Statements of Cash Flows (USD $)

12 Months Ended

Dec. 31, 2011

Dec. 31, 2010

Cash flows from operating activities:

Net loss

$ (247,432)

$ (2,627,902)

Adj to reconcile net loss to net cash used in operating activities:

Value of services contributed by employee

50,000

50,000

Stock incentive plan expense

11,295

Well abandonment expense

0

2,221,293

Change in operating assets and liabilities:

Accounts receivable

(19,722)

0

Prepaid expenses

6,236

(7,336)

Accounts payable and accrued liabilities

(64,088)

138,482

Net cash used in operating activities

(263,711)

(197,383)

Cash flow from investing activities:

Sale of working interest

0

700,000

Acquisition of lease acres

0

(35,000)

Well equipment and drilling costs

0

(2,255,493)

Net cash provided by (used in) investing activities

0

(1,590,493)

Cash flows from financing activities:

Proceeds from private equity placement

100,000

685,000

Proceeds from related party, note payable

100,000

0

Net cas provided by Financing Activities

200,000

685,000

Net increase (decrease) in cash

(63,711)

(1,102,876)

Cash - Beginning of period

68,689

1,171,565

Cash - End of period

$ 4,978

$ 68,689

Supplemental Disclosure for Non Cash Items:

Common Stock issued for accounts payable

4. Capital Stock:

In 2005, the Company raised $500,000 of net proceeds by selling 5,000,000 shares of newly issued common stock along with warrants to purchase 1,250,000 shares of common stock which, subject to certain restrictions, could have been exercised for a period of one year at an exercise price of $0.25. Proceeds of the original placement were allocated $67,875 to common stock warrants and

$432,125 to common stock and paid in capital. In 2006, the warrants were extended twice; the extensions reduced the value of the warrants to $18,250. The value assigned to the warrants was determined using the Black-Scholes option valuation method with the following assumptions: no dividend yield, expected volatility of 154%, risk free interest rate of 3.28% and expected life of one year. Assumptions used for the extensions were: no dividend yield, expected volatility of 153%, risk free interest rate of 4.86% and

expected life of 6 months. The warrants expired on November 15, 2010 with none being exercised.

In 2006, the Company raised $1,450,000 of net proceeds by selling 7,250,000 shares of newly issued stock along with warrants to purchase 1,812,500 shares of common stock, which, subject to certain restrictions, could have been exercised on or before March 15, 2009 subsequently extended to November 15, 2010 at an exercise price of $0.50. Proceeds of the placement were allocated $144,675 to common stock warrants and $1,305,325 to common stock and paid in capital. The value assigned to the warrants was determined using the Black-Scholes option valuation method with the following assumptions: no dividend yield, expected volatility of 148% risk-free interest rate of 5.09% and an expected life of one year. The warrants expired November 15, 2010 with none being exercised.

In 2007, the Company raised $1,000,000 of net proceeds by selling 5,000,000 shares of newly issued stock, along with warrants to purchase 1,250,000 shares of common stock, which subject to certain restrictions, could have been exercised until March 15, 2009 (subsequently extended to November 15, 2010 at an exercise price of $0.50 per share. Proceeds of the placement

were allocated $80,000 to common stock warrants and $920,000 to common stock and paid in capital. The value assigned to the warrants was determined by using the Black-Scholes option valuation methods with the following assumptions: no dividend yield, expected volatility of 136%, risk free interest rate of 4.94%, and an expected useful life of one year. The warrants expired November 15, 2010 with none being exercised.

In 2009, the Company raised $1,215,216 of net proceeds by selling 17,360,233 shares of newly issued common stock. Proceeds were utilized for the Company's share of costs to drill a new well on the Gabbs Valley Prospect (See Note 1).

In 2010, the Company raised $685,000 of net proceeds by selling 8,515,874 shares of newly issued stock, along with warrants to purchase 2,222,226 shares of Common Stock which, subject to certain restrictions, could have been exercised until June 16, 2011 at an exercise price of $0.50 per share. Proceeds of the placements were allocated $101,250 to Common Stock Warrants and $583,750 to Common Stock and paid in capital. The value assigned to the warrants was determined by using the Black-Scholes option valuation methods with the following assumptions: no dividend yield, expected volatility of 155%, risk free interest rate of .3% and an expected useful life of one year. The warrants expired in 2011 with none being exercised.

In August 2011, the Company issued 2,000,000 shares of its common stock to Albert E. Whitehead, its Chief Executive Officer, for a purchase price of $0.05 per share, which resulted in a total investment of $100,000.

5. Stock options:

Under a stock option plan adopted in 1995, the Company had the discretion to grant options for up to 1,600,000 shares of common stock until May 15, 2005, at which time the plan terminated except to the extent necessary to govern outstanding options. Stock options granted under the plan vest on grant date and expire ten years from the date of grant plus 30 days. The exercise price of the options is the fair market value on the date of grant.

