UNITED STATES

FORM ~~10-Q~~ 10Q

SECURITIES AND EXCHANGE COMMISSION ~~Washington, D. C. 20549~~

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Washington, D. C. 20549

Commission file number: 0-610

(Mark One)

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

	For the quarterly period ended June 30, 2003

	OR

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission file number: 0-610

EQUITY OIL COMPANY ~~(Exact name of registrant as specified in its charter)~~

COLORADO (State or other jurisdiction of incorporation or organization)		87-0129795 (I.R.S. Employer Identification No.)
Suite 806, 10 West Third South, Salt Lake City, Utah (Address of principal executive offices)		84101 (Zip Code)
(801) 521-3515 Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report)

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

COLORADO		87-0129795
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Suite 806, 10 West Third South, Salt Lake City, Utah 84101
(Address of principal executive offices) (Zip Code)

(801) 521-3515
Registrant’s telephone number, including area code


(Former name, former address and former fiscal year, if changed since last report)

Yes ý No o

Indicate by check mark whether the registrant is an accelerated file (as defined in Rule 12b-2 of the exchange Act)

Yes o No ý

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a a court. ~~Yes o No o~~

Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer'’s classes of common stock, as of the latest practicable date (~~November~~August 511, ~~2002~~2003) : 12,008,661

PART I— - FINANCIAL INFORMATION

ITEM I: Financial Statements

EQUITY OIL COMPANY Statements of Operations For the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~ 2002 (Unaudited)

			2002			2001
		2003			2002
REVENUES
Oil and gas sales	~~Oil and gas sales~~	$	$13,396,075	~~17,067,124~~	$	$10,377,345	~~17,247,604~~
Other	~~Other~~	216,906		~~169,635~~	99,519		~~309,945~~
				17,236,759			17,557,549
		13,612,981			10,476,864
EXPENSES
Operating costs	~~Operating costs~~	4,393,845		~~5,822,219~~	3,638,593		~~5,583,541~~
Depreciation, depletion and amortization	~~Depreciation, depletion and amortization~~	3,825,000		~~5,400,000~~	3,300,000		~~2,850,000~~
	Impairment of proved oil and gas properties			—			69,545
3-D seismic		12,331			14,934
	Equity loss in Symskaya Exploration, Inc.			159,341			105,414
Exploration		153,880			125,761
	3-D Seismic			14,934			200,005
General and administrative		1,701,208			1,139,388
	Exploration			748,943			455,888
Production and exploration overhead		876,586			652,056
	General and administrative			1,744,733			1,889,517
Accretion expense		136,001			—
	Production and exploration overhead			966,352			980,954
Interest		588,691			370,698
	Interest			804,130			353,872
		11,687,542			9,241,430
				15,660,652			12,488,736
Income from continuing operations before income taxes		1,925,439			1,235,434
Income before income taxes				1,576,107			5,068,813
Provision for income taxes		629,529			526,970
Provision for income taxes				672,170			1,814,805
Income from continuing operations		1,295,910			708,464
NET INCOME			$	903,937		$	3,254,008
Discontinued operations (Note 6) Income from operations of properties sold, net of provision for income taxes of $52,812 and $144,718		90,041			194,561
Net income per share
Gain on sale of properties, net of provision for income taxes of $453,940		655,168			—
	Basic		$	.07		$	.26
Income before cumulative effect of accounting change		2,041,119			903,025
	Diluted		$	.07		$	.25
Cumulative effect of change in accounting, net of benefit from income taxes of $622,832		(1,061,865		)	—
NET INCOME		$	979,254		$	903,025
Proforma net income reflecting adoption of SFAS 143					$	866,925
Basic income per common share
Income from continuing operations		$	.11		$	.06
Income from discontinued operations		$	.06		$	.01
Income before cumulative effect of accounting change		$	.17		$	.07
Cumulative effect of change in accounting		$	(.09	)	—
NET INCOME		$	.08		$	.07
Diluted income per common share
Income from continuing operations		$	.11		$	.06
Income from discontinued operations		$	.06		$	.01
Income before cumulative effect of accounting change		$	.17		$	.07
Cumulative effect of change in accounting		$	(.09	)	—
NET INCOME		$	.08		$	.07
Proforma net income per share, reflecting adoption of SFAS 143
Basic		—			$	.07
Diluted		—			$	.07
Weighted average shares outstanding
Basic	~~Basic~~	12,008,661		~~12,395,821~~	12,573,549		~~12,678,711~~
Diluted	~~Diluted~~	12,259,841		~~12,553,960~~	12,721,540		~~12,980,699~~

The accompanying notes are an integral part of these statements.

EQUITY OIL COMPANY ~~Statements of Comprehensive Income (Loss) For the nine months ended September 30, 2002 and 2001 (Unaudited)~~

	2002			2001
Net income	$	903,937		$	3,254,008
Unrealized losses on financial instruments, net of $564,236 tax benefit for 2002		961,964			—
Comprehensive income (loss)	$	(58,027	)	$	3,254,008

Statements of Comprehensive Income

For the six months ended June 30, 2003 and 2002

(Unaudited)

	2003			2002

Net income	$	979,254		$	903,025

Other comprehensive loss

Unrealized losses on financial instruments, net of benefit from income taxes of $94,726 and $125,733	(161,498		)	(434,159		)

Comprehensive income	$	817,756		$	468,866

The accompanying notes are an integral part of these statements.

EQUITY OIL COMPANY ~~Statements of Operations For the three months ended September 30, 2002 and 2001 (Unaudited)~~

		2002		2001
REVENUES
	Oil and gas sales	$	6,257,848	$	3,797,827
	Other		70,116		37,572
			6,327,964		3,835,399
EXPENSES
	Operating costs		2,090,974		1,847,134
	Depreciation, depletion and amortization		2,100,000		930,000
	Impairment of proved oil and gas properties		—		69,545
	Equity loss in Symskaya Exploration, Inc.		84,889		53,243
	3-D Seismic		—		175,181
	Exploration		697,634		283,659
	General and administrative		605,345		514,593
	Production and exploration overhead		314,296		316,948
	Interest		433,432		71,150
			6,326,570		4,261,453
Income (loss) before income taxes			1,394		(426,054	)
Provision for (benefit from) income taxes			482		(300,519	)
NET INCOME (LOSS)		$	912	$	(125,535	)
Net income (loss) per share
	Basic	$	.00	$	(.01	)
	Diluted	$	.00	$	(.01	)
Weighted average shares outstanding
	Basic		12,046,161		12,688,061
	Diluted		12,379,677		12,688,061

Statements of Operations

For the three months ended June 30, 2003 and 2002

(Unaudited)

	2003		2002
REVENUES
Oil and gas sales	$	6,667,676	$	6,865,948
Other	110,921		33,309
	6,778,597		6,899,257
EXPENSES

Operating costs	2,390,129		1,931,531
Depreciation, depletion and amortization	1,900,000		2,400,000
3-D seismic	2,414		—
Exploration	110,487		62,102
General and administrative	822,402		592,074
Production and exploration overhead	442,589		307,631
Accretion expense	68,001		—
Interest	278,102		319,809
	6,014,124		5,613,147
Income from continuing operations before income taxes	764,473		1,286,110

Provision for income taxes	260,946		552,334

Income from continuing operations	$	503,527	$	733,776

Discontinued operations (Note 6) Income from operations of properties sold, net of provision for income taxes of $94,754	—		127,413

NET INCOME	$	503,527	$	861,189

Proforma net income reflecting adoption of SFAS 143			$	843,139

Basic income per common share
Income from continuing operations	$	.04	$	.06

Income from discontinued operations	$	—	$	.01

NET INCOME	$	.04	$	.07

Diluted income per common share

Income from continuing operations	$	.04	$	.06

Income from discontinued operations	$	—	$	.01

NET INCOME	$	.04	$	.07

Proforma net income per share, reflecting adoption of SFAS 143
Basic	—		$	.07

Diluted	—		$	.07

Weighted average shares outstanding

Basic	12,008,661		12,461,285

Diluted	12,288,337		12,627,124

The accompanying notes are an integral part of these statements.

EQUITY OIL COMPANY ~~Statements of Comprehensive Income (Loss) For the three months ended September 30, 2002 and 2001 (Unaudited)~~

	2002			2001
Net income (loss)	$	912		$	(125,535	)
Unrealized losses on financial instruments, net of $309,582 tax benefit for 2002		527,805			—
Comprehensive income (loss)	$	(526,893	)	$	(125,535	)

Statements of Comprehensive Income

For the three months ended June 30, 2003 and 2002

(Unaudited)

	2003		2002

Net income	$	475,727	$	861,189

Other comprehensive gain (loss)

Unrealized gains (losses) on financial instruments, net of expense from income taxes of $31,007 in 2003 and net of benefit from income taxes of $254,654 in 2002	52,865		(434,159		)

Comprehensive income	$	528,592	$	427,030

The accompanying notes are an integral part of these statements.

