Edgar Filing: GULFWEST ENERGY INC

As filed with the Securities and Exchange Commission on April 6, 2005.
Registration No. 333-116048
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 1
To
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GulfWest Energy Inc.
(Exact name of registrant as specified in its charter)

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Texas 6790 87-0444770
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Identification No.)
Number)

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Jim C. Bigham
Vice President and Secretary
GulfWest Energy Inc. 480 N. Sam Houston Parkway, Suite 300
480 N. Sam Houston Parkway, Suite 300 Houston, Texas 77060
Houston, Texas 77060 Telephone: (281) 820-1919
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(Address, including zip code, and telephone number, including (Name, address,
including zip code, and telephone area code, of registrant's principal
executive offices) number, including area code, of agent for service)
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Copies To:
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Julien Smythe
Akin Gump Strauss Hauer & Feld LLP
1111 Louisiana Street, 44th Floor
Houston, Texas 77002
Telephone: (713) 220-5800
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as selling
shareholders may decide.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. : |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.

Subject to Completion, Dated April 6, 2005
P R O S P E C T U S

GULFWEST ENERGY INC.

18,879,197 Shares of GulfWest Energy Inc. Class A Common Stock
(the "Shares")

This prospectus relates to the resale of up to 18,879,197 Shares
issuable to certain selling shareholders assuming the exercise of warrants
or conversion and exchange of certain preferred stock by those
shareholders. This offering is not being underwritten. The selling
shareholders have advised us that they will sell the shares from time to
time in the open market, in privately negotiated transactions or a
combination of these methods at market prices prevailing at the time of
sale, at prices related to the prevailing market prices, at negotiated
prices, or otherwise as described under "Plan of Distribution." We will
pay all expenses of registration incurred in connection with this
offering, but the selling shareholders will pay all of their selling
commission, brokerage fees and related expenses.

Our common stock is traded over-the-counter under the symbol "GULF". On
March 31, 2005, the average of the high and low bid and asked prices of
our common stock as traded over-the-counter was $1.16 per share.

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Investing in our stock involves a high degree of risk. Please see "Risk
Factors" beginning on page 9 for a discussion of certain factors that you
should consider before investing.

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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.

The information in this prospectus is not complete and may be changed.
The selling shareholders may not sell or offer those securities until this
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.

The date of this prospectus is , 2005

TABLE OF CONTENTS

PROSPECTUS SUMMARY...........................................................2

WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................8

RISK FACTORS.................................................................9

CAPITALIZATION..............................................................15

DIVIDEND POLICY.............................................................16

FORWARD-LOOKING STATEMENTS..................................................17

MARKET PRICE OF COMMON STOCK................................................18

SELLING SHAREHOLDERS........................................................19

PLAN OF DISTRIBUTION........................................................22

SELECTED HISTORICAL FINANCIAL DATA..........................................24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................25

BUSINESS AND PROPERTIES.....................................................34

MANAGEMENT..................................................................43

EXECUTIVE COMPENSATION......................................................46

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............51

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................53

DESCRIPTION OF SECURITIES...................................................55

GLOSSARY OF INDUSTRY TERMS AND ABBREVIATIONS................................61

LEGAL MATTERS...............................................................63

EXPERTS.....................................................................63

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in
this prospectus. The following summary does not contain all of the information
that may be important. You should read the detailed information appearing
elsewhere in this prospectus before making an investment decision. Certain terms
that we use in our industry are italicized and defined in the "Glossary of
Industry Terms and Abbreviations". Unless otherwise indicated, all references to
"GulfWest", the "Company", "we", "us" and "our" refer to GulfWest Energy Inc.
and our subsidiaries.

Our Business

We are primarily engaged in the acquisition, development, exploitation
and production of crude oil and natural gas, primarily in the onshore producing
regions of the United States. Our focus is on increasing production from our
existing properties through further exploitation, development and exploration,
and on acquiring additional interests in undeveloped and underdeveloped crude
oil and natural gas properties.

Since we made our first significant acquisition in 1993, we have
substantially increased our ownership in producing properties and our crude oil
and natural gas reserves through a combination of acquisitions and the further
exploitation and development of our properties. At December 31, 2004, our part
of the estimated proved reserves these properties contained was approximately
3.0 million barrels (MBbl) of oil and 29.1 billion cubic feet (Bcf) of natural
gas with an estimated Net Present Value discounted at 10% (PV-10) of $114.1
million. At present, all of our properties are located on land in Texas,
Colorado, Louisiana and Mississippi, except for the property in the shallow
inland boundaries of Grand Lake, Louisiana. In the future, we plan to expand by
acquiring additional properties in those areas, and in similar properties
located in other producing regions of the United States, including the shallow
waters of the Gulf of Mexico.

Our operations are considered to fall within a single industry segment,
which is the acquisition, development, production and servicing of crude oil and
natural gas properties. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Our Company

We were formed as a corporation under the laws of the State of Utah in
1987 as Gallup Acquisitions, Inc., and subsequently changed our name to First
Preference Fund, Inc. in 1992. We became a Texas corporation by a merger
effected in July 1992, in which our name became GulfWest Oil Company. On May 21,
2001, we changed our name to GulfWest Energy Inc. Our common stock is traded
over-the-counter (OTC) under the symbol "GULF".

Our principal office is located at 480 North Sam Houston Parkway East,
Suite 300, Houston, Texas 77060 and our telephone number is (281) 820-1919.

Recent Transactions

April 2004 Financing

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carryforwards. The term of the note is eighteen months and it bears interest at
the prime rate plus 11%. This rate increases by .75% per month beginning in
month ten. We paid the new lenders $1,180,000 in cash fees and also issued them
warrants to purchase 2,035,621 shares of our common stock at an exercise price
of $.01 per share, expiring in five years. The warrants are subject to
anti-dilution provisions. In connection with the February 2005 transactions
described below, the anti-dilution provisions were amended such that additional
issuances of stock (other than issuances to all holders) would not trigger an
adjustment to the number of shares issuable upon exercise of the warrants. We
are required by the terms of the warrants to register the resale of the common
stock underlying the warrants, and those shares are offered by this prospectus.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Pursuant to a notice dated April 1, 2005, one of the lenders has
given notice of its desire to exercise its warrants for all 1,017,811 shares of
common stock underlying its warrants by "cashless" exercise; the shares to be
issued by us in connection with this election are not treated as issued and
outstanding in this prospectus.

Simultaneously, our wholly-owned subsidiary, GulfWest Oil & Gas
Company, completed the initial phase of a private offering of its Series A
Preferred Stock for $4,000,000. The Series A Preferred Stock is exchangeable
into our common stock based on a liquidation value of $500 per share of Series A
Preferred Stock divided by $.35 per share of our common stock, or 11,428,571
shares. As part of an advisory fee, we issued $500,000 of the Series A Preferred
Stock to a financial advisor. One of our directors acquired $1,500,000 of the
Series A Preferred Stock. The resale of the shares of common stock received upon
exchange of the Series A Preferred Stock for common stock or upon conversion of
the Series H Preferred Stock into which certain of the shares of Series A
Preferred Stock converted into on or prior to March 15, 2005 is offered by this
prospectus.

Pursuant to an agreement with the financial advisor, who provided
access to the lenders and raised $1,900,000 of the Series A Preferred Stock, we
paid the following: a cash fee of $400,000, at closing of the transaction;
$250,000 in cash, payable $10,000 per month for 25 months; and $500,000 issued
in Series A Preferred Stock (as mentioned above). In addition, the financial
advisor received 400 shares of our Series F Preferred Stock from a former
lender.

Of the $21,500,000 total cash raised, we used $15,700,000 to pay
existing debt and $1,580,000 to pay fees and commissions, leaving $4,220,000
available for capital expenditures and working capital.

On January 7, 2005 we amended our April 2004 credit agreement to extend
the target date for repayment to February 28, 2005. We exercised this option on
January 26, 2005. We issued 29,100 shares of our common stock in connection with
this amendment.

February 2005 Preferred Stock Offering

On February 28, 2005 we closed two offerings of preferred stock exempt
from registration under Section 4(2) of the Securities Act of 1933. OCM GW
Holdings, LLC, an affiliate of Oaktree Capital Management, LLC, its ultimate
parent (see "Security Ownership of Certain Beneficial Owners and Management"),
purchased 81,000 shares of Series G Convertible Preferred Stock, par value $0.01
per share, for a purchase price of $40,500,000. OCM GW Holdings also purchased
2,000 shares of GulfWest Oil & Gas Company's Series A Preferred Stock, par value
$0.01 per share, for a purchase price of $1,500,000.

Net proceeds of the offerings of approximately $38 million after
expenses were used for the repayment of debt and other liabilities and for
general corporate purposes. Approximately $20.8 million of proceeds went towards
paying off the April 2004 credit agreement. Approximately $8.7 million went
towards payment in full of two promissory notes, a credit agreement and
revolving loan agreement with two banks. In addition, we used the proceeds from
the offerings to pay $675,203 in accrued and unpaid dividends on our preferred
stock. Approximately $1.5 million of the proceeds went towards investment
banking and related fees.

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We and OCM GW Holdings entered into a Shareholders Rights Agreement on
February 28, 2005 providing OCM GW Holdings with up to four demand registrations
with respect to shares of Series G Preferred Stock and common stock upon the
request of holders holding 50% or more of the registrable securities on an as
converted basis, and unlimited piggyback registration rights. OCM GW Holdings is
entitled to receive monthly financial reports, an annual business plan and
operating budget, periodic filings and other information about us and, in
addition, provides OCM GW Holdings with board observation rights. The
Shareholders Rights Agreement subjects us to various restrictive covenants
affecting the operation of our business. Further, OCM GW Holdings has a right of
first refusal to purchase any additional securities proposed to be purchased by
a third party from us. If we do not reincorporate in Delaware by July 30, 2005,
we will be required to make additional payments on the Series G Preferred Stock
in the amount of $80 per share per annum until the reincorporation occurs or a
number of shares of Series G Preferred Stock are converted into a new series of
preferred stock substantially similar to the Series G Preferred Stock except
that (i) it will not have the right to vote, (ii) it will be redeemable at the
holder's option on January 15, 2008, and if not redeemed the dividend will
increase to 14%, (iii) it will not be convertible, (iv) it will bear a quarterly
dividend at an annual rate of 12%, and (v) it will be optionally redeemable by
us at any time. We are required to use our best efforts to convert certain of
the shares of Series G Preferred Stock into this new preferred stock if the
Delaware reincorporation has not occurred by December 31, 2005.

We also entered into an Omnibus and Release Agreement with OCM GW
Holdings and certain other shareholders on February 28, 2005, which prohibits
those shareholders from, directly or indirectly, entering into any swap, option,
future, forward or other similar agreement that transfers, in whole or in part,
any of the economic consequences of ownership of any of our newly authorized
Series H Preferred Stock issuable upon exchange of our Series A Preferred Stock
or common stock, although such holders may sell our common stock or, after
February 28, 2007, the Series H Preferred Stock. After February 28, 2007, OCM GW
Holdings and its affiliates have a right of first refusal to acquire any Series
H Preferred Stock if a third party offers to acquire that stock, and the
signatories to the Omnibus and Release Agreement have piggyback registration
rights with respect to certain of the common stock held by them or issuable as a
dividend. Shareholders (other than Holdings) that are party to the Omnibus and
Release Agreement have agreed to vote in favor of our Delaware reincorporation.
The restrictions imposed upon the shareholders that have executed the Omnibus
and Release Agreement do not apply to shares of common stock owned by these
shareholders, whether received upon conversion of the Series H Preferred Stock
or otherwise, except as disclosed above.

As part of the transactions described above, we authorized two new
series of preferred stock and amended the terms of certain of our preferred
stock. The newly authorized Series G Preferred Stock purchased by Holdings ranks
junior to the Series F Preferred Stock as to dividends and liquidation (all of
which has converted or whose holders have elected to convert to common stock),
but senior to all other classes of capital stock. The Series G Preferred Stock
provides for an 8% cumulative cash dividend, expressed as a percentage of the
stock's $500 liquidation value plus accrued and unpaid dividends, which will
accrue but not be paid until the dividend owing April 1, 2009 is required to be
paid, at which time we will commence quarterly dividend payments. Deferred
dividends may be paid to the extent the board of directors elects to do so.
Accrued dividends on the Series G Preferred Stock may be converted to common
stock at a conversion price of $0.90. Accrued and unpaid deferred dividends are
to be paid on liquidation or, at our option, with the consent of the holders
affected, at any time. The Series G Preferred Stock is convertible at any time
into our common stock at a conversion price of $0.90 per share, subject to
adjustments for stock splits, combinations and the like, as well as subject to
an adjustment for damages of $3 million or less arising from our breaches of
covenants, representations or warranties under the Series G Preferred Stock
subscription agreement or Shareholders Rights Agreement as if the holders of our
common stock had received a special cash dividend of the amount of such damages.
The Series G Preferred Stock may be redeemed by us after the fourth anniversary
of issuance if a share of the underlying common stock trades at a price greater
than the $.90 (as adjusted) conversion price for 30 consecutive trading days, at
a price per share of Series G Preferred Stock equal to $500 plus accrued and

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unpaid dividends. In addition, we may be required to redeem the Series G
Preferred Stock upon a change of control or if requested by a majority of
holders if we breach the document governing the Series G Preferred Stock or if
OCM GW Holdings and its affiliates suffer more than $3 million in damages
arising from our breaches of covenants, representations or warranties under the
Series G Preferred Stock subscription agreement or Shareholders Rights
Agreement, provided that prior to the redemption date the holders may convert
their shares to common stock. On a fully converted basis, the 81,000 outstanding
shares of Series G Preferred Stock would convert into 45 million shares of
common stock.

As part of the February 2005 transactions the Statement of Resolution
governing GulfWest Oil & Gas Company's Series A Preferred Stock was amended to
require the holders of the Series A Preferred Stock to exchange all their shares
for either approximately 1,429 shares of common stock per share of Series A
Preferred Stock or for one share of our newly authorized Series H Convertible
Preferred Stock per share of Series A Preferred Stock. If no election was made
by a holder of Series A Preferred Stock by March 15, 2005, such holder's shares
of Series A Preferred Stock would automatically be exchanged for common stock.
Prior to the February 2005 transactions, 50 shares of the Series A Preferred
Stock had been exchanged for 71,429 shares of our common stock. By March 15,
2005, five holders holding 6,700 shares of Series A Preferred Stock had elected
to exchange their shares of Series A Preferred Stock for Series H Preferred
Stock, 6,500 of which are treated as issued and outstanding in this prospectus.
One such holder affiliated with a director immediately elected to convert its
200 Series H shares to 285,715 shares of common stock, which are treated as
issued and outstanding in this prospectus. As of the date of this prospectus
there are no issued and outstanding shares of Series A Preferred Stock.

The Series H Preferred Stock is convertible into common stock at a
conversion price of $0.35 a share and ranks junior to the Series G Preferred
Stock as to dividends and liquidation but senior to all other outstanding
classes of preferred stock of the Company. Holders of the newly authorized
Series H Preferred Stock are entitled to quarterly dividends of 10 shares of
common stock per share of Series H Preferred Stock, or 40 shares of common stock
annually per shares of Series H Preferred Stock. The Series H Preferred Stock
may be redeemed by us if we elect to redeem the Series G Preferred Stock, at a
price per share of $500. The resale of shares of common stock issued or issuable
upon conversion or exchange of the Series H Preferred Stock (held by persons
other than OCM GW Holdings) and Series A Preferred Stock are offered by this
prospectus. On a fully converted basis, the 6,500 outstanding shares of Series H
Preferred Stock would convert into 9,285,716 shares of common stock.

The Series D Preferred Stock, which does not pay dividends, will remain
of equal priority with the Series E Preferred Stock as to liquidation. On a
fully converted basis, the 8,000 outstanding shares of Series D Preferred Stock
would convert into 500,000 shares of common stock.

The terms of the Series E Preferred Stock were amended to provide for a
6%, rather than $30, annual dividend, expressed as a percentage of the stock's
$500 liquidation value plus accrued and unpaid dividends, payable quarterly. As
amended, dividends on the Series E Preferred Stock will accrue but not be paid
until March 31, 2009, at which time we will commence quarterly dividend
payments. Deferred dividends on the Series E Preferred Stock may be paid to the
extent the board of directors elects to do so or dividends on the Series G
Preferred Stock are paid for a quarter. Accrued dividends on the Series E
Preferred Stock may be converted to common stock at a conversion price of $0.90.

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Accrued and unpaid deferred dividends are to be paid on liquidation or, at our
option, with the consent of the holders affected, at any time. Further, the
Series E Preferred stock was amended so that the February 2005 transactions
would not trigger the change in control redemption right, although we may be
required to redeem the Series E Preferred Stock upon a future change of control,
at a price per share of $500 plus accrued and unpaid dividends. On a fully
converted basis, the 9,000 outstanding shares of Series E Preferred Stock would
convert into 2,250,000 shares of common stock.

As required by the terms of the Series F Preferred Stock, we offered to
redeem the outstanding shares of Series F Preferred Stock following the February
2005 offerings. However, the remaining 340 shares of Series F Preferred Stock
outstanding elected to convert into 175,000 shares of common stock, and such
common stock is treated as issued and outstanding in this prospectus, to be
offered by this prospectus in addition to the 825,000 shares of common stock
that have already been issued upon conversion of the Series F Preferred Stock.
Shares of Series F Preferred Stock that have been issued and reacquired by us
are considered retired and resume the status of authorized bur unissued and
non-designated shares of our preferred stock.

On February 28, 2004 effective at the closing of the February 2005
preferred stock transactions, Scott Manolis, Marshall Smith and Thomas Kaetzer
resigned as members of our board of directors. Mr. Waggoner and John Loehr
remained as directors and B. James Ford, Skardon F. Baker and Allan D. Keel were
elected to fill the vacancies resulting from the resignation of such three
directors. In addition, Allan D. Keel was appointed Chief Executive Officer and
President and E. Joseph Grady was appointed Senior Vice President and Chief
Financial Officer.

Securities Being Offered

This prospectus covers the resale of our common stock acquired or to be
acquired upon conversion or exchange of our Series D, E, F and H Preferred Stock
or the Series A Preferred Stock and upon exercise of certain warrants we have
issued:

o 500,000 shares of common stock issuable upon conversion of the Series
D Preferred Stock

o 2,250,000 shares of common stock issuable upon conversion of the
Series E Preferred Stock

o 1,000,000 shares of common stock previously issued upon conversion of
the Series F Preferred Stock

o 6,428,573 shares of common stock issuable upon conversion of the
Series H Preferred Stock

o 285,715 shares of common stock previously issued upon conversion of
the Series H Preferred Stock

o 4,714,288 shares of common stock previously issued upon exchange of
the Series A Preferred Stock

o 3,700,621 shares of common stock issuable upon exercise of warrants.

As of March 31, 2005, there was a total of 104,500 shares of preferred
stock issued and outstanding in four series, including 8,000 shares of Series D
Preferred Stock, 9,000 shares of Series E Preferred Stock, 81,000 shares of
Series G Preferred Stock and 6,500 shares of Series H Preferred Stock
(collectively, "Preferred Stock"). All our shares of Series F Preferred Stock
have elected to convert into 1,000,000 shares of common stock offered by this
prospectus. Shares issuable upon conversion of the Series G Preferred Stock are
not covered by this prospectus. The 8,000 shares of Series D Preferred Stock are

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held by a former director and the 9,000 shares of Series E Preferred Stock are
held by a current director. See "Certain Relationships and Related
Transactions." The 81,000 shares of Series G Preferred Stock are held by OCM GW
Holdings and a limited number of transferees, including an officer, and the
6,500 shares of Series H Preferred Stock are held by OCM GW Holdings, a director
and two other investors. The shares of common stock issuable upon conversion of
the Series H Preferred Stock held by OCM GW Holdings are not covered by this
prospectus. On a fully converted basis, the 8,000 shares of Series D Preferred
Stock would convert to 500,000 shares of common stock. On a fully converted
basis, the 9,000 shares of Series E Preferred Stock would convert to 2,250,000
shares of common stock. On a fully converted basis, the 6,500 shares of Series H
Preferred Stock outstanding would convert to 9,285,716 shares of common stock.
Currently, approximately 6,000,000 shares of common stock to be offered by this
prospectus have been issued upon conversion of preferred stock, inclusive of
those holders who have elected to convert their shares, or whose shares were
automatically exchanged into common stock, and treated as issued and outstanding
in this prospectus.

Since 1996 we have occasionally issued warrants to employees,
consultants and directors as additional compensation. These warrants have
exercise prices ranging from $0.75 to $1.20 per share and entitle the warrant
holders to purchase up to 740,000 shares of common stock. The warrants
exercisable for common stock offered by this prospectus contain certain
anti-dilution provisions and have expiration dates from January 6, 2005 to
December 7, 2006.

Additionally, warrants have occasionally been issued to lenders or
guarantors on loans to us as additional consideration for entering into the
loans or guaranties. These warrants have an exercise price of $.75 per warrant
and entitle the warrant holders to purchase up to 925,000 shares of common stock
and are in addition to the warrants to purchase 2,035,621 shares of common stock
issuable to our former lenders (one of which gave notice on April 1, 2005 of its
desire to exercise its warrants for all 1,017,811 shares of common stock
underlying its warrants by "cashless" exercise, which shares are not treated as
issued and outstanding in this prospectus). A director of the Company has
625,000 of these warrants. The warrants contain certain anti-dilution provisions
and have expiration dates ranging from February 12, 2005 to April 1, 2008.

As of March 31, 2005, warrants exercisable for 300,000 shares of common
stock initially covered by this prospectus have expired. This prospectus does
not cover shares of common stock underlying warrants issued after July 15, 2004.

Summary of the Offering

This prospectus relates to the resale of an aggregate of up to
18,879,197 shares of our common stock (the "Shares") issuable or issued to
certain selling shareholders, assuming the conversion and exchange of the
preferred stock described above, to the extent not already converted or
exchanged, and the exercise of the warrants described above. The selling
shareholders may offer to sell the Shares at fixed prices, at prevailing market
prices at the time of sale, or at varying negotiated prices. We will not receive
any proceeds from the resale of Shares by the holders thereof.

As of March 31, 2005 the total number of shares of our common stock
outstanding was 24,897,893, inclusive of shares of common stock underlying
shares of preferred stock that have converted or whose holders have elected to
convert to common stock, or whose shares were automatically exchanged into
common stock, prior to the date of this prospectus, but otherwise not including
the shares reserved for issuance upon the conversion and exchange of the
preferred stock and the exercise of the warrants described above.

On March 31, 2005 , the average of the high and low bid and asked
prices of our common stock as traded over-the-counter was $1.16 per share.

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed a registration statement on Form S-1, as amended, to
register the shares of common stock being offered by this prospectus. In
addition, we file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Prospective
purchasers may read and copy any reports, statements or other information we
file at the Securities and Exchange Commission's public reference facilities in
Washington, D.C. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference facilities. Our
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services, and at the web site maintained by the
Securities and Exchange Commission at http://www.sec.gov. As allowed by
Securities and Exchange Commission rules, this prospectus does not contain all
the information contained in the registration statement or in exhibits to the
registration statement.

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RISK FACTORS

Investing in our stock involves a high degree of risk. You should
carefully consider the following risk factors in addition to the other
information in this prospectus before making an investment in our stock. Any of
the following risks could cause the trading price of the Shares to decline.

Our success depends heavily upon our ability to market our crude oil
and natural gas production at favorable prices.

In recent decades, there have been both periods of worldwide
overproduction and underproduction of crude oil and natural gas, and periods of
increased and relaxed energy conservation efforts. Such conditions have resulted
in excess supply of, and reduced demand for, crude oil on a worldwide basis and
for natural gas on a domestic basis. At other times, there has been short supply
of, and increased demand for, crude oil and, to a lesser extent, natural gas.
These changes have resulted in dramatic price fluctuations.

We may borrow funds to finance capital expenditures and for other
purposes which could possibly have important consequences to our shareholders,
including the following:

(i) Our indebtedness, acquisitions, working capital, capital
expenditures or other purposes may be impaired;

(ii) Funds available for our operations and general corporate
purposes or for capital expenditures will be reduced as a result of the
dedication of a portion of our consolidated cash flow from operations
to the payment of the principal and interest on our indebtedness;

(iii) We may be more highly leveraged than certain of our
competitors, which may place us at a competitive disadvantage;

(iv) The agreements governing our long-term indebtedness and
bank loans may contain restrictive financial and operating covenants;

(v) An event of default (not cured or waived) under financial
and operating covenants contained in our debt instruments could occur
and have a material adverse effect;

(vi) Certain of the borrowings under our debt agreements could
have floating rates of interest, which would cause us to be vulnerable
to increases in interest rates; and

(vii) Our degree of leverage could make us more vulnerable to
a downturn in general economic conditions.

We have incurred net losses in the past and there can be no assurance
that we will be profitable in the future.

We have incurred net losses in three of the last five fiscal years. We
cannot assure you that our current level of operating results will continue or
improve. Our activities could require additional debt or equity financing on our
part. Since the terms and availability of this financing depend to a large
degree upon general economic conditions and third parties over which we have no
control, we can give no assurance that we will obtain the needed financing or
that we will obtain such financing on attractive terms. In addition, our ability
to obtain financing depends on a number of other factors, many of which are also
beyond our control, such as interest rates and national and local business
conditions. If the cost of obtaining needed financing is too high or the terms
of such financing are otherwise unacceptable in relation to the opportunity we
are presented with, we may decide to forego that opportunity. Additional
indebtedness could increase our leverage and make us more vulnerable to economic
downturns and may limit our ability to withstand competitive pressures.
Additional equity financing could result in dilution to our shareholders.

-9-

Our future operating results may fluctuate significantly depending upon
a number of factors, including industry conditions, prices of crude oil and
natural gas, rates of production, timing of capital expenditures and drilling
success. These variables could have a material adverse effect on our business,
financial condition, results of operations and the market price of our common
stock.

Estimates of crude oil and natural gas reserves depend on many
assumptions that may turn out to be inaccurate.

Estimates of our proved reserves for crude oil and natural gas and the
estimated future net revenues from the production of such reserves rely upon
various assumptions, including assumptions as to crude oil and natural gas
prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. The process of estimating crude oil and natural gas
reserves is complex and imprecise.

Actual future production, crude oil and natural gas prices, revenues,
taxes, development expenditures, operating expenses and quantities of
recoverable crude oil and natural gas reserves may vary substantially from the
estimates we obtain from reserve engineers. Any significant variance in these
assumptions could materially affect the estimated quantities and present value
of reserves we have set forth. In addition, our proved reserves may be subject
to downward or upward revision due to factors that are beyond our control, such
as production history, results of future exploration and development, prevailing
crude oil and natural gas prices and other factors.

Approximately 22% of our total estimated proved reserves at December
31, 2004 were proved undeveloped reserves, which are by their nature less
certain.

Recovery of such reserves requires significant capital expenditures and
successful drilling operations. The reserve data set forth in the reserve
engineer reports assumes that substantial capital expenditures are required to
develop such reserves. Although cost and reserve estimates attributable to our
crude oil and natural gas reserves have been prepared in accordance with
industry standards, we cannot be sure that the estimated costs are accurate,
that development will occur as scheduled or that the results of such development
will be as estimated.

You should not interpret the present value referred to in this
prospectus as the current market value of our estimated crude oil and natural
gas reserves.

In accordance with Securities and Exchange Commission requirements, the
estimated discounted future net cash flows from proved reserves are generally
based on prices and costs as of the date of the estimate. Actual future prices
and costs may be materially higher or lower.

The estimates of our proved reserves and the future net revenues from
which the present value of our properties is derived were calculated based on
the actual prices of our various properties on a property-by-property basis at
December 31, 2004. The average sales prices of all properties were $40.41 per
barrel of oil and $5.89 per thousand cubic feet (Mcf) of natural gas at that
date.

Actual future net cash flows will also be affected by increases or
decreases in consumption by crude oil and natural gas purchasers and changes in
governmental regulations or taxation. The timing of both the production and the
incurring of expenses in connection with the development and production of crude
oil and natural gas properties affect the timing of actual future net cash flows
from proved reserves. In addition, the 10% discount factor, which is required by
the Securities and Exchange Commission to be used in calculating discounted
future net cash flows for reporting purposes, is not necessarily the most
appropriate discount factor. The effective interest rate at various times and
the risks associated with our business or the oil and gas industry in general
will affect the accuracy of the 10% discount factor.

-10-

Except to the extent that we acquire properties containing proved
reserves or conduct successful development or exploitation activities, our
proved reserves will decline as they are produced.

In general, the volume of production from crude oil and natural gas
properties declines as reserves are depleted. Our future crude oil and natural
gas production is highly dependent upon our success in finding or acquiring
additional reserves.

The business of acquiring, enhancing or developing reserves requires
considerable capital.

Our ability to make the necessary capital investment to maintain or
expand our asset base of crude oil and natural gas reserves could be impaired to
the extent that cash flow from operations is reduced and external sources of
capital become limited or unavailable. In addition, we cannot be sure that our
future acquisition and development activities will result in additional proved
reserves or that we will be able to drill productive wells at acceptable costs.

Crude oil and natural gas drilling and production activities are
subject to numerous risks, many of which are beyond our control.

