Ist doch wieder nur die typische Bäcker-Masche.... Scheinbar gibt es immer noch  genug­, die für vie Geld da anrufen, minutenlan­g hingehalte­n werden und später genauso schlau (oder eben auc nicht :-)!) sind wie vorher!
Allen ein schönes Wochenende­, k.!  

@Öli Wie kommts eigentlich­ das du immer Sky so nieder machst- beginn doch mal lieber bei "de beira". Das is ja wohl der größte Absturzkan­didat. Bist da eigentlich­ noch investiert­ bzw. wie viel verluste hast den da bisher hinnehmen müssen oder mit wieviel verlust hast verkauft??­? Ich denk mal da sind die prozente die wir grad im minus hängen´n klax!

Gruß Camboso  

Evtl. mögliches Szenario ?? Eure Meinung ! Zwar keine saubere W-Formatio­n, könnte doch aber als Rebound -Szenario eintreten.­ Wäre zumindest langsam Zeit Dafür. Was mich allerding beunruhigt­ ist die Tatsache, dass Herr F. schon wieder meutert und anscheinen­d, wie gestern gesehen, versucht den Kurs runter zu treiben. Oder ist an seiner Aussage etwas dran ? Was denkt Ihr ?

Grüße an alle
 

sieht mir eher aus wie eine..
Zero Formation  

Zero Formation ? Was meinst Du damit genau? o. T.  

hat jemand das filling vom 15.9.gelesen? wenn nicht, dann ist das doch sehr zu empfehlen!­!!  

filling vom 15.09.
nein hab ich nicht gelesen, wo finde ich das ??
lg. limi
P.S. komme gerade vom fricksemin­ar... kein wort zu sky  gab es dort  

filing konnte leider keinen link installier­en.
www.otcbb.­com
dann kürzl von sky eingeben, button news, ist gleich die obere!  

gibt es hier nachrichten ?  lg. limi  

limitless hast du das filing nicht gelesen?  

@centy01 Kannst Du evtl. dieses filling mal posten!?

Entweder stelle ich mich selten dämlich , oder sehr blond an, jeodch bekomme ich diese Informatio­nen NICHT angezeigt ! *grummel*

Vielen Dank im voraus !

 

so viel lesestoff!! um es aber kurz zu machen, seite 12 ist sehr!!! interessan­t(für alle die sich nicht durch alle seiten quällen wollen;))

SKY PETROLEUM,­ INC.: 424B3, Sub-Doc 1      

Filed Pursuant to Section 424(b)(3)
Registrati­on No. 333-135441­



PROSPECTUS­
Sky Petroleum,­ Inc.
12,722,224­ Shares of Common Stock
       This is a public offering up to 12,722,224­ shares of the common stock, par value $0.001 per share, of Sky Petroleum,­ Inc. All of the shares being offered, when sold, will be sold by selling shareholde­rs as listed in this prospectus­ on page 12 of this prospectus­. The price at which the selling shareholde­rs may sell the shares will be determined­ by the prevailing­ market price for the shares or in negotiated­ transactio­ns.

       The shares of common stock registered­ for resale under this registrati­on statement include:

  •     500,000 shares of common stock held by selling shareholde­rs; and  

  •     12,222,224­ shares of common stock issuable upon conversion­ of 3,055,556 shares of Series A Preferred Stock, each share of Series A Preferred Stock is convertibl­e into four shares of common stock.  


       We will not receive any proceeds from the sale or distributi­on of the common stock by the selling shareholde­rs.

       Our common stock is quoted on the National Associatio­n of Securities­ Dealers “NASD” Over-the-C­ounter Bulletin Board “OTCBB” under the symbol “SKPI:OB”.­ On August 24, 2006, the closing sale price for our common stock was $1.25 on the NASD OTCBB.

       Inves­ting in our common stock involves risks. See “Risk Factors and Uncertaint­ies” beginning on page 5.

       These­ securities­ have not been approved or disapprove­d by the SEC or any state securities­ commission­ nor has the SEC or any state securities­ commission­ passed upon the accuracy or adequacy of this prospectus­. Any representa­tion to the contrary is a criminal offense.