EQUITY OIL COMPANY ~~Balance Sheets as of September 30, 2002 and December 31, 2001 (Unaudited)~~

		September 30 2002			December 31, 2001
ASSETS
Current assets:
	Cash and cash equivalents	$	572,384		$	960,970
	Accounts and advances receivable		3,551,966			2,929,996
	Income taxes receivable		1,825,114			1,905,339
	Deferred income taxes		25,843			25,843
	Other current assets		69,585			31,794
			6,044,892			5,853,942
Property and equipment			147,000,304			112,864,000
Less accumulated depreciation, depletion and amortization			(76,078,933	)		(70,693,316	)
			70,921,371			42,170,684
Other assets			205,569			284,709
TOTAL ASSETS		$	77,171,832		$	48,309,335
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$	1,254,965		$	2,801,183
	Accrued liabilities		312,492			411,453
	Income taxes payable		204,331			158,647
			1,771,788			3,371,283
Fair value of financial instruments			1,526,200			—
Revolving credit facility			36,000,000			5,500,000
Deferred income taxes			4,474,362			4,524,901
Total liabilities			43,772,350			13,396,184
Stockholders' Equity:
	Common stock		12,856,661			12,851,661
	Paid in capital		3,738,263			3,735,763
	Less cost of treasury stock		(1,991,444	)		(528,302	)
	Retained earnings		19,757,966			18,854,029
	Accumulated other comprehensive loss		(961,964	)		—
			33,399,482			34,913,151
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	77,171,832		$	48,309,335

Balance Sheets

as of June 30, 2003 and December 31,2002

(Unaudited)

	June 30, 2003			December 31, 2002
ASSETS

Current assets:
Cash and cash equivalents	$	613,466		$	1,348,024
Accounts and advances receivable	4,220,562			4,396,473
Income taxes receivable	956,033			1,054,927
Deferred income taxes	28,460			28,460
Other current assets	226,582			215,177
	6,045,103			7,043,061

Property and equipment, at cost	146,163,173			147,174,977
Less accumulated depreciation, depletion and amortization	(78,169,140		)	(78,148,866		)
	67,994,033			69,026,111

Other assets	612,685			731,184

TOTAL ASSETS	$	74,651,821		$	76,800,356

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,298,922		$	2,157,291
Accrued liabilities	209,488			406,681
Income taxes payable	453,216			170,399
Fair value of financial instruments	2,174,212			1,584,988
	4,135,838			4,319,359

Fair value of financial instruments	—			333,000
Asset retirement obligation	3,283,062			—
Revolving credit facility	29,000,000			34,500,000
Deferred income taxes	4,165,487			4,398,319

Total liabilities	40,584,387			43,550,678

Stockholders’ equity:
Common stock	12,856,661			12,856,661
Paid in capital	3,738,263			3,738,263
Less cost of treasury stock	(1,991,444		)	(1,991,444		)
Retained earnings	20,834,360			19,855,106
Accumulated other comprehensive loss	(1,370,406		)	(1,208,908		)
	34,067,434			33,249,678
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	74,651,821		$	76,800,356

The accompanying notes are an integral part of these statements.

EQUITY OIL COMPANY ~~Statements of Cash Flows For the nine months ended September 30, 2002 and 2001 (Unaudited)~~

			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income		$	903,937		$	3,254,008
	Adjustments
		Depreciation, depletion and amortization		5,400,000			2,850,000
		Impairment of proved oil and gas properties		—			69,545
		Loss on property sales		4,338			1,078
		Change in other assets		79,140			59,355
		Equity loss in Symskaya Exploration		159,341			105,414
		Change in deferred income taxes		513,697			(198,514	)
				7,060,453			6,140,886
	Increase (decrease) from changes in:
		Accounts and advances receivable		(621,970	)		2,056,386
		Other current assets		(37,791	)		2,694
		Accounts payable and accrued liabilities		(1,645,179	)		(236,304	)
		Income taxes receivable/payable		125,909			(749,346	)
		Net cash provided by operating activities		4,881,422			7,214,316
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures			(34,155,025	)		(3,956,839	)
	Advances to Symskaya Exploration			(159,341	)		(105,414	)
	Net cash used in investing activities			(34,314,366	)		(4,062,253	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from exercise of stock options			7,500			13,103
	Treasury stock purchase, 683,400 shares at cost			(1,463,142	)		—
	Credit facility borrowing			37,000,000			—
	Payments on credit facility			(6,500,000	)		(3,000,000	)
	Net cash used in (provided by) financing activities			29,044,358			(2,986,897	)
NET (DECREASE) INCREASE IN CASH				(388,586	)		165,166
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				960,970			2,190,548
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	572,384		$	2,355,714

Statements of Cash Flows

For the six months ended June 30, 2003 and 2002

(Unaudited)

	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	979,254		$	903,025
Adjustments
Depreciation, depletion and amortization	3,825,000			3,300,000
Accretion expense	136,001			—
Cumulative effect of change in accounting	1,061,865			—
(Gain) loss on sale of properties	(1,264,556		)	3,478
Change in other assets	118,499			79,140
Equity loss in Symskaya Exploration	—			74,452
Change in deferred income taxes	484,726			513,123
Increase (decrease) from changes in:
Accounts and advances receivable	175,911			(1,106,604		)
Other current assets	(11,405		)	(67,613		)
Accounts payable and accrued liabilities	(1,055,562		)	(1,292,363		)
Income taxes receivable/payable	381,711			120,741
Net cash provided by operating activities	4,831,444			2,527,379

CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Symskaya Exploration	—			(74,452		)
Capital expenditures	(2,398,384		)	(33,302,653		)
Proceeds from sale of properties	2,332,382			—

Net cash used in investing activities	(66,002		)	(33,377,105		)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options	—			7,500
Treasury stock purchase, 608,400 shares at cost	—			(1,295,892		)
Credit facility borrowing	—			37,000,000
Payments on credit facility	(5,500,000		)	(5,500,000		)
Net cash provided by (used in) financing activities	(5,500,000		)	30,211,608

NET DECREASE IN CASH	(734,558		)	(638,118		)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	1,348,024			960,970
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	613,466		$	322,852

The accompanying notes are an integral part of these statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Interim Financial Statements

In the opinion of the Company'’s management, the accompanying interim financial statements reflect the necessary adjustments, all of which are of a normal and recurring nature, to ~~present~~ present fairly the financial position of Equity Oil Company (the Company) as of ~~September~~ June 30, ~~2002~~2003, and the results of its operations and its cash flows for the ~~three~~six ~~and nine~~ month periods ended ~~September~~June 30, ~~2002~~2003 and ~~2001~~2002.

The financial statements and the accompanying notes to financial statements have been prepared according to rules and regulations of the Securities and Exchange Commission. Accordingly, certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. These financial statements should be read in conjunction with the Company'’s ~~2001~~2002 Annual Report on Form ~~10-K,~~ ~~and the Company's Form~~ 10-~~Q for the first and second quarters of 2002~~K.

The results for the three and ~~nine~~six month period ~~periods~~ ended ~~September~~June 30, ~~2002~~2003 are not necessarily indicative of future results.

Note 2. Net Income ~~(Loss)~~ Per Share

Basic net income ~~(loss)~~ per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income ~~(loss)~~ per share is computed using the weighted average number of common and, if dilutive, common equivalent shares outstanding during the period. Common equivalent shares consist of the incremental common ~~shares~~ shares issuable upon the exercise of stock options (using the treasury stock method).

Options to purchase approximately 1,~~833~~873,~~800~~ 400 shares of common stock at prices of $1.06 to $5.50125 per share were outstanding at ~~September~~June 30, ~~2002~~2003, of which, ~~175~~279,~~377~~676 ~~and~~incremental ~~158~~shares (868,~~139~~729 ofoptions) ~~these~~and 251,180 incremental shares (736,886 options) were included in the computation of diluted net income per share for the ~~third~~three ~~quarter~~ and ~~first~~six ~~nine~~month ~~months~~periods ended ~~of 2002~~June 30, ~~respectively~~2003. Options to purchase approximately 1,~~649~~833,~~000~~800 shares of common stock at prices of $1.06 to $5.~~125~~50 per share were outstanding at ~~September~~ June 30, ~~2001~~2002, of which, ~~246~~165,~~060~~839 ofincremental ~~these~~shares (417,800 options) and 147,991 incremental shares (417,027 options) were included in the computation of diluted net income per share ~~for~~ ~~the first nine months of 2001. No shares were included~~ for the ~~third~~three ~~quarter~~and ofsix ~~2001~~month asperiods ~~the~~ended June 30, ~~effect would have been anti-dilutive~~2002.

Note 3. Hedging Activities

The Company periodically enters into oil and gas financial instruments to manage its exposure to oil and gas price volatility. The instruments are usually ~~placed~~ ~~with~~placed ~~counterparties that the Company believes are minimal credit risks. It is the Company's policy to only enter into derivative contracts~~ with ~~investment grade rated~~ counterparties ~~deemed by management to be competent and competitive market makers. The oil and gas reference prices upon which the price hedging instruments are based reflect various market indices~~ that ~~have a high degree of historical correlation with actual prices received by~~ the Company.

The financial instruments are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", which established new accounting and reporting requirements for derivative instruments and hedging activities. SFAS No. 133, as amended by SFAS No. 138, requires that all derivative instruments subject to the requirements of the statement be measured at fair value and recognized as assets or liabilities in the balance sheet. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation is established at the inception of a derivative. For derivatives designated as cash flow hedges and meeting the effectiveness guidelines of SFAS No. 133, changes in fair value, to the extent effective, are recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on

~~the~~believes ~~relative~~are ~~changes~~minimal incredit ~~fair~~risks. It ~~value~~is ~~between~~ the ~~derivative~~Company’s ~~contract~~policy ~~and~~to ~~the~~only ~~hedged~~enter into ~~item~~derivative ~~over~~contracts ~~time.~~with ~~Any~~investment ~~change~~grade inrated ~~fair~~counterparties ~~value~~deemed ofby management ato ~~derivative~~be ~~resulting~~competent ~~from~~and ~~ineffectiveness~~competitive ormarket anmakers. The ~~excluded~~oil ~~component~~and ofgas reference prices upon which the ~~gain/loss~~price ishedging ~~recognized~~instruments ~~immediately~~are inbased ~~revenue~~reflect invarious ~~the~~market ~~statement~~indices ofthat have historically ~~operations.~~correlated with actual prices received by the Company.