These risks include (i) the possibility that no commercially productive
oil or gas reservoirs will be encountered; and, (ii) that operations may be
curtailed, delayed or canceled due to title problems, weather conditions,
governmental requirements, mechanical difficulties, or delays in the delivery of
drilling rigs and other equipment that may limit our ability to develop, produce
and market our reserves. We cannot assure you that new wells we drill will be
productive or that we will recover all or any portion of our investment in such
new wells.

Drilling for crude oil and natural gas may not be profitable.

Any wells that we drill may be dry wells or wells that are not
sufficiently productive to be profitable after drilling. Such wells will have a
negative impact on our profitability. In addition, our properties may be
susceptible to drainage from production by other operators on adjacent
properties.

Our industry experiences numerous operating risks that could cause us
to suffer substantial losses.

Such risks include fire, explosions, blowouts, pipe failure and
environmental hazards, such as oil spills, natural gas leaks, ruptures or
discharges of toxic gases. We could also suffer losses due to personnel injury
or loss of life; severe damage to or destruction of property; or environmental
damage that could result in clean-up responsibilities, regulatory investigation,
penalties or suspension of our operations. In accordance with customary industry
practice, we maintain insurance policies against some, but not all, of the risks
described above. Our insurance policies may not adequately protect us against
loss or liability. There is no guarantee that insurance policies that protect us
against the many risks we face will continue to be available at justifiable
premium levels.

As owners and operators of crude oil and natural gas properties, we may
be liable under federal, state and local environmental regulations for
activities involving water pollution, hazardous waste transport, storage,
disposal or other activities.

-11-

Our past growth has been attributable to acquisitions of producing
crude oil and natural gas properties with proved reserves. There are risks
involved with such acquisitions.

The successful acquisition of properties requires an assessment of
recoverable reserves, future crude oil and natural gas prices, operating costs,
potential environmental and other liabilities, and other factors beyond our
control. Such assessments are necessarily inexact and their accuracy uncertain.
In connection with such an assessment, we perform a review of the subject
properties that we believe to be generally consistent with industry practices.
Such a review, however, will not reveal all existing or potential problems, nor
will it permit us, as the buyer, to become sufficiently familiar with the
properties to fully assess their capabilities or deficiencies. We may not
inspect every well and, even when an inspection is undertaken, structural and
environmental problems may not necessarily be observable.

When we acquire properties, in most cases, we are not entitled to
contractual indemnification for pre-closing liabilities, including environmental
liabilities.

We generally acquire interests in properties on an "as is" basis with
limited remedies for breaches of representations and warranties, and in these
situations we cannot assure you that we will identify all areas of existing or
potential exposure. In those circumstances in which we have contractual
indemnification rights for pre-closing liabilities, we cannot assure you that
the seller will be able to fulfill its contractual obligations. In addition, the
competition to acquire producing crude oil and natural gas properties is intense
and many of our larger competitors have financial and other resources
substantially greater than ours. We cannot assure you that we will be able to
acquire producing crude oil and natural gas properties that have economically
recoverable reserves for acceptable prices.

We may acquire royalty, overriding royalty or working interests in
properties that are less than the controlling interest.

In such cases, it is likely that we will not operate, nor control the
decisions affecting the operations, of such properties. We intend to limit such
acquisitions to properties operated by competent parties with whom we have
discussed their plans for operation of the properties.

We will need additional financing in the future to continue to fund our
development and exploitation activities.

We have made and will continue to make substantial capital expenditures
in our exploitation and development projects. We intend to finance these capital
expenditures with cash flow from operations, existing financing arrangements or
new financing. We cannot assure you that such additional financing will be
available. If it is not available, our development and exploitation activities
may have to be curtailed, which could adversely affect our business, financial
condition and results of operations, as was the case in 2004 and 2003.

The marketing of our natural gas production depends, in part, upon the
availability, proximity and capacity of natural gas gathering systems, pipelines
and processing facilities.

We could be adversely affected by changes in existing arrangements with
transporters of our natural gas since we do not own most of the gathering
systems and pipelines through which our natural gas is delivered to purchasers.
Our ability to produce and market our natural gas could also be adversely
affected by federal, state and local regulation of production and
transportation.

-12-

The crude oil and natural gas industry is highly competitive in all of
its phases.

Competition is particularly intense with respect to the acquisition of
desirable producing properties, the acquisition of crude oil and natural gas
prospects suitable for enhanced production efforts, the obtaining of goods and
services from industry providers, and the hiring of experienced personnel. Our
competitors in crude oil and natural gas acquisition, development, and
production include the major oil companies, in addition to numerous independent
crude oil and natural gas companies, individual proprietors and drilling
programs.

Many of these competitors possess and employ financial and personnel
resources substantially in excess of those which are available to us and may,
therefore, be able to pay more for desirable producing properties and prospects
and to define, evaluate, bid for, and purchase a greater number of producing
properties and prospects than our financial or personnel resources will permit.
Our ability to generate reserves in the future will be dependent on our ability
to select and acquire suitable producing properties and prospects while
competing with these companies.

The domestic oil industry is extensively regulated at both the federal
and state levels. Although we believe we are presently in compliance with all
laws, rules and regulations, we cannot assure you that changes in such laws,
rules or regulations, or the interpretation thereof, will not have a material
adverse effect on our financial condition or the results of our operations.

Legislation affecting the oil and gas industry is under constant review
for amendment or expansion, frequently increasing the regulatory burden on the
industry. There are numerous federal and state agencies authorized to issue
rules and regulations affecting the oil and gas industry. These rules and
regulations are often difficult and costly to comply with and carry substantial
penalties for noncompliance.

State statutes and regulations require permits for drilling operations,
drilling bonds, and reports concerning operations. Most states also have
statutes and regulations governing conservation matters, including the
unitization or pooling of properties, and the establishment of maximum rates of
production from wells. Some states have also enacted statutes prescribing price
ceilings for natural gas sold within their states.

Our industry is also subject to numerous laws and regulations governing
plugging and abandonment of wells, discharge of materials into the environment
and other matters relating to environmental protection. The heavy regulatory
burden on the oil and gas industry increases the costs of our doing business as
an oil and gas company, consequently affecting our profitability.

We have "blank check" preferred stock.

Our Articles of Incorporation authorize the Board of Directors to issue
preferred stock without further shareholder action in one or more series and to
designate the dividend rate, voting rights and other rights preferences and
restrictions. The issuance of preferred stock could have an adverse impact on
holders of common stock. Preferred stock is senior to common stock.
Additionally, preferred stock could be issued with dividend rights senior to the
rights of holders of common stock. Finally, preferred stock could be issued as
part of a "poison pill", which could have the effect of deterring offers to
acquire us. See "Description of Securities".

We do not pay dividends on our common stock.

Our board of directors presently intends to retain all of our earnings
for the expansion of our business; therefore we do not anticipate distributing
cash dividends on our common stock in the foreseeable future. Any decision of
our board of directors to pay cash dividends will depend upon our earnings,
financial position, cash requirements and other factors.

-13-

One investor controls us.

As a result of the February 2005 preferred stock offerings, OCM GW
Holdings acquired a controlling interest in us. OCM GW Holdings has the right to
acquire 45,468,255 shares of common stock pursuant to conversion of Series G
Preferred Stock and Series H Preferred Stock owned by it which represents
approximately 65% of the currently outstanding common stock, assuming the
conversion of preferred stock held by it. See "Security Ownership of Certain
Beneficial Owners and Management." Pursuant to the terms of Series G Preferred
Stock, the holders of the Series G Preferred Stock, voting as a class, have the
right to elect a majority of our board of directors. Holdings currently owns
approximately 95% of the Series G Preferred Stock.

Mr. J. Virgil Waggoner, a member of the Board and one of the selling
shareholders, owns 9,545,229 shares of our common stock, which represents
approximately 38% of the currently outstanding common stock. Additionally, Mr.
Waggoner has the right to acquire an additional 7,180,715 shares pursuant to
conversion of preferred stock and exercise of currently exercisable warrants and
options. See "Security Ownership of Certain Beneficial Owners and Management."
Mr. Waggoner has entered into a Share Transfer Restriction Agreement, dated
February 28, 2005, with OCM GW Holdings, restricting his transfer of shares of
capital stock, and an Irrevocable Proxy with respect to his stock thereby
allowing OCM GW Holdings to vote such shares at any time in favor of our
Delaware reincorporation or, if the reincorporation is not consummated by
December 31, 2005, in favor of the conversion of certain of the Series G
Preferred Stock into new preferred stock. The Irrevocable Proxy also grants OCM
GW Holdings a proxy with additional rights with respect to his Series H
Preferred Stock until such time as all the Series H Preferred Stock has
converted into common stock.

Additionally, OCM GW Holdings and all current directors and officers as
a group represent approximately 82% of the outstanding voting power (assuming
they convert all preferred stock other than the Series G Preferred Stock and
Series H Preferred Stock, which vote on an as converted basis, and exercise all
currently exercisable warrants and options held by them). For as long as
Holdings, Mr. Waggoner and the other directors and officers continue to own over
a majority of the outstanding voting power, they will be able to control
elections to the board of directors that common shareholders are entitled to
vote on and other matters submitted to shareholders. The percentage ownership of
OCM GW Holdings, directors and officers could be reduced by the issuance of
common stock on conversion of preferred stock and the exercise of warrants,
although it is impossible to say how many shares will be actually issued.

The holders of our common stock do not have cumulative voting rights,
preemptive rights or rights to convert their common stock to other securities.

We are authorized to issue 80,000,000 shares of common stock, $.001 par
value per share. As of March 31, 2005 there were 24,897,893 shares of common
stock issued and outstanding. Since the holders of our common stock do not have
cumulative voting rights, the holder(s) of a majority of the shares of common
stock, and Series G Preferred Stock and Series H Preferred Stock (on an as
converted basis) present, in person or by proxy, will be able to elect all of
the remaining members of our board of directors that the holders of the Series G
Preferred Stock are not entitled to elect as a class. The holders of shares of
our common stock do not have preemptive rights or rights to convert their common
stock into other securities.

The number of shares of outstanding common stock could increase
significantly as a result of our recent transactions and we will need to
increase the number of authorized shares of common stock.

-14-

On an "as converted" basis, if all of the common stock underlying our
various convertible and derivative securities, including warrants and granted
employee stock options, outstanding at March 31, 2005, is issued by us, the
number of our outstanding shares of common stock will increase to approximately
103.8 million shares (see "Management" for a description of options issued after
March 31, 2005 to certain of our officers). Currently, we are only authorized to
issue 80,000,000 shares of our common stock, 24,897,893 shares of which are
outstanding as of March 31, 2005. We will need to seek shareholder approval in
order to increase our authorized shares in order to accommodate the exercise or
conversion of all our currently outstanding convertible preferred stock, options
and warrants. It is impossible to say how many shares, if any, we will issue and
how many shares, in turn, will be resold. However, it is possible that our stock
price could decline significantly as a result of an increased number of shares
being offered into the market.

CAPITALIZATION

The following table sets forth our capitalization as of December 31,
2004 and as adjusted to give effect to the February 2005 transactions (see
"Recent Transactions - February 2005 Preferred Stock Offering") and the issuance
of the shares offered by this prospectus listed under "Summary - Securities
Being Offered", assuming conversion and exchange of all the preferred stock
described in this prospectus and exercise of all of the outstanding warrants.
You should read this table in conjunction with our financial statements,
"Selected Financial Data" and "Management's Discussion and Analysis of Results
of Operations and Financial Condition" included elsewhere in this prospectus.

Capitalization Schedule
-----------------------
Proforma Adjusted
Actual Adjustments Proforma Proforma
December 31, Assuming December 31, Adjustments for December 31,
2004 Conversion(1) 2004 Recapitalization(2) 2004

Cash $411,377 $- $411,377 $1,635,040 $2,046,417
============= ============== ============= ==================== =============

Working capital, including cash(5) $(33,353,875) $ $(33,353,875) $34,879,771 $1,525,896
Total long-term debt, net of current portion 805,450 805,450 (743,999) 61,451
------------- -------------- ------------- -------------------- -------------

Total working capital and long-term debt $(32,548,425) $ $(32,548,425) $34,135,772 $1,587,347
============= ============== ============= ==================== =============

Shareholders' equity
Series A Preferred Stock, $0.1 par value, $500
liquidation value, 8,000 shares outstanding $80 $(80) $- $- $-
Series D Preferred Stock, $0.1 par value, $500
liquidation value, 8,000 shares outstanding 80 (80) - -
Series E Preferred Stock, $0.1 par value, $500
liquidation value, 9,000 shares outstanding 90 (90) - -
Series H Preferred Stock, $0.1 par value, $500
liquidation value, 340 shares outstanding 3 (3) - -
Series F Preferred Stock, $0.1 par value, $500
liquidation value, 2,000 shares outstanding - 20 20
Series G Preferred Stock, $0.1 par value, $500
liquidation value, 81,000 shares outstanding - 810 810
Class A Common Stock, $.001 par value,
19,393,969 shares outstanding actual
37,371,738 as adjusted 19,394 17,978 37,372 37,372
Additional paid-in-equity 34,062,502 1,243,411 35,305,913 38,055,174 (3) 73,361,087
Accumulated deficit (15,405,506) - (15,405,506) (3,019,494)(4) (18,425,000)
------------- -------------- ------------- -------------------- -------------

Total shareholders' equity $18,676,643 $1,261,136 $19,937,779 $35,036,510 $54,974,289
============= ============== ============= ==================== =============

------------------

(1) Adjustments to December 31, 2004 balance sheet assuming that all
convertible securities registered under this S-1 Registration Statement
were converted to common stock on December 31, 2004.
(2) Adjustments to the December 31, 2004 balance sheet to reflect the effects
of the February 28, 2005 sales of Series G Preferred Stock, Series A
Preferred Stock (subsequently converted to Series H Preferred Stock) and
related transactions consummated pursuant to that recapitalization.
(3) $41,999,170 from the sale of Series G and Series A Preferred Stock less
$3,943,996 in fees.

-15-

(4) Includes unamortized debt issue cost related to retired notes, unamortized
note discount related to retired notes, closing fees related to the current
transaction and preferred stock dividends paid out of the proceeds.
(5) Working capital is total current assets, including cash, less total current
liabilities at the December 31, 2004 balance sheet date.

DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and to fund future growth. We do not anticipate
paying any cash dividends in the foreseeable future.

-16-

FORWARD-LOOKING STATEMENTS

We make forward-looking statements throughout this prospectus. Whenever
you read a statement that is not simply a statement of historical fact (such as
when we describe what we "believe," "expect" or "anticipate" will occur, and
other similar statements), you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this prospectus will happen as
described (or that they will happen at all). The forward-looking information
contained in this prospectus is generally located in the material set forth
under the headings "Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" but
may be found in other locations as well. These forward-looking statements
generally relate to our plans and objectives for future operations and are based
upon our management's reasonable estimates of future results and trends.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF WHEN THIS PROSPECTUS IS DELIVERED OR THE DATE OF ANY
SALE OF OUR COMMON STOCK.

-17-

MARKET PRICE OF COMMON STOCK

Our Class A common stock, par value $0.001 per share, is traded
over-the-counter (OTC) under the symbol "GULF". Fidelity Transfer Company, 1800
South West Temple, Suite 301, Box 53, Salt Lake City, Utah 84115, (801) 484-7222
is the transfer agent for the common stock. The high and low trading prices for
the common stock for each quarter in 2005, 2004 and 2003 are set forth below.
The trading prices represent prices between dealers, without retail mark-ups,
mark-downs, or commissions, and may not necessarily represent actual
transactions.

High Low
2005 ---- ---
----
First Quarter $1.49 $ .79
Second Quarter (to April 4) 1.14 1.18

2004
----
First Quarter $ .56 $ .32
Second Quarter .56 .33
Third Quarter .85 .45
Fourth Quarter .94 .66

2003
----
First Quarter $ .45 $ .42
Second Quarter .47 .35
Third Quarter .47 .43
Fourth Quarter .47 .32

On an "as converted" basis, if all of the common stock underlying our
various convertible and derivative securities, including warrants and granted
employee stock options, outstanding at March 31, 2005 is issued by us, the
number of our outstanding shares of common stock will increase to approximately
103.8 million shares. Currently, we are only authorized to issue 80,000,000
shares of our common stock, 24,897,893 shares of which are outstanding as of
March 31, 2005 (inclusive of shares of common stock underlying shares of
preferred stock that have converted or whose holders have elected to convert to
common stock, or whose shares were automatically exchanged into common stock,
prior to the date of this prospectus, but otherwise not including the shares
issuable upon exercise of outstanding warrants or upon conversion and exchange
of preferred stock) and held by approximately 620 beneficial owners.

-18-

SELLING SHAREHOLDERS

The selling shareholders may offer and sell, from time to time, any or
all of the Shares. Because the selling shareholders may offer all or only some
portion of the 18,879,197 Shares, no estimate can be given as to the amount or
percentage of these Shares that will be held by the selling shareholders upon
termination of the offering. There will be no proceeds to us from the sale of
shares of common stock in this offering. However, we will receive proceeds from
the sale of shares of common stock upon the exercise of any warrants. Any
proceeds received upon exercise of warrants will be used for general working
capital purposes.

The following table sets forth the name and relationship with us, if
any, of certain of the selling shareholders and (i) the maximum number of shares
of common stock which may be offered for the account of the selling shareholders
under this prospectus, (ii) the amount and percentage of common stock that would
be owned by the selling shareholders after completion of the offering, assuming
a sale of all of the common stock which may be offered hereunder and (iii) the
number of shares of common stock beneficially owned by the selling shareholders
as of the date of this prospectus. Except as otherwise noted below, the selling
shareholders have not, within the past three years, had any position, office or
other material relationship with us.

Beneficial ownership is determined under the rules of the Securities
and Exchange Commission. The number of shares beneficially owned by a person
includes shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of the date of this
prospectus. The shares issuable under these securities are treated as if
outstanding for computing the percentage ownership of the person holding these
securities but are not treated as if outstanding for the purposes of computing
the percentage ownership of any other person.

Name and Address of Total Shares Amount and Total Shares
Selling Security Holder Registered % of Owned1
Ownership
----------------------------------------------- ----------------- ---------- ---------------

Drawbridge Special Opportunities Fund, L.P 2 1,017,810 0 1,017,810
1251 Avenue of the Americas
16th Floor *
New York, NY 10020
----------------------------------------------- ----------------- ---------- ---------------
D.B. Zwirn Special Opportunities Fund, L.P. 2 1,017,811 0 1,017,811
745 5th Avenue
18th Floor *
New York, NY 10151
----------------------------------------------- ----------------- ---------- ---------------
Petro Capital Advisors3 1,558,572 75,000 1,633,572
1845 Woodall Rodgers Frwy., Suite 1700
Dallas, TX 75201 *
----------------------------------------------- ----------------- ---------- ---------------
Virgil Waggoner4 7,160,715 9,565,229 16,725,944
6605 Cypresswood Drive, Suite 250
Spring, TX 77379 25.3%
----------------------------------------------- ----------------- ---------- ---------------
Patrick Parker 857,143 45,000 902,143
Scarbrough Building, 6th and Congress,
101 W. 6th St. Suite 610 *
Austin, TX 78701
----------------------------------------------- ----------------- ---------- ---------------

-19-

Douglas Moreland 1,428,572 75,000 1,503,572
1655 East Layton Drive
Englewood, CO 80100 *
----------------------------------------------- ----------------- ---------- ---------------
Stanley Chason 71,429 0 71,429
1230 Watervale Court,
Pasadena, MD 21122 *
----------------------------------------------- ----------------- ---------- ---------------
XMen, LLC 1,714,286 90,000 1,804,286
520 Lake Cook Road, Suite105
Deerfield, IL 60015 *
----------------------------------------------- ----------------- ---------- ---------------
Bruce Goldstein 77,143 3,000 80,143
1934 Deercrest Lane
Northbrook, IL 60062 *
----------------------------------------------- ----------------- ---------- ---------------
Barry S. Cohn Revocable Trust 214,286 11,250 225,536
2505 Astor Court
Glenview, IL 60025 *
----------------------------------------------- ----------------- ---------- ---------------
Bargus Partnership 714,286 37,500 751,786
664 South Evergreen Ave
Woodbury Heights, NJ 08097 *
----------------------------------------------- ----------------- ---------- ---------------
Edwin J. Hagerty 371,429 19,500 390,929
5100 West Grove Dr.
Dallas, TX 75248 *
----------------------------------------------- ----------------- ---------- ---------------
Star-Tex Trading Company 285,715 84,667 370,382
16300 Addison Rd., Suite 300
Addison, TX 75001 *
----------------------------------------------- ----------------- ---------- ---------------
ST Advisory Corp./John E. Loehr5 470,000 147,491 617,491
16300 Addison Rd., Suite 300
Addison, TX 75001 *
----------------------------------------------- ----------------- ---------- ---------------
Thomas R, Kaetzer6 200,000 408,852 608,852
480 N. Sam Houston Parkway, Suite 300
Houston, TX 77060 1.1%
----------------------------------------------- ----------------- ---------- ---------------
Jim C. Bigham7 100,000 160,985 260,985
480 N. Sam Houston Parkway, Suite 300
Houston, TX 77060 *
----------------------------------------------- ----------------- ---------- ---------------
Marshall A. Smith III8 270,000 619,005 889,005
480 N. Sam Houston Parkway, Suite 300
Houston, TX 77060 1.6%
----------------------------------------------- ----------------- ---------- ---------------

-20-

Intermarket Management LLC9 500,000 0 500,000
170 Broadway., Suite 1700
New York, NY 10038 *
----------------------------------------------- ----------------- ---------- ---------------
Star Investments , LTD 50,000 0 50,000
3421 Causeway Blvd., Suite 103
Metairie, LA 70002 *
----------------------------------------------- ----------------- ---------- ---------------
Ray B. Nesbitt 150,000 243,333 393,333
1 Winston Woods
Houston, TX 77024 *
----------------------------------------------- ----------------- ---------- ---------------
J. T. Thompson 40,000 0 40,000
1212 Woodhollow Drive, No. 15101
Houston, TX 77057 *
----------------------------------------------- ----------------- ---------- ---------------
Ron Zimmerman 60,000 0 60,000
1212 Woodhollow Drive, No. 15101
Houston, TX 77057 *
----------------------------------------------- ----------------- ---------- ---------------
Steven M. Morris 500,000 0 500,000
P.O. Box 941828
Houston, TX 77094 *
----------------------------------------------- ----------------- ---------- ---------------
John Kruljac 20,000 0 20,000
8873 E. Bayou Gulch Road
Parker, CO 80134 *
----------------------------------------------- ----------------- ---------- ---------------
USGT Investors 30,000 0 30,000
1845 Woodall Rodgers, Suite 1700
Dallas, TX 75201 *
----------------------------------------------- ----------------- ---------- ---------------

------------------

* Less than 1%
1 Includes shares registered hereunder.
2 The selling shareholder is a former lender.
3 The selling shareholder is a former investment advisor.
4 Mr. Waggoner is a member of the Board of the Company. See "Management."
5 Mr. Loehr is a director of the Company. See "Management."
Reflects 270,000 shares issuable to Mr. Loehr pursuant to immediately exercisable warrants and 200,000
shares issued upon exchange of preferred stock held by ST Advisory Corp. ST Advisory Corp. is owned by John
E. Loehr.
6 Mr. Kaetzer is Senior Vice President of Operations of the Company. See "Management."
7 Mr. Bigham is Vice President and Secretary of the Company. See "Management."
8 Mr. Smith was a director of the Company.
9 Mr. M. Scott Manolis was one of our directors. Mr. Manolis is an owner of Intermarket Management LLC.

-21-

PLAN OF DISTRIBUTION

The selling shareholders may, from time to time, sell all or a portion
of the shares of common stock on any market upon which the common stock may be
quoted (currently the OTC Bulletin Board), in privately negotiated transactions
or otherwise. Such sales may be at fixed prices prevailing at the time of sale,
at prices related to the market prices or at negotiated prices. The shares of
common stock being offered by this prospectus may be sold by the selling
shareholders using one or more of the following methods, without limitation:

(a) Block trades in which the broker or dealer so engaged will
attempt to sell the shares of common stock as agent but may
position and resell a portion of the block as principal to
facilitate the transaction;

(b) purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus;

(d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers;

(e) privately negotiated transactions;

(f) market sales (both long and short to the extent permitted
under the federal securities laws);

(g) at the market to or through market makers or into an existing
market for the shares;

(h) through transactions in options, swaps or other derivatives
(whether exchange listed or otherwise); and

(i) a combination of any aforementioned methods of sale.

In the event of the transfer by the selling shareholder of its shares
to any pledgee, donee or other transferee, we will, if required, amend this
prospectus and the registration statement of which this prospectus forms a part
by the filing of a post-effective amendment in order to have the pledgee, donee
or other transferee in place of the selling shareholder who has transferred his
or her shares.

In effecting sales, brokers and dealers engaged by a selling
shareholder may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from the selling shareholder or, if
any of the broker-dealers act as an agent for the purchaser of such shares, from
the purchaser in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with a
selling shareholder to sell a specified number of the shares of common stock at
a stipulated price per share. Such an agreement may also require the
broker-dealer to purchase as principal any unsold shares of common stock at the
price required to fulfill the broker-dealer commitment to the selling
shareholder if such broker-dealer is unable to sell the shares on behalf of the
selling shareholder. Broker-dealers who acquire shares of common stock as
principal may thereafter resell the shares of common stock from time to time in
transactions which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above. Such sales
by a broker-dealer could be at prices and on terms then prevailing at the time
of sale, at prices related to the then-current market price or in negotiated
transactions. In connection with such resales, the broker-dealer may pay to or
receive from the purchasers of the shares commissions as described above.

-22-

A selling shareholder and any broker-dealers or agents that participate
with that selling shareholder in the sale of the shares of common stock may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended, in connection with these sales. In that event, any commissions received
by the broker-dealers or agents and any profit on the resale of the shares of
common stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act of 1933, as amended.

From time to time, a selling shareholder may pledge its shares of
common stock pursuant to the margin provisions of its customer agreements with
its brokers. Upon a default by a selling shareholder, the broker may offer and
sell the pledged shares of common stock from time to time. Upon a sale of the
shares of common stock, the selling shareholders intend to comply with the
prospectus delivery requirements under the Securities Act of 1933 by delivering
a prospectus to each purchaser in the transaction. We intend to file any
amendments or other necessary documents in compliance with the Securities Act of
1933 which may be required in the event a selling shareholder defaults under any
customer agreement with brokers.

To the extent required under the Securities Act of 1933, a post
effective amendment to this registration statement will be filed, disclosing the
name of any broker-dealers, the number of shares of common stock involved, the
price at which the common stock is to be sold, the commissions paid or discounts
or concessions allowed to such broker-dealers, where applicable, that such
broker-dealers did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus and other facts material to
the transaction.

We and the selling shareholders will be subject to applicable
provisions of the Securities Exchange Act of 1934, as amended, and the rules and
regulations under it, including, without limitation, Rule 10b-5 and, insofar as
a selling shareholder is a distribution participant and we, under certain
circumstances, may be a distribution participant, under Regulation M. All of the
foregoing may affect the marketability of the common stock.

All expenses of the registration statement including, but not limited
to, legal, accounting, printing and mailing fees are and will be borne by us.
Any commissions, discounts or other fees payable to brokers or dealers in
connection with any sale of the shares of common stock will be borne by the
selling shareholder, the purchasers participating in such transaction, or both.

Any shares of common stock covered by this prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act of 1933, as amended, may be
sold under Rule 144 rather than pursuant to this prospectus.

-23-

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth selected historical financial data of
our company as of December 31, 2004, 2003, 2002, 2001 and 2000, and for each of
the periods then ended. See "Business and Properties" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
income statement data for the years ended December 31, 2004, 2003 and 2002 and
the balance sheet data at December 31, 2004 and 2003 are derived from our
audited financial statements contained elsewhere herein. The income statement
data for the years ended December 31, 2001 and 2000 and the balance sheet data
at December 31, 2002, 2001 and 2000 are derived from our Annual Report on Form
10-K for those periods. You should read this data in conjunction with our
consolidated financial statements and the notes thereto included elsewhere
herein.

Year Ended December 31,
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ -----------

Income Statement Data
---------------------

Operating Revenues $11,207,673 $11,010,723 $10,839,797 $12,990,581 $8,984,175
Net income (loss) from
operations 1,557,815 558,774 310,290 3,451,875 2,464,017
Net income (loss) 8,072,221 (3,024,426) (4,502,313) 1,044,291 352,774
Dividends on preferred stock (455,612) (127,083) (112,500) (56,250) -
Net income (loss) available to
common shareholders 7,761,863 (3,151,509) (4,614,813) 988,401 352,774
Net income (loss), per share
of Common Stock $.41 $(.17) $(.25) $.05 $.02
Weighted average number
of shares of common
stock outstanding 18,535,022 18,492,541 18,492,541 18,464,343 17,293,848

Balance Sheet Data
------------------

Current assets $2,214,542 $1,742,689 $2,353,046 $2,205,862 $2,934,804
Total assets 57,700,891 52,428,774 53,088,941 51,379,209 32,374,128
Current liabilities 35,568,417 44,619,652 43,998,566 12,492,365 7,594,986
Long-term obligations 1,950,300 1,393,607 137,808 26,541,957 18,077,371
Other liabilities 1,505,527 591,467 1,128,993 - -
Stockholders' Equity $18,676,643 $5,824,648 $7,823,574 $12,344,887 $6,701,771

-24-

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our
financial statements and the notes thereto included elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
within the meaning of the federal securities laws. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from historical results or our predictions. Please
see "Risk Factors" and "Forward-Looking Statements" for a discussion of the
uncertainties, risks and assumptions associated with these statements.

