Petrosearch Energy 10Q/A 2008 Q3 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

Amendment No. 1

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

£	TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 000-51488

PETROSEARCH ENERGY CORPORATION

(Exact name of small business issuer as specified in its charter)

NEVADA		20-2033200
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

675 Bering Drive, Suite 200

Houston, TX 77057

(Address of principal executive offices)

(713) 961-9337

(Issuer’s telephone number)

Indicate by check mark whether the issuer: (i) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.

Yes T No £

Indicate by check mark whether the issuer is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in rule 12b-2 of the Exchange Act.

Large accelerated filer £		Accelerated filer £

Non-accelerated filer £		Smaller reporting Company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 42,416,672 shares of $0.001 par value common stock outstanding as of November 10, 2008

PETROSEARCH ENERGY CORPORATION

FORM 10-Q

For The Quarter Ended September 30, 2008

INDEX

PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	2

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS	14

ITEM 4.	CONTROLS AND PROCEDURES	24


PART II - OTHER INFORMATION

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25

ITEM 6.	EXHIBITS	26


SIGNATURES		27

Petrosearch Energy Corporation is filing this Amendment No. 1 on Form 10-Q/A to its Form 10-Q for the quarter ended September 30, 2008 that was originally filed with the Securities and Exchange Commission ("SEC") on November 14, 2008 (the "Original 10-Q") to (i) add additional disclosure relating to the impact on the financial condition of the Company with respect to the sale of the Barnett Shale interest, (ii) delete the proforma financial statements for the divestiture of the Barnett Shale interest pursuant to Article 11 of Regulation S-X as they are filed with our Form 8-K/A dated January 15, 2009.

This Amendment No. 1 continues to speak as of the date of the Original 10-Q, and we have not updated the disclosure contained herein to reflect any events that occurred at a later date other than that set forth above. All information contained in this Amendment No. 1 is subject to updating and supplementing as provided in our periodic reports filed with the SEC subsequent to the date of the filing of the Original 10-Q.

Index

ITEM 1.

FINANCIAL STATEMENTS

PETROSEARCH ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

September 30, 2008 and December 31, 2007

ASSETS	September 30, 2008 (Unaudited)			December 31, 2007 (See note)

Current assets:
Cash and cash equivalents	$	13,858,274		$	8,033,611
Short-term investments		784,000			-
Accounts receivable:
Joint owners-billed, net of allowance of $62,179 at September 30, 2008and December 31, 2007		9,177			203,671
Joint owners-unbilled		-			3,568
Oil and gas production sales		21,029			319,926
Prepaid expenses and other current assets		541,164			987,155
Total current assets		15,213,644			9,547,931

Property and equipment:
Oil and gas properties, full cost method of accounting:
Properties subject to amortization		23,722,167			33,235,534
Properties not subject to amortization		420,592			7,099,601
Other property and equipment		153,031			153,031
Total		24,295,790			40,488,166
Less accumulated depreciation, depletion and amortization		(3,396,319	)		(3,266,658	)
Total property and equipment, net		20,899,471			37,221,508

Prepaid oil and gas costs		-			1,432,906

Other assets		247,851			834,287

Total assets	$	36,360,966		$	49,036,632

LIABILITIES ANDSTOCKHOLDERS’ EQUITY

Current liabilities:
Current portion of long-term debt	$	-		$	2,066,087
Accounts payable		544,077			960,020
Accrued liabilities for Barnett property costs		-			2,379,073
Accrued liabilities		273,399			1,582,689
Warrant liability		308,750			321,140
Total current liabilities		1,126,226			7,309,009

Long-term debt – Kallina		-			6,919,890
Convertible debt		-			13,914,013
Other long-term obligations		681,924			699,914
Deferred tax liability		2,407,567			-
Total liabilities		4,215,717			28,842,826

Stockholders' equity:
Preferred stock, par value $1.00 per share, 20,000,000 shares authorized:
Series A 8% convertible preferred stock, 1,000,000 shares authorized;285,786 and 483,416 shares issued and outstanding at September 30, 2008and December 31, 2007, respectively		285,786			483,416
Series B convertible preferred stock, 100,000 shares authorized;43,000 shares issued and outstanding at September 30, 2008 and December 31, 2007		43,000			43,000
Common stock, par value $0.001 per share, 100,000,000 shares Authorized; 42,416,672 and 40,941,841 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		42,416			40,941
Additional paid-in capital		34,389,163			33,196,588
Un-issued common stock		-			288,172
Accumulated deficit		(2,615,116	)		(13,858,311	)
Total stockholders' equity		32,145,249			20,193,806

Total liabilities and stockholders' equity	$	36,360,966		$	49,036,632

Note: The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

Index

PETROSEARCH ENERGY CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

for the three months and nine months ended September 30, 2008 and 2007

	Three Months Ended September 30						Nine Months Ended September 30
	2008			2007			2008			2007

Oil and gas production revenues	$	257,659		$	426,931		$	1,357,557		$	1,163,451

Operating costs and expenses:
Lease operating and production taxes		160,162			146,400			709,984			489,291
Depreciation, depletion and amortization		86,736			222,871			550,959			595,660
General and administrative		826,653			631,925			2,142,550			2,072,397

Total costs and expenses		1,073,551			1,001,196			3,403,493			3,157,348

Operating loss		(815,892	)		(574,265	)		(2,045,936	)		(1,993,897	)

Other income (expense):
Interest income		36,893			53,582			105,785			211,025
Interest expense		(89,190	)		(492,850	)		(1,347,117	)		(1,391,870	)
Amortization of financing costs and debt discount		(163,684	)		(507,327	)		(1,444,009	)		(1,374,146	)
Change in value of warrant liability		(159,600	)		94,812			12,390			(109,799	)
Gain on sale of Barnett		-			-			21,814,753			-
Loss on extinguishment of debt		(4,542,432	)		-			(3,445,104	)		-

Total other income (expense)		(4,918,013	)		(851,783	)		15,696,698			(2,664,790	)

Income (loss) before provision for income taxes		(5,733,905	)		(1,426,048	)		13,650,762			(4,658,687	)

Deferred tax (expense)/benefit		522,553			-			(2,407,567	)		-


Net Income (Loss)	$	(5,211,352	)	$	(1,426,048	)	$	11,243,195		$	(4,658,687	)

Basic and diluted net income (loss) per common share	$	(0.12	)	$	(0.04	)	$	0.27		$	(0.12	)

See accompanying notes to unaudited condensed

consolidated financial statements

Index

PETROSEARCH ENERGY CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the nine months ended September 30, 2008