As of ~~September~~June 30, ~~2002~~2003, the Company had commodity price hedges in place for 16,~~100~~000 ~~barrels~~MMBTU of ~~oil~~natural gas per day ~~and~~under costless 8collars (5,000 MMBTU ofthrough ~~natural~~April 30, ~~gas~~2004 ~~per~~and ~~day~~1,000 ~~under~~MMBTU through ~~costless~~December 31, ~~collars~~2003). The ~~oil~~ hedges ~~had~~ranged from a floor of $233.00 per MMBTU and a ceiling of $~~27.10 and the gas hedges ranged from $3.00 per MMBTU to $~~4.57915 per MMBTU. The settlement price offor ~~each~~the hedges ofduring the ~~contracts~~quarter ~~for~~ended ~~months~~June 30, ~~during~~2003 ~~the quarter~~ resulted in cash payments of $83535,~~198~~267 from the Company to the counterparty. ~~The~~which are reflected as a reduction of oil and gas sales. The fair value of ~~the~~these ~~hedges~~financial instruments at ~~September~~June 30, ~~2002~~2003, as computed by the counterparty, was ($12,~~526~~174,~~200~~212). This amount is shown on the balance sheet as a ~~long~~current ~~term~~ liability.

Note 4. Asset ~~Acquired~~Retirement ~~Properties~~ Obligation

~~During~~In August 2001, the ~~second~~FASB ~~quarter~~issued ofSFAS ~~2002~~No. 143 ~~the~~(SFAS ~~Company~~143), ~~purchased~~“Accounting ~~interests~~for inAsset 27Retirement ~~producing~~Obligations.” ~~and~~SFAS 16143 ~~non-producing~~was effective ~~gas~~for ~~wells~~the ~~and~~Company ~~associated~~beginning ~~undeveloped~~January 1, ~~leaseholds located~~2003. inThe ~~Yolo~~most ~~County~~significant impact of ~~the~~this ~~Sacramento~~standard ~~Basin~~on ofthe ~~California.~~Company ~~The acquisition~~ was ~~completed~~a onchange ~~April 12,~~in ~~2002.~~the ~~The~~method ~~interests~~of ~~acquired~~accruing for ~~are~~site ~~working~~restoration ~~interests~~costs ~~and~~associated ~~the~~with ~~Company~~its ~~assumed~~oil ~~operations~~and ~~of the~~gas properties. onUnder SFAS ~~May 1~~143, ~~2002.~~the ~~The~~fair ~~total~~value ~~consideration~~of ~~paid~~asset ~~for~~retirement ~~the~~obligations ~~properties~~is ~~was~~recorded ~~$32.0 million.~~as ~~The~~a liability ~~acquisition~~when ~~was~~incurred, ~~financed~~which ~~through~~is ~~borrowings~~typically ~~from~~at the ~~Company's~~time ~~new $75 million~~the ~~credit~~assets ~~facility~~are ~~with~~placed in anservice. ~~initial~~Amounts ~~borrowing~~recorded ~~base~~for ofthe ~~$40 million.~~related ~~The~~assets ~~Company's~~are ~~share~~increased ofby ~~production~~the ~~from~~amount of ~~the~~these ~~properties~~obligations. ~~for~~Over time, the ~~quarter~~liabilities ~~ended~~are ~~September 30,~~accreted ~~2002~~for ~~was 968,000~~the ~~Mcf~~change ofin their ~~natural~~present ~~gas~~value and ~~was~~the ~~sold~~initial atcapitalized ancosts ~~average~~are ~~price~~depreciated over the useful lives of ~~$2.30~~the ~~per~~related ~~Mcf~~assets.

The Company used an expected cash flow approach to estimate its asset retirement obligations under SFAS 143. Upon adoption at January 1, 2003, the ~~ITEM~~Company 2recorded ~~Management's~~a ~~Discussion~~retirement obligation of $3,147,061, an increase in property and ~~Analysis~~equipment cost of ~~Financial~~$1,997,619, ~~Condition~~an increase in accumulated depreciation, depletion and ~~Results~~amortization of ~~Operations~~ $535,255 and a cumulative effect of accounting change, net of benefit from taxes, of $1,061,865. As a result of adoption of SFAS 143, the Company estimates that accretion expense will be approximately $273,000 in 2003.

RESULTS OF OPERATIONS

Financial Results

Gas sales from the recent Sacramento Basin gas acquisition accounted for higher oil and gas revenues for the third quarter of 2002 as compared to the third quarter of 2001. Oil and gas sales were 65% higher in the third quarter of 2002 as compared to the third quarter 2001. Total oil and gas sales for the three month period ended September 30, 2002 were $6,257,848, compared to $3,797,827 during the third quarter of 2001. The recent Sacramento Basin acquisition oil and gas sales accounted for $2.2 Million of the 2002 revenues.

Lower gas production and lower gas prices combined with increased exploration activity negatively impacted earnings for the quarter. The Company recorded net income for the 2002 third quarter of $912 or $.00 per share. This compares to net income for the second quarter of 2002 of $861,189, or $.07 per share.

During the first nine months of 2002, the Company recorded net income of $903,937, or $.07 per basic share, compared to net income of $3,254,008 during the corresponding period of 2001, or $.26 per basic share. Total revenues of $17,236,759 during the first nine months of 2002 compare to revenues of $17,557,549 for the first nine months of 2001.

After the Sacramento Basin gas acquisition the Company estimated its future revenues for the balance of the year to reflect the impact of the transaction to the overall company. Oil and gas prices

~~were based upon the NYMEX forward price curve on the date the estimate was made.~~ The following istable asummarizes ~~brief~~the ~~summary~~Company’s asset ofretirement ~~year~~obligation toliability ~~date results~~ as ~~compared~~of toJune 30, ~~the forecasted amounts~~2003:

	Prior Estimate		Actual Results		Variance
Balance, December 31, 2002	$	—
Oil Volume—barrels		515,000 @ $21.56		477,000 @ $21.41	$	(891,000	)
Liability recorded upon adoption of SFAS 143	3,147,061
Gas Volume—Bcf		2.8 @ $3.42		3.0 @ $2.22	$	(2,916,000	)
Accretion expense	136,001
Production Costs	$	6.4 million	$	5.8 million	$	571,000
Payments	—
Interest Expense	$	863,000	$	804,000	$	59,000
Balance, June 30, 2003	3,283,062

~~During the~~At ~~third~~June 30, ~~quarter of 2002~~2003, wethere ~~acquired~~are anno ~~additional~~assets legally ~~75,000~~restricted ~~shares~~for purposes of ~~our~~settling ~~common~~asset ~~stock~~retirement ~~from~~obligations. There anwas ~~institutional~~no ~~investor~~impact inon athe ~~private~~Company’s ~~block~~cash flows ~~transaction~~as ~~for~~a ~~$2.20~~result ~~per~~of ~~share,~~adopting ~~reducing the~~SFAS ~~total~~143 ~~outstanding~~since ~~shares~~the tocumulative ~~approximately~~effect ~~12 million~~of atchange ~~the~~in accounting ~~end~~method ofis ~~the~~a ~~third~~non-cash ~~quarter~~transaction.

~~Operating~~The ~~Results~~ Company’s estimated asset retirement obligation liability at January 1, 2002 was approximately $2.9 million.

~~During~~The ~~the~~SFAS ~~second~~143 ~~quarter~~impact ofon ~~2002~~net ~~the~~income ~~Company~~for ~~purchased~~the three ~~interests in 27 producing~~ and 16six ~~non-producing~~month ~~gas~~periods ~~wells~~ending ~~and associated undeveloped leaseholds located in Yolo County of the Sacramento Basin of California. The Company's share of production from the properties for the quarter ended September~~June 30, ~~2002~~2003 was ~~approximately~~additional ~~968,000~~expense ~~Mcf~~ of ~~natural~~approximately ~~gas~~$99,200 and ~~was~~$201,400 ~~sold~~or ~~at an average price of~~ $20.3001 ~~per~~and ~~Mcf. This compares to 1.202 billion cubic feet of natural gas sold at an average price of~~ $20.5502 per ~~Mcf~~common ~~for the second quarter of 2002~~share.

