Petrohawk Energy 8-K/A Financial Statements and Exhibits

EXHIBIT 99.1

WINWELL RESOURCES, INC.

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2005, 2004 AND 2003

WINWELL RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

C O N T E N T S

	Page
Independent Auditors’ Report		2
Consolidated Balance Sheets		3
Consolidated Statements of Income		4
Consolidated Statements of Stockholders’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7-16

Independent Auditors’ Report

To the Stockholders
Winwell Resources, Inc.
Shreveport, Louisiana

We have audited the accompanying consolidated balance sheets of Winwell Resources, Inc. (the “Company”) as of June 30, 2005, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Winwell Resources, Inc. as of June 30, 2005, 2004 and 2003, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Houston, Texas
February 9, 2006

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WINWELL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS

	June 30,
	2005			2004			2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	24,211,099		$	12,318,918		$	11,257,031
Trade receivables		12,330,516			9,106,017			7,303,022
Refundable income taxes		—			1,190,956			—
Prepaid expenses and other current assets		57,252			53,611			46,088
TOTAL CURRENT ASSETS		36,598,867			22,669,502			18,606,141
PROPERTY AND EQUIPMENT
Oil and gas properties, full cost method		85,081,613			67,854,643			53,085,524
Furniture, fixtures and equipment		336,432			332,624			290,392
		85,418,045			68,187,267			53,375,916
Less: accumulated depreciation, depletion and amortization		(43,315,417	)		(34,685,295	)		(26,975,996	)
NET PROPERTY AND EQUIPMENT		42,102,628			33,501,972			26,399,920
OTHER ASSETS		184,354			185,494			63,913
TOTAL ASSETS	$	78,885,849		$	56,356,968		$	45,069,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	19,995,353		$	8,749,236		$	7,144,174
Current portion of incentive compensation liability		3,509,030			2,765,776			1,055,803
Income taxes payable		219,233			—			195,304
TOTAL CURRENT LIABILITIES		23,723,616			11,515,012			8,395,281
LONG TERM LIABILITIES
Asset retirement obligations		1,129,513			1,021,475			894,440
Incentive compensation liability, less current portion		3,760,944			1,305,838			1,397,703
Deferred tax liability		7,108,711			5,953,410			3,744,526
TOTAL LONG TERM LIABILITIES		11,999,168			8,280,723			6,036,669
TOTAL LIABILITIES		35,722,784			19,795,735			14,431,950
COMMITMENTS AND CONTINGENCIES		—			—			—
STOCKHOLDERS’ EQUITY
Common stock		5,705,310			5,233,488			5,223,778
Retained earnings		37,457,755			31,327,745			25,584,900
		43,163,065			36,561,233			30,808,678
Less: Treasury stock, at cost		—			—			(170,654	)
TOTAL STOCKHOLDERS’ EQUITY		43,163,065			36,561,233			30,638,024
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	78,885,849		$	56,356,968		$	45,069,974

See accompanying notes to consolidated financial statements.

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WINWELL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME

	Year Ended June 30,
	2005			2004			2003
REVENUES
Oil, gas and plant sales	$	33,224,360		$	25,512,405		$	20,676,063
Well overhead income		660,264			518,884			469,719
Other		9,541			9,080			10,461
TOTAL REVENUES		33,894,165			26,040,369			21,156,243
EXPENSES
Leasehold operating costs		5,736,584			4,599,642			4,008,392
Production taxes		1,208,986			887,697			673,171
Depreciation, depletion and amortization		8,671,084			7,709,297			5,558,719
Accretion of asset retirement obligation		51,238			46,480			47,676
General and administrative costs		7,485,170			4,755,917			3,455,099
TOTAL OPERATING EXPENSES		23,153,062			17,999,033			13,743,057
INCOME FROM OPERATIONS		10,741,103			8,041,336			7,413,186
OTHER INCOME (EXPENSE)
Interest income		241,398			71,853			93,790
Interest expense		(7,682	)		(1,709	)		(6,619	)
Management fees		10,140			10,140			49,730
Other, net		253,306			29,210			13,419
TOTAL OTHER INCOME (EXPENSE)		497,162			109,494			150,320
INCOME BEFORE INCOME TAXES		11,238,265			8,150,830			7,563,506
INCOME TAX EXPENSE		3,287,415			2,407,985			1,907,987
NET INCOME	$	7,950,850		$	5,742,845		$	5,655,519

See accompanying notes to consolidated financial statements.