Overview.

We are primarily engaged in the acquisition, development, exploitation
and production of crude oil and natural gas, primarily in the onshore producing
regions of the United States. Our focus is on increasing production from our
existing properties through further exploitation, development and exploration,
and on acquiring additional interests in undeveloped crude oil and natural gas
properties. Our gross revenues are derived from the following sources:

1. Oil and gas sales that are proceeds from the sale of crude oil and
natural gas production to midstream purchasers;

3. Operating overhead and other income that consists of administrative
fees received for operating crude oil and natural gas properties for other
working interest owners, and for marketing and transporting natural gas for
those owners. This also includes earnings from other miscellaneous activities.

3. Well servicing revenues that are earnings from the operation of well
servicing equipment under contract to other operators. During 2004, our well
servicing equipment was used only for our own account.

The following is a discussion of our consolidated results of
operations, financial condition and capital resources. You should read this
discussion in conjunction with our Consolidated Financial Statements and the
Notes thereto contained elsewhere herein.

Results of Operations.

The factors which most significantly affect our results of operations
are (1) the sales price of crude oil and natural gas, (2) the level of total
sales volumes of crude oil and natural gas, (3) the cost and efficiency of
operating our own properties, (4) depletion and depreciation of oil and gas
property costs and related equipment, (5) the level of and interest rates on
borrowings, (6) the level and success of acquiring or finding new reserves, and
the acquisition, finding and development costs incurred in adding these
reserves, and (7) the adoption of changes in accounting rules.

We consider depletion and depreciation of oil and gas properties and
related support equipment to be critical accounting estimates, based upon
estimates of total recoverable oil and gas reserves.

The estimates of oil and gas reserves utilized in the calculation of
depletion and depreciation are estimated in accordance with guidelines
established by the (engineering standards reference), the Securities and
Exchange Commission and the Financial Accounting Standards Board, which require
that reserve estimates be prepared under existing economic and operating
conditions with no provision for price and cost escalations over prices and
costs existing at year end, except by contractual arrangements.

We emphasize that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current information
becomes available. Our policy is to amortize capitalized oil and gas costs on
the unit of production method, based upon these reserve estimates. It is
reasonably possible that the estimates of future cash inflows, future gross
revenues, the amount of oil and gas reserves, the remaining estimated lives of
the oil and gas properties, or any combination of the above may be increased or
reduced in the near term. If reduced, the carrying amount of capitalized oil and
gas properties may be reduced materially in the near term.

-25-

Comparative results of operations for the periods indicated are
discussed below.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenues

Oil and Gas Sales. Our operating revenues from the sale of crude oil
and natural gas increased by 2% from $10,844,000 in 2003 to $11,101,000 in 2004.
Revenue increases due to higher oil and natural gas sales prices were
substantially offset by a 17% decrease in sales volumes, 12% of which was due to
normal oil and gas production declines and 5% due to property sales.

Operating Overhead and Other Income. Revenues from these activities
decreased 36% from $166,000 in 2003 to $107,000 in 2004, primarily due to (1) a
one time $58,000 contract settlement received in 2003, and (2) lower pipeline
volumes resulting in less transportation revenue.

Costs and Expenses

Lease Operating Expenses. Lease operating expenses decreased 12% from
$5,528,000 in 2003 to $4,880,000 in 2004, 5% was due to lower variable costs on
lower production volumes and 7% due to property sales. On a per BOE basis, costs
increased from $13.16 in 2003 to $14.10 per BOE in 2004 because of lower volume
and higher vendor prices.

Depreciation, Depletion and Amortization (DD & A). DD & A decreased 2%
from $2,226,000 in 2003 to $2,185,000 in 2004, due to lower production volumes.
On a per BOE basis, the DD & A rate increased from $5.30 in 2003 to $6.31 per
BOE in 2004 due to higher than anticipated development costs.

The cost of Dry Holes, Abandoned Property and Impaired Assets expense
in 2004 was $453,000 (abandoned- $391,000; impaired- $62,000), compared to
$359,000 (dry holes- $70,000; abandoned- $289,000) in 2003. The abandoned
property was due to a lack of capital to complete projects resulting in the loss
of leases.

General and Administrative (G & A) Expenses. G & A expenses decreased
11% from $2,262,000 in 2003 to $2,019,000 in 2004 due to expenses incurred in
2003 associated with financing efforts that were not culminated.

Interest Income and Expense. Interest expense increased 24% from
$3,363,000 in 2003 to $4,154,000 in 2004. In April 2004 we retired debt of
approximately $27.6 million carrying an interest rate of prime plus 3.5% and
replaced it with debt of approximately $18.0 million that carries an interest
rate of prime plus 11.0%. Also, included in 2004 is non cash interest expense of
approximately $.4 million resulting from the discounting on a note payable
issued in 2004.

Other Financing Costs. Other financing costs increased 47% from
$1,000,000 in 2003 to $1,472,000 in 2004. In 2003, we recorded an expense of
$1,000,000 to account for the issuance of 2,000 shares of our preferred stock in
conjunction with the financial agreement on the retired debt referred to above.
The expense in 2004 represents the amortized portion of loan fees associated
with the refinancing of debt referred to above.

-26-

Unrealized Gain (Loss) on Derivative Instruments. The estimated future
fair value of derivative instruments at December 31, 2004 resulted in an
estimated unrealized loss of $1,506,000 in 2004 compared to an unrealized gain
of $537,000 in 2003. Estimated unrealized gain/loss on oil and gas price hedges
in place on a particular balance sheet date is based on a "mark to market"
calculation based on a market price forecast on the balance sheet date compared
to the prices provided for in the derivative instruments.

Loss on Sale of Property and Equipment. We recorded a loss on sale of
property and equipment of $2,034,000 in 2004 as compared to $20,000 in 2003. See
Note 3 to the Financial Statements.

Accretion Expense. Accretion expense decreased 6% from $77,000 in 2003
to $72,000 in 2004 due to sales of oil and gas properties.

Forgiveness of Debt. In 2004 we had $12,476,000 in debt forgiven as the
result of debt refinancing in April, 2004.

Dividends on Preferred Stock. In 2004, a dividend on preferred stock
due was $456,000. In 2003 dividends on preferred stock due was $127,000. The
board of directors did not declare any dividends be paid.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues

Oil and Gas Sales. Our operating revenues from the sale of crude oil
and natural gas increased by 4% from $10,447,000 in 2002 to $10,844,000 in 2003.
This increase was due to higher sales prices, offset by normal oil and gas
production declines and resulting in lower production volumes. We were unable to
offset those declines and maintain or increase production through development
efforts because of limited development capital.

Well Servicing Revenues. There were no revenues from our well servicing
operations in 2003 compared to $39,000 in 2002 since we ceased performing work
for other operators and concentrated on our own properties.

Operating Overhead and Other Income. Revenues from these activities
decreased 53% from $354,000 in 2002 to $166,000 in 2003, primarily due to (1)
the loss of an oil and gas marketing contract and (2) lower pipeline volumes
resulting in less transportation revenue.

Costs and Expenses

Lease Operating Expenses. Lease operating expenses increased 2% from
$5,430,000 in 2002 to $5,528,000 in 2003 due to increased vendor prices.

Cost of Well Servicing Operations. There were no well servicing
expenses in 2003 compared to $56,000 in 2002 since we did not work for other
operators.

Depreciation, Depletion and Amortization (DD & A). DD & A decreased 17%
from $2,698,000 in 2002 to $2,226,000 in 2003, due to lower production volumes.
We also recorded in other income $262,000 related to the cumulative effect of
adopting SFAS 143 "Asset Retirement Obligations".

Dry Holes, Abandoned Property and Impaired Assets. The cost of
abandoned property in 2003 was $359,000 because the lack of capital to complete
projects resulted in the loss of leases. This compared to combined costs of dry
holes, abandoned property and impaired assets of $617,000 in 2002.

-27-

General and Administrative (G and A) Expenses. G and A expenses
increased 31% from $1,728,000 in 2002 to $2,262,000 in 2003 due to expenses
associated with financing efforts that were not culminated.

Interest Income and Expense. Interest expense increased 6% from
$3,159,000 in 2002 to $3,363,000 in 2003 due to penalty interest paid to our
largest lender under a provision in the loan agreement.

Other Financing Costs. In 2003, we recorded an expense of $1,000,000 to
account for the failed issuance of 2,000 shares of our preferred stock to our
largest lender under a financial agreement.

Unrealized Gain (Loss) on Derivative Instruments. The estimated future
fair value of derivative instruments at December 31, 2003 resulted in an
unrealized gain of $537,000 in 2003 compared to an unrealized loss of $1,597,000
in 2002.

Loss on Sale of Property and Equipment. We recorded a loss on sale of
property and equipment of $20,000 in 2003 as compared to $57,000 in 2002. See
Note 3 to the Financial Statements.

Accretion Expense. We recorded accretion expenses of $77,000 as a
result of adapting SPAS 143 "Asset Retirement Obligations", effective January 1,
2003.

Dividends on Preferred Stock. In 2003, dividends due on preferred stock
due was $127,000, however the board of directors did not declare any dividends
to be paid. In 2002, dividends on preferred stock due was $112,000, and paid was
$112,000.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenues

Oil and Gas Sales. Our operating revenues from the sale of crude oil
and natural gas decreased by 16% from $12,426,000 in 2001 to $10,447,000 in
2002. This decrease resulted from normal oil and gas production declines and the
inability to offset those declines through development efforts because of
limited development capital.

Well Servicing Revenues. Revenues from our well servicing operations
decreased by 77% from $169,000 in 2001 to $39,000 in 2002. This decrease was due
to performing less work for third parties and the sale of one of our workover
rigs.

Operating Overhead and Other Income. Revenues from these activities
decreased 10% from $395,000 in 2001 to $354,000 in 2002, primarily as a result
of the termination of a gas transportation sales contract with a local utility.

Costs and Expenses

Lease Operating Expenses. Lease operating expenses increased 5% from
$5,155,000 in 2001 to $5,430,000 in 2002 due to increased vendor prices.

Cost of Well Servicing Operations. Well servicing expenses decreased
69% from $182,000 in 2001 to $56,000 in 2002 due to less work under contract to
third parties and the sale of one workover rig.

Depreciation, Depletion and Amortization (DD & A). DD & A increased 8%
from $2,491,000 in 2001 to $2,698,000 in 2002, due to our proved reserves being
calculated slightly lower at the end of 2001.

-28-

Dry Holes, Abandoned Property, Impaired Assets. The costs of a dry hole
in Louisiana of $339,000, abandoned property in Oklahoma of $222,000 and
impaired assets in Mississippi of $55,000 totaled $617,000 in 2002 compared to
none in 2001.

General and Administrative (G & A) Expenses. G & A expenses increased
only slightly from $1,710,000 in 2001 to $1,728,000 in 2002.

Interest Income and Expense. Interest expense increased 15% from
$2,757,000 in 2001 to $3,159,000 in 2002 due to increased debt associated with
the funding of acquisitions in August, 2001, capital used in our development
program and issuance of warrants associated with working capital loans.

Unrealized Gain (Loss) on Derivative Instruments. The estimated future
fair value of derivative instruments at December 31, 2002 resulted in an
unrealized loss of $1,597,000 in 2002 compared to an unrealized gain of
$4,215,000 in 2001. Also in 2001, an unrealized loss of $3,747,000, resulting
from the cumulative effect of adopting SFAS No. 133 "Accounting for Derivative
Instruments and Other Hedging Activities," was recorded.

Loss on Sale of Property and Equipment. We recorded a loss on sale of
property and equipment of $57,000 in 2002 as compared to $118,000 in 2001. See
Note 3 to the Financial Statements.

Dividends on preferred stock due was $112,000 and paid was $112,000 in
2002. Dividends on preferred stock due was $56,000 and paid was $28,000 in 2001.

Contractual Obligations

Our obligations as of December 31, 2004, under contractual obligations
with maturities exceeding one year, were as follows:

More than
Total 2005 2006 2007 2008 2009 5 years
------------ ------------ ----------- ------------ ------------ ------------ -----------

Long-term debt obligations $23,603,897 $22,798,447 $506,565 $286,673 $12,212 $- $-
Operating lease obligations 302,279 132,979 135,323 33,977 - - -

Asset retirement obligations 1,144,854 - - 49,034 20,989 - 1,074,831
------------ ------------ ----------- ------------ ------------ ------------ -----------
$25,051,030 $22,931,426 $641,888 $369,684 $33,201 $- $1,074,831
============ ============ =========== ============ ============ ============ ===========

Financial Condition and Capital Resources.

At December 31, 2004, our current liabilities exceeded our current
assets by $33,353,875, primarily because of the classification of approximately
$29.6 million of Company debt as current. Substantially all of that debt was
paid off in conjunction with the February 28, 2005 investment by Oaktree Capital
Management (see below). We had income available to common shareholders of
$7,616,609 compared to a loss available to common shareholders of $3,151,509 at
December 31, 2003.

On April 27, 2004, we completed an $18,000,000 financing package with
new energy lenders. We used $15,700,000 in net proceeds from the financing to
retire existing debt of $27,584,145, resulting in forgiveness of debt of
$12,475,612, the elimination of a hedging liability and the return to the
Company of Series F Preferred Stock with an aggregate liquidation preference of
$1,000,000 (this preferred stock, at the request of the Company, was transferred
by the previous lender to a financial advisor to the Company and to two
companies affiliated with two directors of the Company in satisfaction of
Company obligations to them). (See "Certain Relationships and Related
Transactions.") This taxable gain resulting from these transactions will be
completely offset by available net operating loss carryforwards. The term of the
note is eighteen months and it bears interest at the prime rate plus 11%. This
rate increases by .75% per month beginning in month ten. We paid the new lenders
$1,180,000 in cash fees and also issued them warrants to purchase 2,035,621
shares of our Common Stock at an exercise price of $.01 per share, expiring in
five years. The warrants are subject to anti-dilution provisions. In connection
with the February 2005 transactions described below, the anti-dilution
provisions were amended such that additional issuances of stock (other than
issuances to all holders) would not trigger an adjustment to the number of
shares issuable upon exercise of the warrants.

-29-

On January 7, 2005, we amended our April 2004 credit agreement to
extend the target date for repayment to February 28, 2005. We exercised this
option on January 26, 2005. We issued 29,100 shares of our common stock in
connection with this amendment.

In a subsequent event, on February 28, 2005, we sold in a private
placement, 81,000 shares of our Series G Preferred Stock to OCM GW Holdings for
an aggregate offering price of $40.5 million. GOGC issued, in a private
placement, 2,000 shares of our Series A Preferred Stock, having a liquidation
preference of $1.0 million, to OCM GW Holdings for $1.5 million. Net proceeds of
the offerings of approximately $38 million after expenses are being used for the
repayment of substantially all of our outstanding debt and other past due
liabilities and for general corporate purposes.

The Series G Preferred Stock bears a coupon of 8% per year, has an
aggregate liquidation preference of $40.5 million, is convertible in the Common
Stock at $0.90 per share and is senior to all of our outstanding capital stock.
For the first four years after issuance, we may defer the payment of dividends
on the Series G Preferred Stock and these deferred dividends will also be
convertible into our Common Stock at $0.90 per share. In addition, the Series G
Preferred Stock is entitled to nominate and elect a majority of the members of
the Board of Directors of GulfWest.

In connection with these transactions, the terms of the Series A
Preferred Stock have been amended such that by March 15, 2005, all such stock
would either convert into a newly created Series H Preferred Stock on a one for
one basis or into Common Stock at a conversion price of $0.35 per share. The
Series H Preferred Stock is required to be paid a dividend of 40 shares of
Common Stock per share of Series H Preferred Stock per year. In addition, the
Series H Preferred Stock is convertible into Common Stock at a conversion price
of $0.35 per share. At March 15, 2005, holders of 6,700 shares of Series A
Preferred Stock converted to Series H Preferred Stock and holders of 3,250
shares of Series A Preferred Stock converted to an aggregate 4,642,859 shares of
Common Stock. One Series H Preferred Stock holder converted its shares of Series
H Preferred Stock to 285,715 shares of Common Stock. The outstanding Series H
Preferred Stock has an aggregate liquidation preference of $3.250 million. The
Series H Preferred Stock is senior to all of our outstanding capital stock other
than Series G Preferred Stock.

In addition, we amended the terms of our 9,000 shares of Series E
Preferred Stock such that the coupon of 6% per year they bear may be deferred
for the next four years and these deferred dividends will be convertible into
Common Stock at conversion price of $0.90 per share. The initial liquidation
preference of the Series E Preferred Stock of $500 per share remains convertible
into Common Stock at $2.00 per share. The Series E Preferred Stock has an
aggregate liquidation preference of $4.5 million, and is senior to all of our
Common Stock, of equal preference with our Series D Preferred Stock as to
liquidation and junior to our Series G Preferred Stock and H.

Inflation and Changes in Prices.

While the general level of inflation affects certain costs associated
with the petroleum industry, factors unique to the industry result in
independent price fluctuations. Such price changes have had, and will continue
to have a material effect on our operations; however, we cannot predict these
fluctuations.

-30-

The following table indicates the average crude oil and natural gas
prices received over the last three years by quarter. Average prices per barrel
of oil equivalent, computed by converting natural gas production to crude oil
equivalents at the rate of 6 Mcf per barrel, indicate the composite impact of
changes in crude oil and natural gas prices.

Average Prices(1)
-----------------------------------------------------
Crude Oil Per
And Natural Equivalent
Liquids Gas Barrel
-------------- -------------- ---------------
(per Bbl) (per Mcf)
2004
----
First $27.97 $4.87 $28.59
Second 30.41 5.34 31.18
Third 32.72 5.44 33.36
Fourth 35.32 5.97 35.58

2003
----
First $24.53 $5.36 $28.08
Second 23.53 4.47 25.04
Third 23.85 4.32 24.86
Fourth 24.99 4.56 25.02

2002
----
First $19.40 $2.81 $18.31
Second 20.75 3.16 19.83
Third 22.04 2.87 19.67
Fourth 22.38 3.56 22.11

------------------

(1) Average sales price are shown net of the settled amounts of our oil and gas
hedge contracts.

Qualitative and Quantitative Disclosures About Market Risk.

The following market rate disclosures should be read in conjunction
with our financial statements and notes thereto beginning on Page F-1 of this
prospectus. All of our financial instruments are for purposes other than
trading. We only enter into derivative financial instruments in conjunction with
our oil and gas sales price hedging activities. Hypothetical changes in interest
rates and prices chosen for the following stimulated sensitivity effects are
considered to be reasonably possible near-term changes generally based on
consideration of past fluctuations for each risk category. It is not possible to
accurately predict future changes in interest rates and product prices.
Accordingly, these hypothetical changes may not be an indicator of probable
future fluctuations.

Interest Rate Risk

We are exposed to interest rate risk on debt with variable interest
rates. At December 31, 2004, we carried variable rate debt of $30,189,455.
Assuming a one percentage point change at December 31, 2004 on our variable rate
debt, the annual pretax net income or loss would change by $301,895.

-31-

Commodity Price Risk

In the past we have entered into, and may in the future enter into,
certain derivative arrangements with respect to portions of our oil and natural
gas production to reduce our sensitivity to volatile commodity prices. During
2004, 2003, and 2002, we entered into price swaps and put agreements with
financial institutions. We believe that these derivative arrangements, although
not free of risk, allow us to achieve a more predictable cash flow and to reduce
exposure to price fluctuations. However, derivative arrangements limit the
benefit to us of increases in the prices of crude oil and natural gas sales.
Moreover, our derivative arrangements apply only to a portion of our production
and provide only partial price protection against declines in price. Such
arrangements may expose us to risk of financial loss in certain circumstances.
We expect that the monthly volume of derivative arrangements will vary from time
to time. We continuously reevaluate our price hedging program in light of market
conditions, commodity price forecasts, capital spending and debt service
requirements. The following hedges were in place at December 31, 2004 or were
added subsequent to that date and are effective for the periods shown.

Crude Oil Volume/ Month Average Price/ Unit
--------- ------------- -------------------

January 2005 thru October 2005 Swap 10,000 Bbls $32.00
April 2005 thru June 2005 Swap 2,000 Bbls $56.50
July 2005 thru October 2005 Swap 1,000 Bbls $56.50
November & December 2005 Swap 11,000 Bbls $56.50
January 2006 thru March 2006 Collar 10,000 Bbls Floor $50.00-$59.00 Ceiling
April 2006 thru December 2006 Collar 9,000 Bbls Floor $50.00-$59.00 Ceiling
January 2007 thru December 2007 Collar 3,000 Bbls Floor $45.00-$59.45 Ceiling

Natural Gas Volume/ Month Average Price/ Unit
----------- ------------- -------------------
January 2005 thru October 2005 Swap 60,000 MMBTU $5.15
April 2005 thru June 2005 Swap 20,000 MMBTU $7.45
July 2005 thru October 2005 Swap 10,000 MMBTU $7.45
November & December 2005 Swap 70,000 MMBTU $7.45
January 2006 thru December 2006 Collar 70,000 MMBTU Floor $6.00-$8.25 Ceiling
January 2007 thru December 2007 Collar 20,000 MMBTU Floor $6.00-$6.95 Ceiling

These volumes represent approximately 75% of the estimated production
(for both oil and natural gas) on currently producing properties for the
remainder of 2005 and for 2006 and approximately 30% of estimated production for
2007.

We also had, at December 31, 2004, the following puts options in place
for the months reflected. These contracts were terminated in conjunction with
the new swap and cost-less collars added in March 2005.

Crude Oil Monthly Volume Price per Bbl
--------- -------------- -------------

November 1, 2005 to April 30, 2006 7,000 Bbls $25.75 put
May 1, 2006 to October 31, 2006 6,000 Bbls $25.75 put
November 1, 2006 to April 30, 2007 5,000 Bbls $25.75 put

Natural Gas Monthly Volume Price per MMBTU
----------- -------------- ---------------
November 1, 2005 to April 30, 2006 50,000 MMBTU $4.50 put
May 1, 2006 to October 31, 2006 40,000 MMBTU $4.50 put
November 1, 2006 to April 30, 2007 30,000 MMBTU $4.50 put

-32-

Effective January 1, 2001, we adopted SFAS No. 133 "Accounting for
Derivative Instruments and Other Hedging Activities", as amended by SFAS No. 137
and No. 138. As a result of a financing agreement with an energy lender, we were
required to enter into an oil and gas hedging agreement with the lender. It has
been determined this agreement meets the definition of SFAS 133 "Accounting for
Derivative Instruments and Hedging Activities" and is accounted for as a
derivative instrument.

The estimated change in fair value of the derivatives is reported in
Other Income and Expense as unrealized (gain) loss on derivative instruments.
The estimated fair value of the derivatives as of the balance sheet dates is
reported in Other Assets (or Other Liabilities) as derivative instruments.

Oil and gas sales are adjusted for gains or losses related to the
effective portion of hedging transactions as the underlying hedged production is
sold. Changes in fair value of the ineffective portion of designated hedges or
for derivative arrangements that do not qualify as hedges are recognized in the
consolidated statement of income as derivative gain or loss. Adjustments to oil
and gas sales realized from our hedging activities resulted in a reduction in
revenues of $1,841,209, $1,496,303 and $368,776 in 2004, 2003 and 2002,
respectively. In addition, we accrued an unrealized gain/(loss) on derivatives
of ($1,505,527), $537,526 and ($1,596,575) in 2004, 2003 and 2002, respectively,
for the fair value of the hedges at each balance sheet date. See Note 1 to our
Consolidated Financial Statements included in this prospectus for additional
discussion on derivative instruments.

All hedges which were in existence at March 31, 2004 were canceled as
part of our debt restructuring on April 27, 2004. As of December 31, 2004, new
derivative instruments in place had an estimated liability fair value of
$1,505,527. A hypothetical change in oil and gas prices could have an effect on
oil and gas futures prices, which are used to estimate the fair value of our
derivative instruments. However, it is not practicable to estimate the resultant
change, if any, in the future fair value of our derivative instruments.

More generally, dramatic price volatility in the natural gas and oil
markets has existed the past several years. In fact, the average quoted prices
for natural gas hovered around the low levels of $2.10 per MCf in January 2002,
with the expectation of further decreases. However, the market prices
dramatically reversed in the summer months of 2002 and have continued to
increase

Financial Statements and Supplementary Data

Information with respect to this our financial statements and
supplementary data is contained in our financial statements beginning on Page
F-1 of the financial section of this prospectus.

-33-

BUSINESS AND PROPERTIES

Our Business.

Our gross revenues are derived from the following sources:

1. Oil and gas sales that are proceeds from the sale of crude oil and
natural gas production to midstream purchasers.

2. Operating overhead and other income that consists of administrative
fees received for operating crude oil and natural gas properties for other
working interest owners, and for marketing and transporting natural gas for
those owners. This also includes earnings from other miscellaneous activities.

Our operations are considered to fall within a single industry segment,
which is the acquisition, development, production and servicing of crude oil and
natural gas properties. See " Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Our Common Stock, designated Class A Common Stock ("Common Stock") is
traded over-the-counter (OTC) under the symbol "GULF".

Our Company.

We were formed as a corporation under the laws of the State of Utah in
1987 as Gallup Acquisitions, Inc., and subsequently changed our name to First
Preference Fund, Inc. in 1992. We became a Texas corporation by a merger
effected in July 1992, through which our name became GulfWest Oil Company. On
May 21, 2001, we changed our name to GulfWest Energy Inc.

-34-

Our principal office is located at 480 North Sam Houston Parkway East,
Suite 300, Houston, Texas 77060 and our telephone number is (281) 820-1919.

GulfWest Energy Inc. has six active and three inactive, direct or
indirect, wholly owned subsidiaries. The active subsidiaries are:

1. GulfWest Oil and Gas Company, a Texas corporation, was organized
February 18, 1999 and is the owner of record of interests in certain crude oil
and natural gas properties located in Colorado and Texas. It has one wholly
owned subsidiary, GulfWest Oil and Gas Company (Louisiana) LLC.

2. GulfWest Oil and Gas Company (Louisiana) LLC, a Louisiana company,
was formed July 31, 2001 and is the owner of record of interests in certain
crude oil and natural gas properties in Louisiana.

3. SETEX Oil and Gas Company, a Texas corporation, was organized August
11, 1998 and is the operator of crude oil and natural gas properties in which we
own a majority working interest.

4. RigWest Well Service, Inc., a Texas corporation, was organized
September 5, 1996 and operates well servicing equipment for our own account and
for others when not being utilized for our own account.

5. DutchWest Oil Company, a Texas corporation, was organized July 28,
1997 and is the owner of record of interests in certain crude oil and natural
gas properties located along the Gulf Coast of Texas.

6. GulfWest Development Company, a Texas corporation, was organized
November 9, 2000 and is the owner of record of interests in certain crude oil
and natural gas properties located in Texas and Mississippi.

Balance. At December 31, 2004, our proved reserves were comprised of
38% crude oil and 62% natural gas. We will continue to expand our role in the
domestic natural energy industry by (i) acquiring additional interests in crude
oil and natural gas properties, (ii) increasing the production and reserve base
of our existing producing properties, and (iii) acquiring ownership of more
natural gas gathering systems and pipelines. Our goal is to have greater control
of our natural gas transportation and marketing, and an expanded role in the
transportation of natural gas produced by other parties in our area of
operations. We are presently focusing our workover and development efforts on
both crude oil and natural gas reserves to take advantage of the higher prices
of both commodities.

Financial Recapitalization

On April 27, 2004, we completed an $18,000,000 financing package with
new energy lenders. We used $15,700,000 in net proceeds from the financing to
retire existing debt of $27,584,145, resulting in forgiveness of debt of
$12,475,612, the elimination of a hedging liability and the return to the
Company of Series F Preferred Stock, par value $.01 per share and liquidation
value $500 per share (the "Series F Preferred Stock"), with an aggregate
liquidation preference of $1,000,000. This preferred stock, at our request was
transferred by the previous lender to a financial advisor of ours and to two
companies affiliated with two of our directors in satisfaction of our obligation
to them. (See "Certain Relationships and Related Transactions.") The taxable
gain resulting from these transactions will be completely offset by available
net operating loss carryforwards. The term of the note was eighteen months and
it bore interest at the prime rate plus 11%. This rate increased by .75% per
month beginning in month ten. We paid the new lenders $1,180,000 in cash fees
and also issued them warrants to purchase 2,035,621 shares of our Common Stock
at an exercise price of $.01 per share, expiring in five years. The warrants are
subject to anti-dilution provisions. In connection with the February 2005
transactions described below, the anti-dilution provisions were amended such
that additional issuances of stock (other than issuances to all holders) would
not trigger an adjustment to the number of shares issuable upon exercise of the
warrants.

-35-

Simultaneously, our wholly-owned subsidiary, GulfWest Oil & Gas Company
("GOGC"), completed the initial phase of a private offering of its Series A
Preferred Stock, par value $.01 and liquidation value $500 per share (the
"Series A Preferred Stock") for $4,000,000. The Series A Preferred Stock is
exchangeable into our Common Stock based on a liquidation value of $500 per
share of Series A Preferred Stock divided by $.35 per share of our Common Stock,
or 11,428,571 shares. As part of an advisory fee, we issued $500,000 of the
Series A Preferred Stock to a financial advisor. One of our directors purchased
$1,500,000 of the Series A Preferred Stock.