At the Company's 2006 Annual Meeting of Stockholders, the stockholders approved the 2006 Stock Incentive Plan (the "Plan"). The Plan permits the issuance of stock options, restricted stock awards, and performance shares to employees, officers, directors, and consultants of the Company. Initially, and until such time as the Board creates a Compensation Committee, the Board of Directors will administer the Plan. The total number of shares of common stock that may be issued pursuant to awards under the Plan is 5,000,000. Under the Plan, no participant may receive awards of stock options that cover in the aggregate more than 500,000 shares of common stock in any fiscal year. Unless terminated by the Board, or upon the granting of awards covering all of the shares subject to the Plan, the Plan shall terminate on June 5, 2016.

The Company expenses the cost of options granted over the vesting period of the option based on the grant-date fair value of the award. No options were granted in 2009. For the year ended December 31, 2011 and 2010, the Company recognized an expense of $11,295 and $28,080, respectively, related to options granted under the Plan.

Fair values were estimated at the date of grants of the options, using the Black-Scholes option valuation model with the following weighted average assumptions: risk-free interest rate of 3.65% and 2.77%, volatility factor of the expected market price of the Company's common stock of 172% and 142%, no dividend yield on the Company's common stock, and a weighted average expected

life of the options of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. For purposes of determining the expected life of the options, the Company utilizes the Simplified Method as defined in Staff Accounting Bulletin No. 107 issued by the Securities and Exchange Commission.

In addition options valuation models require the input of highly subjective assumptions including stock price volatility.

As of December 31, 2011, there was no unrecognized compensation expense related to nonvested share-based compensation arrangements under the Plan.

A summary of the Company's Incentive Plan as of December 31, 2011 and changes during the year is presented below:

		Weighted Average
	Options	Exercise Price
Outstanding at Beginning of Year 2010	1,070,000	$0.162
Granted	120,000	$0.25
Cancelled or Exercised	95,000	$0.44
Outstanding at End of Year 2010	1,095,000	$0.148
Granted	150,000	$0.10
Cancelled or Exercised	0	$0.00
Outstanding at End of Year 2011	1,245,000	$0.142

The following table summarizes information about stock options outstanding at December 2011:

	Options Outstanding		Options Exercisable
		Weighted
		Average	Weighted		Weighted
Range of	Number	Remaining	Average	Number	Average
Exercise	Outstanding	Contractual	Exercise	Exercisable	Exercise
Prices	at 12/31/11	Life	Price	at 12/31/11	Price
$0.10 - $0.26	1,245,000	5.86 Years	$0.142	1,245,000	$0.142

6. Income taxes:

The provision for income taxes differs from the amount obtained by applying the Federal income tax rate of 34% to income before income taxes. The difference relates to the following items:

	2011	2010
Statutory tax rate	34%	34%
Expected tax benefit	$                           (85,000)	$                        (890,000)
Benefit of losses not recognized	85,000	890,000
Tax provision (benefit) as reported	$                                      -	$                                       -
The components of deferred income taxes at December 31, 2011 are as follows:
	2011	2010
Deferred tax assets:
Loss carry-forwards	$                         2,300,000	$                        2,650,000
Valuation allowance	(2,015,000)	(2,125,000)
	285,000	$                           525,000
Deferred tax liabilities:
Property and equipment	285,000	525,000
Net deferred taxes	$                                      -	$                                       -

At December 31, 2011, the Company had net operating loss carryforwards of approximately $7,850,000 which expire beginning in 2012.

Utilization of the Company's loss carryforwards is dependent on realizing taxable income. Deferred tax assets for these carryforwards have been reduced by a valuation allowance up to an amount equal to estimated deferred tax liability.

The Company is no longer subject to income tax examinations by tax authorities for years before 2007. The Company is not currently the subject of any income tax examinations by any tax authorities.

Based upon a review of its income tax filing positions, the Company believes that its positions would be sustained upon an audit and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded. The Company recognizes interest related to income taxes as interest expense and penalties as operating expenses.

7. Oil Sale Revenue:

The Company currently records revenue from petroleum sales when received from the operator of the well. Oil Sale Revenue is reported net of working interest and overriding royalty amounts due. Prior to 2006, the Company was responsible for distributing allocable portions of oil sale revenue to working interest and royalty owners for production in the Cheyenne River Prospect. Accordingly, a liability for estimated royalty payments was recorded when oil sale proceeds were received since a division order had not been completed, certain amounts were credited to royalties payable until the division order issue was resolved.

8. Operating lease:

The Company leases office space under an operating lease agreement with an unrelated party which expires in June 2012. Monthly lease payments are $1,100.

Rent expense for each of the years ended December 31, 2011 and 2010 was $13,200 and $12,649, respectively.

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