~~The Company~~Note ~~participated in the drilling of three wells during the 2002 third quarter, one development well and two exploration wells~~5. ~~The Samson #14-28 is a development gas~~ Stock ~~well~~Based ~~drilled~~Compensation in the Siberia Ridge Field of Southwestern Wyoming by Samson Resources. The well has been drilled and is waiting on completion. The Company has a 75.0% working interest in this well that is operated by Samson. Plans

~~The first~~At ~~exploration~~June 30, ~~well~~2003, the ~~Key~~Company #1had one stock-8based ~~Lady~~compensation ~~Raiders was drilled by Key Production in the Sacramento Basin of California~~plan. The Company ~~has~~applies anAPB ~~approximate~~Opinion ~~6% working interest in this well which has been placed on production at an initial daily rate of 1,600 MCF per day~~No. ~~The~~25 ~~other~~and ~~exploration~~related ~~well,~~interpretations ~~the~~in ~~Sinclair Norton #1, was drilled on the Company's North Ellsworth~~accounting ~~prospect~~for inthis ~~the Williston Basin of North Dakota by Sinclair Oil~~plan. ~~The~~Accordingly, ~~well~~no ~~was~~compensation acost ~~dry~~has ~~hole~~been ~~and~~recognized ~~the Company had a 47.5% working interest. This well accounted~~ for options ~~approximately~~granted ~~$725,000~~to ofemployees ~~the $750,000 year~~under toits ~~date~~fixed ~~exploration~~stock ~~expense.~~option plan.

~~The~~On December 31, 2002, the FASB issued ~~three~~SFAS ~~wells~~148, ~~treated~~“Accounting infor ~~the~~Stock ~~second~~Based ~~quarter~~Compensation inTransition ~~the~~and ~~Company's~~Disclosure (SFAS ~~polymer~~148),” ~~injection~~which ~~water~~amends ~~shut-off~~SFAS ~~treatment~~123. ~~program~~SFAS in148 ~~the~~requires ~~Torchlight~~more ~~field~~prominent inand frequent disclosures about the ~~Big~~effects ~~Horn~~of ~~Basin~~stock-based ~~all~~compensation. The ~~proved~~Company ~~to be~~adopted ~~successful.~~the ~~They~~disclosure ~~are~~provision of inSFAS ~~various~~148 ~~stages~~for ofthe ~~production~~year ~~and~~ended ~~testing~~December 31, so2002. ~~final~~The ~~results~~Company aswill continue to ~~the~~account ~~amount~~for ofits ~~incremental~~stock ~~production~~based iscompensation ~~not~~according ~~yet~~to ~~available~~the provisions of APB Opinion No. 25.

~~The Company~~Had ~~also~~compensation ~~successfully~~cost ~~recompleted~~for ~~six~~the ~~wells~~Company’s instock options ~~Yolo~~been ~~County,~~recognized ~~California~~based ~~during~~on the ~~quarter.~~estimated ~~These~~fair ~~are~~value inon the ~~package~~grant ofdate under ~~wells that were acquired during~~ the ~~second~~fair ~~quarter~~value ofmethodology ~~2002. This~~prescribed ~~acquisition~~by ~~included~~SFAS ~~approximately 1~~123,~~000~~ ~~feet of behind pipe pay in~~ the 27Company’s ~~wells~~net ~~that were acquired,~~ earnings and ~~these~~earnings ~~successful~~per ~~recompletions~~share ~~targeted~~would ~~certain~~have ofbeen ~~those~~as ~~reserves.~~ follows:

Oil production in the 2002 third quarter was 156,000 barrels, compared to 159,000 in the prior 2002 quarter. The decrease from quarter to quarter is attributable to the normal production declines of our properties as they mature. When compared to the prior year third quarter production increased 3% from 151,000 barrels. Gas production decreased during the quarter from 1.49 billion cubic feet in the second quarter of 2002 to 1.24 billion cubic feet during the third quarter. The California acquisition resulted in a gas production increase of 247% over the same period of the 2001 third quarter production of 357,000 Mcf.

		Six Months		Six Months		Three Months		Three Months
		Ended		Ended		Ended		Ended
		6/30/03		6/30/02		6/30/03		6/30/02

Net income, as reported		$	979,254	$	903,025	$	503,527	$	861,189

Less: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects.		63,393		104,131		26,621		50,769

Pro forma net income (loss)		$	915,861	$	798,894	$	476,906	$	810,420

Net income (loss) per share

Basic	As reported	$	.08	$	.07	$	.04	$	.07
	Pro forma	$	.08	$	.06	$	.04	$	.07

Diluted	As reported	$	.08	$	.07	$	.04	$	.07
	Pro forma	$	.07	$	.06	$	.04	$	.06

~~CAPITAL~~Note ~~RESOURCES~~6. Discontinued ~~AND LIQUIDITY~~ Operations

~~Increased~~During ~~production~~February and ~~from~~March 2003, three ~~recently~~packages ~~acquired~~of ~~assets~~Canadian ~~mostly offset lower~~ oil and gas ~~prices~~properties ~~when~~were ~~comparing~~sold ~~2002~~for ~~first~~approximately $2.4 ~~nine~~million, ~~months~~resulting ofin ~~the~~a ~~year~~gain toof ~~the~~approximately ~~first~~$1.2 ~~nine months~~million ($745,209 net of ~~2001~~tax). ~~The~~In ~~Company's~~accordance ~~cash~~with ~~balances~~the ~~decreased~~provisions ~~40%~~of ~~from~~SFAS ~~December 31~~No. 144, ~~2001~~“Accounting ~~due~~for ~~principally~~the Impairment toor ~~payments~~Disposal ~~made~~of onLong-Lived Assets”, the ~~credit~~results ~~facility.~~of ~~Cash~~operations ~~flow~~and ~~from~~gain on ~~operating~~sale ~~activities~~of ~~before~~these ~~working capital~~properties ~~changes~~have inbeen ~~the~~reflected ~~first~~as ~~nine~~discontinued operations. Revenue ~~months~~from ofthese ~~2002~~Canadian oil ~~increased~~and gas properties was approximately $~~919~~154,~~567~~000 ~~from~~and $6432,~~140,886~~000 infor ~~September 30,~~the ~~2001~~three and tosix ~~$7,060,453~~month inperiods ~~September~~ending June 30, 2002. After the sales, the Company’s remaining Canadian asset is its 50% interest in the Cessford Field located in southern Alberta.

~~Investment in~~Note ~~property and equipment for the nine months of 2002 totaled $34,155,025 compared to $3,956,839 during the same period of 2001. Approximately $30.~~7 million (total purchase price of $32 million less proceeds from the effective date, January 1, 2002, to the closing date, April 12, 2002) of the current year expenditures are attributable to the acquisition of the Sacramento Basin assets. Intangible Assets

~~Debt outstanding~~Statement atof ~~September 30,~~Financial ~~2002~~Accounting ~~was~~Standards No. ~~$36 million~~141, anBusiness ~~increase~~Combinations (FAS of141) ~~$30.5 million~~and ~~from~~Statement ~~year-end~~of ~~2001~~Financial ~~amounts~~Accounting Standards, No. We142, ~~secured~~Goodwill aand ~~new~~Intangible ~~$75 million~~Assets (FAS 142) ~~credit~~were ~~facility~~issued inby ~~April,~~the ~~2002~~Financial ~~with~~Accounting anStandards ~~initial~~Board ~~borrowing~~(FASB) ~~base~~in June 2001 ~~commitment~~and ofbecame ~~$40~~effective for us on July ~~million~~1, 2001 and January 1, 2002, respectively. FAS ~~The~~141 ~~new~~requires ~~facility~~all ~~was~~business ~~used~~combinations initiated after June 30, 2001 to ~~acquire~~be accounted for using the ~~gas~~purchase ~~properties~~method. Additionally, inFAS ~~the~~141 ~~Sacramento~~requires ~~Basin~~companies ~~and~~to ~~repay~~disaggregate ~~borrowings~~and ~~outstanding~~report onseparately ~~the~~from ~~old~~goodwill ~~credit~~certain ~~facility~~intangible assets. FAS 142 establishes new guidelines for accounting for goodwill and other

We believe that existing cash balances, cash flow from operating activities, and funds available under the Company's credit facility will provide adequate resources to meet our capital and exploration spending objectives for 2002.

COMPARISON OF THIRD QUARTER 2002 WITH THIRD QUARTER 2001

Total revenues for the period increased 65% to $6,327,964 for the third quarter of 2002 compared to $3,835,399 during the same period of 2001. The increase is attributable to the additional production volumes from the recently acquired Sacramento Basin properties. Net income for the third quarter 2002 was $912 compared to a net loss of $(125,535) during the third quarter of 2001.

The average crude oil price received in the third quarter this year was $24.53 per barrel, compared to $22.68 per barrel received during the same period of 2001. Gas prices increased in the third quarter of 2002, averaging $1.99 per Mcf, compared to $1.59 per Mcf received during the third quarter of 2001. Presently, oil prices have remained strong and gas prices have increased to levels higher than were received in the third quarter of 2002.

As of September 30, 2002, the Company had commodity price hedges in place for 1,100 barrels of oil per day and 8,000 MMBTU of natural gas per day under costless collars. The oil hedge has a floor of $23.00 and a ceiling of $27.10 and runs from May 2002 through April 2003. One gas hedge for 5,000 MMBTU has a floor of $3.00 and a ceiling of $4.43 per MMBTU for the period May 2002 through April 2004. The second gas hedge, for 3,000 MMBTU, has a floor of $3.25 and a ceiling of $4.57 per MMBTU and runs from June 2002 through December 2002. The settlement price of each of the contracts during the quarter resulted in the Company making payments to the counterparty of approximately $83,000. The fair value of the hedges as computed by the counterparty at September 30, 2002 was ($1,526,200). This amount is shown on the balance sheet as a long term liability.