In a subsequent event, on February 28, 2005, we sold in a private
placement, 81,000 shares of our Series G Preferred Stock, par value $0.01 per
share and liquidation value $500 per share (the "Series G Preferred Stock"), to
OCM GW Holdings, LLC, an affiliate of Oaktree Capital Management, LLC for an
aggregate offering price of $40.5 million. In addition, GOGC issued, in a
private placement, 2,000 shares of its Series A Preferred Stock, having an
aggregate liquidation preference of $1.0 million, to OCM GW for $1.5 million.
Net proceeds of the offerings of approximately $38 million after expenses are
being used for the repayment of substantially all of our debt, other past due
liabilities and for general corporate purposes.

The Series G Preferred Stock bears a coupon of 8% per year, has an
aggregate liquidation preference of $40.5 million, is convertible to the Common
Stock at $0.90 per share of Common Stock and is senior to all of our outstanding
capital stock. For the first four years after issuance, we may defer the payment
of dividends on the Series G Preferred Stock and these deferred dividends will
also be convertible into our Common Stock at $0.90 per share. In addition, the
Series G Preferred Stock is entitled to nominate and elect a majority of the
members of our Board of Directors.

In connection with these transactions, the terms of the Series A
Preferred Stock have been amended such that by March 15, 2005, all such stock
would either convert into a newly created Series H Preferred Stock, par value
$.01 and liquidation value $500 per share (the "Series H Preferred Stock") on a
one for one basis or into Common Stock at a conversion price of $0.35 per share
of Common Stock. The Series H Preferred Stock is required to be paid a dividend
of 40 shares of Common Stock per share of Series H Preferred Stock per year. In
addition, the Series H Preferred Stock is convertible into Common Stock at a
conversion price of $0.35 per share. At March 15, 2005, holders of 6,700 shares
of Series A Preferred Stock converted to Series H Preferred Stock and holders of
3,250 shares of Series A Preferred Stock converted to an aggregate 4,642,859
shares of Common Stock. One holder of the Series H Preferred Stock also
converted its shares to 285,715 shares of Common Stock. The outstanding Series H
Preferred Stock has an aggregate liquidation preference of $3.25 million. The
Series H Preferred Stock is senior to all of our outstanding capital stock
except Series G Preferred Stock.

In addition, we amended the terms of our 9,000 shares of Series E
Preferred Stock, par value $.01 and liquidation value $500 per share (the
"Series E Preferred Stock"), such that the coupon of 6% per year they bear may
be deferred for the next four years and these deferred dividends will be
convertible into Common Stock at conversion price of $0.90 per share. The
initial liquidation preference of the Series E Preferred Stock of $500 per share
remains convertible into Common Stock at $2.00 per share. The Series E Preferred
Stock has an aggregate liquidation preference of $4.5 million, is senior to our
Common Stock, of equal preference with respect to liquidation with our Series D
Preferred Stock, par value $.01 and liquidation value $500 per share (the
"Series D Preferred Stock") and junior to our Series G Preferred Stock and
Series H Preferred Stock.

-36-

Our Business Strategy

We have pursued a business strategy of acquiring interests in crude oil
and natural gas producing properties where production and reserves can be
increased through exploitation activities. Such activities include workovers,
development drilling, recompletions, replacement or addition of equipment and
waterflood or other secondary recovery techniques. Key elements of our business
strategy include:

Development and Exploitation of Existing Properties. Our strategy is to
increase crude oil and natural gas production and reserves of our existing
assets through relatively low-risk development activities, such as performing
workovers, recompletions and horizontal drilling from existing wellbores,
infield drilling and more efficiently using production facilities.

Continued Acquisition Program. We acquired properties in four crude oil
and natural gas fields in Texas and Louisiana in the year 2001. Though capital
constrained since 2001, to the extent financial resources are available, we
intend to continue to pursue the acquisition of interests in crude oil and
natural gas properties (i) held by small, under-capitalized operators and (ii)
being divested by larger independent and major oil and gas companies.

Significant Operating Control. Currently, we are the operator of all
but two of the wells in which we own working interests. This operating control
enables us to better manage the nature, timing and costs of developing and
servicing such wells, and the timing and marketing of the resulting production.

Ownership of Workover Rigs. We currently own two workover service rigs
and one swabbing unit that we operate for our own account. By owning and
operating this equipment, we are better able to control costs, quality of
operations and availability of equipment and services.

Expanded Exploration and Exploitation Role. Historically, we have not
drilled exploratory wells due to the cost and risk associated with drilling
prospective locations. However, since the end of 1998, we have acquired
producing properties that have included significant acreage for prospective oil
and gas exploration. These include producing wells and acreage in Grimes,
Hardin, Jim Wells, Madison, Palo Pinto, Refugio, Wharton and Zavala, Counties,
Texas; Adams, Arapaho, Elbert and Weld Counties, Colorado; Cameron Parish,
Louisiana; and Jones County, Mississippi. These acquisitions have added existing
natural gas and crude oil production to our asset base and, as importantly, have
provided us with immediate geological databases for development drilling
opportunities as well as the potential for generating exploratory opportunities
on the acquired acreage. We have expanded our evaluation efforts in these fields
and intend to increase our development of reserves through workovers of existing
wells and by drilling additional wells. As we develop exploration opportunities
on these properties or see high-quality prospects generated by others, as
capital resources are available, we will complement our development activities
with capital for exploratory or exploitation projects.

Our Employees.

At December 31, 2004, we had 26 full time employees, of whom 13 were
field personnel. None of our employees are covered by collective bargaining
agreements.

-37-

Our Properties.

At December 31, 2004, we owned a total of 250 gross wells, of which 137
were producing, 95 were shut-in or temporarily abandoned and 18 were injection
or saltwater wells. We owned an average 89% working interest in the 137 gross
(120 net) producing wells. Gross wells are the total wells in which we own a
working interest. Net wells are the sum of the fractional working interests we
own in gross wells. Our part of the estimated proved reserves these properties
contain was approximately 3 million barrels (MMBL) of oil and 29.1 billion cubic
feet (Bcf) of natural gas at December 31, 2004. Substantially all of our
properties are located onshore or shallow inland waters in Texas, Colorado and
Louisiana.

Proved Reserves.

The following table reflects our estimated proved reserves at December
31 for each of the preceding three years.

2004 2003 2002
------------- ------------- -------------
Crude Oil (MBbl)
Developed 2,575 3,773 4,026
Undeveloped 388 1,265 1,496
------------- ------------- -------------
Total 2,963 5,038 5,552
============= ============= =============

Natural Gas (MMcf)
Developed 20,966 24,642 25,374
Undeveloped 8,125 8,018 8,785
------------- ------------- -------------
Total 29,091 32,660 34,159
============= ============= =============
Total (MBOE) 7,812 10,481 11,215
============= ============= =============

(a) Approximately 78% of our total proved reserves were classified
as proved developed at December 31, 2004.

(b) Barrel of Oil Equivalent (BOE) is based on a ratio of 6,000 cubic feet
of natural gas for each barrel of oil.

Standardized Measure of Discounted Future Net Cash Flows.

The following table sets forth as of December 31 for each of the
preceding three years, the estimated future net cash flow from and standardized
measure of discounted future net cash flows of our proved reserves, which were
prepared in accordance with the rules and regulations of the SEC and the
Financial Accounting Standard Board. Future net cash flow represents future
gross cash flow from the production and sale of proved reserves, net of crude
oil and natural gas production costs (including production taxes, ad valorem
taxes and operating expenses) and future development costs. The calculations
used to produce the figures in this table are based on current cost and price
factors at December 31 for each year. We cannot assure you that the proved
reserves will all be developed within the periods used in the calculations or
that prices and costs will remain constant.

-38-

2004 2003 2002
----------------- ----------------- -----------------

Future cash inflows $ 290,998,312 $ 336,795,385 $ 308,381,837

Future production and development costs-
Production 80,880,330 109,468,727 105,629,872
Development 24,141,982 21,460,459 23,350,811

Future net cash flows before income taxes 185,976,000 205,866,199 179,401,154
Future income taxes (49,871,272) (46,885,360) (38,611,577)

Future net cash flows after income taxes 136,104,728 158,980,839 140,789,577
10% annual discount for estimated timing
of cash flows (52,602,351) (70,653,419) (63,165,742)

Standardized measure of discounted
future net cash flows(1) $ 83,502,377 $ 88,327,420 $ 77,623,835
================= ================= =================

------------------

(1) The average sales prices utilized in the estimation of our proved reserves
were $40.41 per Bbl and $5.89 per Mcf, $29.51 per Bbl and $5.82 per Mcf,
and $28.72 per Bbl and $4.43 per Mcf at December 31, 2004, 2003 and 2002,
respectively.

Significant Properties.

Summary information on our properties with proved reserves is set forth
below as of December 31, 2004.

Present
Productive Wells Proved Reserves Value(1)
------------------------- ---------------------------------------- -----------
Gross Net
Productive Productive Crude Natural
Wells Wells Oil Gas Total Amount
----------- ----------- ----------- ---------- ----------- -----------
(MBbl) (MMcf) (MBOE) ($M)

Texas 80 75.91 1,295 15,663 3,906 $ 57,706
Colorado 37 24.81 278 5,550 1,203 13,676
Louisiana 19 18.88 1,383 7,878 2,696 42,549
Mississippi 1 0.37 7 - 7 126
----------- ----------- ----------- ---------- ----------- -----------
Total 137 119.97 2,963 29,091 7,812 $ 114,057
=========== =========== =========== ========== =========== ===========

------------------

(1) The average sales prices used in the estimation of our proved reserves were
$40.41per Bbl and $5.89 per Mcf at December 31, 2004.

All information set forth herein relating to our proved reserves,
estimated future net cash flows and present values is taken from reports
prepared by Pressler Petroleum Consultants, independent petroleum engineers. The
estimates of these engineers were based upon their review of production
histories and other geological, economic, ownership and engineering data
provided by and relating to us. No reports on our reserves have been filed with
any federal agency. In accordance with the SEC's guidelines, our estimates of
proved reserves and the future net revenues from which present values are
derived are made using year end crude oil and natural gas sales prices held
constant throughout the life of the properties (except to the extent a contract
specifically provides otherwise). Operating costs, development costs and certain
production-related taxes were deducted in arriving at estimated future net
revenues, but such costs do not include debt service, general and administrative
expenses and income taxes.

-39-

There are numerous uncertainties inherent in estimating crude oil and
natural gas reserves and their values, including many factors beyond our
control. The reserve data set forth in this report are based upon estimates.
Reservoir engineering is a subjective process, which involves estimating the
sizes of underground accumulations of crude oil and natural gas that cannot be
measured in an exact manner. The accuracy of any reserve estimate is a function
of the quality of available data, engineering and geological interpretation of
that data, and judgment. As a result, estimates of different engineers,
including those used by us, may vary. In addition, estimates of reserves are
subject to revision based upon actual production, results of future development,
exploitation and exploration activities, prevailing crude oil and natural gas
prices, operating costs and other factors. Such revisions may be material.
Accordingly, reserve estimates are often different from the quantities of crude
oil and natural gas that are ultimately recovered and are highly dependent upon
the accuracy of the assumptions upon which they are based. We cannot assure you
that the estimates contained in this report are accurate predictions of our
crude oil and natural gas reserves or their values. Estimates with respect to
proved reserves that may be developed and produced in the future are often based
upon volumetric calculations and upon analogy to similar types of reserves
rather than upon actual production history. Estimates based on these methods are
generally less reliable than those based on actual production history.
Subsequent evaluation of the same reserves based upon production history will
result in potentially substantial variations in the estimated reserves.

Production, Revenue and Price History.

The following table sets forth information (associated with our proved
reserves) regarding production volumes of crude oil and natural gas, revenues
and expenses attributable to such production (all net to our interests) and
certain price and cost information for the years ended December 31, 2004, 2003
and 2002.

2004 2003 2002
------------ ------------ ------------

Production
Oil (Bbl) 173,865 221,433 278,374
Natural gas (Mcf) 1,033,433 1,191,350 1,487,048
------------ ------------ ------------
Total (BOE) 346,104 419,991 526,215

Revenue
Oil production $5,498,598 $5,362,657 $5,859,568
Natural gas production 5,602,516 5,481,803 4,587,601
------------ ------------ ------------
Total $11,101,114 $10,844,460 $10,447,169

Operating Expenses $4,879,754 $5,527,841 $5,430,205

Production Data
Average sales price (1)
Per barrel of oil $31.63 $24.22 $21.05
Per Mcf of natural gas $5.42 $4.60 3.09
Per BOE $32.07 $25.82 19.85

Average expenses per BOE
Lease operating $14.10 $13.16 $10.32
Depreciation, depletion and
Amortization $6.31 $5.30 $5.13
General and administrative $5.83 $5.39 $3.28

------------------

(1) Average sales prices are shown net of the settled amounts of our oil and
gas hedge contracts. Average sales prices per BOE, before adjustments for
the hedge contracts, were $37.39, $29.38 and $20.55 in 2004, 2003 and 2002,
respectively.

-40-

Productive Wells at December 31, 2004:

The following table shows the number of productive wells we own by
location:

Gross Net Gross Net
Oil Wells Oil Wells Gas Wells Gas Wells
---------- ---------- ----------- -----------

Texas 31 29.99 49 45.92
Colorado 21 13.45 16 11.36
Louisiana 14 13.88 5 5.00
Mississippi 1 0.37 - -
---------- ---------- ----------- -----------
Total 67 57.69 70 62.28
========== ========== =========== ===========

Developed Acreage at December 31, 2004.

The following table shows the developed acreage that we own, by
location, which is acreage spaced or assigned to productive wells. Gross acres
are the total acres in which we own a working interest. Net acres are the sum of
the fractional working interests we own in gross acres.

Gross Acres Net Acres
--------------- ----------------
Texas 9,055 8,439
Colorado 6,000 4,020
Louisiana 1,320 1,315
--------------- ----------------
Total 16,375 13,774
=============== ================

Undeveloped Acreage at December 31, 2004.

The following table shows the undeveloped acreage that we own, by
location. Undeveloped acreage is acreage on which wells have not been drilled or
completed to a point that would form the basis to determine whether the property
is capable of production of commercial quantities of crude oil and natural gas.

Gross Acres Net Acres
Texas 20,420 17,920
Colorado 11,000 8,250
Louisiana 375 375
--------------- ----------------
Total 31,795 26,545
=============== ================

Drilling Results.

In 2004, we drilled one well that was completed as a successful gas
well. The well was located in Grimes County, Texas and was drilled during the
fourth quarter of 2004. The well was completed, brought on-line in mid-January
2005 and has produced at any average rate of 600 Mcf per day (net to our
interest) for the first 60 days. We did not drill any wells in 2003. In 2002, we
drilled one exploratory well, in which we own an 18% working interest, that
resulted in a dry hole and one development well, in which we own 100% working
interest, that is currently productive.

-41-

Costs Incurred

The following table shows the costs incurred in our oil and gas
producing activities for the past three years:

2004 2003 2002
------------- ------------- -------------
Property Acquisitions
Proved $6,742 - $562,760
Unproved 17,347 110,119 14,401
Development Costs 6,117,899 2,024,663 5,141,075
------------- ------------- -------------
$6,141,988 $2,134,782 $5,718,236
============= ============= =============

Property Dispositions

The following table shows oil and gas property dispositions:

2004 2003 2002
------------ ------------- -------------
Oil and gas properties $5,425,040 $31,979 $464,806
Accumulated DD&A (1,659,001) (11,569) (21,375)
------------ ------------- -------------
Net oil and gas properties $3,766,039 20,410 $443,431
============ ============= =============

As a result of these sales we recorded a loss of $2,029,932 in 2004 and
$20,409 in 2003 and a gain of $21,569 in 2002.

Marketing

We sell substantially all of our crude oil and natural gas production
to purchasers pursuant to sales contracts that typically have a thirty-day
primary term, although occasionally we enter into longer term contracts when it
is advantageous to do so. The sales prices for crude oil and condensate are tied
to industry standard posted prices plus negotiated premiums. The sales prices
for natural gas are based upon published index prices, subject to negotiated
price deductions.

Legal Proceedings

From time to time, we are involved in litigation relating to claims
arising out of our operations or from disputes with vendors in the normal course
of business. As of April 6, 2005, we were not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on us.

-42-

MANAGEMENT

The following table sets forth information on our directors and
executive officers at April 1, 2005:

Year First Elected
Name Age Position Director or Officer
Allan D. Keel 45 President, Chief Executive 2005
Officer and Director
E. Joseph Grady 52 Senior Vice President and 2005
Chief Financial Officer
B. James Ford 36 Director 2005
Skardon F. Baker 35 Director 2005
J. Virgil Waggoner 76 Chairman of the Board 1997
John E. Loehr 58 Director 1992
Thomas R. Kaetzer 45 Senior Vice President of 1998
Operations
Tracy Price 46 Senior Vice President - 2005
Land/Business Development
Tommy Atkins 46 Senior Vice President - 2005
Exploration
Steven Mengle 51 Senior Vice President - 2005
Engineering
Richard L. Creel 55 Vice President of Finance and 1998
Controller
Jim C. Bigham 68 Vice President and Secretary 1991

Allan D. Keel was appointed Chief Executive Officer and President and
joined the Company's board of directors on February 28, 2005. Prior to joining
Gulfwest, Mr. Keel was Vice President/General Manager of Westport Resources,
Houston office during 2004 . In this role he was responsible for WRC's Gulf of
Mexico operations including acquisitions, development and exploration. In 2003,
Mr. Keel served as a consultant to both domestic and international companies in
building their presence in the Gulf of Mexico. From mid 2000 until mid 2001, Mr.
Keel served as a Vice President at Enron Energy Finance where he worked on
private equity transactions and volumetric production payments. From 2001
through 2002, Mr. Keel served as President and CEO of Mariner Energy Company, a
majority owned affiliate of Enron. Subsequent to Enron's bankruptcy and its
decision to sell Mariner, Mr. Keel partnered with Oaktree Capital Management,
LLC in an effort to acquire the company. From 1996 until mid-2000, Mr. Keel was
Vice President/General Manager for Westport Resources, where he built the Gulf
of Mexico division from a grassroots effort. From 1984 to 1996, Mr. Keel was
with Energen Resources where he directed the company's exploration, joint
venture and acquisition activities. He received BS and MS degrees in geology
from the University of Alabama and an MBA from the Owen School of Management at
Vanderbilt University. Mr. Keel was appointed pursuant to the terms of the
Series G Preferred Stock.

-43-

E. Joseph Grady was appointed Vice President and Chief Financial
Officer on February 28, 2005. E. Joseph Grady is managing director of Vision
Fund Advisors, Inc., a financial advisory firm he co-founded in 2001. Mr. Grady
has over twenty-five years of financial, operational and administrative
experience. He was formerly Senior Vice President - Finance and Chief Financial
Officer of Texas Petrochemicals Holdings, Inc. from April 2003 to July 2004 and
Vice President - Chief Financial Officer and Treasurer of Forcenergy Inc. from
1995 to 2001.

B. James Ford became a member of the Company's board of directors on
February 28, 2005. Mr. Ford is a Managing Director of Oaktree Capital
Management, LLC. Prior to joining Oaktree in June 1996, Mr. Ford was a
consultant with McKinsey & Co., and a financial analyst in the Investment
Banking Department of PaineWebber Incorporated. Mr. Ford earned a Bachelor of
Arts in Economics from the University of California at Los Angeles and an M.B.A.
from the Stanford University Graduate School of Business. He currently serves as
a director of Cebridge Connections, LLC and National Mobile Television. Mr. Ford
was appointed pursuant to the terms of the Series G Preferred Stock.

Skardon F. Baker became a member of the Company's board of Directors on
February 28, 2005. Mr. Baker is a Vice President of Oaktree Capital Management,
LLC. Prior to joining Oaktree in 2004, Mr. Baker spent four years at J.P. Morgan
Chase & Co. and its predecessor organizations, serving most recently as a Vice
President in the Mergers and Acquisitions group responsible for identifying and
executing leveraged transactions for the firm's financial sponsor client base.
Mr. Baker also served as Executive Aide to Geoff Boisi and Don Layton, co-CEOs
of JP Morgan's investment bank. Prior thereto, Mr. Baker was a Director and
Associate at The Beacon Group, LLC, a merger advisory and private investment
firm. Prior to Beacon, Mr. Baker received an M.B.A. from Harvard Business School
and a J.D. from the University of Texas School of Law, where he was Associate
Editor of The Texas Law Review. During his time in graduate school, Mr. Baker
worked at McKinsey & Co. and Vinson & Elkins, LLP. Prior to graduate school, Mr.
Baker served as Chief Speechwriter and Special Assistant for the Office of
Governor George W. Bush. Before that, he was a Lieutenant in the United States
Army. Mr. Baker received a B.A. degree in Government magna cum laude from
Harvard University. Mr. Baker was appointed pursuant to the terms of the Series
G Preferred Stock.

J. Virgil Waggoner has served as a director of the Company since
December 1, 1997, and was Chairman of the Board from May, 2002 to February 28,
2005, and was reappointed Chairman of the Board on March 16, 2005. Mr.
Waggoner's career in the petrochemical industry began in 1950, and included
senior management positions with Monsanto Company and El Paso Products Company,
the petrochemical and plastics unit of El Paso Company. He served as president
and chief executive officer of Sterling Chemicals, Inc. from the firm's
inception in 1986 until its sale and his retirement in 1996. He is currently
chief executive officer of JVW Investments, Ltd., a private company.

John E. Loehr has served as a director of the Company since 1992, was
Chief Executive Officer from May 12, 2004 to February 28, 2005, was chairman of
the board from September 1, 1993 to July 8, 1998 and was chief financial officer
from November 22, 1996 to May 28, 1998. He is also currently president and sole
shareholder of ST Advisory Corporation, an investment company, and
vice-president of Star-Tex Trading Company, also an investment company. He was
formerly president of Star-Tex Asset Management, a commodity-trading advisor, a
position he held from 1988 until 1992 when he sold his ownership interest. Mr.
Loehr is a CPA and a member of the American Institute of Certified Public
Accountants.

-44-

Thomas R. Kaetzer was appointed senior vice president and chief
operating officer of the Company on September 15, 1998. From December 21, 1998
to February 28, 2005 he served as president and a director. Effective April 1,
2005, he was appointed as Senior Vice President of Operations. He was Chief
Executive Officer from March 20, 2001 until May 12, 2004. Prior to joining
GulfWest, Mr. Kaetzer had 17 years experience in the oil and gas industry,
including 14 years with Texaco Inc., which involved the evaluation, exploitation
and management of oil and gas assets. He has both onshore and offshore
experience in operations and production management, asset acquisition,
development, drilling and workovers in the continental U.S., Gulf of Mexico,
North Sea, Colombia, Saudi Arabia, China and West Africa. Mr. Kaetzer has a
Masters Degree in Petroleum Engineering from Tulane University and a Bachelor of
Science Degree in Civil Engineering from the University of Illinois.

Tracy Price was appointed Senior Vice President - Land/Business
Development on April 1, 2005. Mr. Price joined the Company after serving as the
Senior Vice President - Land/Business Development for The Houston Exploration
Company from 2001 until joining the Company. Prior to his tenure at The Houston
Exploration Company, Mr. Price served as Manager of Land and Business
Development for Newfield Exploration Company between 1990 and 2001. From 1986 to
1990 Mr. Price was Land Manager for Apache Corporation. Prior to Apache, Mr.
Price has also served in similar land management capacities at Challenger
Minerals Inc. and Phillips Petroleum Company. Mr. Price received his BBA in
Petroleum Land Management from the University of Texas.

Tommy Atkins was appointed Senior Vice President - Exploration on April
1, 2005. Mr. Atkins joined the Company after serving as the General Manager -
Gulf of Mexico for Newfield Exploration Company where he was employed from 1998
until joining the Company. Prior to his tenure at Newfield, Mr. Atkins served in
various exploration capacities with EOG Resources and its predecessor companies
from 1984 to 1998, including prospect generator, development geologist and
finally as Exploration Manager. Mr. Atkins also worked at the Superior Oil
Company from 1981 through 1984. Mr. Atkins received a BS in Geology from the
University of Oklahoma.

Steven Mengle was appointed Senior Vice President - Engineering on
April 1, 2005 after serving as the Shelf Asset Manager - Gulf of Mexico for Kerr
McGee Corporation subsequent to the 2004 merger with Westport Resources. Mr.
Mengle was with Westport Resources from 1998 to 2004, where he started
Westport's Gulf Coast/Gulf of Mexico drilling and production operations. Prior
to joining Westport, Mr. Mengle also served in various drilling, production and
marketing management capacities at Norcen Energy Resources, Kirby Exploration
and Mobil Oil Corp. Mr. Mengle received his BS in Petroleum Engineering from the
University of Texas.

Richard L. Creel has served as controller of the Company since May 1,
1997 and was elected vice president of finance on May 28, 1998. Prior to joining
the Company, Mr. Creel served as Branch Manager of the Nashville, Tennessee
office of Management Reports and Services, Inc. He has also served as controller
of TLO Energy Corp. He has extensive experience in general accounting, petroleum
accounting and financial consulting and income tax preparation.

Jim Bigham has served as secretary since 1991 and as executive vice
president of the Company since 1996. Prior to joining the Company, he held
management and sales positions in the real estate and printing industries. Mr.
Bigham is also a retired United States Air Force Major. During his military
career, he served in both command and staff officer positions in the
operational, intelligence and planning areas.

Directors are elected annually and hold office until the next annual
meeting or until their successors are duly elected and qualified.

-45-

Board Meetings and Committees

Our board of directors has established an audit committee and a
compensation committee. However, as a result of the February 2005 transactions,
we are currently in the process of reconstituting these committees.

The audit committee was established to review and appraise the audit
efforts of our independent auditors, and monitor our accounts, procedures and
internal controls. During 2004, the committee was initially comprised of Mr.
John E. Loehr (Chairman), Mr. J. Virgil Waggoner, and Mr. M. Scott Manolis. The
Board of Directors had made a determination that Mr. Loehr was an independent
financial expert. When Mr. Loehr was elected Chief Executive Officer on May 12,
2004, he resigned from the audit committee. Mr. Manolis was elected Chair of the
audit committee and Mr. Marshall A. Smith III was appointed to that committee.
The Board of Directors did not determine whether this newly constituted audit
committee has an independent financial expert. On February 28, 2005 effective at
the closing of the February 2005 preferred stock transactions, Scott Manolis,
Marshall Smith and Thomas Kaetzer resigned as members of our board of directors.
Mr. Waggoner and John Loehr remained as directors and B. James Ford, Skardon F.
Baker and Allan D. Keel were elected to fill the vacancies resulting from the
resignation of such three directors. Following these transactions, the Board of
Directors has not had an opportunity to appoint new members to the audit
committee or determine whether the newly constituted audit committee will have
an independent financial expert and, if it will, who that individual will be.

The function of the compensation committee is to fix the annual
salaries and other compensation for our officers and key employees. During 2004
the committee was comprised of Mr. J. Virgil Waggoner (Chairman), Mr. John E.
Loehr and Mr. M. Scott Manolis. Mr. Loehr resigned from the committee on May 12,
2004 when he became Chief Executive Officer. As a result of the February 2005
transactions we have not yet had an opportunity to appoint permanent members to
the compensation committee.

Compensation of Directors

The shareholders approved an amended and restated Employee Stock Option
Plan on May 28, 1998, which included a provision for the payment of reasonable
fees in cash or stock to directors. Effective July 15, 2004 the board of
directors established a 2004 Stock Option and Compensation Plan in which
directors were eligible to participate. The board of directors approved a 2005
Stock Incentive Plan effective February 28, 2005, which includes directors as
eligible participants under the plan. Due to limited capital resources, no fees
were paid to directors in 2004.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information regarding compensation paid
to our chief executive officers and another executive officer (and an individual
for whom disclosure would be provided but for the fact that he was not serving
as an executive officer) whose total annual compensation is $100,000 or more
during the last fiscal year ended December 31, 2004.

-46-

Annual Compensation Long Term Compensation Awards
------------------------------------------------- ----------------------------------
Other
Annual Restricted All Other
Name and Principal Compen- Stock Compen-
Position Year End Salary($) Bonus($) sation($)(5) Awards($) Options(#) sation($)
------------------------ ----------- ------------- --------- ------------- ---------- ---------- ----------

John E. Loehr(1)
Chief Executive Officer 2004 - - - - - -
2003 - - - - - -
2002 - - - - - -

Thomas R. Kaetzer(2)
President 2004 $150,000 - $25,000 - 210,000 (2) -
2003 $150,000 - $25,000 - - -
2002 $144,167 - $25,000 - 100,000 (2) (3)

Marshall A. Smith(4) 2004 $150,000 - $25,000 - - -
2003 $150,000 - $25,000 - - -
2002 $150,000 - $25,000 - - -

------------------

(1) During 2004 Mr. Loehr, a director, served as Chief Executive Officer from
May 12, 2004. He received no compensation for his services as Chief
Executive Officer.
(2) Mr. Kaetzer joined us as chief operating officer in September, 1998, was
elected president in December, 1998 and was elected chief executive officer
on March 20, 2001. He served as chief executive officer until May 12, 2004.
He received a base annual salary of $150,000, plus a $25,000 annual
contribution to a life insurance savings account paid monthly. In his
employment agreement, Mr. Kaetzer was entitled to receive 5-year warrants
to purchase 300,000 shares of common stock to be issued 100,000 each year
over a three year period, beginning in 2002. After receiving warrants to
purchase 100,000 shares of common stock in 2002, Mr. Kaetzer elected to
receive options rather than warrants. In 2003, Mr. Kaetzer elected to defer
receipt of options to purchase 100,000 shares of common stock until 2004.
(3) During 2002, pursuant to his employment agreement, Mr. Kaetzer received
warrants to purchase 100,000 shares of common stock exercisable at $0.75 a
share. At March 31, 2005, the closing price for a share of our common stock
was $1.16 and on April 30, 2002, the date on which the warrants were
received, the closing price was $.56 a share.
(4) Mr. Smith served as chief executive officer until March 20, 2001 and as
chairman of the board until his resignation on May 11, 2002. As chairman of
the board, Mr. Smith devoted full time to the business. Effective June 1,
2002, he resigned as an executive officer and became a paid consultant at
an annual fee of $150,000, plus a $25,000 annual contribution to a life
insurance savings account to be paid monthly. His consulting agreement
expired September 30, 2004.
(5) Perquisites that are less than 10% of the individual's bonus and salary in
the aggregate for any named executive officer are not disclosed in the
table in accordance with SEC rules.