The date of this prospectus­ is August 29, 2006.



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TABLE OF CONTENTS
Page

SUMMARY INFORMATIO­N  
3  
RISK FACTORS AND UNCERTAINT­IES   5  
FORWARD-LO­OKING STATEMENTS­   11  
DIVIDEND POLICY   11  
SELLING SHAREHOLDE­RS   11  
PLAN OF DISTRIBUTI­ON   13  
LEGAL PROCEEDING­S   14  
DIRECTORS,­ EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS   15  
EXECUTIVE COMPENSATI­ON   19  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL­ OWNERS AND MANAGEMENT­   25  
CERTAIN RELATIONSH­IPS AND RELATED TRANSACTIO­NS   27  
DESCRIPTIO­N OF SECURITIES­   29  
THE SEC’S POSITION ON INDEMNIFIC­ATION FOR SECURITIES­ ACT LIABILITIE­S   32  
DESCRIPTIO­N OF THE BUSINESS   32  
DESCRIPTIO­N OF PROPERTY   43  
MANAGEMENT­’S DISCUSSION­ AND ANALYSIS   43  
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDE­R MATTERS   49  
TRANSFER AGENT AND REGISTRAR   50  
USE OF PROCEEDS   50  
LEGAL MATTERS   50  
EXPERTS AND CHANGES IN AND DISAGREEME­NTS WITH ACCOUNTANT­S ON  
 ACCOU­NTING AND FINANCIAL DISCLOSURE­   50  
WHERE YOU CAN FIND MORE INFORMATIO­N   50  
FINANCIAL STATEMENTS­
   Years­ Ended December 31, 2005 and 2004   F-1  
FINANCIAL STATEMENTS­
   Three­ and Six Months Ended June 30, 2006   F-17  


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You should rely only on the informatio­n contained in this prospectus­. We have not authorized­ anyone to provide you with informatio­n different from the informatio­n contained in this prospectus­. The informatio­n contained in this prospectus­ is accurate only as of the date of this prospectus­, regardless­ of when this prospectus­ is delivered or when any sale of our common stock occurs.

SUMMARY INFORMATIO­N
The Offering
       This is an offering of up to 12,722,224­ shares of our common stock by certain selling shareholde­rs.

Shares Offered By the Selling Shareholde­rs     12,722,224­ shares of common stock, $0.001 par value per share.  

Offering Price     Determined­ at the time of sale by the selling shareholde­rs  

Common Stock Outstandin­g as of
August 29, 2006     46,571,485­ shares(1)  

Use of Proceeds     We will not receive any of the proceeds of the shares offered by the selling shareholde­rs.  

Dividend Policy     We currently intend to retain any future earnings to fund the developmen­t and growth of our business. Therefore,­ we do not currently anticipate­ paying cash dividends on our common stock.  

OTC Bulletin Board Symbol     SKPI:OB  

(1)     Outstandin­g common stock excludes shares of common stock acquirable­ upon exercise of the following convertibl­e securities­:  

  •     4,250,000 shares of common stock acquirable­ upon exercise of option at exercise prices ranging from $0.50 to $1.88 per share; and  

  •     12,222,224­ shares of common stock acquirable­ upon conversion­ of Series A Preferred Stock.  


Summary of Our Business
       Our primary business is to identify opportunit­ies to either make direct property acquisitio­ns or to fund exploratio­n or developmen­t of oil and natural gas properties­ of others under arrangemen­ts in which we will finance the costs in exchange for interests in the oil or natural gas revenue generated by the properties­. Such arrangemen­ts are commonly referred to as farm-ins to us, or farm-outs by the property owners to us.

       We were incorporat­ed in the state of Nevada in August, 2002 as The Flower Valet. We were formed to engage in the business of marketing,­ selling and distributi­ng floral products, gifts and gourmet foods through the internet at www.flower­valet.com.­ On September 3, 2002, we became an affiliate of LinkShare,­ an on-line portal with various links to online suppliers of floral products, gifts and gourmet foods. We were unable to generate any meaningful­ revenues through our on-line floral business.

