, andchanges in their fair value as a component of other comprehensive income, netof deferred taxes. The Company recognized pre-tax losses in oil and gasrevenues of $1,519,775 and $703,252 for the year ended December 31, 2004and 2003, respectively, due to realized settlements of its price hedgecontracts during the respective periods. The Company recorded unrealized losses on cash flow hedging contracts of$1,178,036, net of deferred taxes of $634,327, for the year ended December 31,2004. Comparatively, the Company recorded unrealized losses of $373,128,net of deferred taxes of $200,912, for the year ended December 31, 2003. Asof December 31, 2004, the Company anticipates $707,060 of unrealizedlosses, net of deferred taxes of $380,725, will be reclassified into earningsduring 2005. The Company recorded a loss of $12,077 for the ineffective portionof the cash flow hedges for the year ended December 31, 2004. As of December 31,2004, the Company changed its method of testing the effectiveness of our cashflow hedges from the dollar offset method to regression analysis.

 

The following tabledetails the activity of the cash flow hedges on an after-tax basis for the periodending December 31, 2004.

 

| ** **                                                    | ** ** | **Pre tax**        | ** ** | **After-tax**      | ** ** |
|---------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                    | ** ** | **(in thousands)** | ** ** | **(in thousands)** | ** ** |
| Accumulated other comprehensive loss, December 31,  2003 |       | $                  | (574       | )                  | $          | (373 | ) |
| Reclassified into earnings                                    |       | 1,520              |       | 988                |       |
| Change in fair market value                                   |       | (2,782             | )          | (1,801             | )          |
| Ineffective portion of cash flow hedges                       |       | 12                 |       | 8                  |       |
| Accumulated other comprehensive loss, December 31,  2004 |       | $                  | (1,824     | )                  | $          | (1,178 | ) |

 

F-28

----

 

**NOTE 11 –RETIREMENT PLANS**

 

Prior to the Merger, Mr. Rhodes,the Company’s President and Chief Executive Officer, participated in variousretirement and savings plans of the M. H. Whittier Corporation, an affiliate ofthe Company. The Company paid the applicable costs into the various plansrelating to Mr. Rhodes and recorded such costs in the Company’s resultsfrom operations. As less than 2% of the participants in the M.H. WhittierCorporation’s plans were employed by the Company, no additional information onthe various plans is presented herein. The costs to the Company are notconsidered material to the Company’s overall financial results.

 

**NOTE12 – COMMITMENTS AND CONTINGENCIES**

 

The Company entered intoa rental lease for approximately 2,910 square feet of corporate office space inHouston, Texas on April 1, 2004, for a renewable term of 90 months. Therenewal option of the lease allows the Company to extend the term of the leasefor one term of five years with written notice nine months prior to the expirationdate of the lease. The Company has a one-time option to cancel the lease afterthe 51st month of the inception of the lease. The lease requirespayments of approximately $5,000 per month. The Company’s future minimum annuallease payments for the next five years are as follows:

 

| **Year**   | ** ** | **Amount** | ** ** |
|------------|------------|------------|------------|
| 2005       |       | $          | 60,000     |   |
| 2006       |       | 60,000     |       |
| 2007       |       | 60,000     |       |
| 2008       |       | 60,000     |       |
| 2009       |       | 60,000     |       |
| Thereafter |       | 105,000    |       |
|       |       |       |       |
| Total      |       | $          | 405,000    |   |

 

In February 2005,the Company executed a preferential right to lease an additional 2,132 squarefeet adjacent to its existing office lease for approximately $3,700 per monthbeginning in June 2005, subject to the same general terms and conditionsas the Company’s existing lease.  

 

F-29

----

 

**NOTE 13 –MERGER OF WEC ACQUISITION, INC. AND WHITTIER ENERGY COMPANY**

 

Asdiscussed in Note 1, on September 10, 2003, the Company’s wholly ownedsubsidiary, WEC, a Wyoming corporation, merged with and into Whittier Energy,effecting a change in control of the Company. As a result of the “reverse”merger, Whittier Energy became the wholly owned subsidiary of the Company. Inexchange for their 100,000 shares of outstanding Whittier Energy common stock,the former Whittier Energy shareholders received 7,939,358 shares of the Company’svoting common stock and 100,000 shares of the Company’s Series A PreferredStock, which was automatically convertible into 600,000 shares of the Company’scommon stock upon the availability of enough additional authorized but unissuedshares necessary to effect the conversion. Whittier Energy’s formershareholders owned approximately 85%, assuming conversion of the Series APreferred Stock, upon completion of the Merger. The Series A PreferredStock automatically converted into the Company’s common stock upon completionof the Company’s one-for-ten reverse split on December 31, 2003 (See Note7).

