Date of report (Date of earliest event reported)

  March 16, 2006

December 31, 2005

FINANCIAL STATEMENTS FOR SAVOY ENERGY, L.P.

Organization Profile

3

Independent Auditors’ Report

4

Financial Statements

Balance Sheets

5

Statements of Operations

6

Statements of Partners’ Capital

7

Statements of Cash Flows

8

Notes to Financial Statements

9-19

State of Formation

Michigan

Business Location

Traverse City, Michigan

Partners

Savoy Exploration, Inc.

-

General Partner

Yorktown Energy Partners II, L.P.

Limited Partner

UBS Warburg

-

Limited Partner

Lexington Partners IV, L.P.

Limited Partner

Thomas C. Pangborn

-

Limited Partner

William T. Sperry

-

Limited Partner

Cheryl A. DeYoung

-

Limited Partner

Allen C. Modroo

-

Limited Partner

Jack P. Rokos

-

Limited Partner

December 31,

September 30, 2005

2004

2003

(Unaudited)

Assets

Current Assets

Cash and cash equivalents (Note 1)

$

3,931,635

$

5,008,787

$

6,425,867

Receivables: (Note 1)

Net revenue

677,884

287,765

542,688

Joint interest owners

2,288,373

1,107,999

231,522

Oil and gas equipment inventory (Note 1)

1,140,335

1,016,664

811,775

Prepaid expenses

19,423

43,266

50,534

Total Current Assets

8,057,650

7,464,481

8,062,386

Oil and Gas Properties (Notes 1 and 6)

Proved properties

9,686,827

8,014,763

7,422,261

Unproved properties

1,485,239

1,164,047

1,232,565

11,172,066

9,178,810

8,654,826

Less - accumulated depreciation, depletion, amortization

4,504,038

3,731,489

2,610,767

Net Oil and Gas Properties

6,668,028

5,447,321

6,044,059

Other Assets

Office furniture and equipment, less accumulated depreciation of $113,104 at September 30, 2005, (Unaudited) $60,885 at December 31, 2004 and $63,404 at December 31, 2003 (Note 1)

30,024

39,546

29,491

Drilling equipment, less accumulated depreciation of $741,772 at September 30, 2005 (Unaudited) and $320,766 at December 31, 2004 (Notes 1 and 4)

1,824,357

2,245,363

—

Cash bonds (Note 5)

50,000

50,000

50,000

Total Other Assets

1,904,381

2,334,909

79,491

Total Assets

$

16,630,059

$

15,246,711

$

14,185,936

Liabilities and Partners’ Capital

Current liabilities

Accounts payable:

Trade

$

2,132,234

1,725,868

$

363,828

Revenue distribution

881,786

574,975

746,710

General partner (Note 2)

53,722

133,135

112,408

Accrued distributions

—

—

328,530

Current maturities of long-term debt (Note 4)

424,719

405,680

—

Total Current Liabilities

3,492,461

2,839,658

1,551,476

Asset Retirement Obligation (Note 6)

334,214

290,042

206,833

Long-Term Debt, less current maturities (Note 4)

1,344,079

1,675,463

Total Liabilities

5,170,754

4,805,163

1,758,309

Commitments and Contingencies (Note 5)

Partners’ Capital (Note 5)

General partner

5,084,021

4,610,194

5,534,833

Limited partners

7,709,026

7,132,878

8,152,733

12,793,047

11,743,072

13,687,566

Less capital contributions receivable from limited partners (Note 1)

1,333,742

1,301,524

1,259,939

Total Partners’ Capital

11,459,305

10,441,548

12,427,627

Total Liabilities and Partner’s Capital

$

16,630,059

$

15,246,711

$

14,185,936

Nine Months Ended
September 30,

Year Ended
December 31,

2005

2004

2004

2003

(Unaudited)

(Unaudited)

NET REVENUES (Note 1)