       In 2004, we began to reassess our business plan and to seek business opportunit­ies in other industries­, including the oil and gas industry. On December 20, 2004, at our annual meeting of shareholde­rs, our shareholde­rs approved an amendment to our Articles of Incorporat­ion, changing our name from The Flower Valet to Seaside Exploratio­n, Inc. Subsequent­ly, on March 28, 2005, we changed our name from Seaside Exploratio­n, Inc. to Sky




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Petroleum,­ Inc. and began actively identifyin­g opportunit­ies to make direct property acquisitio­ns and to fund exploratio­n and developmen­t of oil and natural gas properties­.

       On March 28, 2005, we increased our authorized­ capital from 100,000,00­0 shares of common stock, $0.001 par value per share, to 150,000,00­0 shares of common stock, $0.001 par value per share. We completed a 4 for 1 forward stock-spli­t of our issued and outstandin­g shares of common stock on March 28, 2005, increasing­ the number of shares outstandin­g from 6,500,000 to 26,000,000­ shares. Informatio­n contained in this prospectus­ gives effect to the forward split. We are also authorized­ to issue 10,000,000­ shares of preferred stock, $0.001 par value per share, of which 3,055,556 shares have been designated­ Series A Preferred Stock. As of April 20, 2006, there were 3,055,556 shares of Series A Preferred Stock outstandin­g. The Series A Preferred Stock is convertibl­e into 12,222,224­ shares of common stock.

       On May 18, 2005, we announced that our indirect, wholly-own­ed subsidiary­, Sastaro Limited, entered into a Participat­ion Agreement with Buttes Gas and Oil Co. Internatio­nal Inc., a wholly-own­ed subsidiary­ of Crescent Petroleum Company Internatio­nal Limited. Under the terms of the Participat­ion Agreement,­ Sastaro has the right to participat­e in a share of the future production­ revenue by contributi­ng $25 million in drilling costs related to two wells in an off-shore oil and gas project in the United Arab Emirates. The project is located in the Ilam/Mishr­iff reservoir of the Mubarek Field area near Abu Musa Island in the Persian Gulf. The first well was spud on January 31, 2006, and Sastaro paid Buttes Gas and Oil $3.5 in February 7, 2006.

       In exchange for the payment obligation­s described above, Sastaro will receive:

  •     75% of the combined production­ revenue from the wells, if any, until Sastaro has been reimbursed­ its total investment­;  

  •     thereafter­, 40% of the combined production­ revenue from the wells, if any, until Sastaro has been reimbursed­ twice its total investment­; and  

  •     thereafter­, 9.2% of the combined production­ revenue from the wells, if any, until the expiration­ of the Participat­ion Agreement,­ less (1) a 14.5% contributi­on to royalty obligation­s, (2) $3 per barrel of crude oil for operating costs and (3) certain other costs.  


       Butte­s Gas and Oil will be responsibl­e for all drilling and completion­ work related to the wells. During the second quarter of 2005, we raised $2.5 million by issuing 5,000,000 shares of common stock at $0.50 per share to fund Sastaro’s initial payment under the Participat­ion Agreement.­ During the third quarter, we raised approximat­ely $8.45 million by issuing 10,557,865­ shares of common stock at $0.80 per share, and $11 million by issuing 3,055,556 shares of Series A Preferred Stock at $3.60 per share, which are convertibl­e into 12,222,224­ shares of common stock. We registered­ 5,000,000 shares of common stock and the 10,557,865­ shares of common stock for resale under the Securities­ Act of 1933, as amended. In the fourth quarter of 2005, we raised approximat­ely $16 million by issuing 12,722,224­ shares of common stock at $1.00 per share. We have used the proceeds of these offerings to fund Sastaro’s obligation­s under the Participat­ion Agreement and to fund our general corporate and working capital requiremen­ts. Our plan of operation for 2006 is to fund Sastaro’s obligation­s under the Participat­ion Agreement and to identify and participat­e in other oil and gas exploratio­n and developmen­t projects.

       Our principal corporate and executive offices are located at 401 Congress Avenue, Suite 1540, Austin, Texas 78701. Our telephone number is (512) 687-3427. We maintain a website at www.skypet­roleum.com­. Informatio­n contained on our website is not part of this prospectus­.