					Series A						Series B				Additional			Unissued						Total Stock-
	Common Stock				Preferred Stock						Preferred Stock				Paid-In			Common			Accumulated			Holders
	Shares		Amount		Shares			Amount			Shares		Amount		Capital			Stock			Deficit			Equity
Balance at December 31, 2007		40,941,841	$	40,941		483,416		$	483,416			43,000	$	43,000	$	33,196,588		$	288,172		$	(13,858,311	)	$	20,193,806
Issuance of common stock committed		297,085		298												287,874			(288,172	)					-
Common stock issued for interest expense		501,448		501												401,125									401,626
Common stock issued for employee and board compensation		645,893		646												313,104									313,750
Conversion of preferred stock to common stock		30,405		30		(197,630	)		(197,630	)						197,600									-
Additional costs of raising capital																(7,128	)								(7,128	))
Net income																						11,243,195			11,243,195
Balance at September 30, 2008		42,416,672	$	42,416		285,786		$	285,786			43,000	$	43,000	$	34,389,163		$	-		$	(2,615,116	)	$	32,145,249

See accompanying notes to unaudited condensed consolidated financial statements

Index

PETROSEARCH ENERGY CORPORATION

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

For the nine months ended September 30, 2008 and 2007

	2008			2007
Cash flows from operating activities:
Net income (loss)	$	11,243,195		$	(4,658,687	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depletion, depreciation and amortization expense		464,223			595,660
Stock-based compensation and interest expense		715,376			683,279
Amortization of deferred rent		(6,628	)		(11,711	)
Amortization of debt discount and beneficial conversion feature		1,173,497			1,141,595
Amortization of financing costs		270,512			258,789
Accretion of asset retirement obligation		24,074			27,231
Change in value of warrant liability		(12,390	)		109,799
Gain on sale of Barnett Shale interest		(21,814,753	)		-
Loss on extinguishment of debt		3,445,104			-
Deferred tax expense		2,407,567			-
Changes in operating assets and liabilities:
Accounts receivable		496,959			86,968
Prepaid expenses and other assets		(112,066	)		(300,520	)
Accounts payable and accrued liabilities		(586,604	)		(83,601	)
Trade note payable		-			(367,095	)

Net cash used in operating activities		(2,291,934	)		(2,518,293	)

Cash flows from investing activities:
Capital expenditures, including purchases and development of properties		(6,182,275	)		(6,412,484	)
Proceeds from sale of Barnett Shale interest		36,000,000			-
Purchase of available-for-sale investments		(784,000	)		-

Net cash provided by (used in) investing activities		29,033,725			(6,412,484	)

Cash flows from financing activities:
Additional costs of raising capital		(7,128	)		-
Proceeds from convertible debt		-			10,000,000
Repayment of notes payable		(20,910,000	)		(1,597,500	)

Net cash (used in) provided by financing activities		(20,917,128	)		8,402,500

Net increase (decrease) in cash and cash equivalents		5,824,663			(528,277	)

Cash and cash equivalents at beginning of period		8,033,611			3,715,618

Cash and cash equivalents at end of period	$	13,858,274		$	3,187,341

Supplemental disclosures of cash flow information:
Interest paid	$	549,319		$	323,996

Income taxes paid	$	-		$	-

See accompanying notes to unaudited condensed consolidated financial statements

Index

PETROSEARCH ENERGY CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Interim Financial Statements

The accompanying interim unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto of Petrosearch Energy Corporation (the “Company”) for the year ended December 31, 2007. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods presented have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the respective full year.

2. Income Taxes

The Company uses the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax carrying amounts of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance, if necessary, is provided against deferred tax assets, based upon management's assessment as to their realization.

The difference between the 35% federal statutory income tax rate and amounts shown in the accompanying interim financial statements is primarily attributable to the following: 1) utilization of net operating loss carry-forwards, 2) changes in the valuation allowance for the Company’s deferred tax assets, 3) current year differences in depreciation for tax and book, and 4) percentage depletion carryforward for tax purposes which is not allowed for book purposes.

3.	New Accounting Pronouncements

The following new accounting pronouncement has been issued in 2008 and will be adopted by the Company on January 1, 2009:

In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133” (“FAS No. 161”). This statement requires enhanced disclosures about derivative and hedging activities. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company will adopt FAS No. 161 on January 1, 2009. The Company does not believe that the standard will have an impact on its consolidated financial statements due to the lack of relevant activities.

4.	Stock Warrants

The Company has periodically issued incentive stock warrants to executives, officers, directors and employees to provide additional incentives to promote the success of the Company’s business and to enhance the ability to attract and retain the services of qualified persons. Warrants have also been issued as part of capital financing transactions. The issuances of such warrants are approved by the Board of Directors. The exercise price of a warrant granted is determined by the fair market value of the stock on the date of grant. The Company issues shares of authorized common stock upon the exercise of the warrant.

Index

The Company accounts for its stock warrant activity under the guidance provided by Statement of Financial Accounting Standards No 123R. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock warrants, to be recognized as stock-based compensation expense in the Company’s Consolidated Statements of Operations based on their fair values. For purposes of determining compensation expense associated with stock warrants, the fair value of the Company’s warrants are determined based upon the Black-Scholes option pricing model. Because no warrants were issued during the three and nine months ended September 30, 2008 and the three months ended September 30, 2007, the Company has no disclosures with regards to the Black-Scholes option-pricing model assumptions. For the nine months ended September 30, 2007, the fair value of the warrants issued was estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

	2007
Dividend yield	-0-
Expected volatility	105%
Risk free interest	4.52%
Expected lives	4 years

The Black-Scholes option valuation model was developed for use in estimating fair value of traded options or warrants that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock warrants have characteristics significantly different from those of traded options/warrants, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock warrants.

A summary of the Company’s stock warrant activity and related information for the nine months ended September 30, 2008 follows:

								Weighted	Total
								Average	Intrinsic
	Number of					Weighted		Grant	Value
	Shares					Average		Date Fair	Warrant
	Under			Exercise		Exercise		Value	Exercises
	Warrant			Price		Price		($/share)(2)	(1)

Warrants outstanding at December 31, 2007		20,304,828		$	.92-$2.00	$	1.41

Issued		-
Exercised		-
Expired		(170,000	)	$	1.95	$	1.95

Warrants outstanding at September 30, 2008		20,134,828		$	.92-$2.00	$	1.40

All outstanding stock warrants are exercisable and fully vested at September 30, 2008. A summary of outstanding stock warrants at September 30, 2008 follows:

Index

					Weighted
Number of			Remaining		Average			Weighted
Common			Contracted		Remaining			Average		Aggregate
Stock		Expiration	Life		Contractual	Exercise		Exercise		Intrinsic
Equivalents		Date	(Years)		Term (Years)	Price		Price		Value (1)
	4,851,969	November 2008		.13		$	0.98-$1.95	$	1.93
	1,060,714	February 2010		1.33		$	2.00	$	2.00
	1,982,145	November 2010		2.13		$	1.50	$	1.50
	5,225,000	January 2011		2.25		$	1.40	$	1.40	��
	575,000	October 2011		3.04		$	.92	$	.92
	6,440,000	December 2011		3.17		$	.92	$	.92
	20,134,828				1.99					$-0-

(1)

The intrinsic value of a warrant is the amount by which the current market value of the underlying stock exceeds the exercise price of the warrant, or the market price at the end of the period less the exercise price.