Operating expenses were higher in 2002 than 2001. Lease operating costs increased from $1,847,134 in 2001 to $2,090,974 in 2002, a 13% increase. The increase is attributable to the operating

~~costs~~intangible onassets. Under ~~the~~FAS ~~recently~~142, ~~acquired~~goodwill ~~California~~and ~~properties~~certain ~~which~~other weintangible ~~did~~assets are not ~~have~~amortized, ~~during~~but rather are reviewed annually for impairment. The FASB, the ~~third~~Securities ~~quarter~~and Exchange Commission (SEC) and others continue to discuss the appropriate application of FAS ~~2001~~141 and 142 to oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves. Depending Weon ~~were~~the ~~successful~~outcome ~~this~~of ~~quarter~~such discussions, inthese ~~holding~~oil ~~constant~~and orgas ~~reducing~~mineral ~~operating~~rights ~~costs~~held under lease and other contractual arrangements representing the right to extract such reserves for both undeveloped and developed leaseholds may be classified separately from oil and gas properties, as intangible assets on our balance sheets. In addition, the disclosures required by FAS 141 and 142 relative to intangibles would be included in the notes to financial statements. Historically, we, like many other ~~operated~~oil and gas companies, have included these oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves as part of the oil and gas properties., even after FAS 141 and 142 became effective.

~~Depreciation, depletion~~This ~~and~~interpretation ~~amortization~~of ~~charges~~FAS ~~during~~141 ~~the~~and ~~2002~~142 ~~quarter~~would only ~~were~~affect ~~substantially~~our ~~higher~~balance ~~than~~sheet ~~the~~classification ~~amount~~of ~~recorded~~oil ~~during~~and ~~the~~gas ~~same~~leaseholds. Our ~~quarter~~results of ~~2001.~~operations ~~This~~and ~~increase~~cash ~~is attributable~~flows towould ~~DD&A~~not ~~charges~~be onaffected, ~~the~~since ~~recently~~these ~~acquired~~oil and gas ~~properties~~mineral inrights ~~California~~held asunder lease and other contractual arrangements representing the ~~life~~right ofto ~~these~~extract such reserves iswould ~~shorter~~continue ~~than~~to ~~our~~be ~~other~~amortized ~~longer~~in ~~lived~~accordance ~~assets.~~with ~~DD&A~~accounting rules for oil ~~these~~and ~~assets~~gas ~~was~~companies ~~approximately~~provided $1in Statement of Financial Accounting Standards No.2 ~~Million~~19, Financial Accounting and Reporting ~~for~~by ~~the~~Oil ~~third~~and ~~quarter~~Gas ofProducing ~~2002.~~Companies (FAS 19).

~~Exploration charges~~At ~~increased~~December 31, ~~year~~2002 ~~over~~we ~~year.~~had ~~These~~net undeveloped ~~charges~~leaseholds ~~are~~of ~~primarily~~approximately ~~related~~$1.35 tomillion ~~dry~~that ~~hole~~would ~~costs.~~be ~~During~~classified on ~~the~~our ~~third~~balance ~~quarter~~sheet ofas ~~both~~“intangible ~~years,~~undeveloped ~~one~~leasehold” ~~dry~~and ~~hole~~net ~~was~~developed leaseholds ~~drilled.~~of ~~However,~~an ~~the~~estimated ~~dry hole~~$308,000 ~~drilled~~that inwould ~~2002~~be ~~was~~classified ~~more~~as ~~than~~“intangible developed ~~twice~~leaseholds” ~~the~~if ~~cost~~we ofapplied the ~~dry~~interpretation ~~hole~~currently ~~drilled in 2001~~being discussed.

~~During the~~We ~~2001~~will ~~third~~continue ~~quarter,~~to ~~the~~classify ~~Company~~our ~~participated~~oil inand agas mineral ~~3-D~~rights ~~seismic~~held ~~shoot~~under lease and noother ~~such~~contractual ~~charges~~rights ~~were~~representing ~~incurred during~~ the right ~~third~~to ~~quarter~~extract ofsuch ~~2002.~~reserves Aas ~~3-D~~tangible ~~seismic project~~oil isand ~~planned~~gas ~~for~~properties ~~the~~until ~~fourth~~further guidance ~~quarter~~is ~~of this year~~provided.

~~The increase~~ITEM in general and administrative expenses is primarily attributable to an increase in general liability, control of well and other insurance costs. Also contributing to the increase were costs associated with pursuing acquisition and divestiture opportunities. 2

~~Higher interest~~Management’s ~~costs~~Discussion inand ~~2002~~Analysis ~~reflect~~of Financial ~~the~~Condition ~~increased~~and ~~balance~~Results of ~~the debt outstanding under the Company's credit facility. Our current average interest rate on debt outstanding is approximately 4.05%.~~ Operations

~~COMPARISON~~RESULTS OF ~~FIRST NINE MONTHS 2002 WITH FIRST NINE MONTHS 2001~~ OPERATIONS

~~Lower~~Financial oil and natural gas prices were offset by the increase in natural gas production during the second and third quarters of the year attributable to our recent Sacramento Basin acquisition. Total revenues for the period were $17,236,759, compared to $17,557,549 during the first nine months of 2001. Results

~~Average~~ Higher oil ~~prices~~and ~~received~~natural bygas ~~the~~prices ~~Company in the first nine months of 2002,~~ were partially ~~$21.41~~offset ~~per~~by ~~barrel,~~the ~~net~~effects of hedging ~~costs~~payments ofand ~~$83,198,~~lower ~~compared~~production volumes toand ~~$24.24~~resulted ~~per~~in ~~barrel~~higher ~~during~~oil ~~the~~and ~~same period of 2001. Average~~ gas ~~prices~~revenues ~~received~~for ~~during~~ the first ~~nine~~half ~~months~~ of ~~2002~~2003 as ~~were significantly lower at $2.22 per Mcf~~ compared to the ~~$5.25~~first ~~per~~half ~~Mcf received in 2001. For the nine months~~ of 2002~~, oil production of 477,000 was up slightly from 2001 production of 472,000 barrels~~. ~~Natural~~Oil and gas ~~production~~sales ~~increased~~were ~~173~~29% ~~from~~higher ~~1.1 Bcf~~ in ~~2001 to 3.0 Bcf in 2002.~~ the

Operating costs increased 4% from year to year due to the increase in well count from the recent acquisition. The acquired wells are all gas wells and thus have relatively low operating costs per well as compared to our high water cut mature oil wells in the Rocky Mountains. We continue to strive to implement operating cost efficiencies on our Rocky Mountain oil properties for these wells to reduce operating costs and extend the economic life of these properties. Additionally, lower commodity prices, particularly natural gas prices, resulted in lower value-based production taxes for the period.

Depreciation, depletion and amortization costs were substantially higher in 2002 when compared to 2001. The increase is attributable to depletion on the recently acquired gas properties. The total capitalized cost of $30.7 million is being depleted at rates faster than our other properties. The life of the acquired gas fields is five to seven years as compared to 20 to 30 years for certain of our oil properties.

General and administrative expenses decreased year over year. In 2001 we incurred higher compensation costs for amounts related to the exercise of employee incentive stock options and fees paid to an employee search firm for services rendered in connection with the hiring of a new vice

~~president~~first half of ~~corporate~~2003 ~~development~~as compared to the first half of 2002. ~~Business~~Total ~~insurance~~revenues ~~costs~~for ~~were~~the ~~higher~~six inmonth ~~2002~~period asended June 30, 2003 were $13,612,981, compared to ~~2001~~$10,476,864 ~~but~~during the ~~increase~~first ~~was~~half ~~more~~of ~~than~~2002. ~~offset~~The Company byrecorded ~~reduced~~net income for the 2003 first half of $979,254, or $.08 per basic share. This compares to net income for the first half of 2002 ~~expenses~~of $903,025, ~~discussed~~or ~~above~~$.07 per basic share.

~~Higher interest~~During ~~charges~~the insecond ~~2002~~quarter ~~are~~of ~~related~~2003, to the Company ~~higher~~recorded ~~amount~~net ~~outstanding~~income ~~under~~of ~~our~~$503,527, ~~credit~~or ~~facility~~$.04 ~~Funds~~per ~~were~~basic ~~borrowed~~share, compared to net income of $861,189 during the ~~second~~corresponding ~~quarter~~period of 2002, toor ~~finance~~$.07 ~~the Sacramento~~per ~~Basin~~basic ~~gas~~share. Total ~~property~~revenues ~~acquisition.~~of $6,778,597 ~~Our~~during ~~current~~the ~~average~~second ~~interest~~quarter ~~rate~~of on2003 ~~debt~~compare ~~outstanding~~to issecond ~~approximately~~quarter ~~4.05%.~~2002 revenues of $6,899,257.

~~Other comprehensive~~Operating loss for the period includes the fair value of our commodity hedges, net of income taxes, that were in place at September 30, 2002. As a requirement of our new credit facility, we were required to hedge certain amounts of our production in an effort to remove commodity price volatility from our cash flow. During the first nine months of the year, the Company made payments to the counterparty of $83,198 for the months of the contract that have settled. The counterparty valued the hedges at September 30, 2002 at ($1,526,200). Therefore, a liability was recorded and the tax effected net loss is included in other comprehensive loss. Results

The Company participated in the drilling of four wells during the quarter and another was in progress at the end of the quarter. The FH Petroleum #1-3BR, an exploratory well on the Roosevelt Creek Area proprietary 3-D seismic project in the Williston Basin of North Dakota, was drilled by FH Petroleum. The well was completed in June and is currently producing 130 barrels per day. The Company has a 25.0% working interest in this well that is operated by FH Petroleum.