Oil and gas

$

2,561,646

$

2,723,498

$

3,381,414

$

4,213,853

Overhead and management fees

95,526

35,367

70,971

70,010

Other

1,330,057

251,502

511,232

244,057

Total Net Revenues

3,987,229

3,010,367

3,963,617

4,527,920

Expenses (Note 2)

Oil and gas operations

Lease operating costs

609,394

568,332

695,378

1,484,749

Depreciation, depletion and amortization

1,199,850

1,047,251

2,198,387

1,198,390

Severance taxes

156,757

151,261

190,756

259,697

Other

18,644

22,109

59,171

63,156

Total Oil and Gas Operations

1,984,645

1,788,953

3,143,692

3,005,992

Exploration:

Dry hole costs

343,766

833,715

910,935

1,637,027

Geological and geophysical

16,654

503,601

537,631

203,860

Impairments and expired lease costs

50,142

58,800

419,336

511,003

Carrying undeveloped properties

95,876

80,296

120,800

172,211

Other

68,411

66,442

91,656

96,618

Total Exploration

574,849

1,542,854

2,080,358

2,620,719

General and Administrative

Administrative services

250,084

313,252

462,631

665,652

Professional fees

49,866

78,842

110,400

152,618

Office expense

31,979

35,332

70,991

69,859

Rent

52,065

48,614

64,985

64,976

Dues, subscriptions and licenses

13,814

12,391

13,092

15,809

Travel and entertainment

4,616

8,541

12,355

20,339

Depreciation and amortization

3,861

4,190

5,587

759

Other

2,233

1,740

2,780

1,369

Total General and Administrative

408,518

502,902

742,821

991,381

Total Expenses

2,968,012

3,834,709

5,966,871

6,618,092

Net Revenues Less Expenses

1,019,217

(824,342

)

(2,003,254

)

(2,090,172

)

Other Income (Expense)

Gain on sale of proved properties

7,523

10,000

10,000

19,287,045

Interest, net

(8,983

)

11,514

7,175

1,391,547

Total Other Income (Expense), Net

(1,460

)

21,514

17,175

20,678,592

Net Income (Loss)

$

1,017,757

$

(802,828

)

$

(1,986,079

)

$

18,588,420

General
Partner

Limited
Partners

Capital
Contributions
Receivable

Total

Balances, at January 1, 2003

$

7,254,105

$

11,433,086

$

(3,490,170

)

$

15,197,021

Add (Deduct)

Net income for the year

8,654,025

9,934,395

18,588,420

Partners’ capital contributions

954,139

954,139

Accrued interest on capital contributions receivable from limited partners

87,839

(87,839

)

Partners’ cash distributions

(10,373,297

)

(11,938,656

)

(22,311,953

)

Repayment of accrued interest on non-recourse notes by limited partners

(1,363,931

)

1,363,931

Repayment of principal on non-recourse notes by limited partners

(954,139

)

954,139

Balances, at December 31, 2003

5,534,833

8,152,733

(1,259,939

)

12,427,627

Add (Deduct)

Net loss for the year

(924,639

)

(1,061,440

)

(1,986,079

)

 Accrued interest on capital contributions receivable from limited partners

41,585

(41,585

)

Balances, at December 31, 2004

4,610,194

7,132,878

(1,301,524

)

10,441,548

Unaudited

Add (Deduct)

Net income for the nine months ended September 30, 2005

473,827

543,930

1,017,757

Accrued interest on capital contributions receivable from limited partners for the nine months ended September 30, 2005

32,218

(32,218

)

Balances, at September 30, 2005 (Unaudited)

$

5,084,021

$

7,709,026

$

(1,333,742

)

$

11,459,305

Nine Months Ended
September 30,

Year Ended
December 31

2005

2004

2004

2003

(Unaudited)

(Unaudited)

Operating Activities:

Net income (loss)

$

1,017,757

$

(802,828

)

$

(1,986,079

)

$

18,588,420

Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities

Depreciation, depletion and amortization

1,203,711

1,051,441

2,203,974

1,199,149

Accretion of discount on asset retirement obligation

10,287

7,757

10,342

8,456

Gain on sale of proved properties

(7,523

)