-47-

Option Grants During 2004

The following table sets forth certain information concerning stock
options granted to the named executive officers during the year ended December
31, 2004.

Percent of
Number of Total
Securities Options
Underlying Granted to
Options Employees Exercise or Grant Date
Granted in Fiscal Base Price Expiration Present
Name (#) Year ($/share) Date Value ($) (1)
-------------------- ----------- ----------- ----------- ---------- --------------

John E. Loehr - - - - -
Thomas R. Kaetzer 100,000 7% $0.75 7/15/2009 $22,000
110,000 7% 0.45 9/1/2008 29,700
Marshall A. Smith - - - - -

------------------

(1) Present value for this option was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions: (1) risk
free interest rate 2004- 3.0%, 2003 - 3.0%; 2002 - 3.0%; (2) weighted
average expected life 2004- 3.0, 2003 - 3.4; 2002 - 3.6; (3) expected
volatility of 2004- 94.32%, 2003 - 147.43%; 2002 - 101.73%; and (4) no
expected dividends. The present value of stock options granted is based on
a theoretical option-pricing model. In actuality, because the company's
employee stock options are not traded on an exchange, optionees can receive
no value nor derive any benefit from holding stock options under these
plans without an increase in the market price of the company's stock. Such
an increase in stock price would benefit all shareholders commensurately.

Option Exercises During 2004 and
Year End Option Values

Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at FY
Options at FY End(1) End(2) ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
-------------------------------- ------------------------- -----------------

John E. Loehr(3) 20,000/0 $ 2,600
Thomas R. Kaetzer(3) (4) 210,000/0 60,300
Marshall A. Smith 20,000/0 2,600

------------------

(1) No shares were acquired or value realized upon the exercise of options
since no options were exercised by the named executive officers in 2004.
(2) A market price of $0.88 a share was used based on the closing price of our
common stock at December 30, 2004, the last day of the fiscal year on which
a closing price for our common stock was reported.
(3) Does not include 100,000 and 125,000 warrants exercisable by Mr. Kaetzer at
December 31, 2004 for $.75 and $.875 a share, respectively, or 270,000
warrants held by Mr. Loehr at December 31, 2004 exercisable for $.75 a
share. Mr. Kaetzer's warrants for 100,000 shares of common stock
exercisable at $.875 a share expired in January 2005.
(4) Includes options for 100,000 and 110,000 shares exercisable for $.75 and
$.45 a share, respectively.

Employment Agreements

Effective October 1, 2001, we entered into an Employment Agreement with
Mr. Thomas R. Kaetzer, former president and chief executive officer for a period
of three years. Under the Employment Agreement, Mr. Kaetzer received a base
annual salary of $150,000, plus a $25,000 annual contribution to a life
insurance savings account to be paid monthly. Under his Employment Agreement,
Mr. Kaetzer was entitled to receive 5-year warrants to purchase 300,000 shares
of common stock to be issued 100,000 each year over a three year period,
beginning in 2002. Except for the warrants for 100,000 shares of common stock
issued in April 2002, Mr. Kaetzer elected to receive options to purchase common
stock. In the event of a change of control, Mr. Kaetzer would have had the
option to continue as an employee under the terms of the Employment Agreement or
receive a lump-sum cash severance payment equal to 200% of his annual base
salary for the year following the change of control. The Employment Agreement
terminated by its terms on September 30, 2004.

-48-

Effective June 1, 2002, we entered into a Consulting Agreement with Mr.
Marshall A. Smith III, which expires September 30, 2004. Under the Consulting
Agreement, Mr. Smith received an annual consulting fee of $150,000, plus a
$25,000 annual contribution to a life insurance savings account to be paid
monthly. In the event of a change of control, Mr. Smith would have had the
option to continue as a consultant under the terms of the Consulting Agreement
or receive a lump-sum cash severance payment equal to 200% of his annual
consulting fee for the year following the change of control. The Consulting
Agreement terminated by its terms on September 30, 2004.

Effective February 28, 2005, we entered into employment agreements with
two officers, Allan D. Keel (President and Chief Executive Officer) and E.
Joseph Grady (Senior Vice President and Chief Financial Officer). Each agreement
has a term of three years with automatic yearly extensions unless we or the
officer elects not to extend the agreement. Each agreement provides for a base
salary and, starting in calendar year 2006 and thereafter, an annual
discretionary bonus of 0% to 100% of each officer's base salary to be
established by our Board of Directors or a duly authorized committee. Mr. Keel
will receive a base salary of $240,000 per year and a first year bonus of
$120,000 for the year ending December 31, 2005, payable on or before February
26, 2006. Mr. Grady will receive a base salary of $220,000 per year and a first
year bonus of $110,000 for the year ending December 31, 2005, payable on or
before February 25, 2006.

Effective April 1, 2005, we entered into employment agreements
with three newly appointed officers: Tracy Price (Senior Vice President -
Land/Business Development); Tommy Atkins (Senior Vice President - Exploration);
and Steven Mengle (Senior Vice President - Engineering). In addition, on April
1, 2005 the Company entered into a new Employment Agreement with Thomas R.
Kaetzer as Senior Vice President of Operations; previously Mr. Kaetzer had
served as our President and Chief Operating Officer. Each agreement has a term
of two years with automatic yearly extensions unless we or the officer elects
not to extend the agreement. Each agreement provides for a base salary and,
starting in calendar year 2006 and thereafter, an annual discretionary bonus of
0% to 70% of each officer's base salary to be established by our Board of
Directors or a duly authorized committee. Mr. Price will receive a base salary
of $185,000 per year, Mr. Kaetzer will receive a base salary of $182,800 per
year, and Mr. Atkins and Mr. Mengle will each receive a base salary of $180,000
per year.

Each of these agreements provides for severance and change-in-control
payments in the event we terminate an officer's employment "without Cause" or if
the officer terminates for "Good Reason." "Cause" and "Good Reason" are narrowly
defined. "Change of Control" is deemed to occur when less than 10% of our common
stock is beneficially owned by Oaktree Capital Management, LLC and its
affiliates. If an officer is terminated by us "without Cause" or the officer
resigns for "Good Reason" then that officer will receive (A) a cash amount equal
to the greater of (i) two times the sum of the calendar year's base salary and
the prior year's discretionary bonus and (ii) $600,000 (or $500,000, in the case
of Mr. Price, Mr. Mengle, Mr. Atkins and Mr. Kaetzer) and (B) health insurance
benefits for two years from the termination date. If an officer is terminated by
us "without Cause" or the officer resigns for "Good Reason" within 90 days
before or 12 months after a Change of Control, payment of the entire cash
severance amount will be made in a lump sum on the earlier of the date on which
the Change of Control occurs and the officer's effective date of termination.
Upon termination by us "without Cause" or by the officer for "Good Reason", the
officer will receive half of the cash severance amount in a lump sum within 15
days of termination. The remainder of the cash severance payment will be made
when the officer gives 30 days' notice to us prior to the conclusion of the 12
month period following the termination date agreeing to comply with non-compete
and non-solicitation provisions for an additional 12 months.

-49-

On February 28, 2005, the Company entered into Stock Option Agreements
with Mr. Keel and Mr. Grady. Mr. Grady received 900,000 options to purchase the
Company's Common Stock at an exercise price of $0.97 per share, 1,350,000
options to purchase the Company's Common Stock at an exercise price of $1.25 per
share, and 1,800,000 options to purchase the Company's Common Stock at an
exercise price of $1.70 per share. Mr. Keel received 2,700,000 options to
purchase the Company's Common Stock at an exercise price of $0.97 per share,
4,050,000 options to purchase the Company's Common Stock at an exercise price of
$1.25 per share, and 5,400,000 options to purchase the Company's Common Stock at
an exercise price of $1.70 per share.

On April 1, 2005, the Company entered into Stock Option Agreements with
Mr. Price, Mr. Mengle, Mr. Atkins and Mr. Kaetzer. Mr. Price received 900,000
options to purchase the Company's Common Stock at an exercise price of $1.16 per
share and 1,800,000 options to purchase the Company's Common Stock at an
exercise price of $1.70 per share. Mr. Mengle received 450,000 options to
purchase the Company's Common Stock at an exercise price of $1.16 per share and
900,000 options to purchase the Company's Common Stock at an exercise price of
$1.70 per share. Mr. Atkins received 383,000 options to purchase the Company's
Common Stock at an exercise price of $1.16 per share and 767,000 options to
purchase the Company's Common Stock at an exercise price of $1.70 per share. Mr.
Kaetzer received 333,333 options to purchase the Company's Common Stock at an
exercise price of $1.16 per share and 666,667 options to purchase the Company's
Common Stock at an exercise price of $1.70 per share.

Each set of options granted will become vested and exercisable with
respect to 15% of the shares on the first anniversary of the date granted and
thereafter at the end of each full succeeding year from the date granted
according to the following: 25% on the second anniversary, an additional 25% on
the third anniversary and 35% on the fourth anniversary at which time each set
of granted options will be vested and exercisable.

Stock Incentive Plans

Effective July 15, 2004, The Board of Directors approved the 2004 Stock
Option and Compensation Plan in which employees, directors and advisors could
receive nonqualified stock options. There are options to purchase 1,525,000
shares of Common Stock outstanding under the 2004 Plan. The Board of Directors
has approved a 2005 Stock Incentive Plan effective February 28, 2005. The Plan
allows us to grant (a) Incentive Stock Options, (b) Nonstatutory Stock Options,
(c) Restricted Awards, (d) Unrestricted Awards, (e) Performance Awards, (f)
Stock Appreciation Rights and (g) Dividend Equivalent Rights ("Awards").
Employees, Consultants and Directors of the Company and its Affiliates are
eligible to receive Awards. The maximum number of shares of common stock
issuable under the Plan may not exceed 27 million. Options were issued to Mr.
Keel, Mr. Grady, Mr. Price, Mr. Mengle, Mr. Atkins and Mr. Kaetzer pursuant to
this Plan, as described above.

See "Description of Our Securities--Outstanding Options and Warrants"
for the terms of our outstanding options and warrants.

Compensation Committee Interlocks and Insider Participation

During fiscal year 2004, Messrs. Waggoner, Loehr (until May 12 of that
year) and Manolis served on the Compensation Committee. No interlocking
relationship exists between any member of the Board or Compensation Committee
and any member of the Board or Compensation Committee of any other company, nor
has any such interlocking relationship existed in the past.

-50-

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of April 1, 2005
regarding the beneficial ownership of common stock by each person known to us to
own beneficially 5% or more of the outstanding common stock, each director,
certain named executive officers, and the directors and executive officers as a
group. The persons named in the table have sole voting and investment power with
respect to all shares of common stock owned by them, unless otherwise noted.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For the purpose of calculating the number of
shares beneficially owned by a shareholder and the percentage ownership of that
shareholder, shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of the date of this prospectus by that
shareholder are deemed outstanding.

Name and Address of Amount and Nature of Beneficial
Beneficial Owner Ownership Percent %
------------------------------------------------ --------------------------------- -----------------

Allan D. Keel(1,2) 363,333 1.46
E. Joseph Grady(2)
Tracy Price(2)
Tommy Atkins(2)
Steven Mengle(2)
J. Virgil Waggoner(3,4) 16,725,944 52.14
Thomas R. Kaetzer(2,5) 608,852 2.42
Jim C. Bigham(2,6) 260,985 1.04
Richard L. Creel(2,7) 200,000 0.80
John E. Loehr(2,8) 617,491 2.45
B. James Ford(9,10) Skardon F. Baker(9,10)
All current directors and officers 18,776,605 56.16
as a group (12 persons)(11)
Oaktree Capital Management, LLC(10,12) 62,194,199 80.20

------------------

1. Includes 333,333 shares underlying convertible preferred stock and 30,000
shares underlying warrants to purchase common stock.
2. Shareholder's address is 480 N. Sam Houston Parkway East, Suite 300,
Houston, Texas 77060.
3. Includes 4,285,715 shares underlying exchangeable preferred stock, 625,000
shares subject to currently exercisable warrants, 2,250,000 underlying
convertible preferred stock and 20,000 shares subject to currently
exercisable options. Shareholder granted OCM GW Holdings, LLC an
irrevocable proxy and entered into Share Restriction Agreement on February
28, 2005. See "Description of Securities."
4. Shareholder's address is 6605 Cypresswood Drive, Suite 250 Spring, Texas
77379.
5. Includes 296,226 shares owned directly, 2,626 shares owned by his wife and
310,000 shares subject to currently exercisable warrants.
6. Includes 210,000 shares subject to currently exercisable warrants and
options.
7. Includes 180,000 subject to currently exercisable options.
8. Includes 62,653 shares held directly; and 264,838 shares held by ST
Advisory Corporation and 290,000 shares subject to currently exercisable
warrants and options. Mr. Loehr is president and sole shareholder of ST
Advisory Corporation.
9. Excludes shares held by OCM GW Holdings, LLC, of which they disclaim
beneficial ownership.
10. c/o Oaktree Capital Management, LLC, 333 South Grand Avenue, Los Angeles,
California 90071.
11. Includes 17,835,000 shares subject to currently exercisable warrants and
options and 6,869,048 shares underlying convertible or exchangeable
preferred stock.
12. Includes 45,468,255 shares underlying convertible preferred stock held
directly by OCM GW Holdings, LLC and 16,725,944 shares over which OCM GW
Holdings, LLC may be deemed to have voting and/or dispositive power due to
the Share Transfer Restriction and Irrevocable Proxy granted shareholder by
Mr. Waggoner. See "Description of Securities." The reported shares are
owned directly by OCM GW Holdings, LLC. OCM Principal Opportunities Fund
III, L.P. ("Fund") and OCM Principal Opportunities Fund IIIA, L.P. ("Fund
IIIA") are the direct beneficial owners of Holdings. Fund is the managing
member of Holdings and Oaktree Capital Management LLC ("Oaktree") is the
managing member of OCM Principal Opportunities Fund III GP, LLC ("Fund
GP"), the general partner of the Fund and Fund IIIA. Although each of Fund,
Fund IIIA, Fund GP and Oaktree may be deemed an indirect beneficial owner
of the securities, each of them disclaims beneficial ownership of those
shares except to the extent of its pecuniary interest in them.

-51-

CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

Transactions With Management and Others

Compensation arrangements and stock option grants to our executive
officers and directors are described in this prospectus under "Management".

As described in "Business and Properties - Financial Recapitalization"
OCM GW Holdings purchased 81,000 shares of Series G Preferred Stock and 2,000
shares of Series A Preferred Stock for $42 million. Skardon F. Baker, a
director, is a vice president of and B. James Ford, also a director, is a
managing director of Oaktree Capital Management, LLC, the ultimate parent of OCM
GW Holdings. See "Security Ownership of Certain Beneficial Owners and
Management."

In connection with our April 2004 financing, J. Virgil Waggoner, a
director, and Star-Tex Trading Co., an entity managed by John Loehr, an officer
at the time and currently a director, purchased 3,000 shares and 200 shares,
respectively, of Series A Preferred Stock at a price of $500 per share. Both Mr.
Waggoner and Star-Tex, in connection with the February 2005 offering, elected to
exchange those shares for an equal number of shares of Series H Preferred Stock.
Star-Tex elected to convert its shares of Series H Preferred Stock to 285,715
shares of common stock effective February 28, 2005. The shares of common stock
underlying such Series A and Series H Preferred Stock are included in this
prospectus.

On November 6, 2002, Mr. J. Virgil Waggoner, a director, provided us a
loan in the initial amount of $1,200,000, which was subsequently increased to a
total of $1,500,000, which was outstanding at February 28, 2005. We issued Mr.
Waggoner a promissory note with interest at the prime rate (prime rate 4.0% at
May 26, 2004), secured by common stock of our of wholly-owned subsidiary,
DutchWest Oil Company. Mr. Waggoner also received warrants to purchase 625,000
shares of our common stock at an exercise price of $.75 per share. Those
underlying shares are included in this prospectus. The note with accrued
interest was paid off in connection with the February 2005 offering, for a total
payment amount of $1,727,655. In addition, in December 2002 Mr. Waggoner
purchased 9,000 shares of our Series E Preferred Stock for $800,000. The shares
of common stock issuable upon conversion of the Series E Preferred Stock are
included in this prospectus.

On March 5, 2004, we entered into an Option Agreement for the Purchase
of Oil and Gas Leases (the "Addison Agreement") with W. L. Addison Investments
L.L.C., a private company owned by Mr. J. Virgil Waggoner and Mr. John E. Loehr,
two of our directors ("Addison"). Under the Addison Agreement, Addison agreed to
pay Summit, on our behalf, the non-recouped and outstanding advanced funds
amounting to $1,200,000, thereby retiring the Summit Agreement except for
certain surviving obligations with respect to areas of mutual interest and lease
bank agreements. For consideration of such payment, Addison acquired certain oil
and gas leases and wellbores from Summit but agreed to grant us a 180-day
redemption option (which was extended by mutual consent) to purchase the same
for $1,200,000, plus interest at the prime rate plus 2%. We tendered Addison a
promissory note in the amount of $600,000, with interest at the prime rate plus
2%, to substitute for an account payable to Summit, pursuant to the Summit
Agreement, in the same amount. The note would be considered paid in full if we
exercised the redemption option and paid the $1,200,000, plus interest. Summit
retained the right to participate up to a 25% working interest in the drilling
of any wells on the leases acquired by Addison. In the event we exercised the
redemption option, Addison could have, at its sole option, retained up to a 25%
working interest in the leases. The Addison Agreement was extended on July 15,
2004. We exercised the redemption option and Addison received $1,275,353 at the
closing of the February 2005 offering and waived its rights under the agreement
to a working interest under the leases.

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As part of the April 2004 refinancing, the former lender agreed to
return all 2,000 shares of our Series F Preferred Stock held by it. Rather than
receive the shares as treasury shares (which would have meant cancellation of
the series) at our request the former lender transferred 400 of the shares to ST
Advisory Corp., an entity owned by John Loehr, our former CEO and a current
director, 400 of the shares to a financial advisor to the Company, and 200 of
the shares to Thomas R. Kaetzer, our President and Director at that time and
1,000 shares to Intermarket Management LLC, an entity partially owned by M.
Scott Manolis, one of our directors at that time. These transfers were to
compensate Mr. Kaetzer, the financial advisor and the entities controlled by Mr.
Loehr and Mr. Manolis for service to the Company. On September 29, 2004, the
financial advisor with 400 shares transferred 140 shares to three non-management
transferees. On December 22, 2004, these holders elected to convert their 1,600
shares to 800,000 shares of common stock. The shares of common stock underlying
such shares of Series F Preferred Stock are included in this prospectus.

$675,203 of the proceeds from the February 2005 offering went towards
the payment of accrued and unpaid dividends of the preferred stock. J. Virgil
Waggoner received $469,603 as a result. On December 22, 2004, ST Advisory Corp,
Intermarket Management LLC and Mr. Kaetzer converted their Series F preferred
shares into common stock. At the closing of the February 2005 offering they were
paid their proportionate share of accrued dividends due on the 2000 shares,
which totaled $17,167.

As part of the closing of the February 2005 offering, the investor and
the Company agreed to pay certain legal, accounting and other due diligence
costs and, also certain closing fees which totaled approximately $3.75 million.
Of this certain related parties received the following fees: OCM GW Holdings
$1,000,000; Intermarket Management LLC $500,000; Mr. Allan D. Keel $300,000
(which was used to invest in the subject offering).

In January 2005, Allan D. Keel, our current president and chief
executive officer, and another individual lent an aggregate of $200,000 to the
Company, which was repaid in full out of the proceeds of the February 2005
offering. $120,000 of that loan was attributable to Mr. Keel. In addition, Mr.
Keel received warrants to purchase 30,000 shares of Common Stock at $0.01 share
in connection with this transaction.

-53-

DESCRIPTION OF SECURITIES

General

The following descriptions are summaries of material terms of our
common stock, preferred stock, articles of incorporation and bylaws. This
summary is qualified by reference to our articles of incorporation, bylaws and
the designations of our preferred stock, which have been previously filed as
exhibits to our public filings with the Securities and Exchange Commission, and
by the provisions of applicable law.

On July 8, 2004, at the Annual Meeting of Shareholders, our
shareholders increased the amount of shares we are authorized to issue from
40,000,000 to 80,000,000 shares of common stock, par value $.001 per share. As
of March 31, 2005, there were 24,897,893 shares of our sole class of common
stock, designated Class A, issued and outstanding, and held by approximately 620
beneficial owners. For the purposes of this prospectus, holders that have
elected to convert their shares of preferred stock or whose shares of preferred
stock were automatically exchanged for common stock as of the date of this
prospectus are treated as converted or exchanged and no longer issued and
outstanding. On an "as converted" basis, if all of the common stock underlying
our various convertible and derivative securities, including warrants and
granted employee stock options, outstanding at March 31, 2005 is issued by us,
the number of our outstanding shares of common stock will increase to
approximately 103.8 million shares. See "Management" for a description of
options issued after March 31, 2005 to certain of our officers.

Our common stock is traded over-the-counter (OTC) under the symbol
"GULF". Fidelity Transfer Company, 1800 South West Temple, Suite 301, Box 53,
Salt Lake City, Utah 84115, (801) 484-7222 is the transfer agent for the common
stock.

Our Common Stock

The holders of our common stock are entitled, among other things, to
one vote per share on each matter submitted to a vote of shareholders and, in
the event of liquidation, to share ratably in the distribution of assets
remaining after payment of liabilities (including preferential distribution and
dividend rights of holders of preferred stock). They have no cumulative voting
rights, and, accordingly, the holders of a majority of the outstanding shares of
the common stock, voting with the Series G and Series H Preferred Stock on an as
converted basis, have the ability to elect all of the directors not entitled to
be elected by the Series G Preferred Stock voting as a class.

Holders of common stock have no preemptive or other rights to subscribe
for shares. Holders of common stock are entitled to such dividends as may be
declared by the Board out of funds legally available therefor. We have never
paid cash dividends on the common stock and do not anticipate paying any cash
dividends in the foreseeable future.

Our Preferred Stock

Our board of directors is authorized, without further shareholder
action, to issue preferred stock in one or more series and to designate the
dividend rate, voting rights and other rights, preferences and restrictions of
each such series.

As of March 31, 2005, there was a total of 104,500 shares of preferred
stock, par value $0.01 per share, issued and outstanding in four series,
including 8,000 shares of Series D Preferred Stock, 9,000 shares of Series E
Preferred Stock, 81,000 shares of Series G Preferred Stock and 6,500 shares of
Series H Preferred Stock (collectively, Preferred Stock). The 8,000 shares of
Series D Preferred Stock are held by a former director. The 9,000 shares of
Series E Preferred Stock are held by a current director. The 81,000 shares of
Series G Preferred Stock are held by OCM GW Holdings, an officer, two
non-affiliated individuals, and affiliates of an investment advisor. The 6,500
shares of Series H Preferred Stock are held by various parties including 3,000
shares by a director and 2,000 shares by OCM GW Holdings. Our preferred stock is
senior to our common stock regarding liquidation. All of our Series F Preferred
Stock and GulfWest Oil & Gas Company's Series A Preferred Stock has either
converted to or been exchanged for common stock or, in the case of the Series A
Preferred Stock, Series H Preferred Stock.

-54-

The Series D Preferred Stock is not entitled to dividends, nor is it
redeemable, however it is convertible to common stock at any time. None of the
8,000 outstanding shares of Series D Preferred Stock has been converted. On a
fully converted basis, the 8,000 shares of Series D Preferred Stock would
convert to 500,000 shares of common stock. The Series D Preferred Stock is of
equal priority with the Series E Preferred Stock as to liquidation.

The Series E Preferred Stock is entitled to receive cumulative
dividends at the rate of 6% per year, expressed as a percentage of the stock's
$500 liquidation value plus accrued and unpaid dividends, payable quarterly. As
amended, dividends on the Series E Preferred Stock will accrue but not be paid
until March 31, 2009, at which time we will commence quarterly dividend
payments. Deferred dividends on the Series E Preferred Stock may be paid to the
extent the board of directors elects to do so or dividends on the Series G
Preferred Stock are paid for a quarter. Accrued dividends on the Series E
Preferred Stock may be converted to common stock at a conversion price of $0.90.
Accrued and unpaid deferred dividends are to be paid on liquidation or, at our
option, with the consent of the holders affected, at any time. The Series E
Preferred Stock is redeemable in whole or in part at any time, at the option of
the issuer, at a price of $500 per share, plus all accrued and undeclared or
unpaid dividends; except that, prior to our redemption, the holders of record
shall be given a 60-day written notice of the issuer's intent to redeem and the
opportunity to convert the Series E Preferred Stock to common stock. The
conversion price for the Series E Preferred Stock is based on $2.00 per share of
common stock. Upon a change of control, the Series E Preferred Stock is
redeemable at the holder's election at the same redemption price, provided that
holders may convert their shares to common stock prior to the redemption date.
As amended, the Series E Preferred Stock automatically converts to common stock
to the extent OCM GW Holdings and its affiliates convert their shares of Series
G Preferred Stock. None of the 9,000 outstanding shares of Series E Preferred
Stock has been redeemed or converted. On a fully converted basis, the 9,000
shares of Series E Preferred Stock would convert to 2,250,000 shares of common
stock.

The newly authorized Series G Preferred Stock ranks senior to all
outstanding classes of capital stock. The Series G Preferred Stock provides for
an 8% cumulative cash dividend, expressed as a percentage of the stock's $500
liquidation value plus accrued and unpaid dividends, which will accrue but not
be paid until the dividend owing April 1, 2009 is required to be paid, at which
time we will commence quarterly dividend payments. Deferred dividends may be
paid to the extent the board of directors elects to do so. Accrued dividends on
the Series G Preferred Stock may be converted to common stock at a conversion
price of $0.90. Accrued and unpaid deferred dividends are to be paid on
liquidation or, at our option, with the consent of the holders affected, at any
time. The Series G Preferred Stock may be redeemed by us after the fourth
anniversary of issuance if a share of the underlying common stock trades at a
price greater than the $.90 (as adjusted) conversion price for 30 consecutive
trading days, at a price per share of Series G Preferred Stock equal to $500
plus accrued and unpaid dividends. In addition, we may be required to redeem the
Series G Preferred Stock upon a change of control or if requested by a majority
of holders if we breach the document governing the Series G Preferred Stock or
if OCM GW Holdings and it affiliates suffer more than $3 million in damages
arising from our breaches of covenants, representations or warranties under the
Series G Preferred Stock subscription agreement or Shareholders Rights
Agreement, provided that holders may convert their shares to common stock prior
to the redemption date. On a fully converted basis, the 81,000 shares of Series
G Preferred Stock would convert into 45 million shares of common stock.

-55-

The Series H Preferred Stock is convertible into common stock at a
conversion price of $0.35 a share and ranks junior to the Series G Preferred
Stock as to dividends and liquidation but senior to all other outstanding
classes of preferred stock of the Company. Holders of the newly authorized
Series H Preferred Stock are entitled to cumulative quarterly dividends of 10
shares of common stock per share of Series H Preferred Stock, or 40 shares of
common stock annually per shares of Series H Preferred Stock. The Series H
Preferred Stock may be redeemed by us if we elect to redeem the Series G
Preferred Stock, at a price per share of $500, the amount each share is entitled
to upon liquidation, provided that holders may convert their shares to common
stock prior to the redemption date. The Series H Preferred Stock automatically
converts to common stock to the extent OCM GW Holdings and its affiliates
convert their Series G Preferred Stock. On a fully converted basis, the 6,500
shares of Series H Preferred Stock would convert into approximately 9.3 million
shares of common stock.

Holders of both the Series G Preferred Stock and Series H Preferred
Stock vote on an as-converted basis with the holders of the common stock. The
Series G Preferred Stock, voting as a class, has the right to elect a majority
of our board. The Series E and F Preferred Stock have the right to appoint two
directors and one director, respectively, in the event of two or more dividend
defaults or our insolvency or similar events.

Outstanding Options and Warrants

At March 31, 2005, we had outstanding warrants and options for the
purchase of 21,899,621 shares of common stock at prices ranging from $.01 to
$1.81 per share, including employee stock options to purchase 18,149,000 shares
at prices ranging from $.45 to $1.81 per share. If we issue additional shares,
the existing shareholders' percentage ownership of the Company may be further
diluted. Pursuant to a notice dated April 1, 2005, one of our former lenders has
given notice of its desire to exercise its warrants for all 1,017,811 shares of
common stock underlying its warrants by "cashless" exercise; the shares to be
issued by us in connection with this election are not treated as issued and
outstanding in this prospectus.