Three development wells in the Todhunters Lake Field in Yolo County, California were drilled during the quarter. All three wells appear to have productive sands in the Markley Gorge Submarine Canyon Fill Formation and the Upper Mokulmne River Formation. Completion operations were started at the end of June. We also recompleted four existing wells in this field during the quarter. The wells were recompleted in the Starkey and Upper Mokulmne River Sands. We have a 100% working interest in these wells in the Todhunters Lake Field.

At the end of the quarter, we were drilling an exploration well in Todhunters Lake Field to test an apparent accumulation of hydrocarbons in the Cretaceous age Winters Formation. In July it was determined this well was a dry hole and thus costs incurred prior to the end of the quarter of $81,000 are included in expense for the second quarter.

The Company continued its polymer injection water-shut-off treatment program in the Big Horn Basin by treating three additional wells during the quarter in the Torchlight Field. The 2002 pilot program, increased oil production 517% from the six pilot wells, to 142 barrels of oil per day (BOPD) from 23 BOPD and deceased fresh water production by 49%. Similar results are expected from the 2003 program.

Oil production in the 2003 second quarter was 143,000 barrels, compared to 145,000 in the prior 2003 quarter. The decrease from quarter to quarter is attributable to the normal production declines of our properties as they mature. Gas production also declined slightly from 898,000 million cubic feet in the first quarter to 864,000 million cubic feet in the second quarter. Gas production

from our Sacramento Basin acquisition has decreased from the initial rates when we acquired the properties as we have changed the operating philosophy to maximize the ultimate recovery of natural gas from the properties. This has resulted in lower short term production, but should extend the economic life of the property.

CAPITAL RESOURCES AND LIQUIDITY

The Company’s cash balances decreased 54% from December 31, 2002. Cash flow from operating activities in the first half of 2003 increased 91% or $2.3 million from $2,527,379 for the six months ended June 30, 2002 to $4,873,218 for the six months ended June 30, 2002. The increase is due primarily to higher commodity prices received for sales of oil and natural gas.

Investment in property and equipment for the six months ended June 30, 2003 totaled $2,398,384 compared to $33,302,653 during the same period of 2002. Approximately $30.7 million of the prior year expenditures are attributable to the acquisition of the Sacramento Basin assets.

Debt outstanding at June 30, 2003 was $29 million, a decrease of $5.5 million from year-end 2002 amounts. At June 30, 2003, our borrowing base as determined by our bank was $36 million; thus we had $7.0 million of remaining availability under the current commitment on the facility.

We believe that existing cash balances, cash flow from operating activities, and funds available under the Company’s credit facility will provide adequate resources to meet our capital and exploration spending objectives for 2003.

COMPARISON OF SECOND QUARTER 2003 WITH SECOND QUARTER 2002

Total revenues for the period decreased 2% to $6,778,597 for the second quarter of 2003 compared to $6,899,257 during the same period of 2002. The decrease is attributable to lower production volumes as our properties mature and our production philosophy to maximize the ultimate recovery of gas from the properties acquired in the Sacramento Basin in the prior year. This philosophy has resulted in lower short-term production volumes, but should result in greater ultimate recovery over the life of the property.

The average crude oil price received, net of the effects of hedging, in the second quarter this year was $24.84 per barrel, compared to $23.23 per barrel received during the same period of 2002. Gas prices received, net of the effects of hedging, increased in the second quarter of 2003, averaging $3.57 per Mcf, compared to $2.48 per Mcf received during the second quarter of 2002.

As of June 30, 2003, the Company had commodity price hedges in place

for 6,000 MMBTU of natural gas per day under costless collars. One gas hedge for 5,000 MMBTU has a floor of $3.00 and a ceiling of $4.43 per MMBTU for the period May 2002 through April 2004. The second gas hedge, for 1,000 MMBTU, has a floor of $3.50 and a ceiling of $4.195 per MMBTU and runs from January 2003 through December 2003. The settlement price of each of the contracts during the quarter resulted in the company making payments to the counterparty of $535,267. The Company’s oil hedge expired on April 30, 2003 and the settlement for April 2003 resulted in a payment to the counterparty of $34,188 during the quarter. Currently there are no volumes of oil hedged. The fair value of the hedges, as computed by the counterparty at June 30, 2003, was ($2,174,212). This amount is shown on the balance sheet as a current liability.

Operating costs were 24% higher in 2003 than 2002. This increase is attributable to the payment in 2003 of taxes based on the increase in reserve value associated with the Sacramento Basin properties and workover and plugging costs of two Company operated gas wells.

Exploration costs were higher this period than 2002 due to the dry hole that was in process at the end of the quarter. General and administrative costs and production and exploration overhead costs were higher this period when compared to the prior year. Due primarily to higher salary and benefit costs, investor relation related expense, credit facility fees and amortization of capitalized credit facility fees.

Lower interest costs in 2003 reflect the decreased balance of the debt outstanding under the Company’s credit facility and lower interest rates. During the quarter principal payments of $2.5 million were made. Our current average interest rate on debt outstanding for the 2003 quarter was approximately 3.40% compared to 4.10% in 2002.

COMPARISON OF FIRST HALF 2003 WITH FIRST HALF 2002

Higher oil and natural gas prices were partially offset by payments made under the Company’s hedging agreements and slightly lower production volumes. The higher prices allowed the Company to show a year over year increase of 30% in total revenue. Total revenues for the period were $13,612,981, compared to $10,476,864 during the first six months of 2002. The 2002 revenues have been adjusted to account for sale of certain Canadian assets in 2003 as discontinued operations.

Average oil prices received by the Company in the first six months of 2003, were $24.67 per barrel, compared to $20.17 per barrel during the same period of 2002. Average gas prices received during the first six months of 2003 were higher at $3.50 per Mcf compared to the $2.38 per Mcf received in 2002. The average price received in 2003 for both oil and natural gas are net of payments made under the Company’s hedging program. During the first six months of 2003 payments of $2,331,900 were made to the counterparty to settle the hedges that closed during the period. During the first six months of

2002 no payments were made to the counterparty for hedging.

For the first six months of 2003, oil production of 288,000 was down from 2002 production of 319,000 barrels, 2002 production includes approximately 12,000 barrels of oil from the Canadian properties that were sold in 2003. The remaining decline in oil production is related to normal declines as properties mature. Natural gas production decreased slightly from 1.796 Bcf in 2002 to 1.762 Bcf in 2003.

Operating costs increased 21% from year to year. The increase is attributable to the initial year value based taxes on the acquired Sacramento Basin assets and non-recurring workover and plugging costs.

Depreciation, depletion and amortization costs (DD&A) were higher in 2003 when compared to 2002. The increase is attributable to DD&A on the acquired gas properties. The 2002 DD&A included expense associated with the properties for only one quarter as they were acquired in April 2002, whereas the 2003 DD&A included expense for the entire year.

General and administrative expenses increased from 2002 first half levels. In 2003 we incurred higher compensation costs, employee benefit costs, legal fees, travel expense, insurance costs and annual credit facility fees. Higher costs were also incurred associated with our investor relations program. Production and exploration overhead expense also increased during the first half of 2003 as compared to the same period of 2002. The increase in due to higher compensation and benefit charges and geological and geophysical expenses.

Higher interest rate charges are related to the higher amount outstanding under our credit facility. Funds were borrowed during the second quarter of 2002 to finance the Sacramento Basin gas property acquisition. Our current average interest rate on debt outstanding is approximately 3.40%.

OTHER ITEMS

InThe ~~June 2001,~~Company ~~the~~has ~~Financial~~reviewed ~~Accounting~~all ~~Standards~~recently ~~Board (FASB)~~ issued ~~Statements of Financial Accounting Standards (SFAS) No. 141 (SFAS 141)~~, ~~"Business~~but ~~Combinations,"~~not ~~and~~yet ~~No. 142 (SFAS 142)~~adopted, ~~"Goodwill~~accounting ~~and~~standards ~~Other~~in ~~Intangible~~order ~~Assets."~~to ~~Under~~determine ~~SFAS 141~~their effects, if ~~the~~any, ~~purchase~~on ~~method~~the results of ~~accounting~~operations ~~must~~or befinancial ~~used~~position ~~for~~of ~~business~~the ~~combinations initiated after June 30, 2001~~Company. Based ~~Under~~on ~~SFAS 142~~that ~~(effective for Equity beginning January 1~~review, ~~2002)~~the ~~goodwill~~Company ~~and~~believes ~~certain intangibles are no longer amortized but will be subject to~~that ~~annual~~none ~~impairment tests. Adoption~~ of these ~~new~~pronouncements ~~standards~~will ~~did not~~ have a significant ~~impact~~effect on ~~the~~current ~~Company's~~or future financial ~~statements.~~position or results of operations.

In August 2001, the FASB issued SFAS No. 143 (SFAS 143), "Accounting for Asset Retirement Obligations." SFAS 143 is effective for the Company beginning January 1, 2003. The most significant impact of this standard on the Company will be a change in the method of accruing for site restoration costs. Under SFAS 143, the fair value of asset retirement obligations will be recorded as liabilities when they are incurred, which are typically at the time the assets are placed in service. Amounts recorded for the related assets will be increased by the amount of these obligations. Over time, the liabilities will be accreted for the change in their present value and the initial capitalized costs will be depreciated over the useful lives of the related assets. The Company is finalizing its evaluation of the impact of adopting SFAS 143.