(2)

The weighted average grant date fair value is determined by using the Black Scholes Option Pricing Model as described above.

The following table provides a detail of stock-based compensation incurred during the nine months ended September 30, 2008 and 2007:

	Nine Months Ended
	September 30,
	2008		2007
Restricted stock – Interest Expense	$	401,626	$	352,834
Restricted stock – General and Administrative		313,750		108,383
Restricted stock – Property Costs		-		645,000
Committed restricted stock		-		222,062
Total stock-based compensation	$	715,376	$	1,328,279
Less amounts capitalized		-		(645,000	)
Stock compensation expense, net of amounts capitalized	$	715,376	$	683,279

Amounts capitalized in 2007 are for property costs. The above table excludes common stock issued for cash, warrants issued in financing arrangements, debt discounts recorded in equity, and common stock issued for exercise of warrants.

5.	Related Party Transactions

Please see Note 12 herein for discussion of the sale of the Barnett Shale interest to Cinco County Barnett Shale LLC, a partner in the DDJET Limited LLP partnership.

6.	Non-Cash Investing and Financing Activities

During the nine months ended September 30, 2008 and 2007, the Company engaged in non-cash financing and investing activities as follows:

	Nine Months Ended
	September 30,
	2008		2007

Reduction of prepaid drilling for development of oil and gas properties	$	1,432,906		-

Change in property costs associated with asset retirement obligation	$	78,036		-
Issuance of common stock for acquisition of property		-	$	645,000

Beneficial conversion feature on convertible debt		-	$	2,667,968

Issuance of warrants with debt		-	$	2,667,968

Issuance of convertible debt for financing costs		-	$	450,000

Index

7.	Earnings Per Share

The Company reports its earnings per share in accordance with the provisions of SFAS No. 128, which provides for calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the three and nine months ended September 30, 2008 and 2007:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Basic EPS:
Net income (loss)	$	(5,211,352	)	$	(1,426,048	)	$	11,243,195		$	(4,658,687	)
Less: Preferred stock dividends (undeclared)		(5,763	)		(9,668	)		(23,341	)		(29,005	)
Net income (loss) available to common stockholders	$	(5,217,115	)	$	(1,435,716	)	$	11,219,854		$	(4,687,692	)

Weighted average shares of common stock		41,925,232			39,553,131			41,635,349			39,181,688

Basic net income (loss) per share	$	(0.12	)	$	(0.04	)	$	0.27		$	(0.12	)

Diluted EPS:
Income (loss) available to common stockholders	$	(5,217,115	)	$	(1,435,716	)	$	11,219,854		$	(4,687,692	)
Plus assumed conversions		5,763			9,668			23,341			29,005
Net income (loss) used for diluted EPS	$	(5,211,352	)	$	(1,426,048	)	$	11,243,195		$	(4,658,687	)

Weighted average shares of common stock		41,925,232			39,553,131			41,635,349			39,181,688
Plus effect of dilutive securities:
Convertible preferred stock		-			-			79,762			-
Weighted average shares used for Diluted EPS		41,925,232			39,553,131			41,715,111			39,181,688

Diluted net income (loss) per share	$	(0.12	)	$	(0.04	)	$	0.27		$	(0.12	)

For the three months ended September 30, 2008, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. These securities included preferred stock convertible into 64,014 common shares.

For the three and nine month period ended September 30, 2007, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. For the three and nine months ended September 30, 2007, these securities included in-the-money warrants for the purchase of 1,954,346 and 2,013,511 common shares, respectively, and preferred stock convertible into 94,218 common shares.

Index

8.	Legal Proceedings

On April 11, 2007, the Company was served with a lawsuit filed against it titled Cause No. 2007-16502; D. John Ogren, R. Bradford Perry and Chester Smitherman v. Petrosearch Corporation; 133rd Judicial District Court, Harris County, Texas. The plaintiffs were three (3) Series A Preferred shareholders who derived their original shares from Texas Commercial Resources, Inc. (“TCRI”) and became Series A Preferred shareholders of Petrosearch Energy Corporation as a result of the prior mergers. The plaintiffs had alleged that Petrosearch Corporation (and TCRI, its predecessor) failed to pay accrued, cumulative dividends and refused to allow conversion of their Series A Preferred Stock into Common Stock. The plaintiffs had alleged breach of contract, fraud and violation of Section 33 of the Texas Securities Act and have requested the award of actual and exemplary damages, interest and attorneys’ fees. The lawsuit likewise requested the Court to compel the payment of accrued dividends and the examination of the Company’s books and records. The lawsuit was settled in September 2008 and the settlement was paid 100% by the Company's insurance policy. The payment of the settlement is not an admission of liability, as the Company denies all allegations of wrongdoing contained in the lawsuit.

The Company currently is not a party to any other legal proceedings.

9.	Short-term Investments

The Company’s available for sale investment portfolio consists of certificates of deposit. As of September 30, 2008, all of the Company’s investments had maturities of less than one year.

10.	Fair Value Measurements

The Company adopted FAS 157 on January 1, 2008. FAS 157, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. FAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, FAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Index

Level 1.		Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2.		Inputs, other than quoted prices included within Level 1, that are observable either directly or indirectly; and

Level 3.		Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of September 30, 2008, the Company’s assets and liabilities that are measured at fair value on a recurring basis include the following:

	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Warrant liability	$	308,750		—	$	308,750

11.	Extinguishment of Debt

Convertible Securities

In July, 2008, the Company extinguished all of its convertible debt outstanding and related interest by repaying the principal balance of $18,775,000 and accrued and unpaid interest of $87,734. Total cash payments made were $18,862,734. At the time of the extinguishment, the unamortized debt discount of $3,795,272 and the unamortized financing costs of $747,160 totaled $4,542,432, which was recorded as loss on extinguishment of debt in the third quarter of 2008.

Project Financing

In November 2006, the Company signed a Securities Purchase Agreement and Secured Term Note with Laurus Master Fund, Ltd to provide financing for the drilling of its Kallina 46 #1 well and payment of the future completion costs for the Kallina 46 #1 well. The November 2006 financing was specifically recourse to the Kallina 46 #1 well and the associated lease acreage only.

In April 2008, it was determined that the Kallina 46 #1 well was uneconomic and the decision was made that the well needed to be plugged and abandoned. In May 2008 the Company received a full release of all the liens, security interests, rights, claims and benefits of every kind in, on and under the November 2006 Secured Term Note with Laurus Master Fund, Ltd, as well as that same release on all the other collateral documents associated with that financing. As part of this transaction, the Company conveyed their interest in the Kallina 46#1 well and the associated lease acreage to a third party.

As a result of the legal release described above, the debt related to the Laurus financing has been extinguished on the financial statements of the Company in May, 2008. In addition, the accrued interest, unamortized debt discount, and unamortized financing costs have also been written-off as well as the net book value of the Kallina well.

The gain on extinguishment of this debt was accounted for according to APB 26, “Early Extinguishment of Debt”. A difference between the reacquisition price and the net carrying amount of the extinguished debt was recognized as a gain in the amount of $1,097,328 in the accompanying statements of operations for the nine months ended September 30, 2008.