Agreements with Shareholders

-56-

Pursuant to a Subscription Agreement dated February 28, 2005, Allan D.
Keel, Chief Executive Officer and President, is subject to restrictions on
transfers of his shares of Series G Preferred Stock for a period of 2 years.
Allan D. Keel and the other purchasers of Series G Preferred Stock are subject
to a right of first offer in favor of OCM GW Holdings, but not with respect to
shares of common stock received upon conversion, and are required to convert
their shares to common stock when Holdings and its affiliates convert their
shares into common stock in the same proportion as OCM GW Holdings and its
affiliates.

J. Virgil Waggoner, a director, entered into a Share Transfer
Restriction Agreement, dated February 28, 2005, with OCM GW Holdings, pursuant
to which he agreed to deliver an Irrevocable Proxy coupled with an interest with
respect to his shares of common stock, Series E Preferred Stock and Series H
Preferred Stock thereby allowing OCM GW Holdings to vote such shares at any time
in favor of our Delaware reincorporation or, if it does not occur by December
31, 2005, in favor of the conversion of certain of the Series G Preferred Stock
into a new series of preferred stock. The proxy also grants OCM GW Holdings a
proxy with additional rights with respect to the Series H Preferred Stock until
such time as all the Series H Preferred Stock has converted into common stock.
Mr. Waggoner is subject to restrictions on the disposition or transfer of the
economic or voting rights of the capital stock owned by him, including
prohibitions on transfers of shares of capital stock or entering into any swap,
option, future, forward or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of any such capital stock, without
the consent of OCM GW Holdings.

The Proxy and the restrictions on disposition in the Share Transfer
Restriction Agreement terminate upon the earliest to occur of our Delaware
reincorporation or creation of the new series of preferred stock, other than
with respect to the shares of Series H Preferred Stock.

In addition, Mr. Waggoner agreed to exchange his shares of Series A
Preferred Stock for Series H Preferred Stock pursuant to the amended terms of
the Series A Preferred Stock Statement of Resolution and is required to convert
any shares of Series H Preferred Stock he owns into common stock in the same
proportion as that converted by OCM GW Holdings or its affiliates.

Anti-Takeover Effects of Texas Laws and Our Charter and Bylaws Provisions

Articles of Incorporation and Bylaws. Certain provisions in our
Articles of Incorporation and Bylaws summarized below may be deemed to have an
anti-takeover effect and may delay, deter or prevent a tender offer or takeover
attempt that a shareholder might consider to be in its best interests, including
attempts that might result in a premium being paid over the market price for the
shares held by shareholders.

-57-

Our Articles of Incorporation and Bylaws contain provisions that:

o permit us to issue, without any further vote or action by the
shareholders, additional shares of preferred stock in one or more
series and, with respect to each such series, to fix the number of
shares constituting the series and the designation of the series, the
voting powers (if any) of the shares of the series, and the
preferences and relative, participating, optional and other special
rights, if any, and any qualification, limitations or restrictions, of
the shares of such series; and

o Require consent of shareholders owning over 50% of the outstanding
common stock to call special meetings.

The foregoing provisions of our Articles of Incorporation and Bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the board of directors and in the
policies formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares and,
as a consequence, they also may inhibit fluctuations in the market price of our
common stock that could result form actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.

Texas Takeover Statute. We are subject to Article 13.03 of the Texas
Business Corporation Act, which, subject to certain exceptions, prohibits a
Texas corporation from engaging in any "business combination" (as defined below)
with any "affiliated shareholder" (as defined below) for a period of three years
following the date that such shareholder became an affiliated shareholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
shareholder becoming an affiliated shareholder; or (ii) not more than six months
subsequent to such date, the business combination is approved by the affirmative
vote of at least 66 2/3% of the outstanding voting stock that is not owned by
the affiliated shareholder.

The Texas Business Corporation Act defines "business combination" to
include: (i) any merger, share exchange or conversion involving the corporation
and the affiliated shareholder or an affiliate; (ii) any sale, transfer, pledge
or other disposition of 10% or more of the assets of the corporation involving
the affiliated shareholder or an affiliate; (iii) subject to certain exceptions,
any transaction that results in the issuance or transfer of the corporation of
any stock of the corporation to the affiliated shareholder or an affiliate; (iv)
the adoption of a plan of liquidation or dissolution proposed by or under an
agreement with, the affiliated shareholder or an affiliate; (v) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series of the corporation beneficially owned
by the affiliated shareholder; or (vi) the receipt by the affiliated shareholder
of the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation. In general, an "affiliated
shareholder" is any entity or person beneficially owning 20% or more of the
outstanding voting stock of the corporation.

Limitation on Liability of Directors

Our articles of incorporation and bylaws indemnify our directors to the
fullest extent permitted by the Texas Business Corporation Act. Article 2.01 of
the Texas Business Corporation Act provides that a corporation may indemnify a
person who was, is, or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a director only if it is determined
that the person:

(1) conducted himself in good faith;

-58-

(2) reasonably believed:

(a) in the case of conduct in his official capacity as a
director of the corporation, that his conduct was in the
corporation's best interests; and

(b) in all other cases, that his conduct was at least not
opposed to the corporation's best interests; and

(3) in the case of any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful.

Except to a limited extent, a director may not be indemnified in
respect of a proceeding:

(1) in which the person is found liable on the basis that personal
benefit was improperly received by him, whether or not the benefit resulted from
an action taken in the person's official capacity; or

(2) in which the person is found liable to the corporation.

Additionally, our Articles of Incorporation limit a director's
liability to the company to the fullest extent permitted by the Texas Business
Corporation Act. The Texas laws permit a corporation to limit or eliminate a
director's personal liability to the corporation or the holders of its capital
stock for breach of duty. This limitation is generally unavailable to the extent
the director is found liable for: (1) a breach of the director's duty of loyalty
to the corporation or its shareholders or members; (2) an act or omission not in
good faith that constitutes a breach of duty of the director to the corporation
or an act or omission that involves intentional misconduct or a knowing
violation of the law; (3) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or (4) an act or omission for which
the liability of a director is expressly provided by an applicable statute. The
Texas laws also prohibit limitations on director liability for acts or omissions
which resulted in a violation of a statute prohibiting certain dividend
declarations and certain payments after dissolution. The effect of these
provisions is to eliminate the rights of our company and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
monetary damages against a director for breach of fiduciary duty as a director
excepting the situations described above. These provisions will not limit the
liability of directors under the federal securities laws of the United States.

Additionally, we have entered into director indemnification agreements
with each of our five directors providing for indemnification and advancement of
expenses in connection with legal proceedings. We also maintain directors and
officers liability insurance for our officers and directors.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.

-59-

GLOSSARY OF INDUSTRY TERMS AND ABBREVIATIONS

The following are definitions of certain industry terms and
abbreviations used in this report:

Bbl. Barrel.

BOE. Barrel of oil equivalent, based on a ratio of 6,000 cubic feet of natural
gas for each barrel of oil.

Gross Acres or Gross Wells. The total acres or wells, as the case may be, in
which a working interests is owned.

Horizontal Drilling. High angle directional drilling with lateral penetration of
one or more productive reservoirs.

Mcf. One thousand cubic feet.

Net Acres or Net Wells. The sum of the fractional working interests owned in
gross acres or gross wells.

Overriding Royalty Interest. The right to receive a share of the proceeds of
production from a well, free of all costs and expenses, except transportation.

Present Value. The pre-tax present value, discounted at 10%, of future net cash
flows from estimated proved reserves, calculated holding prices and costs
constant at amounts in effect on the date of the report (unless such prices or
costs are subject to change pursuant to contractual provisions) and otherwise in
accordance with the Commission's rules for inclusion of oil and gas reserve
information in financial statements filed with the Commission.

Proceeds of Production. Money received (usually monthly) from the sale of oil
and gas produced from producing properties.

Producing Properties. Properties that contain one or more wells that produce oil
and/or gas in paying quantities (i.e., a well for which proceeds from production
exceed operating expenses).

Productive Well. A well that is producing oil or gas or that is capable of
production.

Prospect. A lease or group of leases containing possible reserves, capable of
producing crude oil, natural gas, or natural gas liquids in commercial
quantities, either at the time of acquisition, or after vertical or horizontal
drilling, completion of workovers, recompletions, or operational modifications.

Proved Reserves. Estimated quantities of crude oil, natural gas, and natural gas
liquids that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic conditions; i.e., prices and costs as of the date the estimate is made.
Reservoirs are considered proved if either actual production or a conclusive
formation test supports economic production.

The area of a reservoir considered proved includes:

a. That portion delineated by drilling and defining by gas-oil
or oil-water contacts, if any; and

b. The immediately adjoining portions not yet drilled but
which can be reasonably judged as economically productive on the basis
of available geological and engineering data. In the absence of
information on fluid contacts, the lowest known structural occurrence
of hydrocarbons controls the lower proved limit of the reservoir.

-60-

Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.

Proved Reserves do not include:

a. Oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves";

b. Crude oil, natural gas, and natural gas liquids, the
recovery of which is subject to reasonable doubt because of uncertainty
as to geology, reservoir characteristics, or economic factors;

c. Crude oil, natural gas, and natural gas liquids that may
occur in undrilled prospects; and

d. Crude oil, natural gas, and natural gas liquids that may be
recovered from oil sales and other sources.

Proved Developed Reserves. Reserves that can be expected to be recovered through
existing wells with existing equipment and operating methods. Additional oil and
gas expected to be obtained through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces and mechanisms
of primary recovery should be included as proved developed only after testing by
a pilot project or after operation of an installed program has confirmed through
production response that increased recovery will be achieved.

Proved Undeveloped Reserves. Reserves that are expected to be recovered from new
wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other units that have
not been drilled can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proven effective by actual tests in the area and in the same reservoir.

Recompletion. The completion for production of an existing wellbore in another
formation from that in which the well has previously been completed.

Reservoir. A porous and permeable underground formation containing a natural
accumulation of producible oil or gas that is confined by impermeable rock or
water barriers and is individual and separate from other reservoirs.

Royalty. The right to a share of production from a well, free of all costs and
expenses, except transportation.

Royalty Interest. An interest in an oil and gas property entitling the owner to
a share of oil and natural gas production free of costs of production.

-61-

Standardized Measure. The present value, discounted at 10%, of future net cash
flows from estimated proved reserves, after income taxes, calculated holding
prices and costs constant at amounts in effect on the date of the report (unless
such prices or costs are subject to change pursuant to contractual provisions)
and otherwise in accordance with the Commission's rules for inclusion of oil and
gas reserve information in financial statements filed with the Commission.

Waterflood. An engineered, planned effort to inject water into an existing oil
reservoir with the intent of increasing oil reserve recovery and production
rates.

Working Interest. The operating interest under a lease, the owner of which has
the right to explore for and produce oil and gas covered by such lease. The full
working interest bears 100 percent of the costs of exploration, development,
production, and operation, and is entitled to the portion of gross revenue from
the proceeds of production which remains after proceeds allocable to royalty and
overriding royalty interests or other lease burdens have been deducted.

Workover. Rig work performed to restore an existing well to production or
improve its production from the current existing reservoir.

LEGAL MATTERS

The validity of the securities offered by this prospectus will be
passed upon for us by Jackson Walker L.L.P., Dallas, Texas.

EXPERTS

The consolidated financial statements of GulfWest Energy Inc. and
subsidiaries have been included herein and in the registration statement filed
in connection with this offering in reliance upon the report of Weaver and
Tidwell, L.L.P., independent registered public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.

Our oil and gas reserves have been reviewed by our independent reserve
engineers, Pressler Petroleum Consultants. Our disclosures of our oil and gas
reserves included in this prospectus have been presented in reliance upon the
authority of such firm as experts in petroleum engineering.

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GULFWEST ENERGY INC.

FINANCIAL REPORT

DECEMBER 31, 2004

C O N T E N T S

Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................F-1

Consolidated Balance Sheets........................................F-2

Consolidated Statements of Operations..............................F-4

Consolidated Statements of Stockholders' Equity....................F-5

Consolidated Statements of Cash Flows..............................F-7

Notes To Consolidated Financial Statements.........................F-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM....................F-33

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS...................F-34

All other Financial Statement Schedules have been omitted because they are
either inapplicable or the information required is included in the financial
statements or the notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and
Board of Directors
GULFWEST ENERGY INC.

We have audited the accompanying consolidated balance sheets of GulfWest Energy
Inc. (a Texas Corporation) and Subsidiaries as of December 31, 2004 and 2003,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2004.
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 the standards of The Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 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
GulfWest Energy Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.

\s\WEAVER AND TIDWELL, L.L.P
WEAVER AND TIDWELL, L.L.P.

Dallas, Texas
March 29, 2005

F-1

GULFWEST ENERGY INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

ASSETS

2004 2003
------------------ -----------------

CURRENT ASSETS
Cash and cash equivalents $411,377 $483,618
Accounts receivable - trade, net of allowance
for doubtful accounts of $-0- in 2004 and 2003 1,674,448 1,099,802
Prepaid expenses 128,717 159,269
------------------ -----------------
Total current assets 2,214,542 1,742,689
------------------ -----------------

OIL AND GAS PROPERTIES,
using the successful efforts method of accounting 58,557,072 58,472,886

OTHER PROPERTY AND EQUIPMENT 1,437,206 2,132,220
Less accumulated depreciation, depletion and amortization (9,870,962) (10,017,931)
------------------ -----------------

Net oil and gas properties and other property and equipment 50,123,316 50,587,175
------------------ -----------------

OTHER ASSETS
Deposits 9,804 20,142
Investments 274,362 -
Debt issuance cost, net 1,756,316 78,768
Deferred tax asset 3,322,551
------------------ -----------------
Total other assets 5,363,033 98,910
------------------ -----------------

TOTAL ASSETS $57,700,891 $52,428,774
================== =================

F-2

GULFWEST ENERGY INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

LIABILITIES AND STOCKHOLDERS' EQUITY

2004 2003
-------------- --------------

CURRENT LIABILITIES
Notes payable $4,916,568 $8,182,165
Notes payable - related parties 2,140,000 1,465,000
Current portion of long-term debt 22,686,254 29,396,092
Current portion of long-term debt - related parties 112,192 130,152
Accounts payable - trade 4,654,561 5,002,675
Accrued expenses 940,587 443,568
-------------- --------------
Income taxes payable 118,255
-------------- --------------
Total current liabilities 35,568,417 44,619,652
-------------- --------------

NONCURRENT LIABILITIES
Long-term debt, net of current portion 805,450 35,801
Asset retirement obligations 1,144,854 1,357,206
-------------- --------------
Total noncurrent liabilities 1,950,304 1,393,007
-------------- --------------

OTHER LIABILITIES
Derivative instruments 1,505,527 591,467
-------------- --------------

Total Liabilities 39,024,248 46,604,126
-------------- --------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock 253 190
Common Stock 19,394 18,493
Additional paid-in capital 34,062,502 29,283,692
Retained deficit (15,405,506) (23,477,727)
-------------- --------------
Total stockholders' equity 18,676,643 5,824,648
-------------- --------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $57,700,891 $52,428,774
============== ==============

The Notes to Consolidated Financial Statements are an integral part of these
statements.

F-3

GULFWEST ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

2004 2003 2002
-------------- -------------- ---------------

OPERATING REVENUES
Oil and gas sales $11,101,114 $10,844,460 $10,447,169
Well servicing revenues 39,116
Operating overhead and other income 106,559 166,263 353,512
-------------- -------------- ---------------
Total Operating Revenues 11,207,673 11,010,723 10,839,797
-------------- -------------- ---------------
OPERATING EXPENSES
Lease operating expenses 4,879,754 5,527,841 5,430,205
Cost of well servicing operations 56,295
Depreciation, depletion and amortization 2,184,815 2,226,123 2,697,784
Dry holes, abandoned property and impaired assets 452,516 358,737 617,365
Accretion on asset retirement obligations 72,247 76,823
Settlement of asset retirement obligations 41,780
General administrative 2,018,746 2,262,425 1,727,858
-------------- -------------- ---------------
Total Operating Expenses 9,649,858 10,451,949 10,529,507
-------------- -------------- ---------------
INCOME FROM OPERATIONS 1,557,815 558,774 310,290
-------------- -------------- ---------------
OTHER INCOME AND EXPENSE
Interest expense (4,153,578) (3,363,330) (3,159,381)
Other financing costs (1,472,318) (1,000,000)
Loss on sale of property and equipment (2,034,079) (19,848) (56,647)
Unrealized gain (loss) on derivative instruments (1,505,527) 537,526 (1,596,575)
Forgiveness of debt 12,475,612
-------------- -------------- ---------------
Total Other Income and (Expense) 3,310,110 (3,845,652) (4,812,603)
-------------- -------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES 4,867,925 (3,286,878) (4,502,313)
INCOME TAX BENEFIT 3,204,296
-------------- -------------- ---------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 8,072,221 (3,286,878) (4,502,313)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES, NET OF INCOME TAXES 262,452
-------------- -------------- ---------------
NET INCOME (LOSS) 8,072,221 (3,024,426) (4,502,313)
DIVIDENDS ON PREFERRED STOCK
(PAID 2004-$-0-; 2003-$112,500; 2002-$28,125) (455,612) (127,083) (112,500)
-------------- -------------- ---------------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $7,616,609 $(3,151,509) $(4,614,813)
============== ============== ===============
NET INCOME (LOSS) PER SHARE, BASIC
BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLES $.41 $(.18) $(.25)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES .01
-------------- -------------- ---------------
NET INCOME (LOSS) PER SHARE BASIC $.41 $(.17) $(.25)
============== ============== ===============
NET INCOME (LOSS) PER SHARE, DILUTED BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES $.26 $(.18) $(.25)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES .01
-------------- -------------- ---------------
NET INCOME (LOSS) PER SHARE, DILUTED $.26 $(.17) $(.25)
============== ============== ===============

F-4

GULFWEST ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Number of Shares
Preferred Common
Stock Stock
----------------- ----------------

BALANCE, December 31, 2001 17,000 18,492,541
Issuance of warrants for additional financing
Net loss
Dividends paid on preferred stock
----------------- ----------------
BALANCE, December 31, 2002 17,000 18,492,541
================= ================
Issuance of warrants for additional financing
Issuance of preferred stock related to current financing 2,000
Net loss
----------------- ----------------
BALANCE, December 31, 2003 19,000 18,492,541
================= ================
Issuance of warrants for additional financing
Issuance of preferred stock related to current refinancing 8,000
Conversion of preferred stock to Common Stock. (1,710) 901,428
Net income
----------------- ----------------
BALANCE, December 31, 2004 25,290 19,393,969
================= ================

The Notes to Consolidated Financials are an integral part of these statements.

F-5

GULFWEST ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Preferred Common Additional Paid-In Retained
Stock Stock Capital Deficit
-------------------- -------------------- -------------------- ------------------------

$170 $18,493 $28,164,712 $(15,838,488)
93,500
(4,502,313)
(112,500)
------------------------------------------ -------------------- ------------------------
$170 $18,493 $28,258,212 $(20,453,301)
========================================== ==================== ========================
25,500
20 999,980
(3,024,426)
-------------------- -------------------- -------------------- ------------------------
190 $18,493 $29,283,692 $(23,477,727)
==================== ==================== ==================== ========================
916,029
80 3,863,665

(17) 901 (884)
8,072,221
-------------------- -------------------- -------------------- ------------------------
$253 $19,394 $34,062,502 $(15,405,506)
==================== ==================== ==================== ========================

The Notes to Consolidated Financials are an integral part of these statements.

F-6

GULFWEST ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

2004 2003 2002
------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $8,072,221 $(3,024,426) $(4,502,313)
Adjustments to reconcile net income (loss) to net cash
Provided by operating activities:
Depreciation, depletion and amortization 2,184,815 2,226,123 2,697,784
Accretion expense 72,247 76,823
Settlement of asset retirement obligations (25,769)
Amortization of debt issuance cost 1,379,818
Discount expense on note payable 413,910
Forgiveness of debt (12,475,612)
Common Stock and warrants issued and charged to operations 25,500 93,500
Other financing costs 1,000,000
Deferred tax asset ( 3,322,551)
Income tax payable 118,255
Notes payable issued for interest expense 61,046
Loss on sale of property and equipment 2,034,079 19,848 56,647
Dry holes, abandoned property, impaired assets 452,516 358,737 617,365
Unrealized (gain) loss on derivative instruments 1,505,527 (537,526) 1,596,575
Cumulative effect of accounting change (262,452)
Provision for bad debts 29,201
(Increase) decrease in accounts receivable - trade, net (267,271) 232,443 (109,437)
(Increase) decrease in prepaid expenses 30,552 144,637 (179,825)
Increase (decrease) in accounts payable and accrued expenses 279,859 1,235,503 1,043,994
------------ ------------ ------------
Net cash provided by operating activities 513,642 1,524,411 1,314,290
------------ ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits returned 10,338
Proceeds from sale of property and equipment 1,250,675 38,561 675,440
Capital expenditures (6,141,988) (1,067,924) (5,861,969)
------------ ------------ ------------
Net cash used in investing activities (4,880,975) (1,029,363) (5,186,529)
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock, net 3,363,745
Payments on debt (18,144,776) (1,672,288) (3,410,778)
Proceeds from debt issuance 21,304,258 973,164 7,394,181
Debt issuance cost (2,228,135)
Dividends paid (112,500)
------------ ------------ ------------
Net cash provided by (used in) financing activities 4,295,092 (699,124) 3,870,903
------------ ------------ ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (72,241) (204,076) (1,336)

CASH AND CASH EQUIVALENTS,
Beginning of year 483,618 687,694 689,030
------------ ------------ ------------

CASH AND CASH EQUIVALENTS,
End of year $411,377 $483,618 $687,694
============ ============ ============

CASH PAID FOR INTEREST $3,718,940 $3,216,034 $3,004,015
============ ============ ============

The Notes to Consolidated Financial Statements are an integral part of these
statements.

F-7

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies
consistently applied by management in the preparation of the
accompanying consolidated financial statements.

Organization

GulfWest Energy Inc. and our subsidiaries intend to
pursue the acquisition of quality oil and gas prospects, which
have proved developed and undeveloped reserves, and the
development of prospects with third party industry partners.

The accompanying consolidated financial statements
include our company and its wholly-owned subsidiaries: RigWest
Well Service, Inc. ("RigWest"), GulfWest Texas Company
("GWT"), both formed in 1996; DutchWest Oil Company formed in
1997; SETEX Oil and Gas Company ("SETEX") formed August 11,
1998; Southeast Texas Oil and Gas Company, L.L.C. ("Setex
LLC") acquired September 1, 1998; GulfWest Oil and Gas Company
formed February 18, 1999; LTW Pipeline Co. formed April 19,
1999; GulfWest Development Company ("GWD") formed November 9,
2000 and GulfWest Oil and Gas Company (Louisiana) LLC, formed
July 31, 2001. All material intercompany transactions and
balances have been eliminated in consolidation.

Statement of Cash Flows

We consider all highly liquid investment instruments
purchased with remaining maturities of three months or less to
be cash equivalents for purposes of the consolidated
statements of cash flows.

Non-Cash Investing and Financing Activities:

During the twelve month period ended December 31,
2004, in settlement of a contract we issued a note payable for
$600,000 in replacement of an account payable for $538,954 and
the recognition of an additional $61,046 of interest expense.
Also, as a result of refinancing debt in which we recorded a
$12,475,612 forgiveness of debt, we issued Common Stock
warrants valued at $916,029 which were recorded as a discount
to the face value of the new note issued, we issued $500,000
of preferred stock of a wholly owned subsidiary as a
commission to our financial advisor, and recorded a $360,000
payable for a loan termination fee. The termination fee was
subsequently increased by $48,000 as a result of increasing
the principal amount of the new note. We also financed field
trucks for $78,036. In addition, we invested $274,362 in a
partnership by contributing our cost basis of $76,732 in a
natural gas pipeline and $197,630 in undeveloped oil and gas
leases to the partnership.

During the twelve month period ended December 31,
2003, we adopted Statement of Financial Accounting Standard
No. 143 "Asset Retirement Obligations" (SFAS 143). As a result
of adopting SFAS 143, effective January 1, 2003, we recorded
an asset retirement obligation liability of $1,280,383, an
increase in the carrying value of our oil and gas properties
of $1,058,445, a reduction in accumulated depletion of
$484,390 a change of $262,452 to income as a cumulative effect
of a change in accounting principal. This retirement liability
was increased during 2004 and 2003 by recognizing$72,247 and
$76,823 respectfully, in accretion expense. Also, we decreased
the current portion of long term debt-related parties by
applying $17,300 in deposits and reclassified $176,320 from
accrued expenses to current portion of long term debt.

F-8

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. in Summary of Significant Accounting Policies (continued)

Use of Estimates in the Preparation of Financial Statements

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

Oil and Gas Properties

We use the successful efforts method of accounting
for oil and gas producing activities. Costs to acquire mineral
interests in oil and gas properties, to drill and equip
exploratory wells that find proved reserves, and to drill and
equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, and
geological and geophysical costs are expensed.

As we acquire significant oil and gas properties, any
unproved property that is considered individually significant
is periodically assessed for impairment of value, and a loss
is recognized at the time of impairment by providing an
impairment allowance. Capitalized costs of producing oil and
gas properties and support equipment, after considering
estimated dismantlement and abandonment costs and estimated
salvage values, are depreciated and depleted by the
unit-of-production method.

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

Other Property and Equipment

The following tables set forth certain information
with respect to our other property and equipment. We provide
for depreciation and amortization using the straight-line
method over the following estimated useful lives of the
respective assets:

Assets Years
--------------------------------- -------------
Automobiles 3-5
Office equipment 7
Gathering system 10
Well servicing equipment 10

F-9

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies - continued

Other Property and Equipment - continued

Capitalized costs relating to other properties and equipment:

2004 2003
-------------------- ---------------------

Automobiles $ 285,384 $ 420,776

Office equipment 148,173 148,172
Gathering system 271,651 529,486
Well servicing equipment 731,998 1,033,786
-------------------- ---------------------
1,437,206 2,132,220

Less accumulated depreciation (872,364) (1,268,330)
-------------------- ---------------------

Net capitalized cost $ 564,842 $ 863,890
==================== =====================

Impairments

We have adopted SFAS 144 "Accounting for the
Impairment or Disposal of Long- Lived Assets". Accordingly,
impairments, measured using fair market value, are recognized
whenever events or changes in circumstances indicate that the
carrying amount of long-lived assets (other than unproved oil
and gas properties discussed above) may not be recoverable and
the future undiscounted cash flows attributable to the asset
are less than its carrying value.

Revenue Recognition

We recognize oil and gas revenues on the sales method
as oil and gas production is sold. Differences between sales
and production volumes during the years ended December 31,
2004, 2003, and 2002 were not significant. Well servicing
revenues are recognized as the related services are performed.
Operating overhead income is recognized based upon monthly
contractual amounts for lease operations and other income is
recognized as earned.

Trade Accounts Receivable

We grant credit to creditworthy independent and major
oil and gas companies for the sale of crude oil and natural
gas. In addition, we grant credit to joint owners of oil and
gas properties, which we, through our subsidiary, SETEX,
operate. Such amounts are secured by the underlying ownership
interests in the properties. We also grant credit to various
third parties through RigWest for well servicing operations.

Trade accounts receivable are reported in the
consolidated balance sheet at the outstanding principal
adjusted for any chargeoffs. An allocation for doubtful
accounts is recognized by management based upon a review of
specific customer balances, historical losses and general
economic conditions.

We maintain cash on deposit in non-interest bearing
accounts, which, at times, exceed federally insured limits. We
have not experienced any losses on such accounts and believe
we are not exposed to any significant credit risk on cash and
equivalents.

Fair Value of Financial Instruments

At December 31, 2004 and 2003, our financial
instruments consist of notes payable and long-term debt.
Interest rates currently available to us for notes payable and
long-term debt with similar terms and remaining maturities are
used to estimate fair value of such financial instruments.
Accordingly, since interest rates on substantially all of our
debt are variable, market based rates, the carrying amounts
are a reasonable estimate of fair value.

F-10

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt Issuance Costs

Debt issue costs incurred are capitalized and
subsequently amortized over the term of the related debt on a
straight-line basis.

F-11

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies - continued

Earnings (Loss) Per Share

We have adopted Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings Per Share", which requires
that both basic earnings (loss) per share and diluted earnings
(loss) per share be presented on the face of the statement of
operations. Basic earnings (loss) per share are based on the
weighted-average number of outstanding common shares. Diluted
earnings (loss) per-share are based on the weighted-average
number of outstanding common shares and the effect of all
potentially diluted common shares.

Stock Based Compensation

In October 1995, SFAS No. 123, "Stock Based
Compensation," (SFAS 123) was issued. This statement requires
that we choose between two different methods of accounting for
stock options and warrants. The statement defines a
fair-value-based method of accounting for stock options and
warrants but allows an entity to continue to measure
compensation cost for stock options and warrants using the
accounting prescribed by APB Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." Use of the APB 25
accounting method results in no compensation cost being
recognized if options are granted at an exercise price at the
current market value of the stock or higher. We are required
by SFAS 123 to make pro forma disclosures of net income (loss)
and earnings (loss) per share as if the fair value method had
been applied in its 2004, 2003 and 2002 financial statements.
All options were issued with an exercise price at or above
fair market value on the date of grant with the exception of
one grant of 281,000 options, for which we have accrued
$129,260 in compensation expense in 2004. Also see Recent
Accounting Pronouncements.

