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CORRESP
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March 30, 2007

Mr. Karl Hiller

Branch Chief

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

  RE:

  Form 10-KSB of June 30, 2006

  Filed September 27, 2006

  File # 1-32942

Dear Mr. Hiller:

We are providing
you the following responses to your inquiries of March 13, 2007, labeled by
your item numbers:

General

1.               We have
consistently used File number 000-27862 in all of our filings with the
SEC.  Until your recent inquiry, we do
not recall having been advised that our File number had been changed.  In all future filings, we will use the File
number 001-32942 you provided to us in your letter of March 13, 2007, until
advised otherwise.  Thank you for
advising us of the change.

2.               We apologize for
the lack of page numbers and the transposition spelling error on the cover page
of our 10-KSB.  We will ensure that page
numbers and spelling corrections are included in future filings.  Due to this and other errors we encountered
with that particular printer, we changed to another established (and more
expensive) printer between the filing of our K and its printed
distribution.  This has resulted in
better service, including page number and spelling corrections being applied to
the printed version of the subject 10-KSB.

MD&A

Critical Accounting
Policies and Estimates

3.               We agree with you
that these disclosures could be improved, in that the ARO and the Fair Value of
Debt and Equity Transaction policies should have been entirely omitted in the
subject filing and that our policy of Accounting for Oil and Gas Properties
could be improved.  We address each of
these as follows:

With respect to ARO estimates in accordance SFAS 143, we believe it
would have been more appropriate to delete this reference in the subject
filing, since the $123,679 estimate and/or its variability was not material or
critical to our $49 million of total footings (0.25%) at June 30, 2006.

With respect to estimates for the Fair Value of Debt and Equity
Transactions, we believe it also would have been more appropriate to delete
this reference in the subject filing, since these estimates (i) are not subject
to wide valuation differences, (ii) are static and therefore not subject to
change over time, and since (iii) no such transactions existed on our balance
sheet at June 30, 2006.

With respect to “Accounting for Oil and Gas Property Costs” and “Estimates
of Proved Oil and Gas Reserves”, we believe these polices should remain in the
MD&A disclosure, regardless of their relative materiality to our balance
sheet at any point in time, since (i) our business is solely that of an oil and
gas developer and producer, subject to specialized accounting treatment in
accordance with Regulation SX 4-10, (ii) this accounting treatment requires estimates
of proved oil and natural gas reserves that are subject to judgments of our
outside independent petroleum engineers which, at the time they are made, are
based on a variety of assumptions that may or may not prove to be correct over
time, and (iii) these estimates are not static and are subject to change as
more information on the reservoir(s) becomes available and/or product price
variability affects the amount of economically recoverable reserves.

We note, however, that at June 30, 2006, the carrying value of our oil
and gas properties totaled ~$3.6 million, or ~7%, of our $49 million in balance
sheet assets and ~11% of our ~$31 million in permanent equity, which is a
relatively small amount for an oil and gas company.  In addition, we had a significant cushion in
our full cost pool of ~$3 million, or 83% of our ~$3.6 million full cost
balance at June 30, 2006, making our susceptibility to a ceiling test write
down and non-cash charge to future earnings due to revisions of oil and gas
reserves or changes in prices remote at that time.

Nevertheless, we will endeavor to provide a more robust analysis of our
oil and gas accounting estimates, even though the literature you cited at FRC
501.14 is not officially effective.  We
would envision a presentation, using our June 30, 2006 financial statements as
an example along the following lines, by adding the double scored additions
below:

Accounting for Oil and Gas Property Costs.  As more fully discussed in Note 3 to the
consolidated financial statements, the Company (i) follows the full cost method
of accounting for the costs of its oil and gas properties in accordance with SEC Rule 4-10 of Regulation SX, (ii) amortizes
such costs using the units of production method, and (iii) applies a quarterly
full cost ceiling test. Adverse changes in operating
conditions (primarily oil or gas price declines) could result in permanent
write-downs in the carrying value of oil and gas properties as well as non-cash
charges to operations, but would not affect cash flows.  At June 30,
2006, the standardized measure used to calculate our ceiling test was
approximately $6.5 million, thereby exceeding our full cost pool by
approximately $2.9 million, or

83%.  At that date, a 10% decrease in product price
assumptions would reduce our ceiling test cushion by approximately $1.2
million.

Proved Oil and Gas Reserves are also
subject to estimates.  An independent
petroleum engineer annually estimates 100% of our proved reserves. Reserve
engineering is a subjective process that is dependent upon the quality of
available data and the interpretation thereof. In addition, subsequent physical
and economic factors such as the results of drilling, testing, production and
product prices may justify revision of such estimates. Therefore, actual
quantities, production timing, and the value of reserves may differ
substantially from estimates. A reduction in proved reserves would result in an
increase in depreciation, depletion and amortization (“DD&A”) expense and could result in permanent write-downs in the
carrying value of our oil and gas properties resulting in non-cash charges to
operations, but would not affect our cash flows.  Since July 1, 2004, we have experienced
cumulative upward reserve estimate revisions totaling 32,069 BOE, or 10% on beginning
reserves of 324,295 BOE, or 4% on ending reserves of 464,800 BOE.

Due to the currently
immaterial nature of these changes, the relative insensitivity of oil and gas
price changes relative to only 7% of our assets, and the fact that all the
other proposed oil and gas disclosures were included in our Supplemental Oil
and Gas footnote in tabular form, we propose that an amendment to our June 30,
2006 in this regard is not warranted, but that prospective disclosures would be
appropriate in all future filings.