Index

Revolving Credit Agreement

On April 1, 2008 the total outstanding balance of the revolving credit facility became due and a payment of $1,602,500 was paid in full to Fortuna Energy, which closed out the revolving credit facility as of that date. Pursuant to the revolving credit agreement, and as part of being paid back in full, Fortuna Energy returned to the Company all of the overriding royalties related to the Company’s assets that were issued to Fortuna Energy. The most significant override relates to a 2% override of the Company’s net interest in the Company’s North Dakota, Gruman project.

12.	Sale of Barnett Shale Interest

In December 2006, through the Company’s wholly owned subsidiary, Barnett Petrosearch LLC, (“Barnett Petrosearch”) the Company joined in the formation of a partnership, DDJET Limited LLP (“DDJET”), for the development of a natural gas integrated venture to explore and develop assets in the Barnett Shale. The Company owned a 5.54% interest in DDJET along with partners Metroplex Barnett Shale LLC, a wholly owned subsidiary of Exxon Mobil Corporation, and Cinco County Barnett Shale LLC, a privately held Dallas-based company (“Cinco”).

On February 11, 2008 the Company executed an authorization for the general partner of the Partnership to immediately commence a sales marketing program to interested potential purchasing parties in order to fully assess the current market value of the Partnership. On June 25, 2008 the Company executed a binding agreement for the sale of its limited partnership interest in DDJET to Cinco for a cash purchase price of $36,000,000. On June 26, 2008 Cinco paid to Barnett Petrosearch the required $1,800,000 non-refundable deposit to be applied to the purchase price and fulfilled all the other necessary requirements to bind both Cinco and Petrosearch to the sale. On July 18, 2008 the Company received the balance of the proceeds of the sale in the amount of $30,729,008. These proceeds were net of the $1,800,000 down payment previously received from Cinco and $3,470,992 of costs previously owed by the Company which were assumed by Cinco pursuant to the June 25, 2008 agreement.

Because the Company utilizes the Full Cost Accounting method to account for its oil and gas assets, in order to record a gain on the sale transaction the sale must have significantly altered the relationship between capitalized costs and proved reserves. Being that the amortization rate per barrel of oil equivalent decreased by greater than 50% from before the sale as opposed to after the sale, the Company deemed the alteration of the relationship between capitalized costs and proved reserves to be significant. The reason there was such an alteration was due to the fact that a significant portion of the Barnett Shale’s capital costs was related to undeveloped acreage that did not have any proved reserves associated with it; as opposed to the Company’s other assets whose capital costs are more directly related to proved reserves. As a result, a gain of $21,814,753 has been generated by the sale of the Company’s interest in DDJET.

As presented in the Company’s most recent annual report, as of December 31, 2007, the Company’s proved gas reserves were 2,683,210 Mcf. This included 1,878,367 of proved gas reserves attributable to the Company’s Barnett Shale interest. This sale has lead to an approximately 70% decrease in the Company’s proved gas reserves and a 14% decrease in the Company’s total proved reserves.

As of December 31, 2007, the Company’s proved developed gas reserves were 993,730 Mcf. This included 920,887 of proved developed gas reserves attributable to the Company’s Barnett Shale interest. This sale has lead to an approximately 93% decrease in the Company’s proved developed gas reserves and a 36% decrease in the Company’s total proved developed reserves.

As of December 31, 2007, the Company’s standardized measure of discounted future net cash flows relating to the Company’s interest in proved oil and gas reserves were $40,389,151. This included $2,180,055 attributable to the Company’s Barnett Shale interest. This sale has lead to an approximately 5% decrease in the Company’s standardized measure of discounted cash flows.

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13.	Series A Preferred Stock

As of September 30, 2008 and December 31, 2007 the Company has 1,000,000 shares of Series A 8% Convertible Preferred Stock (“Series A Preferred”) authorized and 285,786 and 483,416 shares outstanding, respectively. If declared by the Board of Directors, dividends are to be paid quarterly in cash or in common stock of the Company to the holders of shares of the Series A Preferred. The shares of the Series A Preferred rank senior to the common stock both in payment of dividends and liquidation preference. As of September 30, 2008, no dividends have been declared and approximately $140,035 of dividends was in arrears related to the Series A Preferred if the Company decided to declare dividends.

14.	Subsequent Events

In October of 2008, the Company purchased 194,800 shares of its common stock at an average share price of approximately $0.21 to be classified as treasury stock.

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Item 2.

Management’s Discussion and Analysis or Plan of Operation

FORWARD LOOKING STATEMENTS

Statements contained herein and the information incorporated by reference herein may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements can be identified by the use of forward-looking terminology such as, but not limited to, "may," "will," "expect," "anticipate," "estimate," "would be," "believe," or "continue" or the negative or other variations of comparable terminology. We intend such forward-looking statements to be covered by the safe harbor provisions applicable to forward-looking statements contained in Section 21E of the Exchange Act. Such statements (none of which is intended as a guarantee of performance) are subject to certain assumptions, risks and uncertainties, which could cause our actual future results, achievements or transactions to differ materially from those projected or anticipated. Such risks and uncertainties are set forth herein.

Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, or performance and underlying assumptions and other statements, which are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demands and acceptance, changes in technology, economic conditions, the impact of competition and pricing, and government regulation and approvals. Petrosearch cautions that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. Some of the key factors which could cause actual results to vary from those Petrosearch expects include changes in natural gas and oil prices, the timing of planned capital expenditures, availability of acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as our ability to access them, and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business.

Our expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis, including without limitation, our examination of historical operating trends, data contained in our records and other data available from third parties. There can be no assurance, however, that our expectations, beliefs or projections will result, be achieved, or be accomplished. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no duty to update these forward-looking statements.

OVERVIEW – CORPORATE STRATEGY

We believe we have been successful over the past few years with our plan of solidifying the financial strength of the Company and improving the quality of our oil and gas assets, some of which have been sold resulting in significant gain to the Company. A key element to our current strong financial position was the sale of our Barnett Shale project in the second quarter of this year. This sale of our Barnett Shale project for $36 million left us with a significant cash balance, no long or short term debt and significant oil and gas reserves. The sale was fortuitous in that (i) we sold our Barnett Shale partnership interest near the height of natural gas prices; (ii) we realized approximately $29,000 per net acre in the sale, as opposed to current market values of approximately $5,000 or less per acre today; and (iii) for us to have stayed in the Barnett Shale project we would have needed to raise capital, which was unsuccessfully attempted prior to the sale and in this current market would have been extremely difficult, if not impossible. Therefore, a possible scenario if we had stayed in the partnership may have been that we would have defaulted under the Barnett Shale partnership agreement and as a result we would have been forced to sell our interest for 70% of the market value (pursuant to the partnership agreement), which assuming $5,000 per acre market values would have realized an estimated $12.2 million opposed to the $36 million actually realized.