(10,000

)

(10,000

)

(19,287,045

)

Impairments and expired lease costs

50,142

58,800

419,336

511,003

Changes in operating assets and liabilities that provided (used) cash:

(Increase) decrease in:

Receivables

(1,570,493

)

(1,971

)

(621,554

)

1,140,094

Oil and gas equipment inventory

(123,671

)

(109,232

)

(204,889

)

(139,388

)

Prepaid expenses

23,843

21,527

7,268

(6,584

)

Increase (decrease) in:

Accounts payable

633,764

410,005

1,211,032

(1,353,109

)

Accrued distributions

(328,530

)

(328,530

)

328,530

Net Cash Provided by Operating Activities

1,237,817

296,969

700,900

989,526

Investing Activities

Proceeds from sale of proved properties

18,760

10,000

10,000

30,000,000

Additions to oil and gas properties

(2,021,384

)

(447,310

)

(1,620,409

)

(3,209,149

)

Additions to office and drilling equipment

(2,572,118

)

(2,588,714

)

(13,963

)

Net Cash Provided by (Used in) Investing Activities

(2,002,624

)

(3,009,428

)

(4,199,123

)

26,776,888

Financing Activities

Proceeds from long-term debt

2,300,000

2,300,000

Repayments of long-term debt

(312,345

)

(112,824

)

(218,857

)

Partners’ cash contributions

954,139

Partners’ cash distributions

(22,311,953

)

Net Cash Provided by (Used in) Financing Activities

(312,345

)

2,187,176

2,081,143

(21,357,814

)

Net Increase (Decrease) in Cash and Cash Equivalents

(1,077,152

)

(525,283

)

(1,417,080

)

6,408,600

Cash and Cash Equivalents, at the beginning of the year

5,008,787

6,425,867

6,425,867

17,267

Cash and Cash Equivalents, at the end of the year

$

3,931,635

$

5,900,584

$

5,008,787

$

6,425,867

Supplemental Disclosures of Cash Flow Information

Cash paid for interest

$

79,263

$

17,697

$

42,165

$

2,243

Supplemental Schedule of Non-cash Financing Activities

Accrued interest on capital contributions receivable from limited partners

$

32,218

$

31,188

$

41,585

$

87,839

1.

Nature of Business and Significant Accounting Policies

Nature of Business

Savoy Energy, L.P. (the “Partnership”) is a Michigan limited partnership that acquires, explores and develops oil and gas properties and operates producing oil and gas wells primarily in Michigan.  The price of crude oil and natural gas is generally determined by world markets.  The Partnership bills joint interest owners for their share of well operating costs, and acquires a lien on the joint owner’s interest if the costs are not paid.

Net oil and gas revenues of $1,879,695 and $2,365,080 for the nine months ended September 30, 2005 and 2004 (unaudited), respectively, and $3,155,868 and $3,452,318 for the years ended December 31, 2004 and 2003, respectively, were derived from two major customers.  No other customers exceeded 10% of net oil and gas revenues for these periods.  Related net revenue receivables from these major customers amount to $393,860, $197,383 and $1,208,486 at September 30, 2005 (unaudited), December 31, 2004 and 2003, respectively.

Interim Financial Information

The unaudited financial statements as of September 30, 2005 and nine months ended September 30, 2005 and  2004, respectively, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Partnership’s financial position, results of operations and cash flows. Operating results for the nine months ended September 30, 2005 and 2004, respectively, are not necessarily indicative of the results that may be expected for the years ended December 31, 2005 and 2004.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.   Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Partnership considers all cash accounts which are not subject to withdrawal restrictions or penalties to be cash or cash equivalents.

In the normal course of business, the Company has deposits in accounts at major financial institutions that exceed the $100,000 limit of FDIC insurance.  Management evaluates the financial institutions in which the Company deposits its funds and assesses the level of risk associated with each institution.  Management believes that the Company is not

exposed to any significant credit risk associated with its cash.