 

As of the date of theMerger, Whittier Energy and Olympic were both engaged in the exploration andproduction of oil and gas properties in the United States. The Merger wasconsummated because both entities believe the combined company will be betterpositioned to access capital markets and to acquire and develop oil and gasproperties in the future, both of which are necessary for the long-term growthof the Company and enhancement of shareholder value.

 

Although the Company isconsidered the legal acquirer in the transaction, Whittier Energy acquired theCompany for accounting purposes and the Company has conformed to WhittierEnergy’s accounting methods, including use of a calendar year-end and thesuccessful efforts method of accounting for its oil and gas properties. Thepurchase price of the transaction was determined using the net asset valuemethod. The aggregate purchase price, as adjusted, was $1,272,499, includingcash of $765,367.

 

The following tablesummarizes the estimated fair values of the assets acquired and liabilitiesassumed at the date of acquisition, as adjusted:

 
| ** **                        | ** ** | **As of Sept. 10, 2003** | ** ** |
|-----------------------------------|------------|--------------------------|------------|
|                              |       |                     |       |
| Current Assets:                   |       |                     |       |
| Cash                              |       | $                        | 765,367    |   |
| Accounts Receivable               |       | 237,341                  |       |
| Marketable Securities             |       | 71,720                   |       |
| Oil and Gas Properties at 9/1/03, |       |                     |       |
| Net of deferred taxes             |       | 865,526                  |       |
|                              |       |                     |       |
| Total Assets Acquired             |       | 1,939,954                |       |
|                              |       |                     |       |
| Current Liabilities:              |       |                     |       |
| Accounts Payable                  |       | (667,455                 | )          |
|                              |       |                     |       |
| Net Assets Acquired               |       | $                        | 1,272,499  |   |

 

F-30

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**NOTE 14 –ACQUISITION OF SOUTH TEXAS GAS PROPERTIES**

 

In June 2004, theCompany acquired various operated working interests in three gas fields inSouth Texas for approximately $7.5 million (the “Properties”) from variousthird party owners (the “Sellers”). The Properties were used by the Sellers forthe exploration, development and production of oil and gas, which is theintended continued use for the acquired assets by the Company.

 

The Company acquired anaverage 78% working interest in the Properties’ seven existing wells and anaverage 61% working interest in any future undeveloped locations. Specifically,the Properties consist of working interests in the Tom Lyne Field in Live OakCounty, Texas, the Scott & Hopper Field in Brooks County, Texas, andthe North Rincon Field in Starr County, Texas.

 

The consideration paidfor the Properties consisted of i) the payment of approximately $5.7 million incash; ii) the issuance of a six year, approximate $1.8 million subordinatednote bearing an interest rate of 7% and convertible into the Company’s commonstock at a conversion price of $2.00 per share; iii) a commitment to drill fourwells over a 24-month period and pay certain drilling costs on behalf ofthe Sellers’ retained working interests in those wells (the “DrillingCommitment”); iv) certain future price sharing arrangements through June 30,2008 in the event actual prices per Mcf received by the Company exceed agreedupon pricing levels (the “Upside Price Sharing Agreement”); and v) the issuanceof a three year warrant to purchase 300,000 shares of the Company’s commonstock at an exercise price of $2.50 per share.

 

The $5.7 million cashportion of the purchase price was funded through $3.05 million in additionalborrowings under the Company’s existing credit agreement (see Note 6), cashproceeds from the sale by the Company of equity in a private offering (see Note7), and available working capital, reduced by a $600,000 purchase priceadjustment for the Company’s net revenues from the Properties from the March 1,2004 effective date of the transaction. The approximate $1.8 millionConvertible Subordinated Note is more fully described in Note 6.

 

Under the terms of theDrilling Commitment, the Company must drill a total of four wells, includingtwo wells in the Scott & Hopper Field and two wells in the NorthRincon Field, or reassign a portion of the undeveloped acreage in the Scott &Hopper and North Rincon fields to the Sellers. The Company must begin drilling the first two wells on or before March 2005and June 2005, respectively, in order for the Company to retain itsundeveloped acreage rights in each field. The Company must begin drilling the next two wells on or before December 2005and June 2006, respectively, or the Company will reassign 50% of itsundeveloped acreage rights in each field. The Company has also agreed to carrythe Sellers’ drilling costs for the four wells up to “casing election point”(i.e. the decision point on whether to complete the well or abandon it as a dryhole). The estimated capital costs to drill these wells, net to the Company’sinterest and including the Sellers’ carried interests, is approximately $3.1million, which we expect to fund using future cash flows from operations. Inthe event the Company does not drill the required wells, the Company’sinterests in existing wells on the Properties would be unaffected, as well asthe Company’s undeveloped acreage in the Tom Lyne Field, which is not subjectto the Drilling Commitment. The Company drilled the initial Scott &Hopper well under the terms of the Drilling Commitment, and is currentlypreparing a well location for the initial commitment well in the North RinconField.