Our current asset portfolio is primarily made up of a North Texas Panhandle water flood project (the “Water Flood”) that has potential for multiple years of growth. The Water Flood is a resource play, which will allow us to re-invest our capital into the project to enhance the rate of return, revenue growth and reserve growth. We have initiated the first phase of the development of the Water Flood with a portion of the proceeds from the sale of the Barnett Shale project, a decision that enables us to spend the least amount of capital needed to measure the level of initial response of the water injection. We will then be able to make decisions on the future development of the project, and gauge the impact of the response on future potential strategic alternatives.

Index

We continue to pursue and evaluate all strategic alternatives available. Given our strong financial position, we believe we will continue to see multiple opportunities to evaluate, and if appropriate, pursue. Also, given the current energy asset and company valuations, and financial market conditions where access to capital, both debt and equity, has become limited, we believe that companies that have cash or access to capital have a decided advantage to avail themselves of attractive value added transactions. We believe this plan of continuing to focus on the development of our Water Flood, as well as continuing to pursue strategic alternatives for the Company will give us the opportunity to create value for the shareholders.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have primarily financed our operating and investing cash flow needs through private offerings of equity securities, sales of crude oil and natural gas, sales of oil and gas assets and the use of debt instruments such as convertible notes and revolving credit facilities. We also, more specifically, have sold one of our main projects, the Barnett Shale project, for cash. The proceeds from all these methods have been, and Management believes will continue to be, sufficient to keep the operations funded and the business plan moving forward.

Convertible Securities

On November 9, 2007 we executed, with a group of accredited investors, a series of Note and Warrant Purchase Agreements for the sale of $8,100,000, 8% Senior Secured Convertible Promissory Notes and three year warrants to purchase 1,928,571 shares of our common stock at an exercise price of $1.50 per share for total gross proceeds to us of $8,100,000. Upon closing the transaction, we also issued the Convertible Note and the Warrant, and executed a Pledge and Security Agreement and a Registration Rights Agreement. These convertible notes were repaid in full on July 21, 2008. In exchange for cancelling the note and releasing the collateral the note holders were paid the outstanding principal and accrued interest through July 21, 2008. Currently, there is no outstanding debt related to these convertible notes.

On February 1, 2007, we executed a Note and Warrant Purchase Agreement for the sale of a $10,000,000 8% Senior Secured Convertible Promissory Note with RCH Petro Investors, LP (“RCH”) and a four year warrant to purchase 5,000,000 shares of our common stock at an exercise price of $1.40 per share for total gross proceeds to us of $10,000,000. We completed the transaction and received funding on February 7, 2007. Upon closing, we issued the Convertible Note and the Warrant, and executed a Pledge and Security Agreement and a Registration Rights Agreement. This convertible note precluded the Company from incurring indebtedness in excess of fifty percent (50%) of the PV-10 value of the Company’s total proved reserves, plus the fair market value of the leases and pipeline assets associated with the Company’s Barnett Shale assets. This convertible note was repaid in full on July 21, 2008. In exchange for cancelling the note and releasing the collateral the note holder was paid the outstanding principal and accrued interest through July 21, 2008. Currently, there is no outstanding debt related to this convertible note.

Project Financings

In November 2006, we signed a Securities Purchase Agreement and Secured Term Note with Laurus Master Fund, Ltd to provide financing for the drilling of our Kallina 46 #1 well and payment of the future completion costs for the Kallina 46 #1 well. We formed a subsidiary, Garwood Petrosearch Inc., to hold our interest in the Kallina Lease and the Kallina 46 #1 well. Also, as a part of the financing arrangement, Garwood issued Laurus a Warrant to acquire, upon payout of the Note indebtedness, 45% of Garwood’s outstanding common stock such that upon exercise of the Warrant, Garwood would be owned 55% by us and 45% by Laurus.

Index

It was decided in April 2008 that the Kallina 46#1 well was uneconomic and the decision was made that the well needed to be plugged and abandoned. In May 2008 the Company received a full release of all the liens, security interests, rights, claims and benefits of every kind in, on and under the November 2006 Secured Term Note with Laurus Master Fund, Ltd, as well as that same release on all the other collateral documents associated with that financing. The November 2006 financing was specifically recourse to the Kallina 46#1 well and the associated lease acreage only. The debt related to the Laurus financing was extinguished on the financial statements of the Company in May, 2008 as well as any interest that was charged in relation to the Note was derecognized in that same period.

As part of this transaction, the Company has conveyed their interest in the Kallina 46#1 well and the associated lease acreage to a third party along with the Company’s interest in the Pintail #1 well, Pintail Flats #1 well and the associated acreage of Pintail and Pintail Flats. Also as a part of this transaction, the Company has transferred operatorship of all the existing and future wells in this SW Garwood Prospect to the third party. In exchange for the conveyance of the wells and acreage and the transfer of operatorship, the Company received nominal cash consideration and the third party has assumed the liability of plugging the Kallina 46#1 well.

Revolving Credit Agreement

As of April 1, 2008 the total outstanding balance of the revolving credit facility became due and a payment of $1,602,500 was paid in full to Fortuna Energy, which closed out the revolving credit facility as of that date. Pursuant to the revolving credit agreement and as part of being paid back in full, Fortuna Energy returned to the Company all of the overriding royalties related to the Company’s assets that were issued to Fortuna Energy. The most significant override relates to a 2% override of the Company’s net interest in the North Dakota, Gruman project.

As part of the original amended revolving credit agreement terms, we agreed to issue to Fortuna 475,000 warrants with a five year life and a strike price of $0.92 per share. The Warrants contained a “put” provision which allowed Fortuna to “put” the warrants to the Company at a price of $0.65 per warrant for two (2) years, which occurred in October, 2008. Additionally, as part of the transaction, we agreed to issue 100,000 warrants, which expire 5 years from the date of issue, at a price of $0.92 per share.

Joint Ventures

We continue to strive to develop relationships with institutions to participate in our prospects. Management believes this will reduce our capital risk and increase the diversity of the projects in which we use our own capital. We intend to establish these drilling partnership relationships with terms that are standard in the oil and gas industry.

CURRENT PROJECTS AND CAPITAL REQUIREMENTS

CORE PROPERTIES:

Barnett Shale Project -- In December 2006, through our wholly owned subsidiary, Barnett Petrosearch LLC, we joined in the formation of a partnership, DDJET Limited LLP (“DDJET”), for the development of a natural gas integrated venture to explore and develop assets in the Barnett Shale. We owned a 5.54% interest in DDJET along with partners Metroplex Barnett Shale LLC (a wholly owned subsidiary of Exxon Mobil Corporation), and Cinco County Barnett Shale LLC (“Cinco” - a privately held Dallas-based company).