During 2004, 2003 and 2002, we issued options and
warrants totaling: 1,610,000 shares in 2004 (exercisable
1,085,000); 35,000 in 2003 (all exercisable); 405,000 shares
in 2002 (all exercisable), respectively, to employees and
directors as compensation. If we had used the fair value
method required by SFAS 123, our net income (loss) and per
share information would approximate the following amounts:

2004 2003 2002
---------------------- ------------------------ ------------------------
As ProForma As Reported ProForma As Reported ProForma
Reported
----------- ----------- ------------ ------------ ------------ ------------

SFAS 123
compensation cost $ $ 425,500 $ $ 7,350 $ $ 38,300
APB 25
compensation cost $ 129,260 $ (129,260) $ $ $ $
Net income (loss) $7,616,609 $7,320,369 $(3,151,509) $(3,158,859) $(4,614,813) $(4,653,113)
Income (loss) per
common share-basic $ .41 $ .39 $ (.17) $ (.17) $ (.25) $ (.25)
Income (loss) per
common share-diluted $ .26 $ .23 $ (.17) $ (.17) $ (.25) $ (.25)

F-12

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies - continued

Stock Based Compensation - continued

The effects of applying SFAS 123 as disclosed above
are not indicative of future amounts. We anticipate making
additional stock based employee compensation awards in the
future.

We use the Black-Sholes option-pricing model to
estimate the fair value of the options and warrants (to
employee and non-employees) on the grant date. Significant
assumptions include (1) risk free interest rate 2004- 3.0%,
2003 - 3.0%; 2002 - 3.0%; (2) weighted average expected life
2004- 3.0, 2003 - 3.4; 2002 - 3.6; (3) expected volatility of
2004- 94.32%, 2003 - 147.43%; 2002 - 101.73%; and (4) no
expected dividends.

Implementation of New Financial Accounting Standards

Effective January 1, 2001, we adopted SFAS No. 133
"Accounting for Derivative Instruments and other Hedging
Activities", as amended by SFAS No. 137 and No. 138. It has
been determined that our oil and gas hedging agreements meet
the definition of SFAS 133 "Accounting for Derivative
Instruments and other Hedging Activities" and are accounted
for as a derivative instruments.

Effective January 1, 2002, we adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement requires the following three-step
approach for assessing and recognizing the impairment of
long-lived assets: (1) consider whether indicators of
impairment of long-lived assets are present; (2) if indicators
of impairment are present, determine whether the sum of the
estimated undiscounted future cash flows attributable to the
assets in question is less than their carrying amount; and (3)
if less, recognize an impairment loss based on the excess of
the carrying amount of the assets over their respective fair
values. In addition, SFAS No. 144 provides more guidance on
estimating cash flows when performing a recoverability test,
requires that a long-lived asset to be disposed of other than
by sale (such as abandoned) be classified as "held and used"
until it is disposed of, and establishes more restrictive
criteria to classify an asset as "held for sale". The adoption
of SFAS No. 144 did not have a material impact on our
financial statements since it retained the fundamental
provisions of SFAS No. 121, "Accounting for the Impairment or
Disposal of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," related to the recognition and measurement of
the impairment of long-lived assets to be "held and used".

F-13

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies - continued

Implementation of New Financial Accounting Standards - continued

In June 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under
EITF Issue No. 94-3, a liability for an exit cost as defined
was recognized at the date of an entity's commitment to an
exit plan. SFAS No. 146 also establishes that the fair value
is the objective for the initial measurement of the liability.
SFAS No. 146 is effective for exit and disposal activities
that are initiated after December 31, 2002. This statement
will impact the timing of our recognition of liabilities for
costs associated with future exit or disposal activities.

Beginning in 2003, Statement of Financial Accounting
Standards No. 143, "Asset Retirement Obligations" ("SFAS 143")
requires us to recognize an estimated liability for the
plugging and abandonment of our oil and gas wells and
associated pipelines and equipment. Consistent with industry
practice, historically we had assumed the cost of plugging and
abandonment would be offset by salvage value received. This
statement requires us to record a liability in the period in
which our asset retirement obligation ("ARO") is incurred.
After initial recognition of the liability, we must capitalize
an additional asset cost equal to the amount of the liability.
In addition to any obligation that arises after the effective
date of SFAS 143, upon initial adoption we must recognize (1)
a liability for any existing ARO's, (2) capitalized cost
related to the liability, and (3) accumulated depreciation,
depletion and amortization on that capitalized cost adjusting
for the salvage value of related equipment.

The estimated liability is based on historical
experience in plugging and abandoning wells, estimated
remaining lives of those wells based on reserves estimates and
federal and state regulatory requirements. The liability is
discounted using an assumed credit-adjusted risk-free rate of
7.5%. Revisions to the liability could occur due to changes in
estimates of plugging and abandonment costs, changes in the
risk-free rate or remaining lives of the wells, or if federal
or state regulators enact new plugging and abandonment
requirements. At the time of abandonment, we will be required
to recognize a gain or loss on abandonment if the actual costs
do not equal the estimated costs.

The adoption of SFAS 143 resulted in a January 1,
2003 cumulative effect adjustment to record (i) a $1,058,445
increase in the carrying value of proved properties, (ii) a
$484,390 decrease in accumulated depreciation, depletion and
amortization, (iii) a $1,280,383 increase in noncurrent
liabilities, and (iv) a $262,452 gain, net of tax.

Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting
Standards Board (FASB) issued FASB Statement No. 123 (revised
2004), Share-Based Payments which is a revision of FASB No.
123, Accounting for Stock-Based Compensation. Statement 123
(R) supercedes APB opinion No. 25, Accounting for Stock Issued
to Employees, and amends FASB Statement No. 95, Statement of
Cash Flows. Generally, the approach in Statement 123 (R) is
similar to the approach described in Statement 123. However,
Statement 123 (R) requires all share- based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative. The
provisions of this statement become effective for our third
quarter of 2005. Management has not yet determined the impact
that this statement will have on our consolidated financial
statements.

F-14

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Recapitalization

At December 31, 2004, despite certain refinancing during 2004 our
current liabilities exceeded our current assets by $33,353,875, which without
additional capital left doubt about our ability to survive; however this doubt
was eliminated pursuant to the 2005 recapitalization described below.

On April 27, 2004, we completed an $18,000,000 financing package with
new energy lenders. We used $15,700,000 to retire existing debt of $27,584,145,
resulting in forgiveness of debt of $12,475,612, the elimination of a hedging
liability and the return to us our Series F Convertible Preferred Stock with an
aggregate liquidation preference of $1,000,000. This preferred stock, at our
request, was transferred to our financial advisor and to two companies
affiliated with two of our directors. See "Certain Relationships and Related
Transactions." This taxable gain resulting from these transactions will be
completely offset by available net operating loss carryforwards. The term of the
note is eighteen months and it bears interest at the prime rate plus 11%. This
rate increases by .75% per month beginning in month ten. We paid the new lenders
$1,180,000 in cash fees and also issued them warrants to purchase 2,035,621
shares of our Common Stock at an exercise price of $.01 per share, expiring in
five years. The warrants are subject to anti-dilution provisions.

We continued to pursue new equity capital during 2005, culminating in
the sale of $42,000,000 in newly issued preferred stock. In a subsequent event,
on February 28, 2005, we sold in a private placement, 81,000 shares of our
Series G Preferred Stock to OCMGW for an aggregate offering price of $40.5
million. In addition, our subsidiary, GulfWest Oil & Gas Company (GOGC) issued,
in a private placement, 2,000 shares of its Series A Preferred Stock, having a
liquidation preference of $1.0 million, to OCMGW for $1.5 million. Net proceeds
of the offerings of approximately $38 million after expenses are being used for
the repayment of debt and other liabilities and for general corporate purposes.
See note 5.

The Series G Preferred Stock bears a coupon of 8% per year. The Series
G Preferred Stock has an aggregate liquidation preference of $40.5 million, and
is senior to all of our capital stock. For the first four years after issuance,
we may defer the payment of dividends on the Series G Preferred Stock and these
deferred dividends will also be convertible into our Common Stock at $0.90 per
share. In addition, the Series G Preferred Stock is entitled to vote on an
as-converted basis with the Common Stockholders and, as a class, to nominate and
elect a majority of the members of the Board of Directors of GulfWest. The
Series G Preferred Stock is senior in liquidation preference to all of our
capital stock.

In connection with these transactions, the terms of the Series A
Preferred Stock have been amended such that by March 15, 2005, all such stock
will either convert into a newly created Series H Preferred Stock on a one for
one basis or into Common Stock at a conversion price of $0.35 per share. The
Series H Convertible Preferred Stock has a liquidation preference of $500 per
share and is required to be paid a dividend of 40 shares of Common Stock per
share per year. In addition, the Series H Convertible Preferred Stock is
convertible into Common Stock at a conversion price of $0.35 per share. At March
15, 2005, holders of 6,700 shares of Series A Preferred Stock converted to
Series H Preferred Stock and holders of 3,250 shares of Series A Preferred Stock
converted to an aggregate 4,642,859 shares of Common Stock. The outstanding
Series H Preferred Stock has an aggregate liquidation preference of $3.350
million and is senior to all of our capital stock other than Series G Preferred
Stock.

In addition, we amended the terms of our 9,000 shares of Series E
Preferred Stock such that the coupon of 6% per year they bear may be deferred
for the next four years and these deferred dividends will be convertible into
Common Stock at conversion price of $0.90 per share. The initial liquidation
preference of the Series E Preferred Stock of $500 per share remains convertible
into Common Stock at $2.00 per share. The Series E Preferred Stock has an
aggregate liquidation preference of $4.5 million, and is senior to all of our
Common Stock, of equal preference with our Series D Preferred Stock and junior
to our Series G Preferred Stock and Series H Preferred Stock.

F-15

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Cost of Oil and Gas Properties

The following tables set forth certain information with
respect to our oil and gas producing activities for the periods
presented:

Capitalized Costs Relating to Oil and Gas Producing Activities:

2004 2003
------------- -------------
Unproved oil and gas properties $81,366 $261,650
Proved oil and gas properties 54,947,396 54,669,482
Support equipment and facilities 3,528,310 3,541,754
------------- -------------
58,557,072 58,472,886
Less accumulated depreciation, depletion and
amortization (8,998,598) (8,749,601)
------------- -------------
Net capitalized costs $49,558,474 $49,723,285
============= =============

Results of Operations for Oil and Gas Producing Activities:

2004 2003 2002
-------------- ------------- -------------

Oil and gas sales $11,101,114 $10,844,466 $10,447,169
Production costs (4,879,754) (5,527,841) (5,430,205)
Depreciation, depletion and amortization (1,954,256) (1,527,727) (2,187,036)
Accretion expense (72,247) (76,823) -
Income tax expense - - -
-------------- ------------- -------------
Results of operations for oil and gas
producing activities - income $4,194,857 $3,712,075 $2,829,928
============== ============= =============

Costs Incurred in Oil and Gas Producing Activities:
2004 2003 2002
------------------------------------------

Property Acquisitions
Proved $6,742 $- $562,760
Unproved 17,347 110,119 14,401
Development Costs 6,117,899 2,024,663 5,141,075
-------------- ------------- -------------
$6,141,988 $2,134,782 $5,718,236
============== ============= =============

The following table shows oil and gas property dispositions:

2004 2003 2002
--------------- -------------- ----------------
Oil and gas properties $5,425,040 $31,979 $464,806
Accumulated DD&A (1,659,001) (11,569) (21,375)
--------------- -------------- ----------------
Net oil and gas properties $3,766,039 $20,410 $443,431
=============== ============== ================

As a result of these sales we recorded a loss of $2,029,932 in 2004 and
$20,409 in 2003 and a gain of $21,569 in 2002.

F-16

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Cost of Oil and Gas Properties - continued

A reconciliation of our asset retirement obligation liability is as
follows:

2004 2003
----------------- -----------------

Balance January 1 $1,357,206 $-
Cumulative effect adjustment - 1,280,383
Accretion expense 72,247 76,823
Liability settled (25,769) -
Liability reduced from assets sold (331,173) -
Revisions 72,343
----------------- -----------------
Balance December 31 $1,144,854 $1,357,206
================= =================

Note 4. Accrued Expenses

Accrued expenses consisted of the following:

December 31, December 31,
2004 2003
---------------- -----------------

Accrued compensation
expense on variable options $129,260 $-
Payroll taxes - 5,833
Interest 769,327 395,735
Professional fees 42,000 42,000
---------------- -----------------
$940,587 $443,568
================ =================

F-17

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Notes Payable and Long-Term Debt

Notes payable is as follows:

2004 2003
------------ ------------

Non-interest bearing note payable to an unrelated party; payable out of
50% of the net transportation revenues from a certain natural gas
pipeline that is not yet in service; no due date. $40,300 $40,300

Promissory note payable to a former director at 8%; due May, 2001;
unsecured. Retired March, 2005 40,000 40,000

Promissory note payable to an unrelated party at 10%; payable on
demand; unsecured. Retired March, 2005 5,000 45,000

Line of credit (up to $2,500,000) to a bank; due October, 2002; secured
by guaranty of a director; interest greater of prime rate less .25% or
5.25%, (prime rate 5.25% at December 31, 2004). Line of credit
increased to $3,000,000 and due date extended to April, 2004. Retired
and replaced April, 2004. 2,995,488

Promissory note payable to an unrelated party; payable on demand;
interest at 8%; interest increased to 12% on January 1, 2003; secured
by certain oil and gas properties. Retired March, 2005. 180,000 300,000

Note payable to a bank; due July, 2004; secured by guaranty of a
director; interest at prime rate (prime rate 5.25% at December
31, 2004 with a floor of 4.75% and a ceiling of 8.0%. Retired February, 2005 948,291 948,400

Promissory note payable to unrelated party; interest at 6%; due June,
2003. Retired January, 2005. 55,300 55,300

Promissory note payable to one of our directors; interest at 8%;
due on demand; unsecured. Retired March, 2005. 50,000 50,000

Promissory note payable to one of our directors; interest at
prime rate (prime rate 5.25% at December 31, 2004); due May, 2003;
secured by Common Stock of DutchWest Oil Company, our wholly
owned subsidiary. Retired March, 2005 1,450,000 1,375,000

Promissory note payable to an unrelated party at 8%; due June 2003;
secured by 4% in the last draft of the Common Stock of DutchWest
Oil Company, our wholly owned subsidiary. Retired March, 2005. 100,000 100,000

Promissory note payable to an unrelated party at 8%; due May 2003;
secured by 8% of the Common Stock of DutchWest Oil Company,
our wholly owned subsidiary. Retired March, 2005. 140,000 200,000

Note payable to an entity owned by two directors of the company, due
September 2004; interest at prime plus 2% (prime rate 5.25% at
December 31, 2004). Secured by oil and gas leases. Retired March,
2005. 600,000

F-18

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Notes Payable and Long-Term Debt

Notes payable is as follows - continued:

2004 2003
------------ -----------

Line of credit (up to $3,500,000) to a bank; due June 2004; secured by
the guaranty of a director; interest at prime rate (prime rate 5.25% at
December 31, 2004) with a floor of 4.75% and a ceiling of 8.0%
Retired February, 2005. 3,447,677 3,497,677
------------ -----------
$7,056,568 $9,647,165
============ ===========

The weighted average interest rate for notes payable at December 31,
2004 and 2003 was 5.79% and 5.0%, respectively.

Long-term debt is as follows:

2004 2003
------------ -------------

Line of credit (up to $3,000,000) to a bank; due July, 2005; secured
by the guaranty of a director; interest greater prime rates less .25% or
5.25% (prime note 5.25% at December 31, 2004); retired February
2005. $2,995,488 $-

Subordinated promissory notes to various individuals at 9.5% interest
per annum; amounts include $50,000 due to related parties; past due.
Retired $100,000 March, 2005. 150,000 150,000

Notes payable to finance vehicles, payable in aggregate monthly
installments of approximately $4,000, including interest of.9% to
13% per annum; secured by the related equipment; due various
dates through 2007. 99,900 69,500

Promissory note to a director; interest at 8.5%; due December 31, 2003.
Retired March, 2005. 62,192 78,941

Note payable to an energy lender; interest at prime plus 3.5% (prime
rate 5.25% at December 31, 2004) payable monthly out of 90%
net profits from certain oil and gas properties; final payment due
May, 2004; secured by related oil and gas properties. Refinanced
March 2004 27,574,769

Note payable to lender; interest at prime plus 11% (prime rate 5.25% at
December 31, 2004) interest only; due October,2006; secured by
related oil and gas properties. Retired February, 2005. 19,021,880 -

F-19

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Notes Payable and Long-Term Debt

Long-term debt is as follows - continued:

2004 2003
---------------- ---------------

Note payable to a bank with monthly principal payments of $36,000;
interest at prime plus 1% (prime rate 5.25% at December 31,
2004 with a minimum prime rate of 5.5%; final payment due
November, 2003; secured by related oil and gas properties;
extended to July, 2007. Retired February, 2005 1,224,000 1,564,000

Note payable to unrelated party to finance saltwater disposal well
with monthly installments of $4,540, including interest at 10% per
annum; final payment due January, 2005; secured by related well.
Retired March, 2005. 50,436 123,624

Note payable to related party to finance equipment with monthly
installments of $608, including interest at 11% per annum;
final payment due February, 2004; secured by related equipment.
Retired February, 2004. 1,211
---------------- ---------------
23,603,896 29,562,045
Less current portion (22,798,446) (29,526,244)
---------------- ---------------
Total long-term debt $805,450 $35,801
================ ===============

Estimated Annual maturities for long-term debt are as follows:

2005 $22,798,447
2006 506,565
2007 286,673
2008 12,212
2009 -
---------------
$23,603,897
===============

Note Payable and long-term debt remaining after the retirement of debt in
February and March, 2005

Note payable $40,300
==============

Long- term debt $149,900
Less current portion (88,449)
--------------
Total long- term debt $61,451
==============

F-20

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Stockholders' Equity

Common Stock
------------
2004 2003
----------------- --------------

Par value $.001; 80,000,000 shares authorized; 19,393,969 shares issued
and outstanding as of December 31, 2004 and
2003, respectively $ 19,394 $ 18,493
================= ==============

Preferred Stock
---------------

Series D, par value $.01; 12,000 shares authorized; 8,000 shares issued
and outstanding at December 31, 2004 and 2003. The Series D preferred
stock does not pay dividends and is not redeemable. The liquidation
value is $500 per share. After three years from the date of issue,
and thereafter, the shares are convertible to Common Stock based upon
a value of $500 per Series D share divided by $8 per share of Common
Stock. 80 80

Series E, par value $.01; 9,000 shares authorized; 9,000 shares
issued and outstanding at December 31, 2004 and 2003. The
Series E pays dividends, as declared, at a rate of 2.5% per annum
increasing to 6% per annum July 1, 2004, has a liquidation value
of $500 per share, may be redeemed at our option and, as
amended, is convertible to Common Stock based upon a value of
$500 per Series E share divided by $2 per share of Common Stock. 90 90

Series F, par value $.01; 2,000 shares authorized; 340 and 2,000 shares
issued and outstanding at December 31, 2004 and December 31, 2003
respectfully. The Series F preferred stock pays dividends, as declared,
at a rate of $2.5% per share annum, has a liquidation value of $500 per
share, may be redeemed at our option and is convertible to Common Stock
based upon a value of $500 per Series F share divided by $1 per share
of Common Stock 3 20

Series A, par value $.01; 10,000 shares authorized; 7,950 shares issued
and outstanding at December 31, 2004. The Series A preferred stock
pays dividends, as declared, at a rate of 9 % per annum, has a
liquidation value of $500 per share, may be redeemed at our option
and is exchangeable for Common Stock based upon a value of $500 per
Series A share divided by $.35 per share of Common Stock. 80
----------------- --------------
$ 253 190
================= ==============

All classes of preferred shareholders have liquidation preference over
common shareholders of $500 per preferred share, plus accrued dividends.
Dividends in arrears at December 31, 2004 were $608,087 (Series A $244,147;
Series E $347,409; Series F $16,531).

F-21

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options
-------------

We maintain a 1994 Stock Option and Compensation Plan (the "1994
Plan"), which terminated on February 11, 2004. There are options to purchase
424,000 shares of Common Stock still outstanding and exercisable under the 1994
Plan. Effective July 15, 2004, we implemented our 2004 Stock Option and
Compensation Plan (the "2004 Plan"). There are options to purchase 1,525,000
shares of Common Stock outstanding under the 2004 Plan. Following is a schedule
by year of the activity related to stock options, including weighted-average
("WTD AVG") exercise prices of options in each category.

F-22

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Stockholders' Equity - continued

2004 2003 2002
----------------- ----------------- -----------------
Wtd Wtd Wtd
Avg Avg Avg
Prices Number Prices Number Prices Number
------ ---------- ------ ---------- ------ ----------

Balance, January 1 $.90 1,102,000 $.90 1,067,000 $1.03 1,097,000
Options issued $.48 1,610,000 $.75 35,000 $.75 35,000
Options expired $(.80) (763,000) $- - $3.00 (65,000)
---------- ---------- ----------
Balance, December 31 $.60 1,949,000 $.90 1,102,000 $.90 1,067,000
========== ========== ==========

Options to purchase 1,474,000 shares of Common Stock were exercisable
at December 31, 2004. Following is a schedule by year and by exercise price of
the expiration of our stock options issued as of December 31, 2004:

2005 2006 2007 2008 Thereafter Total
----------- ---------- ---------- ------------- ------------ ------------

$ .45 950,000 475,000 1,425,000
$ .75 35,000 250,000 285,000
$ .83 65,000 65,000
$1.13 100,000 100,000
$1.20 14,000 14,000
$1.81 60,000 60,000
----------- ---------- ---------- ------------- ------------ ------------
114,000 65,000 35,000 1,260,000 475,000 1,949,000
=========== ========== ========== ============= ============ ============

281,000 of the options issued are subject to variable award accounting
treatment. As a result, we accrued $129,260 as compensation expense in 2004.

Stock Warrants
--------------

We have issued a significant number of stock warrants for a variety of
reasons, including compensation to employees, additional inducements to purchase
our common or preferred stock, inducements related to the issuance of debt and
for payment of goods and services. Following is a schedule by year of the
activity related to stock warrants, including weighted-average exercise prices
of warrants in each category:

2004 2003 2002
-------------------------- -------------------------- ---------------------------
Wtd Avg Wtd Avg Wtd Avg
Prices Number Prices Number Prices Number
--------- ------------- --------- ------------- --------- --------------

Balance, January 1 $ .76 1,965,000 $ 1.24 2,181,754 $ 2.15 1,306,754
Warrants issued $ .01 2,035,621 $ .75 150,000 $ .75 1,145,000
Warrants exercised - -
or expired - - $ 3.61 (366,754) $ 3.57 (270,000)
------------- ------------- --------------
Balance, December 31 $ .38 4,000,621 $ .76 1,965,000 $ 1.24 2,181,754
============= ============= ==============

Included in the "warrants issued" and "warrants exercised/expired"
columns in 2002 were 270,000 warrants whose price was reduced in 2002 to $.75.

F-23

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Stockholders' Equity - continued

Following is a schedule by year and by exercise price of the expiration
of our stock warrants issued as of December 31, 2004:

2005 2006 2007 2008 2009 Total
-------- ---------- ---------- ---------- --------------- ----------------

$.01 2,035,62111 2, 035,621
.75 225,000 1,590,000 1,815,000
.875 150,000 150,000
-------- ---------- ---------- ---------- --------------- ----------------
375,000 1,590,000 - - 2,035,621 4,000,621
======== ========== ========== ========== =============== ================

Warrants outstanding to our officers, directors and employees at
December 31, 2004 and 2003 were approximately 1,515,000 and 1,515,000,
respectively. The exercise prices on these warrants range from $.75 to $.875 and
expire on various dates through 2006.

Note 7. Income (Loss) Per Common Share

The following is a reconciliation of the numerators and denominators
used in computing income (loss) per share:

2004 2003 2002
------------ ------------ ------------

Net income (loss) $8,072,221 $(3,024,426) $(4,502,313)
Preferred stock dividends (455,612) (127,083) (112,500)
------------ ------------ ------------
Income (loss) available to common
shareholders (numerator) $7,616,609 $(3,151,509) $4,614,813
============ ============ ============
Weighted-average number of shares
of Common Stock - basic
(denominator) 18,535,022 18,492,541 18,492,541
------------ ------------ ------------
Income (loss) per share - basic $.41 $(.17) $.25
============ ============ ============
Weighted - average number of
shares of Common Stock - diluted
(denominator) 31,618,275 18,492,541 18,492,541
------------ ------------ ------------
Income (loss) per share - diluted $.26 $(.17) $(.25)
============ ============ ============

Potential dilutive securities (stock options, stock warrants and
convertible preferred stock) in 2003 and 2002 have not been considered since we
reported a net loss and, accordingly, their effects would be antidilutive.

F-24

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Related Party Transactions

As described in "Our Company - Financial Recapitalization" OCM GW
Holdings purchased 81,000 shares of Series G Preferred Stock and 2,000 shares of
Series A Preferred Stock for $42 million. Skardon F. Baker, a director, is an
employee of and B. James Ford, also a director is a managing director of Oaktree
Capital Management, LLC, the ultimate parent of OCM GW Holdings.

On October 23, 1995, we sold $25,000 each of 9% promissory notes in a
private offering to two trusts, the trustee of whom is John E. Loehr, an officer
at the time of the transaction and currently a director. The balance of the
notes plus accrued interest thereon at February 28, 2005 was $87,855. The note
was paid off in connection with the February 2005 offering.

In June, 1999, we issued a promissory note with interest at 8.5% to Mr.
Marshall A. Smith III, an officer and director at the time, in the amount of
$124,083 for accrued compensation. At February 28, 2005, the note had a balance
and accrued and unpaid interest of $99,360 and was being paid in monthly
installments of approximately $1,500 per month. The note was paid off in
connection with the February 2005 offering.

On April 26, 2001, we obtained a line of credit of up to $2,500,000
from a bank for which two directors, Mr. J. Virgil Waggoner and Mr. Marshall A.
Smith, were guarantors. On April 3, 2002, the balance of the line of credit was
retired and a new line of credit of up to $3,000,000 was obtained from the bank
for which Mr. Waggoner and Mr. Smith were guarantors. The line of credit was
paid off in connection with the February 2005 offering.

F-25

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As part of the April 2004 refinancing, the former lender agreed to
return all 2,000 shares of our Series F Preferred Stock held by it. Rather than
receive the shares as treasury shares (which would have meant cancellation of
the series) at our request the former lender transferred 400 of the shares to ST
Advisory Corp., an entity owned by John Loehr, our former CEO and a current
director, 400 of the shares to a financial advisor to the Company, and 200 of
the shares to Thomas R. Kaetzer, our President and Director at that time and
1,000 shares to Intermarket Management LLC, an entity partially owned by M.
Scott Manolis, one of our directors at that time. These transfers were to
compensate the financial advisor and Mr. Loehr, Kaetzer and Manolis for service
to the Company. On September 29, 2004, the financial advisor with 400 shares
transferred 140 shares to three non-management transferees.

As part of the closing of the February 2005 offering, the investor and
the Company agreed to pay certain legal, accounting and other due diligence
costs and, also certain closing fees which totaled approximately $3.75 million.
Of this certain related parties received the following fees: OCWGW $1,000,000;
Intermarket Management LLC $500,000; Mr. Allan D. Keel $300,000 (which was used
to invest in the subject offering).

Note 9. Income Taxes

The components of the net deferred federal income tax assets
(liabilities) recognized in our consolidated balance sheets were as follows:

F-26

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Income Taxes - continued

December 31, December 31,
2004 2003
------------- --------------
Deferred tax assets
Net operating loss carryforwards $4,873,859 $6,352,507
Income tax credits 118,255
Oil and gas properties 198,596 610,381
Derivative instruments 572,100 201,099
Accretion 56,647 26,120
------------- --------------

Net deferred tax assets before
valuation allowance 5,819,457 7,190,107
Valuation Allowance (2,496,906) (7,190,107)
------------- --------------
Net deferred tax assets (liabilities) $3,322,551 $-
============= ==============

At December 31, 2003 we had recorded a valuation allowance for the
entire balance of our deferred tax asset, due the uncertainty of our ability to
ever realize that benefit. Due to a change in circumstances described below, we
made an adjustment to the valuation allowance in 2004 resulting from a change in
judgment about the realizability of the net operating loss carryforwards in
future years. On February 28, 2005 we sold $ 42,000,000 in newly issued
preferred stock. We realized approximately $38,000,000, net of offering expenses
(See Note 2). We used the proceeds to retire substantially all of our notes
payable, paid substantial amounts of accounts payable and accrued expenses and
retained approximately $2,000,000 for working capital. After these transactions
we had approximately $190,000 in notes payable remaining. Of the retired notes
$20,094,000 bore interest at the prime rate plus 11%. As a result of these
transactions we believe we will generate enough future taxable income to fully
realize all of our available net operating loss carryforwards other than those
limited by Internal Revenue Code Section 382.