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WINWELL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED JUNE 30, 2005, 2004 AND 2003

												Total
	Common Stock					Treasury			Retained			Stockholders’
	Shares		Amount			Stock			Earnings			Equity
Balance, July 1, 2002		363,142	$	4,706,696		$	(650,000	)	$	19,929,381		$	23,986,077
Net income		—		—			—			5,655,519			5,655,519
Issuance of treasury stock for assets		—		411,242			326,796			—			738,038
Issuance of treasury stock as compensation		—		105,840			152,550			—			258,390
Balance, June 30, 2003		363,142		5,223,778			(170,654	)		25,584,900			30,638,024
Net income		—		—			—			5,742,845			5,742,845
Proceeds from sale of common stock		1,026		32,806			—			—			32,806
Proceeds from sale of treasury stock		—		(29,463	)		168,587			—			139,124
Issuance of treasury stock as compensation		—		6,367			2,067			—			8,434
Balance, June 30, 2004		364,168		5,233,488			—			31,327,745			36,561,233
Net income		—		—			—			7,950,850			7,950,850
Proceeds from sale of common stock		8,200		471,822			—			—			471,822
Dividends paid		—		—			—			(1,820,840	)		(1,820,840	)
Balance, June 30, 2005		372,368	$	5,705,310		$	—		$	37,457,755		$	43,163,065

See accompanying notes to consolidated financial statements.

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WINWELL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended June 30,
	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,950,850		$	5,742,845		$	5,655,519
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		1,155,301			2,208,884			803,348
Accretion of asset retirement obligations		51,238			46,480			47,676
Depreciation, depletion and amortization		8,671,084			7,709,297			5,558,719
Stock-based compensation		—			8,434			258,390
Changes in operating assets and liabilities:
Trade receivables		(3,224,499	)		(1,802,995	)		(2,692,788	)
Prepaid expenses and other current assets		1,188,455			(1,515,364	)		(24,650	)
Accounts payable and accrued liabilities		11,465,350			1,605,062			3,329,590
Incentive compensation liability		3,198,360			1,618,108			1,585,297
NET CASH PROVIDED BY OPERATING ACTIVITIES		30,456,139			15,620,751			14,521,101
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(17,741,056	)		(14,739,218	)		(10,218,301	)
Proceeds from sale of property and equipment		526,116			8,424			946,957
NET CASH USED IN INVESTING ACTIVITIES		(17,214,940	)		(14,730,794	)		(9,271,344	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		(1,820,840	)		—			—
Proceeds from sale of common stock		471,822			32,806			—
Proceeds from sale of treasury stock		—			139,124			—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(1,349,018	)		171,930			—
NET INCREASE IN CASH AND CASH EQUIVALENTS		11,892,181			1,061,887			5,249,757
CASH AND CASH EQUIVALENTS — BEGINNING OF YEAR		12,318,918			11,257,031			6,007,274
CASH AND CASH EQUIVALENTS — END OF YEAR	$	24,211,099		$	12,318,918		$	11,257,031
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes	$	990,806		$	441,638		$	909,335
Cash paid for interest expense	$	7,682		$	1,709		$	6,619

See accompanying notes to consolidated financial statements.

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE A — NATURE OF OPERATIONS

Winwell Resources, Inc. (“WRI”) was incorporated is the state of Louisiana in 1994. At that time, various partnerships were dissolved, and substantially all of the assets were contributed to WRI, along with other assets from other entities and individuals. Stockholders in WSF, Inc. (“WSF”) were given the option of selling their WSF ownership to WRI for cash or exchanging their WSF ownership for WRI common stock. Thereafter, WSF became a wholly-owned subsidiary of WRI.

WRI is an independent oil and gas exploration and production company with operations in Arkansas, Louisiana, Texas, Michigan, Mississippi and the Gulf of Mexico. WSF operates oil and gas wells located primarily in Louisiana on behalf of WRI and third-party interest owners.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the accounts of WRI and WSF. All significant transactions between these companies have been eliminated. Unless separately referred to, WRI and WSF are collectively referred to as the “Company”.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include oil and gas reserve quantities which form the basis for the calculation of amortization and impairment of natural gas and crude oil properties. Reserve estimates are inherently imprecise and estimates of more recent reserve discoveries are more imprecise than those for properties with long production histories. Actual results could differ from these estimates.