On February 29, 2008 we announced that we executed an authorization for the general partner of the Partnership to immediately commence a sales marketing program to interested potential purchasing parties in order to fully assess the current market value of the Partnership. On June 25 we executed a binding agreement for the sale of our limited partnership interest in DDJET to Cinco, one of the other two partners in DDJET, for a cash purchase price of $36,000,000. On June 26, 2008 Cinco paid to Barnett Petrosearch the required $1,800,000 non-refundable deposit to be applied to the purchase price and fulfilled all the other necessary requirements to bind both Cinco and Petrosearch to the sale. On July 18, 2008 the Company received the balance of the proceeds of the sale of $30,729,008, the net amount after deducting the $1,800,000 down payment previously received from Cinco and $3,470,992 of costs previously owed by the Company to the Partnership which were assumed by Cinco pursuant to the June 25, 2008 agreement.

Index

North Texas/Panhandle Water Flood Project - In November 2005, we acquired a 100% working interest in 1,755 acres in the Quinduno Field in Roberts County, Texas, in the Anadarko Basin. The project is focused on infill drilling and the implementation of a water flood on the property. Our leases at Quinduno have a large established resource base of over 23 million barrels of original oil in place. Since its discovery in 1953, approximately 5.1 million barrels have been produced using primary production.

The Company has commenced the first phase of the water flood project and began injecting water into the formation in early September 2008. To date, three wells in the first water flood pattern have been converted for water injection in which we are currently injecting approximately 2600 barrels of treated water per day. Additionally, one infill well drilled in the center of the pattern is configured as a producer where we expect to observe the initial response to water flood. We are currently using the total amount of treated water that is available from the water treatment facility constructed on our lease by Complete Production Services Inc. (“CPS”), as described below. CPS is currently in the process of ramping up the capacity of the water treatment facility and the barrels of water injected into the formation will increase as the plant increases capacity.

The Company has prepared a detailed study and development plan which includes entering each of the 19 old wells that have not been plugged. So far, we have entered nine of these older wells to determine their mechanical status and establish potential productivity or injectivity. Three of these wells have been equipped and are now capable of producing and three, as noted above, have been converted for water injection. Further, two previously plugged wells were re-entered but we were unable to complete them for water injection. As of December 31, 2007, our independent engineers, Ryder Scott, estimated our net share of proved oil reserves extractable by water flood at 1.5 million barrels of oil equivalent. Slightly deeper than the water flood zone, the Moore County Limestone formation has undrilled exploration potential that may be tested in a future well.

To provide adequate water for injection, in November 2006 we executed a water supply agreement with a landowner in the leasehold, which allows us to draw freshwater from the aquifer underlying the landowner’s property. In that same month, we received approval from the Panhandle Groundwater Authority District (“PGAD”) to produce up to 5,000 barrels per day from the aquifer for use in the flood. This permit has since expired but we do not expect any difficulty obtaining a new permit if needed to supplement the treated water being used for injection. We received the approval from the PGAD over the protest filed with the PGAD by the Canadian River Municipal Water Authority (“CRMWA”) attempting to preserve the freshwater for local municipal use only in the area in which we own the rights to the freshwater. We also applied to the Texas Railroad Commission (“TRRC”) to amend a previously granted saltwater injection permit to include fresh water injection. On January 5, 2007 we received a letter from the TRRC informing us of a protest by CRMWA contesting our application for freshwater injection in the Quinduno Field water flood. However, as of November 7, 2007, CRMWA withdrew their protest and request for hearing as part of an agreement with CRMWA that addresses their concerns with our use of freshwater for enhanced oil recovery. This agreement also prevents CRMWA from protesting future efforts to obtain approval from PGAD to produce the underlying freshwater aquifer.

In January 2008 we signed an agreement with CPS, an international oilfield service company which provided that CPS, at its sole expense, would design and construct a water treatment facility no later than 90 days from the effective date of the agreement that would be capable of treating all of our production water up to a maximum of 10,000 bbls per day and likewise treat and provide to the Company a minimum of 5,000 bbls per day of production water from third party sources. We, in turn, committed to be capable of injecting not less than 2,000 bbls of treated water per day derived from third party production water within 30 days after the facility opened, and further committed to be capable of injecting not less than 5,000 bbls of treated water per day derived from third party production water within 180 days after the facility opened, in addition to re-injecting our own treated production water from Quinduno. The facility was fully operational September 19, 2008 at which time the company was accepting and injecting a minimum of 2000 barrels of water per day. We are required to pay a scaled management fee to CPS that commenced in September on the basis of the volume of treated and re-injected water derived from our production. We have received TRRC permits to add a sufficient number of wells to the existing permit to meet our obligation to inject the volumes that CPS will make available. Further, we will continue to add the appropriate number of wells to the existing flood permit to continue with the development of the flood. We do not anticipate any difficulty with obtaining future approvals.

Index

SW Garwood, Colorado County, Texas – In May 2008 we conveyed our interest in the three drilled wells and the associated acreage in this SW Garwood prospect to an unaffiliated third party. As a part of that transaction, we also transferred operatorship of all the existing and future wells in this SW Garwood prospect to that third party. In exchange for the conveyance of the wells and acreage and the transfer of operatorship, the Company received nominal cash consideration as well as the third party’s assumption of the liability of plugging the Kallina 46 #1 well.

OTHER PROJECT AREAS:

Gruman Prospect, Stark County, North Dakota - On March 28, 2006, we spudded the Gruman 18-3 well intended to be either an increased density well if it proved to be up dip of the Gruman 18-1 producing well or a water injection well if it was down dip. The well reached total depth of 9,890 feet on April 14, 2006, and was completed as an injection well. On February 1, 2007, we began injecting produced water into the Gruman 18-3 well. The goal was to reduce the cost of operating the Gruman 18-1 by eliminating the need to truck produced water to a disposal facility. Further testing or stimulation may be necessary to achieve the desired future injection rates.

During 2008 the pump on the Gruman 18-1 producer has been repaired or replaced three times. The pump was last repaired in early July 2008 after which fluid flow into the wellbore diminished to near zero. In order to re-establish production we are considering supplementing the produced water injection volume in the Gruman 18-3 well with water from the Dakota for pressure maintenance in the mound. Further, we are giving consideration to deepening the 18-1 well to expose more of the mound. The Gruman well continues to have pump and motor issues. This along with an unexpected decline in reservoir pressure has severely affected our ability to produce the well during the quarter, the well continues to have operational issues resulting in no production.

Proved developed reserves in the prospect to our share of the well as of December 31, 2007, were 215 Mbo and 68 MMcf of natural gas, as estimated by a third party engineering firm, McCartney Engineering, LLC.

Mississippi Tuscaloosa Prospects -- In June 2008 we agreed to farm-out out acreage in these prospects to an industry partner for co-development. The agreement allowed our industry partner to operate the project and required that they commence drilling of the first well on our acreage prior to October 1, 2008. Under the agreement the Company received a carried interest for 12.5% through casing point of the first well and an option to purchase up to another 12.5% interest in the well at cost. For all future wells, the agreement provides us with the same working interest as we chose on the first well. Prior to October 1 our partner tested the structure on offsetting acreage with a new well. The target zone was found as expected at approximately 6800’; however, the well found only a few feet of oil on water. After testing, this well was determined to be non-commercial and our partner has decided not to continue drilling. While we are considering alternatives for development of our leasehold position, it is likely that we will allow the acreage to expire.

RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes and the other financial information appearing elsewhere in this filing.

The factors that most significantly affect our results of operations are: (i) the sale prices of crude oil and natural gas; (ii) the amount of production sales; and (iii) the amount of lease operating expenses. Sales of production and level of borrowings are significantly impacted by our ability to maintain or increase production and reserves from existing oil and gas properties through exploration and development activities.

Index

For the three months ended September 30, 2008 compared to the three months ended September 30, 2007

Revenues

Consolidated oil and gas production revenue for the three months ended September 30, 2008 was $257,659 versus $426,931 for the three months ended September 30, 2007. This represents a forty percent decrease in revenue in the third quarter of 2008 over the third quarter of 2007. This decrease was mainly the result of the decreased production in our Gruman – North Dakota well, which is related to pump and pressure depletion issues with the well. The Gruman well continues to have these mechanical and reservoir issues and is not producing at this time. Also, the sale of the Barnett Shale interest will significantly reduce our production revenues going forward as indicated by the fact that the Barnett Shale consisted of eighty-three percent of the revenue for the three months ended September 30, 2008. Therefore, due to the sale of the Barnett interest and the operational issues with the Gruman – North Dakota well we note that our past performance with regards to revenues and cash flow will not be indicative of future expected results.

See below for revenue detail by property from the third quarter of 2008 compared to the third quarter of 2007.

	2008		%of			2007		%of
	3rd Qtr		Total			3rd Qtr		Total

Barnett Shale	$	212,191		83	%	$	179,161		42	%
Gruman - North Dakota		-		0	%		160,963		38	%
SW Garwood		-		0	%		40,037		9	%
Panhandle - Water Flood		2,468		1	%		1,573		0	%
Oklahoma		39,335		15	%		36,766		9	%
Other		3,665		1	%		8,431		2	%
Total	$	257,659		100	%	$	426,931		100	%

To further explain the decrease in revenue from the third quarter of 2007 to the third quarter of 2008, we have provided the following break-out of production and prices for the two periods.

		3Q 2008		3Q 2007

Barrels of Oil		439		2,642
Price per Barrel	$	99.38	$	73.79

MCF of Gas		18,866		37,600
Price per MCF	$	11.29	$	5.94

Total Barrels of Oil Equivalent		3,584		8,927

As noted in the above table, the increase in oil and gas prices offset the fact that the production was down by sixty percent. The total effect on revenue from the price increases was approximately $268,999; however the effect of the decrease in production offset that positive effect by $(438,271) giving a net effect of $(169,272) on revenue from the third quarter of 2007 to the third quarter of 2008.

Index

Lease Operating and Production Tax Expense

Lease operating and production tax expenses for the quarters ended September 30, 2008 and 2007 were $160,162 and $146,400, respectively. These expenses relate to the costs that are incurred to operate and maintain our wells and related production equipment, including the costs applicable to the operating costs of support equipment and facilities. Lease operating expenses remained relatively constant, although revenue decreased by forty percent, due to the fact that although the Gruman well has not been producing, the lease operating costs related to the Gruman well remained constant during the period. Work on the well continues in an attempt to get the well back on line.

Depletion, Depreciation and Amortization

Costs for depletion, depreciation and amortization for the quarters ended September 30, 2008 and 2007, were $86,736 and $222,871, respectively. The decrease is mainly due to a decrease in total barrels of oil equivalent production during the quarter ended September 30, 2008 as compared to the same period in 2007 as well as a decrease in the amortizable base used to calculate depletion, due to the sale of the Barnett Shale project. Given the fact that depletion is calculated by multiplying the net amortizable costs times the units of production in the related period relative to the total proved reserves, the depletion amount for the third quarter of 2008 was significantly lower than the depletion for the same period in 2007.

General and Administrative Expenses

General and administrative expenses for the quarters ended September 30, 2008 and 2007, were $826,653 and $631,925, respectively. The increase in total general and administrative expense was mainly due to the increase in personnel costs which was higher due to the fact that stock bonuses (non-cash) granted to employees in 2007 vested in the third quarter of 2008, as well as a stock bonus being granted to employees in the third quarter of 2008. The total non-cash bonuses to employees recorded in personnel costs in the third quarter of 2008 were $229,375. The increase in personnel costs were slightly offset due to a decrease in accounting, legal and professional fees. A summary listing of general and administrative expenses is provided below.

	3rd Quarter		3rd Quarter
	2008		2007

Personnel Costs	$	504,192	$	273,498
Travel, Meals, and Entertainment		10,275		1,503
Corporate Expenses		68,214		81,165
Accounting, Legal, and Professional Fees		98,781		143,379
Third Party Consultants and Contractors		82,983		71,955
Office Expenses		44,310		40,272
Other		17,898		20,153

Total General and Administrative	$	826,653	$	631,925

Operating Loss

We generated an operating loss of $(815,892), or $(0.02) per share, for the quarter ended September 30, 2008, compared to an operating loss of $(574,265), or $(0.01) per share, for the quarter ended September 30, 2007. The $(241,627) variance is related mainly to a decrease in revenues, coupled with a decrease in depletion expense and an increase in general and administrative expenses.

Other Income (Expense)

The $(4,066,230) increase from $(851,783) in other expense for the quarter ended September 30, 2007 to $(4,918,013) in other expense for the quarter ended September 30, 2008 is due mainly to the loss recorded on the early extinguishment of the convertible debt. By paying the debt off early, we had to accelerate the amortization of debt discount and financing costs of approximately $4.5 million that would have been amortized over the life of the convertible note, had we not paid it off early. When the convertible notes were originally recorded, the accounting treatment was to record the debt discount to the equity section of the balance sheet; therefore the net effect of the early retirement of the convertible notes to the equity section of the balance sheet is limited to the write-off of the unamortized financing costs of $241,136. It is just a reclassification from additional paid in capital to retained earnings. This loss was partially offset by a decrease in interest expense and a decrease in amortization of debt discount, both of which decreased because the convertible notes were paid off early in the quarter.

Index

For the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007

Revenues

Consolidated oil and gas production revenue for the nine months ended September 30, 2008 was $1,357,557 versus $1,163,451 for the nine months ended September 30, 2007. This represented a seventeen percent increase in revenue in the nine months ended September 30, 2008 over the same period in 2007. This increase is primarily due to the significant increase in the revenues from our Barnett Shale project; however, the increase is offset by a decrease in revenues from our Gruman North Dakota well (due to pump and pressure depletion issues – discussed herein) and a decrease in revenues from our SW Garwood project (due to the sale of that project – discussed herein). The Gruman well continues to have mechanical and reservoir issues and is not producing at this time. Also, the sale of the Barnett Shale interest will significantly reduce our production revenues going forward as indicated by the fact that the Barnett Shale consisted of seventy-four percent of the revenue for the nine months ended September 30, 2008. The continued pump and reservoir issues with the Gruman – North Dakota well will also negatively impact our future revenues given the fact that the Gruman well accounted for thirteen percent of the revenues for the nine months ended September 30, 2008. Therefore, due to the sale of the Barnett interest and the operational issues with the Gruman – North Dakota well we note that our past performance with regard to revenues and cash flow will not be indicative of future expected results.