Oil and Gas Equipment Inventory

Oil and gas equipment inventories, consisting primarily of tubular goods and oil field materials, are stated at the lower of cost or market based upon the specific identification method.

Successful Efforts Method of Accounting for Oil and Gas Properties

The Partnership uses the successful efforts method of accounting for oil and gas producing activities.  Costs incurred to acquire mineral interests in oil and gas properties; to drill and equip exploratory wells that find proved reserves; and to drill and equip development wells are capitalized.  The Partnership expenses costs of drilling exploratory wells such as geological and geophysical costs, and costs of carrying and retaining unproved properties that do not find proved reserves.  The provision for depreciation, depletion, and amortization of oil and gas properties is calculated on a well-by-well basis using the unit-of-production method.  Maintenance and repairs are charged to expense as incurred; renewals and betterments are capitalized to the appropriate property and equipment accounts.

Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance.  Other unproved properties are amortized based on the Partnership’s experience of successful drilling and average holding period.  Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values, are depreciated and depleted by the unit-of-production method.  Support equipment and other property and equipment are carried at cost and depreciated over their estimated useful lives.

On the sale or retirement of an interest in a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resulting gain or loss is recognized.

On the sale of an entire interest in an unproved property, a gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually.  If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.

Revenue Recognition

Oil and natural gas revenues are recorded using the sales method, whereby the Partnership recognizes oil and natural gas revenue based on the amount of oil and gas sold to purchasers.

The following summarizes the Partnership’s revenue by product sold:

Nine Months Ended
September 30,

Year Ended
December 31,

2005

2004

2004

2003

(Unaudited)

Oil revenue

$

1,061,213

$

694,146

$

1,045,208

$

1,505,890

Gas revenue

1,445,482

1,962,754

2,280,599

2,516,661

Other liquids

54,951

66,598

55,607

191,302

Total

$

2,561,646

$

2,723,498

$

3,381,414

$

4,213,853

Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.  When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset and long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Office Furniture and Equipment, Drilling Equipment and Depreciation

Office furniture, equipment, and drilling equipment are recorded at cost.  Depreciation is computed over the estimated useful life of the assets using accelerated methods for both financial reporting and income tax purposes.

Capital Contributions Receivable

Upon formation of the Partnership and pursuant to the Partnership and contribution agreements, the general partner, Savoy Exploration, Inc., contributed substantially all of its operating assets, net of related operating liabilities, for its interest in Savoy Energy, L.P., and the limited partners contributed cash and notes receivable for their interest.  Interest accrued on the notes receivable is recorded as an addition to the carrying amount of the receivable and as additional contributed capital of the limited partners.

Federal Income Tax

The federal income tax on Partnership activities is not reflected in the financial statements since the income tax liability is the responsibility of the individual partners.

2.

Related Party Transactions

In 2005 (unaudited), 2004 and 2003, the general partner incurred expenses on behalf of the Partnership for salaries and wages, payroll taxes, retirement plan contributions, health insurance, key man life insurance, other payroll related costs, and office rent.  Those expenses amounted to $472,510 and $520,017 for the nine months ended September 30, 2005 and 2004 (unaudited), respectively, and $774,490 and $1,005,578 for the years ended December 31, 2004 and 2003,

respectively.  Of these amounts, $250,084 and $313,252 for the nine months ended September 30, 2005 and 2004 (unaudited) and $462,631 and $665,652 for the years ended December 31, 2004 and 2003, respectively, are classified as general and administrative expenses.  In addition, $117,626 and $109,556 for the nine months ended September 30, 2005 and 2004 (unaudited) and $156,467 and $160,977 for the years ended December 31, 2004 and 2003, respectively, are classified as exploration costs.  The remaining $104,800 and $97,209 for the nine months ended September 30, 2005 and 2004 (unaudited) and $155,392 and $178,949 for the years ended December 31, 2004 and 2003, respectively, are for production costs of which a portion was charged to joint owners. The accounts payable to the general partner reported on the balance sheets relate to the reimbursement of these expenses.

3.