Revenue Recognition: The Company recognizes oil, gas and plant sales upon delivery to the purchaser. Under the sales method, the Company and other joint owners may sell more or less than their entitled share of the natural gas volume produced. Should the Company’s excess sales of natural gas exceed its share of estimated remaining recoverable reserves, a liability would be recorded by the Company and revenue would be deferred. As of June 30, 2005, 2004 and 2003, the Company has not recorded a gas imbalance liability.

Cash and Cash Equivalents: The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.

Trade Receivables: The Company uses the allowance method to account for uncollectible trade receivables. The Company establishes an allowance for doubtful accounts based on factors surrounding credit risk of debtors, historical factors and other related information. The Company did not record a bad debt expense during the years ended June 30, 2005, 2004 and 2003, and there was no allowance for doubtful accounts at June 30, 2005, 2004 and 2003.

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Natural Gas and Crude Oil Properties: The Company accounts for its natural gas and oil producing activities using the full cost method of accounting. Under this method of accounting, all costs incurred in the acquisition, exploration, and development of oil and gas properties, including the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized. These costs, and estimated future development activities, are capitalized in a single cost center and are amortized on an equivalent unit-of-production basis using total estimated proved oil and gas reserves. The cost of unevaluated properties is excluded from the full-cost amortization computation until it is determined whether or not proved reserves can be assigned to the properties or impairment has occurred. Sales or other dispositions of oil and gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change.

The net capitalized costs of proved oil and gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%, net of tax considerations.

Property and Equipment Other Than Natural Gas and Crude Oil Properties: Property and equipment are stated at cost. Expenditures for major renewals and betterments, which extend the original estimated economic useful lives of applicable assets, are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The costs and related accumulated depreciation of assets sold or retired are removed from the accounts, and any gain or loss thereon is reflected in operations. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to fourteen years. The Company periodically evaluates the recoverability of the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. To date, the Company has not recorded an impairment charge.

Concentrations of Credit Risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables.

The Company maintains its cash and cash equivalents in bank deposits with a financial institution. These accounts exceed federally insured limits. Deposits in the United States are guaranteed by the Federal Deposit Insurance Corporation up to $100,000. The Company monitors the financial condition of the financial institution and has not experienced any losses on such accounts.

The Company generally receives it oil and gas sales revenue from a limited number of oil and gas companies, generally on a monthly basis. Revenues are typically received within one or two months of the underlying month of production. At any given point, the Company is owed substantial amounts from these companies, generally as unsecured trade receivables. For the year ended June 30, 2005, 60% of the Company’s revenues were generated from three unrelated purchasers. For the year ended June 30, 2004, 61% of the Company’s revenues were generated from three unrelated purchasers. For the year ended June 30, 2003, 56% of the Company’s revenues were generated from three unrelated purchasers.

The Company is not party to any financial instruments which would have off-balance sheet credit or interest rate risk.

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes: The Company accounts for income taxes using the asset and liability method wherein deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Asset Retirement Obligations: The Company accounts for asset retirement obligations in accordance with Statement of Financial Accounting Standards No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS (“SFAS 143”). SFAS 143 requires that a liability be recorded for retirement and removal costs of long-lived assets used in the business. This liability is recorded at its estimated fair value, with a corresponding increase to oil and gas properties. This increase in oil and gas properties is then amortized over the remaining useful life of the property to which the liability relates.

Fair Value of Financial Instruments: The Company’s financial instruments consist of cash and cash equivalents, trade receivables and accounts payable. The fair value of each of these financial instruments is estimated to approximate the carrying value due to the liquid nature of these instruments.

Stock-Based Compensation: The Company accounts for its stock-based compensation using Accounting Principle Board Opinion No. 25 (“APB No. 25”). No compensation cost has been recognized for its stock option plans because the option prices were not below the fair market value of the stock at the date of grant. SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (“SFAS 123”) encourages, but does not require, companies to record compensation expense on stock-based compensation plans based on fair value. Had compensation expense for the options granted been recorded based on the fair value at the grant date for the options, consistent with the provisions of SFAS 123, the Company’s net income for the years ended June 30, 2005, 2004, and 2003 would have been decreased to the pro forma amounts indicated below.