See below for revenue detail by property for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007.

	2008		% of			2007		% of
	9-Months		Total			9-Months		Total

Barnett Shale	$	995,445		74	%	$	414,862		36	%
Gruman - North Dakota		175,086		13	%		404,889		35	%
SW Garwood		26,255		2	%		179,689		15	%
Panhandle - Water Flood		3,608		0	%		9,145		1	%
Oklahoma		123,448		9	%	102,654			9	%
Other		33,715		2	%		52,212		4	%
Total	$	1,357,557		100	%	$	1,163,451		100	%

Index

To further explain the increase in revenue from the first nine months of 2007 to the first nine months of 2008 we have provided the following break-out of production and prices for the two periods.

	2008 9-Mos		2007 9-Mos

Barrels of Oil		3,121		8,086
Price per Barrel	$	100.06	$	61.97

MCF of Gas		114,334		94,488
Price per MCF	$	8.91	$	6.39

Total Barrels of Oil Equivalent		22,298		24,156

As noted in the above table, the increase in oil and gas prices played a significant role in the increase in revenue since 2007. Price increase effects of natural gas and oil on our revenue from the nine months ended September 30, 2007 to the nine months ended September 30, 2008 were $561,559; however the decrease in production offset that increase by $(367,453).

Lease Operating and Production Tax Expense

Lease operating and production tax expenses for the nine months ended September 30, 2008 and 2007 were $709,984 and $489,291, respectively. These expenses relate to the costs that are incurred to operate and maintain our wells and related production equipment, including the costs applicable to the operating costs of support equipment and facilities. Lease operating expenses increased due to fact that there were 12 Barnett Shale wells on-line for the first time during the nine months of 2008 that were not on-line for that period in 2007. In addition, repair and maintenance type work was required on the Pintail and Gruman wells in 2008 causing total lease operating expenses for these two wells to increase.

Depletion, Depreciation and Amortization

Costs for depletion, depreciation and amortization for the nine months ended September 30, 2008 and 2007, were $550,959 and $595,660, respectively. The decrease is due to (i) a decrease in total barrels of oil equivalent production in the nine months ended September 30, 2008, as compared to the same period in 2007; and (ii) lower costs in the amortizable base due to the sale of the SW Garwood and Barnett Shale projects. Given the fact that depletion is calculated by multiplying the net amortizable costs times the units of production in the related period relative to the total proved reserves, the depletion amount for the first nine months of 2008 was lower than the depletion for the same period in 2007.

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General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2008 and 2007, were $2,142,550 and $2,072,397, respectively. The slight increase in total general and administrative expense was mainly due to the increase in personnel costs which was higher due to the fact that stock bonuses given to employees in 2007 vested in the third quarter of 2008, as well as a stock bonus was granted to employees in the third quarter of 2008. The increase in general and administrative expenses was slightly offset due to a decrease in corporate expenses and third party consultants. A summary listing of general and administrative expenses is provided below.

	9/30/2008		9/30/2007
	YTD Total		YTD Total

Personnel Costs	$	1,101,165	$	957,870
Travel, Meals, and Entertainment		25,260		38,091
Corporate Expenses		186,051		241,908
Accounting, Legal, and Professional Fees		452,229		414,261
Third Party Consultants and Contractors		179,040		210,453
Office Expenses		145,188		148,560
Other		53,617		61,254

Total General and Administrative	$	2,142,550	$	2,072,397

Operating Loss

We generated an operating loss of $(2,045,936), or $(0.05) per share, for the nine months ended September 30, 2008, compared to an operating loss of $(1,993,897), or $(0.05) per share, for the nine months ended September 30, 2007. The $(52,039) variance is related to an increase in revenues related to our Barnett Shale asset offset by an increase in lease operating costs.

Other Income (Expense)

The $18,361,488 increase from $(2,664,790) in other expense for the nine months ended September 30, 2007 to $15,696,698 in other income for the nine months ended September 30, 2008 is due mainly to the gain of $21,814,753 related to the sale of the DDJET interest in the Barnett Shale offset by the accelerated amortization of debt discounts related to the extinguishment of the convertible notes and the extinguishment of debt related to the forgiveness of the non-recourse project financing related to the Company’s Kallina 46 #1 well in the SW Garwood project. When the convertible notes were originally recorded, the accounting treatment was to record the debt discount to the equity section of the balance sheet; therefore the net effect of the early retirement of the convertible notes to the equity section of the balance sheet is limited to the write-off of the unamortized financing costs of $241,136.

Impact of the Sale of Barnett Shale Interest

The sale of the Barnett Shale interest has put the Company in a strong financial position. At the time of the sale the Company was able to pay off approximately $18.7 million in convertible debt, and is left with approximately $13.9 million in cash and $784,000 in short term investments on the balance sheet as of September 30, 2008 and no corporate debt. However, since there will no longer be production revenues being received from the Barnett Shale wells and the North Dakota well continues to experience downhole problems, we have focused our efforts on the commencement of the waterflood project in order to potentially compensate for the lack of production revenue from the Barnett Shale and the decreased production from the North Dakota well.

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Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements during the fiscal quarter ended September 30, 2008.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Petrosearch Energy Corporation’s Chief Executive Officer and Chief Financial Officer performed an evaluation of the Company’s disclosure controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2008.

Changes in internal controls

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II--OTHER INFORMATION

Item 1

Legal Proceedings

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended September 30, 2008 we completed the following transactions in reliance upon exemptions from registration under the Securities Act of 1933, as amended (the "Act") as provided in Section 4(2) thereof. All certificates issued in connection with these transactions were endorsed with a restrictive legend confirming that the securities could not be resold without registration under the Act or an applicable exemption from the registration requirements of the Act. We believe that each person was a “qualified” investor within the meaning of the Act and had knowledge and experience in financial and business matters, which allowed them to evaluate the merits and risks of our securities. We believe each person was knowledgeable about our operations and financial condition.

On September 9, 2008 we issued 100,563 restricted common shares valued at $62,500 to the two independent board members of the Company as compensation for their service on the Board of Directors.

On September 9, 2008 we issued 545,330 restricted common shares valued at $251,250 to five employees of the Company as compensation. Included in the five employees were the CEO, COO and CFO.

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Item 6.

Exhibits

Exhibit Number	Description of Exhibit
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

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SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Petrosearch Energy Corporation

Date: January 15, 2009

By:	/s/ Richard Dole
	Richard Dole
	Chief Executive Officer, President and Chairman


By:	/s/ David Collins
	David Collins
	Chief Financial Officer, Chief Accounting Officer and Principal Financial Officer

Petrosearch Energy (PTSG) Inactive 10-Q/A2008 Q3 Quarterly report (amended)