We had no income tax provision in 2003 and 2002. The provision for 2004
consists of the following:

2004
-----------------
Current tax $ 118,255
Deferred tax 1,252,395
Re-evaluation of beginning valuation allowance (4,693,201)
-----------------
Current income tax provision $ (3,322,551)
=================

The following table summarizes the difference between the actual tax
provision and the amounts obtained by applying the statutory tax rate of 38% to
the income (loss) before income taxes for the year ended December 31, 2004 and
34% for the years ended December 31, 2003 and 2002.

2004 2003 2002
-------------- ------------ ------------

Tax (benefit) calculated at statutory rate $1,849,812 $(1,028,305) $(1,530,786)

Increase (reductions) in taxes due to:

Income tax credits (118,255)
Effect on non-deductible expenses 170,530 362,910 65,174
Change in valuation allowance (4,693,201) 934,422 1,586,988
Other (531,437) (269,027) (121,376)
-------------- ------------ ------------

Current income tax provision $(3,322,551) $- $-
============== ============ ============

F-27

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2004 we had net operating loss carryforwards of
approximately $12,800,000, which are available to reduce future taxable income
and the related income tax liability. We expect we will not be able to utilize
carryforwards of approximately $6,600,000 due to the limitations of Internal
Revenue Code Section 382. The net operating loss carryforward expires at various
dates through 2023.

F-28

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Commitments and Contingencies

Oil and Gas Hedging Activities

We entered into an agreement with an energy lender commencing in May,
2000, to hedge a portion of our oil and gas sales for the period of May, 2000
through April, 2004. The agreement called for initial volumes of 7,900 barrels
of oil and 52,400 Mmbtu of gas per month, declining monthly thereafter. We
entered into an additional agreement with the energy lender, commencing
September, 2001, to hedge an additional portion of our oil and gas sales for the
periods of September, 2001 through July, 2004 and September, 2001 through
December 2003, respectively. The agreement called for initial volumes of 15,000
barrels of oil and 50,000 Mmbtu of gas per month, declining monthly thereafter.
These agreements were terminated in April 2004 with the refinancing of the
related debt. We entered into a second agreement, as a result of refinancing the
debt, commencing May 2004, to hedge a portion of our oil and gas sales for the
period of May 2004 through October 2005. The agreement calls for 10,000 barrels
of oil and 60,000 Mmbtu of gas per month. As a result of these agreements, we
realized a reduction in revenues of $1,841,209 , $1,496,303 and $368,776 for the
twelve - month periods ended December 31, 2004, 2003 and 2002, respectively,
which is included in oil and gas sales.

Lease Obligations

We lease office space at one location under a sixty-four (64) month
lease, which commenced December 1, 2001 and was amended May 30, 2002 after
expansion. Annual commitments under the lease are: 2005 - $132,979, 2006 -
$135,323 and 2007 - $33,977. Total rent expense for the years ended December 31,
2004, 2003 and 2002 were approximately $142,500, $134,500 and $91,000,
respectively.

Litigation

From time to time, we are involved in litigation arising out of our
operations or from disputes with vendors in the normal course of business. As of
March 29, 2005, we were not engaged in any legal proceedings that are expected,
individually or in the aggregate, to have a material effect on our consolidated
financial statements.

Note 11. Oil and Gas Reserves Information (Unaudited)

The estimates of proved oil and gas reserves utilized in the
preparation of the financial statements are estimated in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board, which require that reserve estimates be
prepared under existing economic and operating conditions with no provision for
price and cost escalations over prices and costs existing at year end except by
contractual arrangements.

We emphasize that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current information
becomes available. Our policy is to amortize capitalized oil and gas costs on
the unit of production method, based upon these reserve estimates. It is
reasonably possible that, because of changes in market conditions or the
inherent imprecision of these reserve estimates, that the estimates of future
cash inflows, future gross revenues, the amount of oil and gas reserves, the
remaining estimated lives of the oil and gas properties, or any combination of
the above may be increased or reduced in the near term. If reduced, the carrying
amount of capitalized oil and gas properties may be reduced materially in the
near term.

F-29

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Oil and Gas Reserves Information (Unaudited) - continued

The following unaudited table sets forth proved oil and gas reserves,
all within the United States, at December 31, 2004, 2003, and 2002, together
with the changes therein.

Crude Oil Natural Gas
(BBls) (Mcf)
---------------- ----------------
QUANTITIES OF PROVED RESERVES:

Balance December 31, 2001 5,871,837 39,257,907
Revisions (125,468) (4,959,229)
Extensions, discoveries and additions 22,129 1,090,024
Purchase 52,480 1,090,025
Sales (20,698) (837,856)
Production (278,374) (1,487,048)
---------------- ----------------

Balance December 31, 2002 5,521,906 34,158,823
Revisions (262,608) (308,080)
Extensions, discoveries and additions - -
Purchase - -
Sales - -
Production (221,335) (1,190,624)
---------------- ----------------

Balance December 31, 2003 5,037,963 32,660,119
Revisions (426,932) (2,857,240)
Extensions, discoveries and additions - 2,823,427
Purchase - -
Sales (1,474,115) (2,502,596)
Production (173,865) (1,033,433)
---------------- ----------------
Balance December 31, 2004 2,963,051 29,090,277
================ ================

PROVED DEVELOPED RESERVES:
December 31, 2002 4,025,552 25,374,113
================ ================
December 31, 2003 3,772,926 24,642,407
================ ================
December 31, 2004 2,575,403 20,965,574
================ ================

F-30

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Oil and Gas Reserves Information (Unaudited) - continued

STANDARDIZED MEASURE:

Standardized measure of discounted future net cash flows relating to
proved reserves:

2004 2003 2002
------------------- ---------------- ------------------

Future cash inflows $ 290,998,312 $ 336,795,385 $ 308,381,837

Future production and development costs
Production 80,880,330 109,468,727 105,629,872
Development 24,141,982 21,460,459 23,350,811
------------------- ---------------- ------------------

Future cash flows before income taxes 185,976,000 205,866,199 179,401,154
Future income taxes (49,871,272) (46,885,360) (38,611,577)
------------------- ---------------- ------------------

Future net cash flows after income taxes 136,104,728 158,980,839 140,789,577
10% annual discount for estimated
timing of cash flows (52,602,351) (70,653,419) (63,165,742)
------------------- ---------------- ------------------

Standardized measure of discounted
future net cash flows $ 83,502,377 $ 88,327,420 $ 77,623,835
=================== ================ ==================

The following reconciles the change in the standardized measure of
discounted future net cash flows:

Beginning of year $ 88,327,420 $ 77,623,835 $ 48,849,383

Changes from:
Purchases of proved reserves - - 3,054,793
Sales of producing properties (13,756,990) - (953,159)
Extensions, discoveries and improved
recovery, less related costs 10,280,787 - 2,002,176
Sales of oil and gas produced, net of
production costs (6,221,360) (5,316,619) (5,016,964)
Revision of quantity estimates (12,614,337) (3,751,921) (9,974,557)
Accretion of discount 11,439,568 9,889,881 5,649,945
Change in income taxes (4,552,701) (4,793,281) (13,624,917)
Changes in estimated future
development costs (8,040,393) 2,003,801 (5,254,561)
Development costs incurred that
reduced future development costs 6,117,899 2,024,663 5,569,881
Change in sales and transfer prices,
net of production costs 8,245,446 16,470,113 46,903,282
Changes in production rates (timing)
and other 4,277,038 (5,823,052) 418,533
------------------- ---------------- ------------------
End of year $ 83,502,377 $ 88,327,420 $ 77,623,835
=================== ================ ==================

F-31

GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Quarterly Results (Unaudited)

Summary data relating to the results of operations for each quarter for
the years ended December 31, 2004 and 2003 follows:

Three Months Ended
-----------------------------------------------------------------------------
March 31 June 30 September 30 December 31
--------------- --------------- ---------------- ------------------

2004
Net sales $ 2,538,729 $ 2,535,266 $ 2,802,946 $ 3,330,732
Gross profit 363,693 320,452 542,172 784,014
Net income (loss) (303,003) 9,323,281 (4,905,958) 3,502,289
Income (loss) per common
share
Basic $ (.02) $ .50 $ (.27) $ .19
Diluted $ (.02) $ .29 $ (.27) $ .10

2003
Net sales $ 3,250,603 $ 2,790,124 $ 2,436,063 $ 2,533,933
Gross profit 862,683 406,576 81,573 (433,321)
Net income (loss) 120,659 (1,231,883) (399,457) (1,640,828)
Income (loss) per common
share - Basic and Diluted $ .01 $ (.07) $ (.02) $ (.09)

F-32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
GULFWEST ENERGY INC.

Our report on the consolidated financial statements of GulfWest Energy Inc. and
Subsidiaries as of December 31, 2004 and 2003 and for each of the three years in
the period ended December 31, 2004, is included on page F-1. In connection with
our audit of such consolidated financial statements, we have also audited the
related financial statement schedule for the years ended December 31, 2004, 2003
and 2002 on page F-34.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.

\s\ WEAVER AND TIDWELL, L.L.P.
------------------------------
WEAVER AND TIDWELL, L.L.P.

Dallas, Texas
March 29, 2005

F-33

GULFWEST ENERGY INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

BALANCE BALANCE
AT AT
BEGINNING PROVISIONS/ RECOVERIES/ END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
-------------------------------------- ---------------- ----------------- ----------------- --------------

For the year ended
December 31, 2002
Accounts and notes
receivable related parties $ 740,478 $ $ (740,478) $
================ ================= ================= ==============
Valuation allowance for
deferred tax assets $ 4,668,697 $ 1,586,988 $ $ 6,255,685
================ ================= ================= ==============

For the year ended
December 31, 2003
Valuation allowance for
deferred tax assets $ 6,255,685 $ 934,422 $ 7,190,107
================ ================= ================= ==============

For the year ended
December 31, 2004
Valuation allowance for
deferred tax assets $ 7,190,107 $ (4,693,201) $ 2,496,906
================ ================= ================= ==============

F-34

GULFWEST ENERGY, INC.

18,879,197 Shares

Class A Common Stock

, 2005

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be paid by the Company in
connection with the offering described in this Registration Statement. All
amounts are estimates, except the Securities and Exchange Commission
Registration Fee.

SEC Registration Fee*................................... $924
Legal Fees and Expenses................................. 40,000
Accounting Fees and Expenses............................ 20,000
Miscellaneous........................................... 4,076
------------
Total.............................................. $65,000
============

* The registration fee was paid in connection with the
initial filing of the registration statement. No
additional fee is required in connection with this
post-effective amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Our articles of incorporation and bylaws provide that we will indemnify, to the
fullest extent permitted by the Texas Business Corporation Act, any and all
persons who we have power to indemnify under that Act from and against any and
all of the expenses, liabilities or other matters referred to or covered by that
Act. Additionally, our Articles of Incorporation provide that a director will
not be liable to the Company or its shareholders for an act or omission in the
director's capacity as a director to the fullest extent permitted under Texas
law.

Article 2.01 of the Texas Business Corporation Act provides that a corporation
may indemnify a person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a director
only if it is determined that the person:

(1) conducted himself in good faith;

(2) reasonably believed:

(a) in the case of conduct in his official capacity as a director
of the corporation, that his conduct was in the corporation's best
interests; and

(b) in all other cases, that his conduct was at least not opposed
to the corporation's best interests; and

(3) in the case of any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.

Except to a limited extent, a director may not be indemnified in respect of a
proceeding:

(1) in which the person is found liable on the basis that personal
benefit was improperly received by him, whether or not the
benefit resulted from an action taken in the person's official
capacity; or

(2) in which the person is found liable to the corporation.

II-1

Additionally, we have entered into director indemnification agreements with each
of our five directors providing for indemnification and advancement of expenses
in connection with legal proceedings. We also maintain directors and officers
liability insurance for our officers and directors.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM
REGISTERED SECURITIES.

As shown in the table that follows, during 2003, 2004 and to March 31,
2005, we sold preferred stock convertible to Common Stock not registered under
the Securities Act of 1933, as amended, and exempt under Section 4(2) of the
Act. No underwriters were used, and no underwriting discounts or commissions
were paid in connection with the sales.

Exercise/
Underlying Conversion
Date Derivative Holder(s) Shares Price Consideration
---- ---------- --------- ------ ----- -------------

Preferred
06/12/03 Stock Lender 1,000,000 $ 1.00 Loan Penalty
04/27/04 Preferred Accredited
Stock Investors 11,428,571 $ .35 $4,000,000
01/10/05 Warrants Accredited
Investors 50,000 $ 0.01 $200,000 Loan
01/21/05 Common Lender
Stock 29,100 N/A Loan Extension
02/28/05 Preferred Accredited
Stock Investors 47,857,143 $ .90 $42,000,000

From July 15, 2002 to February 12, 2003, we issued promissory notes to
two accredited investors in the total amount of $300,000, with interest at 8%
per annum and warrants to purchase a total of 100,000 shares of our Common Stock
at $.75 per share; a promissory note to one accredited investor in the total
amount of $300,000, with an original interest rate of 8% that increased to 12%
on January 1, 2003 and warrants to purchase 150,000 shares of our Common Stock
at an exercise price of $.75 per share; and, a promissory note to a director in
the amount of $1,200,000, with interest at the prime rate and warrants to
purchase 625,000 shares of our Common Stock at $.75 per share. The Common Stock
underlying the above warrants is included in this registration. In December 2002
we sold 9,000 shares of Series E Preferred Stock to a director for $800,000.

On April 27, 2004, we completed an $18,000,000 financing package with
new energy lenders. We used $15,700,000 in net proceeds from the financing to
retire existing debt of $27,584,145, resulting in forgiveness of debt of
$12,475,612, the elimination of a hedging liability and the return to the
Company of Series F Preferred Stock with an aggregate liquidation preference of
$1,000,000 (this preferred stock, at the request of the Company, was transferred
by the previous lender to a financial advisor to the Company and to two
companies affiliated with two directors of the Company in satisfaction of
Company obligations to them. See "Certain Relationships and Related
Transactions.") This taxable gain resulting from these transactions will be
completely offset by available net operating loss carryforwards. The term of the
note is eighteen months and it bears interest at the prime rate plus 11%. This
rate increases by .75% per month beginning in month ten. We paid the new lenders
$1,180,000 in cash fees and also issued them warrants to purchase 2,035,621
shares of our Common Stock at an exercise price of $.01 per share, expiring in
five years. The warrants are subject to anti-dilution provisions. In connection
with the February 2005 transactions described below, the anti-dilution
provisions were amended such that additional issuances of stock would not
trigger an adjustment to the number of shares issuable upon exercise of the
warrants.

II-2

Simultaneously, GulfWest Oil & Gas Company completed the initial phase
of a private offering of its Series A Preferred Stock for $4,000,000. The Series
A Preferred Stock is exchangeable into our Common Stock based on a liquidation
value of $500 per share of Series A Preferred Stock divided by $.35 per share of
our Common Stock, or 11,428,571 shares. As part of an advisory fee, we issued
$500,000 of the Series A Preferred Stock to a financial advisor. One of our
directors acquired $1,500,000 of the Series A Preferred Stock. The resale of the
shares of Common Stock to be issued upon the exchange of the Preferred Stock is
offered by this prospectus.

Pursuant to an agreement with the financial advisor, who provided
access to the lenders and raised $1,900,000 of the Series A Preferred Stock, we
paid a cash fee of $400,000, in addition to the $500,000 issued in Series A
Preferred Stock.

In a subsequent event, on February 28, 2005, we sold in a private
placement, 81,000 shares of our Series G Preferred Stock to OCM GW Holdings, LLC
for an aggregate offering price of $40.5 million. In addition, GulfWest Oil &
Gas Company issued, in a private placement, 2,000 shares of our Series A
Preferred Stock, having a liquidation preference of $1.0 million, to OCM GW
Holdings, LLC for $1.5 million. Net proceeds of the offerings of approximately
$38 million after expenses are being used for the repayment of substantially all
of our outstanding debt and other past due liabilities and for general corporate
purposes. Approximately $20.8 million of proceeds went towards paying off the
April 2004 credit agreement. Approximately $8.7 million went towards payment in
full of two promissory notes, a credit agreement and revolving loan agreement
with two banks. In addition, we used the proceeds from the offerings to pay
$675,203 in accrued and unpaid dividends on our preferred stock. Approximately
$1.5 million of the proceeds went towards investment banking and related fees.

II-3

ITEM 16 Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this Report:

Number Description
------ -----------
3.1 Articles of Incorporation of the Registrant and Amendments
thereto. (Previously filed with our Registration Statement on
Form S-1, Reg. No. 33-53526, filed with the Commission on October
21, 1992.)

3.2 Amendment to the Company's Articles of Incorporation to increase
the number of shares of Class A Common Stock that the Company
will have authority to issue from 20,000,000 to 40,000,000
shares, approved by the Shareholders on November 19, 1999 and
filed with the Secretary of State of Texas on December 3, 1999.
(Previously filed with our Definitive Proxy Statement, filed with
the Commission on October 20, 1999.)

3.3 Amendment to the Articles of Incorporation of the Registrant
changing the name of the Registrant to "GulfWest Energy Inc.",
approved by the Shareholders on May 18, 2001 and filed with the
Secretary of Texas on May 21, 2001. (Previously filed with our
Definitive Proxy Statement, filed with the Commission on April
16, 2001.)

3.4 Bylaws of the Registrant. (Previously filed with our Registration
Statement on Form S-1, Reg. No. 33-53526, filed with the
Commission on October 21, 1992.)

3.5 Statement of Resolution Establishing Series H Convertible
Preferred Stock, dated February 28, 2005. (Previously filed with
our Form 8-K, Reg. No. 001-12108, filed with the Commission on
March 4, 2005.)

3.6 Statement of Resolution Establishing Series G Convertible
Preferred Stock, dated February 28, 2005. (Previously filed with
our Form 8-K, Reg. No. 001-12108, filed with the Commission on
March 4, 2005.)

3.7 Certificate of Correction to the Statement of Resolution
Establishing Series G Convertible Preferred Stock, dated March
16, 2005. (Previously filed with our Form 10-K, Reg. No.
001-12108, filed with the Commission on March 31, 2005.)

3.8 Articles of Amendment amending Statement of Resolution
Establishing Series E Preferred Stock, dated February 28, 2005.
(Previously filed with our Form 8-K, Reg. No. 001-12108, filed
with the Commission on March 4, 2005.)

3.9 Articles of Amendment amending Statement of Resolution
Establishing Series A Preferred Stock, dated February 28, 2005.
(Previously filed with our Form 8-K, Reg. No. 001-12108, filed
with the Commission on March 4, 2005.)

3.10 Statement of Resolution Establishing and Designating a Series of
Shares of GulfWest Oil & Gas Company Series A Preferred Stock, as
filed with the Secretary of State of Texas on April 26, 2004.
(Previously filed with our Current Report on Form 8-K dated April
29, 2004 and filed with the Commission on May 10, 2004.)

3.11 Statement of Resolution Establishing and Designating a Series of
Shares of GulfWest Energy Inc. Series D Preferred Stock, as filed
with the Secretary of State of Texas on June 11, 2000.
(Previously filed.)

3.12 Statement of Resolution Establishing and Designating a Series of
Shares of GulfWest Energy Inc. Series E Preferred Stock, as filed
with the Secretary of State of Texas on August 14, 2001.
(Previously filed with our Current Report on Form 8-K dated
August 16, 2001 and filed with the Commission on August 31,
2001.)

3.13 Statement of Resolution Establishing and Designating a Series of
Shares of GulfWest Energy Inc. Series F Preferred Stock, as filed
with the Secretary of State of Texas on June 18, 2003.
(Previously filed.)

II-4

4.1 Letter Agreement by and among GulfWest Energy Inc., a Texas
corporation, GulfWest Oil & Gas Company and the investors listed
on the signature page thereof, dated April 22, 2004. (Previously
filed with our Current Report on Form 8-K, dated April 29, 2004
and filed with the Commission on May 10, 2004.)

4.2 Warrant Agreement made by and between GulfWest Energy Inc., and
Highbridge/Zwirn Special Opportunities FUND, L.P., and Drawbridge
Special Opportunities Fund LP, Grantees, dated and effective
April 29, 2004. (Previously filed with our Current Report on Form
8-K dated April 29, 2004 and filed with the Commission on May 10,
2004.)

4.3 Shareholders Rights Agreement between GulfWest Energy Inc. and
OCM GW Holdings, LLC dated February 28, 2005. (Previously filed
with the Form 13D, Reg. No. 005-54301, filed with the Commission
on March 10, 2005.)

4.4 Omnibus and Release Agreement among GulfWest Energy Inc., OCM GW
Holdings, LLC and those signatories set forth on the signature
page thereto, dated as of February 28, 2004. (Previously filed
with our Form 10-K, Reg. No. 001-12108, filed with the Commission
on March 31, 2005.)

4.5 Share Transfer Restriction Agreement between J. Virgil Waggoner
and OCM GW Holdings, LLC, dated February 28, 2005. (Previously
filed with our Form 10-K, Reg. No. 001-12108, filed with the
Commission on March 31, 2005.)

4.6 Irrevocable Proxy executed by J. Virgil Waggoner dated February
28, 2005. (Previously filed with our Form 10-K, Reg. No.
001-12108, filed with the Commission on March 31, 2005.)

4.7 Exchange Agreement between GulfWest Energy Inc. and GulfWest Oil
& Gas Company, dated February 28, 2005. (Previously filed with
our Form 10-K, Reg. No. 001-12108, filed with the Commission on
March 31, 2005.)

4.8 Letter Agreement among OCM GW Holdings, LLC, OCM Principal
Opportunities Fund III, L.P., OCM Principal Opportunities Fund
III GP, LLC, Oaktree Capital Management, LLC, GulfWest Energy
Inc., GulfWest Oil & Gas Company and J. Virgil Waggoner dated
February 28, 2005. (Previously filed with our Form 10-K, Reg. No.
001-12108, filed with the Commission on March 31, 2005.)

4.9 Subscription Agreement among OCM GW Holdings, LLC, Allan D. Keel
and those individuals listed on the signature page thereto, dated
February 28, 2005. (Previously filed with the Form 13D, Reg. No.
005-54301, filed with the Commission on March 10, 2005.)

5.1 Opinion of Jackson Walker L.L.P. (Previously filed.)

10.1 Employment Agreement between Allan D. Keel and GulfWest Energy,
Inc., dated February 28, 2005. (Previously filed with our Form
10-K, Reg. No. 001-12108, filed with the Commission on March 31,
2005.)

10.2 Employment Agreement between E. Joseph Grady and GulfWest Energy,
Inc., dated February 28, 2005. (Previously filed with our Form
10-K, Reg. No. 001-12108, filed with the Commission on March 31,
2005.)

10.3 GulfWest Oil Company 1994 Stock Option and Compensation Plan,
amended and restated as of April 1, 2001 and approved by the
shareholders on May 18, 2001. (Previously filed with our Proxy
Statement on Form DEF 14A, filed with the Commission on April 16,
2001.)

10.4 GulfWest Energy Inc. 2004 Stock Option Incentive Plan.
(Previously filed with our Form 10-K, Reg. No. 001-12108, filed
with the Commission on March 31, 2005.)

10.5 GulfWest Energy Inc. 2005 Stock Option Incentive Plan.
(Previously filed with our Form 10-K, Reg. No. 001-12108, filed
with the Commission on March 31, 2005.)

10.6 Form of GulfWest Energy Inc. 2005 Stock Incentive Plan Stock
Option Agreement. (Previously filed with our Form 10-K, Reg. No.
001-12108, filed with the Commission on March 31, 2005.)

10.7 Form of Warrant Agreement. (Previously filed with our Form 10-K,
Reg. No. 001-12108, filed with the Commission on March 31, 2005.)

II-5

10.8 Indemnification Agreement between GulfWest Energy Inc. and J.
Virgil Waggoner, dated February 28, 2005. (Previously filed with
our Form 10-K, Reg. No. 001-12108, filed with the Commission on
March 31, 2005.)

10.9 Indemnification Agreement between GulfWest Energy Inc. and B.
James Ford, dated February 28, 2005. (Previously filed with our
Form 10-K, Reg. No. 001-12108, filed with the Commission on March
31, 2005.)

10.10 Indemnification Agreement between GulfWest Energy Inc. and
Skardon F. Baker, dated February 28, 2005. (Previously filed with
our Form 10-K, Reg. No. 001-12108, filed with the Commission on
March 31, 2005.)

10.11 Indemnification Agreement between GulfWest Energy Inc. and John
Loehr, dated February 28, 2005. (Previously filed with our Form
10-K, Reg. No. 001-12108, filed with the Commission on March 31,
2005.)

10.12 Indemnification Agreement between GulfWest Energy Inc. and Allan
Keel, dated February 28, 2005. (Previously filed with our Form
10-K, Reg. No. 001-12108, filed with the Commission on March 31,
2005.)

10.13 Letter Agreement among D.B. Zwirn Special Opportunities Fund,
LP, GulfWest Oil & Gas, and Drawbridge Special Opportunities
Fund, LP, dated January 7, 2005. (Previously filed with our Form
10-K, Reg. No. 001-12108, filed with the Commission on March 31,
2005.)

10.14 Series G Subscription Agreement between GulfWest Energy Inc. and
OCM GW Holdings, LLC dated February 28, 2005. (Previously filed
with the Form 13D, Reg. No. 005-54301, filed with the Commission
on March 10, 2005.)

10.15 Series A Subscription Agreement between GulfWest Oil & Gas
Company and OCW GW Holdings, LLC dated February 28, 2005.
(Previously filed with the Form 13D, Reg. No. 005-54301, filed
with the Commission on March 10, 2005.)

10.16 Letter Agreement between W.L. Addison Investment, L.L.C.,
GulfWest Energy Inc., and Setex Oil and Gas Company dated
February 24, 2005 extending Option Agreement for the Purchase of
Oil and Gas Leases dated March 5, 2004. (Previously filed with
our Form 10-K, Reg. No. 001-12108, filed with the Commission on
March 31, 2005.)

10.17 Letter Agreement between W.L. Addison Investment, L.L.C.,
GulfWest Energy Inc., and Setex Oil and Gas Company dated July
15, 2004 extending Option Agreement for the Purchase of Oil and
Gas Leases dated March 5, 2004. (Previously filed with our Form
10-K, Reg. No. 001-12108, filed with the Commission on March 31,
2005.)

10.18 Option Agreement for the Purchase of Oil and Gas Leases with
W.L. Addison Investments L.L.C. dated March 5, 2004 (Previously
filed.)

10.19 Employment Agreement with Thomas R. Kaetzer. (Previously filed.)

10.20 Consulting Agreement with Marshall A. Smith. (Previously filed.)

10.21 Oil and Gas Property Acquisition, Exploration and Development
Agreement with Summit Investment Group-Texas, L.L.C. effective
December 1, 2001. (Previously filed.)

*10.22 Employment Agreement between Tracy Price and GulfWest Energy
Inc., dated April 1, 2005.

*10.23 Employment Agreement between Tommy Atkins and GulfWest Energy
Inc., dated April 1, 2005.

*10.24 Employment Agreement between Steven Mengle and GulfWest Energy
Inc., dated April 1, 2005.

*10.25 Employment Agreement between Thomas R. Kaetzer and GulfWest
Energy Inc., dated April 1, 2005.

*22.1 Subsidiaries of the Registrant (included on page 35 of this
Prospectus.)

23.1 Consent of Jackson Walker L.L.P. (included in Exhibit 5.1).

23.2 Consent of Weaver and Tidwell, L.L.P. (Previously filed with our
Form 10-K, Reg. No. 001-12108, filed with the Commission on March
31, 2005.)

23.3 Consent of Independent Petroleum Engineers. (Previously filed
with our Form 10-K, Reg. No. 001-12108, filed with the Commission
on March 31, 2005.)

II-6

*25 Power of Attorney (included on signature page of this Amendment).
*Filed Herewith

(b) The Financial Statement Schedules are incorporated by reference starting on
Page F-1 of this Amendment.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes:

1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended.

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) of the
Securities Act, if, in the aggregate, the changes in volume and
price represent not more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

2. That for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.

3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.

II-7

S I G N A T U R E S

Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Post-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas on April 6, 2005.

GULFWEST ENERGY INC.

By: /s/ Allan D. Keel
----------------------------------------------
Allan D. Keel, Chief Executive Officer and
President

POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Allan D. Keel and E. Joseph Grady as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place, and stead, in any and all capacities to sign any and all
amendments or supplements to this Registration Statement on Form S-1, and to
file the same, and with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.

Signature Title Date
-------------------------------------------- ----------------------------------------- -------------------------

\s\ J. Virgil Waggoner Chairman of the Board April 4, 2005
----------------------
J. Virgil Waggoner

\s\ Allan D. Keel President, Chief Executive Officer April 6, 2005
---------------------
Allan D. Keel and Director

\s\ E. Joseph Grady Senior Vice President and April 6, 2005
------------------------------ Chief Financial Officer
E. Joseph Grady

\s\ Richard L. Creel Vice President Finance and
-------------------------------
Richard L. Creel Chief Accounting Officer April 6, 2005

\s\ Skardon F. Baker Director April 4, 2005
----------------------------
Skardon F. Baker

\s\ John E. Loehr Director April 4, 2005
-----------------
John E. Loehr

\s\ B. James Ford Director April 1, 2005
-----------------
B. James Ford

Index to Exhibits

The following documents are filed as part of this Report:

Number Description
------ -----------

3.1 Articles of Incorporation of the Registrant and Amendments
thereto. (Previously filed with our Registration Statement on
Form S-1, Reg. No. 33-53526, filed with the Commission on October
21, 1992.)