In August 2001, the FASB issued SFAS No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company adopted this statement on January 1, 2002. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Although SFAS 144 supersedes SFAS No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," it retains the fundamental provisions of SFAS 121 for the recognition and measurement of the impairment for long-lived assets. There was no financial statement impact from adopting SFAS 144.

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on the results of operations or financial position of the Company. Based on that review, the Company believes that none of these pronouncements will have a significant effect on current or future financial position or results of operations.

CRITICAL ACCOUNTING POLICIES

A summary of our significant accounting policies is included in Note 1 of our ~~Financial~~financial ~~Statements~~statements contained in the annual report ~~of Form 10-K for the year ended December 31, 2001. We believe the application of these accounting policies~~ on ~~a consistent basis enables us to provide financial statement~~ Form

1316

10-K for the year ended December 31, 2002. We believe the application of these accounting policies on a consistent basis enables us to provide financial statement users with useful, reliable and timely information about our ~~earnings~~ results of operations, financial condition and cash flows.

The preparation of financial statements in accordance with accounting principles generally accepted ~~accounting~~in ~~principles~~the United States of America requires management to make judgements, estimates and assumptions ~~regarding~~ regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Our management reviews these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors that they believe to be reasonable under the circumstances. In any given reporting period, actual results could differ from the estimates and assumptions used in preparing our financial statements.

Critical accounting policies are those that may have a material impact on our financial statements and also require management to exercise significant judgement due to a high degree of uncertainty at the time the estimate is made. Our senior management has discussed the development and selection of our accounting policies, related accounting estimates and the ~~disclosures~~related ~~set forth~~disclosures ~~below~~ with the Audit Committee of our Board of Directors. We believe our critical accounting policies include those addressing the recoverability and useful lives of assets, and oil and gas reserve estimates.

FORWARD LOOKING STATEMENTS

The preceding discussion and analysis should be read in conjunction with the consolidated financial statements, including the notes thereto, appearing in the Company'’s annual report on Form 10-K. Except for the historical information contained herein, the matters discussed in this report contain forward-looking statements within the meaning of Section 27a of the Securities Act of 1933, as amended, and Section ~~21e~~ 2le of the Securities Exchange Act of 1934, as amended, that are based on management'’s beliefs and assumptions, current expectations, estimates, and projections. Statements that are not historical facts, including without limitation statements which are preceded by, followed by or include the words " “believes"”, "“anticipates"”, " “plans"”, "“expects"”, "“may"”, "“should"” or similar expressions are forward-looking statements. Many of the factors that will determine the Company'’s future results are beyond the ability of the Company to control or predict. These statements are subject to risks and uncertainties and, therefore, actual results may differ materially. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. The Company disclaims any obligation to to update any forward-looking statements whether as a result of new information, ~~future events or otherwise.~~

Important factors that may effect future results include, but are not limited to: drilling success, the availability of equipment and contract services, environmental risks and impediments, geologic hazards, the risk of a significant natural disaster, the inability of the Company to insure against certain risks, fluctuations in commodity prices, the inherent limitations in the ability to estimate oil and gas reserves, changing government regulations, as well as general market conditions, competition and pricing, and other risks detailed from time to time in the Company's SEC reports, copies of which are available upon request from the Company's investor relations department. 17

future events ~~ITEM~~or ~~3 Quantitative and Qualitative Disclosures about Market Risk~~ otherwise.

Important factors that may affect future results include, but are not limited to: drilling success, the availability of equipment and contract services, environmental risks and impediments, geologic hazards, the risk of a significant natural disaster, the inability of the Company to insure against certain risks, fluctuations in commodity prices, the inherent limitations in our ability to estimate oil and gas reserves, changing government regulations, as well as general market conditions, competition and pricing, and other risks detailed from time to time in the Company’s SEC reports, copies of which are available upon request from the Company’s investor relations department.

ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

The answers to items listed under Item 3 are inapplicable or negative except for items related to interest rate and commodity price risk.

Our credit facility has variable interest rates and any fluctuation in interest rates will increase or decrease our interest expense.

We have market risk exposure related to the prices received for the sale of crude oil and natural gas. We periodically enter into hedge contracts to manage the commodity price risk.

14ITEM 4

~~ITEM 4~~ Controls and Procedures

~~Within~~As ~~90 days~~of ~~prior~~the toend of the ~~filing~~period ~~date~~covered ofby this ~~Report~~ report, the Company'’s principal executive officer ("“CEO"”) and principal financial officer ("“CFO"”) carried out an evaluation of the effectiveness of the Company'’s disclosure controls and procedures. Based on those evaluations, the Company'’s CEO and CFO believe

(i) that the Company'’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC'’s rules and forms and that such information is accumulated and communicated to the Company'’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure; and

(ii) that the Company'’s disclosure controls and procedures are effective.

There have been no significant changes in the Company'’s internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the evaluation referred to in Item 4, above, nor have there been any corrective actions with regard to significant deficiencies or material weaknesses.

PART II OTHER INFORMATION

The answers to items one through five listed under Part II are inapplicable or negative, except as shown below

ITEM 6. Exhibits and Reports on Form 8-K

(i) Restated Articles of Incorporation. Incorporated by reference from the annual report on Form 10-K for the year-ended December 31, 1995. (ii) Amended By-Laws. Incorporated by reference from the annual report on Form 10-K for the year-ended December 31, 1997. (iii) Change in Control Compensation Agreement for David P. Donegan incorporated by reference from the Form 10-Q for the period ended June 30, 2001. Change in Control Compensation Agreement for Russell V. Florence, incorporated by reference from the annual report on Form 10-K for the year-ended December 31, 2000. Change in Control Compensation Agreements for Paul M. Dougan and James B. Larson, incorporated by reference from the annual report on Form 10-K for the year-ended December 31, 1997. (iv) Exhibit 99-1—Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

		EQUITY OIL COMPANY (Registrant)
DATE:	November 14, 2002	By	/s/ PAUL M. DOUGAN Paul M. Dougan, President
DATE:	November 14, 2002	By	/s/ RUSSELL V. FLORENCE Russell V. Florence, Treasurer

CERTIFICATIONS

I, Paul M. Dougan, President and Chief Executive Officer of Equity Oil Company, certify that:

Date: November 14, 2002 By /s/ PAUL M. DOUGAN Paul M. Dougan, President and Chief Executive Officer

controls or in other factors that could significantly affect the Company’s internal controls subsequent to the ~~CERTIFICATIONS~~ evaluation referred to in Item 4, above, nor have there been any corrective actions with regard to significant deficiencies or material weaknesses.

I,PART ~~Russell V. Florence, Treasurer of Equity Oil Company, certify that:~~ II

~~Date:~~OTHER ~~November 14, 2002 By /s/ RUSSELL V. FLORENCE Russell V. Florence, Treasurer and Chief Financial Officer~~INFORMATION

19The answers to items one through five listed under Part II are inapplicable or negative, except as shown below

~~QuickLinks~~ITEM 4. Submission of Matters to a Vote of Security Holders.

At our annual meeting, held on May 21, 2003, shareholders were asked approve three proposals. First, to elect Mr. William D. Forster, Mr. Randolph G. Abood and Mr. John W. Straker to the staggered board to serve three year terms expiring in 2006. Based upon the votes received, each director nominee was elected to the board. The following votes were recorded for each director.

Each director nominee received at least 90% of the shares voted at the meeting.

	Forster	Abood	Straker

Affirmative votes	10,390,812	10,394,737	10,400,167
Withhold authority	1,099,595	1,095,670	1,090,240

The second proposal was to approve an amendment to the Restated Articles of Incorporation to increase the number of authorized shares of common stock. The proposal passed by receiving 81% of the shares voted at the meeting. The vote total was as follows:

For		9,355,673
Against		2,084,962
Abstain		49,772
Broker non-votes		0

The third proposal was to approve an amendment to the Restated Articles of Incorporation to authorize the possible future issuance of preferred shares. The proposal required two-thirds of the outstanding shares to vote in the affirmative to pass. As indicated below the proposal did not receive the requisite number of affirmative votes and was thus not passed.

For		4,944,435
Against		2,154,594
Abstain		61,901
Broker non-votes		4,329,477

ITEM 6. Exhibits and Reports on Form 8-K

(a)	Exhibits


	(3)	(i)	Amendment to Article III of Restated Articles of Incorporation adopted on May 21, 2003 and Restated Articles of Incorporation as amended.

		(ii)	Amended By-Laws. Incorporated by reference from the annual report on Form 10-K for the year-ended December 31, 1997.

	(10)	(i)	Loan agreement between Equity Oil Company and Bank One, NA. Incorporated by reference from the Form 10-Q for the period ended June 30, 2002.

		(iii)	Change in Control Compensation Agreement for David P. Donegan incorporated by reference from the Form 10-Q for the period ended June 30, 2001. Change in Control Compensation Agreement for Russell V. Florence, incorporated by reference from the annual report on Form 10-K for the year-ended December 31, 2000. Change in Control Compensation Agreements for Paul M. Dougan and James B. Larson, incorporated by reference from the annual report on Form 10-K for the year-ended December 31, 1997.

			Equity Oil Company 2000 Stock Option Plan. Incorporated by reference from Appendix A of the proxy statement dated May 10, 2000.