 

The Company has also enteredinto a four-year gas price sharing agreement from July 1, 2004 through June 30,2008. Under the terms of the Upside Price Sharing Agreement, the Sellers willreceive 50% of the excess, if any, of the Company’s net revenues for prices perMcf received on production from the Properties in excess of an agreed targetprice during the sharing period. The Company has hedged a significant portionof the gas production from the Properties in a manner consistent with theCompany’s hedging arrangements on production from its existing properties. Thenet revenues per Mcf received would be calculated as net revenues afterconsidering hedge settlements, transportation and marketing costs, divided bynet volumes produced. Any resulting payments due to the Sellers under theUpside Price Sharing Agreement at the end of each 12 month period would benetted for any applicable production taxes, as well. The target prices are$6.25, $6.50, $6.75, and $7.00 for the fiscal years ended June 30, 2005,2006, 2007, and 2008, respectively. The Company did not incur a liability underthe terms of the Upside Price Sharing Agreement as of December 31, 2004.

 

F-31

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**SUPPLEMENTAL INFORMATION –DISCLOSURES ABOUT OIL AND GAS**

**PRODUCING ACTIVITIES - UNAUDITED**

 

The followingsupplemental information regarding the oil and gas activities of the Company ispresented pursuant to the disclosure requirements promulgated by the SEC andSFAS No. 69, “Disclosures About Oil and Gas Producing Activities.”

 

The following estimatesof reserve quantities and related standardized measure of discounted net cashflows are estimates only, and are not intended to reflect realizable values orfair market values of the Company’s reserves. The Company emphasizes thatreserve estimates are inherently imprecise and that estimates of newdiscoveries are more imprecise than producing oil and gas properties.Additionally, the price of oil has been very volatile and downward changes inprices can significantly affect quantities that are economically recoverable.Accordingly, these estimates are expected to change as future informationbecomes available and these changes may be significant.

 

Proved reserves areestimated reserves of crude oil and natural gas that geological and engineeringdata demonstrate with reasonable certainty to be recoverable in future yearsfrom known reservoirs under existing economic and operating conditions. Proveddeveloped reserves are those expected to be recovered through existing wells,equipment and operating methods.

 

The standardized measureof discounted future net cash flows is computed by applying year-end prices ofoil and gas (with consideration of price changes only to the extent provided bycontractual arrangements) to the estimated future production of proved oil andgas reserves, less estimated future expenditures (based on year-end costs) tobe incurred in developing and producing the proved reserves, less estimatedfuture income tax expenses. The estimated future net cash flows are thendiscounted using a rate of 10% a year to reflect the estimated timing of thefuture cash flows.

 

F-32

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**ProvedOil and Gas Reserve Quantities**

**(Allwithin the United States)**

 

| ** **                                  | ** ** | **Oil  Reserves** | ** ** | **Gas  Reserves** | ** ** |
|---------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                  | ** ** | **(Bbls.)**       | ** ** | **(Mcf.)**        | ** ** |
| Proved developed and undeveloped reserves:  |       |              |       |              |       |
|                                        |       |              |       |              |       |
| Balance December 31, 2002              |       | 1,568,404         |       | 1,406,188         |       |
| Revision of previous estimates              |       | (53,194           | )          | 433,502           |       |
| Purchases of minerals in place              |       | 92,280            |       | 1,353,940         |       |
| Extensions, discoveries and other additions |       | 21,790            |       | 241,680           |       |
| Production                                  |       | (166,510          | )          | (446,760          | )          |
|                                        |       |              |       |              |       |
| Balance December 31, 2003              |       | 1,462,770         |       | 2,988,550         |       |
| Revision of previous estimates              |       | 109,677           |       | (166,446          | )          |
| Purchases of minerals in place              |       | 383,099           |       | 3,288,713         |       |
| Extensions, discoveries and other additions |       | 711               |       | 271,242           |       |
| Sales of minerals in place                  |       | (42,969           | )          | (28,198           | )          |
| Production                                  |       | (178,303          | )          | (794,831          | )          |
|                                        |       |              |       |              |       |
| Balance December 31, 2004              |       | 1,734,985         |       | 5,559,030         |       |
|                                        |       |              |       |              |       |
| Proved Developed Reserves:                  |       |              |       |              |       |
|                                        |       |              |       |              |       |
| Balance December 31, 2002              |       | 1,559,029         |       | 1,397,800         |       |
| Balance December 31, 2003              |       | 1,462,770         |       | 2,676,060         |       |
| Balance December 31, 2004              |       | 1,603,964         |       | 4,094,890         |       |