Financial Statements

Balance Sheets

4.               With respect to the
351,335 common shares we sold during 2006, we agree that a discussion is absent
in the “Registration Rights” section of Footnote 8 to our financial
statements.  At the time of our filing we
assumed that our explanation was adequate and apparent without further
footnote, in that we described the mezzanine item on our Balance Sheet as “Common
stock, totaling 351,333 shares subject to demand registration rights” and we
separately itemized a “Reduction of capital related to common stock subject to
demand registration rights” in the Statement of Changes in Stockholder’s Equity
table.  We agree that additional
discussion would add clarity.  In future
filings, we propose including language similar to the following:

“The stock subscription agreement is subject to a registration rights
agreement requiring us to use our reasonable efforts to register the stock
subsequent to the demand of 40% of the holders of such stock.  Such demand cannot become effective, however,
until the price of our common stock exceeds at least $14.23 per share,
(approximately 6.3 times the subscription price).  There are no specified damages for our
failure to

register, nor a specified timetable for obtaining such registration,
except that the registration shall be undertaken by us as soon as practicable
and shall stay effective for 120 days, or if such registration statement is on
Form S-3 and provides for sales of securities from time to time pursuant to
Rule 415 under the Securities Act, for up to one year.  The demand registration rights will terminate
when a holder is able to sell all its shares during any three month period
under Rule 144, which we believe should occur sometime between the first and
second anniversary dates from the June 10, 2006 closing of the offering.

Regarding the accounting treatment of registration rights agreements,
please know that we have had considerable difficulty following the SEC and FASB’s
past guidance, as the discussion below illustrates.

During the Division’s extensive review from mid 2005 through mid 2006
of our currently effective registration statement, the Division notified us in
writing on November 18, 2005 that our permanent equity classification regarding
our $3 million private equity placement of May 2005 was incorrect.   Accordingly, the Staff requested a
restatement of our June 30, 2005 10-KSB to reclassify all of the subject equity
offering as “temporary”, due to the existence of a registration rights
agreement that required cash penalties of up to 8% for our failure to maintain
an effective registration statement within a specific time period.  Our original classification was ultimately
cleared by the SEC, since the 8% penalty fell within EITF 00-19’s fair value “discount
window” provided in Paragraph 16 therein.

With respect to your current inquiry regarding the $790,500 of “temporary
equity” we recorded on our May 2006 private equity offering, you have asked us
to cite the literature we relied upon from EITF 00-19.

With respect to Paragraph 9 of the subject EITF, our registration
rights agreement (RRA) does not provide for a physical, net-cash or net-share
settlement.  As a result, we believe that
a “permanent equity” classification would be appropriate under EITF 00-19,
since the RRA contains no other condition to contradict that conclusion when
using the guidance in Paragraphs 12-32.

On the other hand, despite the absence of a contractual obligation for
us to do so, we understand that the Staff, through its dealings with other registrants,
believes the potential exists, no matter how remote, that the Company could be
forced to redeem the subject shares for its failure to register them.  Therefore a “deemed redemption” would
activate the physical settlement provision under Paragraph 12 of EITF 00-19,
thereby requiring public registrants to adopt “temporary equity” per the
guidance in ASR 268 and D-98.  This is
the guidance we adopted.

Statements of Changes in
Stockholders’ Equity

5.               The par value of
our common stock is $.001, as stated on the balance sheet and the cover page of
our Form 10-KSB.  We confirm that the
exercise price of $1,278 is the par value of the warrants exercised to purchase
1,278,064 shares.

Note 3 — Summary of Significant
Accounting Policies

6.               We will revise our
description of the full cost accounting method in future filings by making the
underlined addition to the sentence below:

“Under the rules of the Securities and Exchange Commission (“SEC”) for
the full cost method of accounting, the net carrying value of oil and natural
gas properties is limited to the sum of the present value (10% discount rate)
of the estimated future net cash flows from proved reserves (net of estimated future expenditures to be
incurred in developing and producing the proved reserves)  based on current
prices as of the balance sheet date, and excluding future cash outflows
associated with settling asset retirement obligations, plus the lower of cost
or estimated fair market value of unproved properties adjusted for related
income tax effects.”

7.               We will revise our
Revenue Recognition policy in future filings to read in its entirety:

“We recognize oil and natural gas revenues from our interests in
producing wells when title passes to the purchaser under the sales method of
accounting.”

For the Staff’s reference, we have historically had no natural gas
imbalances, which we believe excludes us from disclosing the sales or
entitlement method under EITF 90-22.
Based on this fact, we use neither method.

8.               We apologize for
the date error on the 906 Certifications.
We will re-file them currently with the correct date.

We acknowledge that it is
the policy of the Commission that:

·                  the
Company is responsible for the adequacy and accuracy of the disclosure in the
filing;

·                  staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing; and

·                  the
Company may not assert staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United
States.

With respect to
our Form 10-KSB previously filed, we believe that an amendment encompassing
your suggestions would not materially change the reader’s assessment of our
company’s financial position.  We agree
that the filing is not perfect and that the 906 Certs should be re-dated,
executed and filed with the Commission.
However we

respectfully request that
our compliance with your other requests be dealt with on a prospective filing
basis going forward.

Thank you for your
time and consideration.    We look
forward to your guidance and response to our analysis.

  Sincerely,

  /s/ STERLING H. MCDONALD

  Sterling H. McDonald

  Chief Financial Officer and Treasurer