Line-of-Credit

The Partnership has a $3,000,000 unsecured line-of-credit agreement with a bank which expires on August 1, 2005 and which bears interest at .5% below the prime rate.  As of September 30, 2005 (unaudited), December 31, 2004 and 2003, the Partnership has no outstanding borrowings under this line-of-credit.

4.

Long-Term Debt

Long-term debt consists of a note payable to a bank, payable at $43,500 monthly, including interest at .5% below the prime rate, which results in a rate of 5.1% at December 31, 2004. The note is collateralized by drilling equipment.  The final payment is due July 1, 2009.

Annual principal maturities on the long-term debt are summarized as follows.  For the interim periods, the amounts presented represent payments due in the next twelve months.

Year Ending

September 30,
2005

December 31,
2004

(Unaudited)

2005

$

424,719

$

405,680

2006

451,503

431,263

2007

479,976

458,459

2008

412,600

487,370

2009

—

298,371

Total

$

1,768,798

$

2,081,143

5.

Commitments and Contingencies

Lease Commitments

The Partnership leases its office from an unrelated party under a one-year lease with annual options to renew for a total of five years.  The leases automatically renew unless the Partnership gives the landlord written notice ninety days prior to the expiration of the lease.  Minimum future lease payments are as follows.  For the interim periods, the amounts presented represent payments due in the next twelve months.

Year Ending

September 30,
2005

December 31,
2004

(Unaudited)

2005

$

—

$

65,440

2006

27,400

10,960

Total

$

27,400

$

76,400

Total rent expense included in the statements of operations amount to $49,000 and $47,570 for the nine months ended September 30, 2005 and 2004 (unaudited), respectively, and $63,530 and $61,680 for the years ended December 31, 2004 and 2003, respectively.

Partner Redemptions and Distributions

The Partnership agreement provides that at any time on or after September 19, 2000, and on each anniversary of the closing date thereafter, the Partnership shall offer to redeem all or a portion of the interests of the partners at a price and on terms and conditions established by unanimous consent of the executive committee.  The redemptions will be based on the availability of cash in excess of the anticipated needs of the Partnership for future operations, giving due consideration to the anticipated remaining term of the Partnership.

The Partnership agreement provides for quarterly distributions to the partners based on their respective share of Partnership federal taxable income.  Additional distributions to the partners are at the discretion of the executive committee.

Performance Bond

The Partnership is required by the Michigan Department of Natural Resources to file a performance bond as security on State owned land that is leased for oil and gas exploratory efforts.  The amount of the bond is dependent upon the acres of land leased or intended to be leased.  The Partnership’s $50,000 performance bond enables the Partnership to lease unlimited acreage from the State.

Environmental Matters

The Partnership is subject to various federal and state laws and regulations regarding environmental matters.  The most significant laws and regulations concern contamination of well sites.  The Partnership is not presently aware of

contamination at any of its sites which would require significant costs for clean up.

6.

Asset Retirement Obligation

On January 1, 2003, the Partnership adopted Statement of Financial Accounting Standard No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). SFAS 143 requires entities to recognize a liability for the present value of all legal obligations associated with the retirement of tangible long-lived assets and to capitalize an equal amount as part of the cost of the related oil and gas properties.

The adoption of SFAS 143 required the Partnership to record a non-cash expense of $38,542 as a cumulative effect of change in accounting principle for 2003, as well as a non-current liability and an addition to oil and gas properties of $206,833. The following table summarizes the Partnership’s asset retirement obligation transactions as if SFAS 143 had been applied during all periods presented.

Nine Months
Ended
September 30,

Year Ended
December 31,

2005

2004

2003

(Unaudited)

Asset retirement obligation, at the beginning of the period

$

290,042

$

206,833

$

169,116

Additions related to new properties

33,885

72,867

29,261

Accretion expense

10,287

10,342

8,456

Asset retirement obligation, at the end of the period

$

334,214

$

290,042

$

206,833

7.