	Year Ended June 30,
	2005			2004			2003
Net income as reported	$	7,950,850		$	5,742,845		$	5,655,519
Less: Stock-based employee compensation expense determined under fair value method for all awards, net of tax-related effects		(73,860	)		(73,860	)		(98,750	)
Pro forma net income	$	7,876,990		$	5,668,985		$	5,556,769

The following assumptions were applied in determining the pro forma compensation costs:

	2005			2004			2003
Stock price volatility		79.3	%		61.3	%		56.1	%
Risk free rate of return		4.2	%		4.5	%		4.0	%
Expected term (years)		10			10			10
Dividends per share		—			—			—

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE C — PROPERTY AND EQUIPMENT

Oil and gas properties are comprised of the following:

	June 30,
	2005			2004			2003
Evaluated (subject to depletion)	$	80,513,386		$	65,120,210		$	49,324,460
Unevaluated (not subject to depletion)		4,568,227			2,734,433			3,761,064
Gross natural gas and crude oil properties		85,081,613			67,854,643			53,085,524
Less: accumulated depreciation, depletion and amortization		(43,084,921	)		(34,458,569	)		(26,789,136	)
Net natural gas and crude oil properties	$	41,996,692		$	33,396,074		$	26,296,388

Furniture, fixtures and equipment are comprised of the following:

	Estimated
	Useful	June 30,
	Lives	2005			2004			2003
Automobiles	5 years	$	77,402		$	82,712		$	82,712
Furniture and fixtures	7-14 years		183,360			175,819			134,466
Software	3 years		75,670			74,093			73,214
			336,432			332,624			290,392
Less: accumulated depreciation			(230,496	)		(226,726	)		(186,860	)
		$	105,936		$	105,898		$	103,532

NOTE D — LINE OF CREDIT

The Company has a $3,000,000 unsecured bank line of credit with a financial institution that expires on March 31, 2006. As of June 30, 2005, 2004 and 2003, no amounts were owed under this line of credit. Borrowings under the line of credit accrue interest at a variable equal to the Wall Street Journal index prime rate which was 6.25% on June 30, 2005.

Conditions imposed under this line of credit require the Company to meet, on an ongoing basis, minimum tangible net worth and working capital requirements as well as a maximum cash flow coverage ratio. Also under the line of credit, the Company is precluded from incurring debt other than debt which is specific in the agreement and the paying of dividends on its common stock without approval by the bank.

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE E — ASSET RETIREMENT OBLIGATIONS

The Company adopted SFAS 143 effective July 1, 2002. SFAS 143 requires that the fair value of an asset retirement cost and corresponding liability, should be recorded, as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. The Company has recorded the following activity related to the liability for the years ended June 30, 2005, 2004 and 2003:

Liability for asset retirement obligations as of July 1, 2002	$	874,112
Additions		64,393
Obligations settled and divested		(91,741	)
Accretion expense		47,676
Liability for asset retirement obligation as of June 30, 2003		894,440
Additions		84,543
Obligations settled and divested		(3,988	)
Accretion expense		46,480
Liability for asset retirement obligation as of June 30, 2004		1,021,475
Additions		72,755
Obligations settled and divested		(15,955	)
Accretion expense		51,238
Liability for asset retirement obligation as of June 30, 2005	$	1,129,513

NOTE F — INCOME TAXES

Income tax expense for the indicated periods is comprised of the following:

	Year Ended June 30,
	2005		2004		2003
Current
Federal	$	2,030,970	$	198,569	$	1,060,145
State		101,144		532		44,494
		2,132,114		199,101		1,104,639
Deferred
Federal		1,100,495		2,202,983		777,638
State		54,806		5,901		25,710
		1,155,301		2,208,884		803,348
INCOME TAX EXPENSE	$	3,287,415	$	2,407,985	$	1,907,987

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE F — INCOME TAXES (Continued)

The actual income tax expense differs from the expected tax expense as computed by applying the U.S. Federal corporate income tax rate of 34% for each period as follows:

	Year Ended June 30,
	2005			2004			2003
Tax expense computed at 34%	$	3,821,010		$	2,771,282		$	2,571,592
Percentage depletion		(645,053	)		(376,935	)		(432,445	)
Section 29 credits		—			—			(285,626	)
State income taxes		102,927			4,246			46,335
Non-deductible expenses		903			3,729			3,376
Other		7,628			5,663			4,755
INCOME TAX EXPENSE	$	3,287,415		$	2,407,985		$	1,907,987

The components of the net deferred tax liability are as follows:

	June 30,
	2005		2004		2003
Deferred tax assets
Asset retirement obligations	$	384,034	$	347,302	$	304,110
Incentive compensation		2,527,238		1,409,596		857,467
Other		9,390		8,970		9,305
		2,920,662		1,765,868		1,170,882
Deferred tax liabilities
Tax over book depreciation, depletion and amortization		10,029,373		7,719,278		4,915,408
NET DEFERRED TAX LIABILITY	$	7,108,711	$	5,953,410	$	3,744,526

NOTE G — STOCKHOLDERS’ EQUITY

     Common Stock: The Company is authorized to issue 1,000,000 shares of common stock that has no par value. As of June 30, 2005, 2004, and 2003, the Company had 372,368, 364,168, and 363,142 shares of common shares outstanding, respectively.

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE G — STOCKHOLDERS’ EQUITY (Continued)

As agreed to among the WRI stockholders, except in specified situations, no stockholder can transfer shares of common stock for a two-year period from the date of issuance of such common stock. Therefore, except in specified situations, provisions of WRI’s bylaws prevent a stockholder from selling or otherwise transferring WRI common stock without first making it available to be purchased by WRI or stockholders of WRI at the same price and terms as the stockholder could sell the stock to another party.

WRI has issued 5,000 shares of common stock to its chief executive officer (“CEO”) under it CEO Equity Plan. If the CEO’s employment is terminated for any reason, at the election of WRI or the CEO, WRI will repurchase the shares of common stock at fair market value as determined under the agreement.

Treasury Stock: On June 30, 2003, the Company owned 5,035 shares of treasury stock. As of June 30, 2004 and 2005, there were no shares of treasury stock held by the Company.

Stock Option Plan: The Company has a stock option plan for its key employees. The following table sets forth activity for options under the stock option plan in 2005, 2004 and 2003.

				Average
				Exercise
	Number of			Price per
	Shares			Share
Balance, July 1, 2002		10,000		$	32.22
Granted		10,500			76.56
Forfeited or cancelled		—			N/A
Exercised		—			N/A
Balance, June 30, 2003		20,500			54.93
Granted		—			N/A
Forfeited or cancelled		—			N/A
Exercised		(6,000	)		28.66
Balance, June 30, 2004		14,500			65.80
Granted		—			N/A
Forfeited or cancelled		—			N/A
Exercised		(8,200	)		57.54
Balance, June 30, 2005		6,300		$	76.56

As of June 30, 2005, none of the outstanding options was vested. On July 1, 2005, under the terms of the original stock option agreement, 2,100 of the outstanding options became vested. In September 2005, the Company amended the stock option agreement and fully vested the remaining 4,200 options that remained unvested. In October 2005, the remaining 6,300 outstanding option were exercised.

Share of common stock acquired through exercise of these options are subject to a minimum holding period as specified by the agreement, and are subject to being repurchased by WRI under terms similar to those described above.

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE H — EMPLOYEES’ INCENTIVE COMPENSATION PLAN

The Company has adopted an incentive compensation plan for its employees. Under this plan, employees will be entitled to additional compensation, on a cash and deferred basis, if year-end shareholder value, as determined under the plan, exceeds threshold levels of net income from producing activities and net incremental oil and gas reserve value, as established by the plan. The deferred portion of this incentive compensation is in the form of “performance shares”. Employees are issued performance shares based upon the calculated value of the Company as of the date for which the shares are issued. Such performance shares will vest as to one-half of the shares during each of the fourth and fifth years following the plan year for which the shares were awarded. Performance shares will be redeemed by the Company in cash as they become vested, at the calculated share value as of the end of the plan year preceding redemption, which may be higher or lower than the value used to award such performance shares. Performance shares relate only to the calculation and payment of the deferred incentive compensation and do not result in the actual issuance of any Company common stock.