			Cash bonus plan for key employees. Incorporated by reference from the Form 10-K for the year ended December 31, 2002.

	(31)		Certifications required by Rule 13a-15(e) and 15d-15(e).

	(32)		Section 1350 Certifications.

(b)	Reports on Form 8-K

	Filing Date			Contents

	May 8, 2003			Press release regarding financial results for the quarter ended March 31, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

		EQUITY OIL COMPANY
		(Registrant)


DATE:	August 11, 2003	By	/s/ Paul M. Dougan
		Paul M. Dougan, President


DATE:	August 11, 2003	By		/s/ Russell V. Florence
		Russell V. Florence, Treasurer

Exhibit 3(i) - Amendment to Restated Articles of Incorporation adopted May 21, 2003.

ARTICLE III

1. The Company shall have authority to issue up to 50,000,000 shares of Common Stock.

2. Each holder of shares of common stock shall have the right to one vote for each share of common stock held of record on the books of the company on each matter to be voted on at a shareholder’s meeting. Cumulative voting is not allowed in the election of directors.

3. The entire voting power of the corporation shall be vested in the holders of the shares of common stock, except for holders of preferred stock with voting rights, if any.

4. In the event of any liquidation, dissolution, or winding up of the affairs of the corporation, whether voluntary or involuntary, all assets and funds of the corporation remaining after the payment to the holders of the preferred stock of the full amounts to which they may be entitled, if any, shall be divided and distributed among the holders of the common stock according to their respective shares.

Exhibit 3(i) - Restated Articles of Incorporation as amended

Restated

Articles of Incorporation

Equity Oil Company

Pursuant to the laws of Colorado, the undersigned corporation, Equity Oil Company hereby adopts the following Restated Articles of Incorporation and certifies (1) that the Articles of Incorporation restated herein correctly set forth the provisions of the Articles of Incorporation as heretofore amended and supersede the original Articles of Incorporation of the corporation and all amendments thereto, and (2) the Articles of Incorporation as restated herein were duly adopted by the board of directors of the corporation on January 25, 1996. Shareholder approval was not required:

ARTICLE I

The name of the corporation shall be Equity Oil Company.

ARTICLE II

The purpose for which the corporation is organized shall be the transaction of all lawful business for which corporations may be incorporated pursuant to the Colorado Corporation Code. It is the express intent of the stockholders and Directors that the business purposes of this corporation shall not be limited except as provided by Colorado law. By way of example, and not in any way limiting the purpose of the corporation, it may engage in the business of exploration, development, research, production and marketing of oil, gas, and minerals, in all their natural or artificial forms and any and all products and by-products derived therefrom.

ARTICLE III

1. The Company shall have authority to issue up to 50,000,000 shares of Common Stock.

3. The entire voting power of the corporation shall be vested in the holders of the shares of common stock, except for holders of preferred stock with voting rights, if any.

ARTICLE IV

The term of existence of this corporation is perpetual.

ARTICLE V

a. Number, election and terms. The business and affairs of the Corporation shall be managed by a Board of Directors consisting of not less than six nor more than nine

persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. At the 1983 Annual Meeting of Shareholders, the directors shall be divided into three classes, as nearly equal in number as possible, with the term of office of the first class to expire at the 1984 Annual Meeting of Shareholders, the term of office of the second class to expire at the 1985 Annual Meeting of Shareholders and the term of office of the third class to expire at the 1986 Annual Meeting of Shareholders. At each Annual Meeting of Shareholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding Annual Meeting of Shareholders after their election.

b. Newly created directorships and vacancies. Vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled by a majority vote of the directors then in office, though less than a quorum of the Board of Directors. A director elected by the Board to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Subject to the rights of the

holders of any series of preferred stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors shall be filled by the affirmative vote of a majority of the directors then in office or by an election at an annual meeting or at a special meeting of shareholders called for that purpose. A director chosen to fill a position resulting from an increase in number of directors shall hold office until the next annual meeting of stockholders and until his successor has been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

c. Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only by the affirmative vote of the holders of at least 80% of the voting power of all the shares of the Corporation entitled to vote for the election of directors.

d. Amendment, repeal, etc. Notwithstanding anything contained in these Articles of Amendment to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all the shares of the Corporation entitled to vote for the election of directors shall be required to amend, modify or repeal, this Article V.

ARTICLE VI

This corporation shall maintain an office as its principal place of business in Salt Lake City, Utah.

ARTICLE VII

To the full extent permitted by the laws of Colorado, as the same exist or may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this Article by the shareholders of the corporation shall be prospective only and shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification.

ARTICLE VIII

Section 1. Vote Required for Certain Business Combinations.

A. Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or these Articles of Incorporation, and except as otherwise expressly provided in section 2 of this Article VIII:

(i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an

Affiliate (as hereinafter defined) of an Interested Stockholder; or

(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or more; or

(iii) the issuance or transfer of by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; or

(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any

Affiliate of any Interested Stockholder; or

(v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder;

shall require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the “Voting Stock”), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement

with any national securities exchange or otherwise.

B. Definition of “Business Combination”. The term “Business Combination” as used in this Article VIII shall mean any transaction or series of transactions which is referred to in any one or more of clauses (i) through (v) of paragraph A of this section 1.

Section 2. When Higher Vote is Not Required. The provisions of Section 1 of this Article VIII shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of these Articles of Incorporation, if all of the conditions specified in either of the following paragraphs A and B are met:

A. Approval by Continuing Directors. The Business Combination shall have been approved by a majority of the Continuing Directors (as hereinafter defined).

B. Price and Procedure Requirements. All of the following conditions shall have been met.

(i) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common

Stock in such Business Combination shall be at least equal to the highest of the following:

(a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”) or (2) in the transaction in which it became an Interested Stockholder, whichever is higher;

(b) the Fair Market Value per share of Common Stock on the day after the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article VIII as the “Determination Date”), whichever is higher;

(c) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to paragraph B(i)(b) above, multiplied by the ratio of (1) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested

Stockholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date to (2) the Fair Market Value per share of Common Stock on the first day in such two-year period upon which the Interested Stockholder acquired any shares of Common Stock.

(ii) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any other class of outstanding Voting Stock (other than Institutional Voting Stock, as hereinafter defined) shall be at least equal to the highest of the following (it being intended that the requirements of this paragraph B(ii) shall be required to be met with respect to every class of outstanding Voting Stock (other than Institutional Voting Stock), whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock):

the two-year period immediately prior to the day after the Announcement Date or (2) in the transaction in which it became an Interested Stockholder, whichever is higher;

(b) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation;

(c) the Fair Market Value per share of such class of Voting Stock on the day after the Announcement Date or on the Determination Date, whichever is higher; and

(d) (if applicable) the price per share equal to the Fair Market Value per share of such class of Voting Stock determined pursuant to paragraph B(ii)(c) above, multiplied by the ratio of (1) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it within the two-year period immediately prior to the Announcement Date to (2) the Fair Market Value per share of such class of Voting Stock on the

first day in such two-year period upon which the Interested Stockholder acquired any shares of such class of Voting Stock.

(iii) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it.

(iv) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (a) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on the outstanding Preferred Stock, if any; (b) there shall have been (1) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as

approved by a majority of the Continuing Directors, and (2) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (c) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such interested Stockholder becoming an Interested Stockholder.

(v) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

(vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934

and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of the Corporation at lease 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

Section 3. Certain Definitions. For the purposes of this Article VIII:

A. “person” shall mean any individual, firm, corporation or other entity.

B. “Interested Stockholder” shall mean any person (other than the Corporation or any Subsidiary) who or which:

(i) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or

(ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock; or

(iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in

question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.

C. A person shall be a “beneficial owner” of any Voting Stock:

(i) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or

(ii) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or

(iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.

D. For the purposes of determining whether a person is an Interested Stockholder pursuant to paragraph B of this Section 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph C of this Section 3 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

E. “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1983.

F. “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph B of this section 3, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

G. “Continuing Director” means any member of the Board of Directors of the Corporation (the “Board”) who is unaffiliated with the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder and is

recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board.

H. “Fair Market Value means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principle United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Continuing Directors.

I. “Institutional Voting Stock” shall mean any class of Voting Stock which was issued to and continues to be held solely by one or more insurance companies, pensions funds,

commercial banks, savings banks or similar financial institutions or institutional investors.

J. In the event of any Business Combination in which the Corporation survives, the phrase “other consideration to be received” as used in paragraphs B(i) and (ii) of Section 2 of this Article VIII shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

Section 4. Certain Powers of the Continuing Directors. A majority of the Continuing Directors of the Corporation shall have the power and duty to determine for the purposes of this Article VIII, on the basis of information known to them after reasonable inquiry, (A) whether a person is an Interested Stockholder, (B) the number of shares of Voting Stock beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another, (D) whether a class of Voting Stock is Institutional Voting Stock, (E) whether a transaction or a series of transactions constitutes a Business Combination, and (F) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more.

Section 5. No Effect on Fiduciary Obligations of Interested Stockholders. Nothing contained in this Article VIII shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

Section 6. Amendment, Repeal, Etc. Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of 80% or more of the voting power of the shares of the then outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article VIII of these Articles of Incorporation.

DATED this 7th day of August, 2003.


EQUITY OIL COMPANY


By:	/s/ Russell V. Florence
RUSSELL V. FLORENCE, Secretary

Filing Compare · EQUITY OIL CO