Supplemental Information on Oil and Gas Producing Activities (Unaudited)

The following information is presented in accordance with Statement of Financial Accounting Standards No. 69, Disclosure About Oil and Gas Producing Activities:

Costs Incurred in Oil and Gas Exploration and Development Activities

The following costs were incurred in oil and gas exploration and development activities:

Year Ended December 31,

2004

2003

Property acquisition costs

$

616,293

$

373,552

Exploration costs

541,750

1,318,802

Development costs

462,366

1,516,795

Estimated Proved Oil and Gas Reserves

The following reflects total proved and proved developed oil and gas reserves at December 31, 2004, 2003 and 2002, and changes therein for the years ended December 31, 2004 and 2003.  Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.  Prices and costs to estimate those reserves are constant as of December 31, 2004 and 2003.

Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.  Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on drilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

Reserve estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures.  The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment.  Estimates of economically recoverable reserves and of future net cash flows expected therefrom prepared by different engineers or by the same engineers at different times may vary substantially.  Results of subsequent drilling, testing and production may cause either upward or downward revisions of previous estimates.  Further, the volumes considered to be commercially recoverable fluctuate with changes in commodity prices and operating costs.  Any significant revision of reserve estimates could materially adversely affect our financial condition and results of operations.

Oil (bbl)

Gas (mcf)

Balance, at December 31, 2002

1,144,093

12,236,930

Production

(211,718

)

(1,903,241

)

Sales of minerals in-place

(1,014,155

)

(10,625,985

)

Revisions of previous estimates

196,537

1,535,664

Balance, at December 31, 2003

114,757

1,243,368

Production

(26,809

)

(448,165

)

Revisions of previous estimates

(5,299

)

31,223

Balance, at December 31, 2004

82,649

826,426

Standardized Measure of Discounted Future Net Cash Flows

Estimated discounted future net cash flows and changes therein were determined in accordance with Statement of Financial Accounting Standards (SFAS) No. 69, Disclosures about Oil and Gas Producing Activities.  Certain information concerning the assumptions used in computing the valuation of proved reserves and their inherent limitations are discussed below.  Such information is essential for a proper understanding and assessment of the date presented.

Future cash inflows are computed by applying year-end prices of oil and gas relating to proved reserves to the year-end quantities of those reserves.  Future price changes are considered only to the extent provided by contractual arrangements, including hedging contracts in existence at year end.

The assumptions used to compute estimated future net revenues do not necessarily reflect expectations of actual revenue or costs, or their present worth.  In addition, variations from the expected production rate also could result directly or indirectly from factors outside the Company’s control, such as unintentional delays in development, changes in prices or regulatory controls.  The reserve valuation further assumes that all reserves will be disposed of by production.  However, if reserves are sold in-place, additional economic considerations could also affect the amount of cash eventually realized.

Future development and production costs are computed by estimating the expenditures to be incurred in developing and producing the proved reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions.

Because Savoy Energy, L.P. is a partnership, income taxes are the responsibility of the partners and, consequently, are not considered in standardized measure of discounted future net cash flows. Estimates of future general and administrative expense, and interest expense, have not been considered.

The timing of future net cash flows from proved reserves are discounted at an annual rate of 10%.

December 31,

2004

2003

Future cash flows

$

8,908,290

$

9,799,186

Future production costs

(3,294,349

)

(3,474,631

)

Future net cash flows

5,613,941

6,324,555

10% annual discount for estimated timing of cash flows

(1,190,646

)

(1,216,269

)

Standardized measure of discounted future net cash flows

$

4,423,295

$

5,108,286

Changes in the Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves – An analysis of the changes in the standardized measure of discounted future net cash flows during each of the last two years is as follows:

Year Ending
December 31,

2004

2003

Standardized measure of discounted future net cash flows relating to proved reserves, beginning of the year

$

5,108,286

$

38,648,374

Sales and transfers of oil and gas produced

(2,495,280

)

(2,469,407

)

Net increase (decrease) in prices and production costs

1,443,396

(1,616,385

)

Sales of reserves in-place

—

(33,232,800

)