 

F-33

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**SUPPLEMENTAL INFORMATION – DISCLOSURES ABOUT OILAND GAS**

**PRODUCING ACTIVITIES-UNAUDITED**

***(All Amounts in Thousands)***

 

**CapitalizedCosts Relating to Oil and Gas Producing Activities****(All within the United States)**

 

| ** **                             | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------|------------|----------------------------------|------------|
| ** **                             | ** ** | **2004**                         | ** ** | **2003** | ** ** |
| ** **                             | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Proved oil and gas properties          |       | $                                | 23,400     |   | $ | 13,515 |   |
| Unproved oil and gas properties        |       | 1,951                            |       | 695 |   |
| ** **                             | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Accumulated depreciation and depletion |       | (6,192                           | )          | (3,863 | ) |
|                                   |       |                             |       |   |   |
| Net capitalized cost                   |       | $                                | 19,159     |   | $ | 10,347 |   |

 

**CostIncurred in Oil and Gas Property Acquisition, Exploration, and DevelopmentActivities**

**(Allwithin the United States)**

 

| ** **                      | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **2004**                         | ** ** | **2003** | ** ** |
| ** **                      | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Acquisition costs               |       | $                                | 9,828      |   | $ | 2,638 |   |
| Exploration and appraisal costs |       | 693                              |       | 348 |   |
| Development costs               |       | 1,560                            |       | 1,348 |   |
|                            |       | $                                | 12,081     |   | $ | 4,334 |   |

 

**Results of operations for producing activities(All within the United States)**

 

| ** **                                    | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **2004**                         | ** ** | **2003** | ** ** |
| ** **                                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Oil and gas revenues                          |       | $                                | 10,132     |   | $ | 6,154 |   |
| Lease operating expenses                      |       | (2,962                           | )          | (2,117 | ) |
| Production taxes                              |       | (1,230                           | )          | (642 | ) |
| Depreciation, depletion, and amortization     |       | (2,470                           | )          | (1,368 | ) |
| Exploration expense                           |       | (891                             | )          | (156 | ) |
| Accretion of Future Abandonment Obligation    |       | (12                              | )          | (9 | ) |
|                                          |       |                             |       |   |   |
| Net results of operations before income taxes |       | 2,567                            |       | 1,862 |   |
| Provision for income taxes                    |       | (898                             | )          | (652 | ) |
| Results of operations                         |       | $                                | 1,669      |   | $ | 1,210 |   |

 

F-34

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**StandardizedMeasure of Discounted Future Net Cash Flows and Changes Therein Relating toProven Oil and Gas Reserves (All within the United States)**

 

| ** **                                              | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **2004**                         | ** ** | **2003** | ** ** |
| ** **                                              | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Future cash inflows                                     |       | $                                | 107,105    |   | $ | 64,380 |   |
| Future development costs                                |       | (3,573                           | )          | (254 | ) |
| Future production costs                                 |       | (51,479                          | )          | (30,284 | ) |
| Future income tax expenses                              |       | (13,435                          | )          | (9,743 | ) |
| Future net cash flows                                   |       | 38,618                           |       | 24,099 |   |
| 10% annual discount for estimated timing of cash  flows |       | (13,767                          | )          | (8,966 | ) |
| Standardized measure of discounted net cash flows       |       | $                                | 24,851     |   | $ | 15,133 |   |

 

**Principalsources of change in the standardized measure of discounted future net cashflows**

 

| ** **                                                          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                          | ** ** | **2004**                         | ** ** | **2003** | ** ** |
| ** **                                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Beginning balance                                                   |       | $                                | 15,133     |   | $ | 12,362 |   |
| Oil and gas sales                                                   |       | (5,940                           | )          | (3,395 | ) |
| Purchases of minerals in place                                      |       | 12,541                           |       | 5,758 |   |
| Sales of minerals in place                                          |       | (581                             | )          | — |   |
| Extensions and discoveries                                          |       | 1,000                            |       | 1,407 |   |
| Net changes in prices, production cost and future  development cost |       | 5,187                            |       | 215 |   |
| Net changes due to revisions of previous quantity  estimates        |       | —                           |       | (19 | ) |
| Development cost incurred                                           |       | (1,560                           | )          | (1,348 | ) |
| Accretion of discount                                               |       | 2,125                            |       | 1,728 |   |
| Net change in income taxes                                          |       | (2,549                           | )          | (1,277 | ) |
| Other                                                               |       | (505                             | )          | (298 | ) |
| Ending balance                                                      |       | $                                | 24,851     |   | $ | 15,133 |   |

 

F-35

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