The cash portion of the incentive compensation expense is typically paid in December following the plan year, and the deferred portion of the incentive compensation expense is recorded pro-rata over the vesting period. The incentive compensation awarded for the plan years ending from June 30, 1998 through June 30, 2005 are shown in the table below.

The accompanying consolidated financial statements reflect liabilities attributable to performance shares of $7,269,974, $4,071,614 and $2,453,506, respectively, as of June 30, 2005, 2004, and 2003. General and administrative expense for the years ended June 30, 2005, 2004 and 2003 include $5,964,136, $3,283,019, and $1,642,356, respectively, in expense attributable to the redemption of performance shares.

NOTE I — RETIREMENT PLAN

The Company provides a defined 401(k) profit sharing plan (the “Plan”) which covers all eligible employees. The Plan allows participants to contribute amounts based upon stated percentages of their compensation. Participants are immediately vested in employee contributions. The Plan also allows, but does not require, the Company to make contributions to the Plan. Participants vest as to Company contributions at the rate of 20% each year after two years of service and are fully vested after seven years of services. During the years ended June 30, 2005, 2004 and 2003, the Company made contributions of approximately $225,700, $187,500, and $98,400, respectively, to the Plan.

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE J — COMMITMENTS AND CONTINGENCIES

Lease Commitments: The Company leases it offices under a lease whose term expires in September 2006. Total rent expense for the Company under this lease for the years ended June 30, 2005, 2004, and 2003 was approximately $70,000, $59,300, and $53,300, respectively. The remaining obligation under this lease agreement is $17,220 at June 30, 2005.

Participation Commitments: In connection with its oil and gas operations, WRI periodically commits itself to participate in oil and gas activities conducted by other parties, including WSF. As of June 30, 2005, WRI had such commitments to participate in expenditures totally approximately $4,027,000.

Contingencies: From time to time, the Company is involved in litigation which arises in the normal course of its business. Management expects all such litigation to be resolved with no significant impact to the Company or its consolidated financial position. The accompanying consolidated financial statements contain no loss provision, reserves, or expense regarding any of the foregoing litigation, other than the ongoing cost of legal representation, which is included in general and administrative expenses on the income statement as such expenses are incurred.

NOTE K — RELATED PARTY TRANSACTIONS

WRI collects management fees from various related party entities in consideration of administration of oil and gas properties owned by the entities. During the ended June 30, 2005, 2004 and 2003, the Company earned $10,140, $10,140 and $49,730, respectively, in management fees from these related parties.

NOTE L — NON-CASH INVESTING AND FINANCING ACTIVITIES

The following non-cash transaction took place during the year ended June 30, 2005:

• Asset retirement obligations estimated at $15,955 were settled on the sale of the associated oil and gas properties.

• Asset retirement obligations estimated at $72,755 were recorded upon the development of oil and gas properties.

The following non-cash transaction took place during the year ended June 30, 2004:

• Asset retirement obligations estimated at $3,988 were settled on the sale of the associated oil and gas properties.

• Asset retirement obligations estimated at $84,543 were recorded upon the development of oil and gas properties.

The following non-cash transaction took place during the year ended June 30, 2003:

• Treasury stock was issued to acquire oil and gas properties for $738,038.

• Asset retirement obligations estimated at $91,741 were settled on the sale of the associated oil and gas properties.

• Asset retirement obligations estimated at $64,393 were recorded upon the development of oil and gas properties.

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WINWELL RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005, 2004 AND 2003

NOTE M — SUBSEQUENT EVENTS

On September 21, 2006, the Company sold all non-core oil and gas properties to Winwell, L.L.C., a related party. These properties included all wells located Arkansas, Michigan, Texas, Mississippi, offshore Gulf of Mexico leases, and certain properties in Louisiana. Proceeds from this sale were $23,432,000.

On December 14, 2005, the Company entered into a definitive purchase and sale agreement with Petrohawk Energy Corporation to sell all of the shares of common stock of the Company. This sale was closed on January 27, 2006. Proceeds generated from the sale were approximately $208,000,000, which consisted of a purchase price of $175,000,000 and a working capital adjustment of approximately $34,000,000.

No modifications have been made to the consolidated financial statements as of or for the years ended June 30, 2005, 2004 or 2003 as a result of these transactions.

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