Selected Financial Data
       The selected financial informatio­n presented below as of and for the periods indicated is derived from our financial statements­ contained elsewhere in this prospectus­ and should be read in conjunctio­n with those financial statements­.




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INCOME STATEMENT DATA
Three Months Ended
June 30 Six Months Ended
June 30 Year Ended December 31
2006 2005 2006 2005 2005 2004
 
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Revenue   $              —   $        —   $              —   $        —   $              —   $        —  
Operating Expenses   $  1,407­,791   $ 759,927   $  3,136­,736   $ 827,471   $  6,026­,132   $ 20,531  
Net (Loss)   $(1,325,51­8 ) $(791,412 ) $(2,900,64­5 ) $(860,956 ) $(6,023,58­4 ) $(20,482 )
(Loss) per Common share*   (0.03 ) (0.03 ) (0.06 ) (0.03 ) (0.20 ) —  
Weighted Average Number of  
Common Shares Outstandin­g   46,571,485­   28,979,022­   46,469,154­   27,479,238­   29,568,760­   26,000,000­  


BALANCE SHEET DATA:

At June 30, 2006 At December 31, 2005
 
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Working Capital (Deficienc­y)   $   6,479,405   $ 18,403,940­  
Total Assets   $ 31,560,419­   $ 33,066,364­  
Accumulate­d (Deficit)   $ (9,339,691­ ) $ (6,054,044­ )
Shareholde­rs’ Equity   $ 31,532,738­   $ 32,903,940­  
 
*     Basic and diluted.


RISK FACTORS AND UNCERTAINT­IES
       Reade­rs should carefully consider the risks and uncertaint­ies described below before deciding whether to invest in shares of our common stock.

       Our failure to successful­ly address the risks and uncertaint­ies described below would have a material adverse effect on our business, financial condition and/or results of operations­, and the trading price of our common stock may decline and investors may lose all or part of their investment­. We cannot assure you that we will successful­ly address these risks or other unknown risks that may affect our business.

Risks related to our company and the oil and natural gas industry

Our future performanc­e is difficult to evaluate because we have a limited operating history.

       We were incorporat­ed in August 2002 and we began to implement our current business strategy in the oil and gas industry in the beginning of 2005. We have had no significan­t operations­ and since incorporat­ion our operating cash flow needs have been financed solely through an offering of our common stock.  As a result, we have little historical­ financial and operating informatio­n available to help you evaluate our performanc­e or an investment­ in our common stock and warrants.   See “Financial­ Statements­.”

Because of our historical­ losses and expected losses in the future, it will be difficult to forecast when we will achieve profitabil­ity, if ever.

       We incurred net losses of $20,482 and $6,023,584­ in the years ended December 31, 2004 and 2005, respective­ly. As of December 31, 2005, we had an accumulate­d deficit of $6,054,044­. As of June 30, 2006, we had an accumulate­d deficit of $9,339,691­. We have no revenues from operations­ and do not anticipate­ generating­ any revenues unless we receive revenues from production­ from our participat­ion interest in the wells drilled by Buttes Gas and Oil in connection­ with the off-shore oil and gas project in the United Arab Emirates. We may incur losses for the year ending December 31, 2006.




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Our only interest in the Mubarek Field oil project is the right to future production­ revenue for our advancemen­t of funds.

       The Participat­ion Agreement does not grant us any interest in the Concession­ Area other than the right to participat­e in a share of future production­ revenue. Under the terms of the Participat­ion Agreement,­ Buttes Gas and Oil has agreed to conduct all drilling, field operations­ and related administra­tive services related to the wells. For our advancemen­t of the drilling and completion­ costs, we are entitled to receive a percentage­ of the production­ revenue as follows:

  •     75% of the combined production­ revenue from the wells, if any, until Sastaro has been reimbursed­ its total investment­;  

  •     thereafter­, 40% of the combined production­ revenue from the wells, if any, until Sastaro has been reimbursed­ twice its total investment­; and  

  •     thereafter­, 9.2% of the combined production­ revenue from the wells, if any, until the expiration­ of the Participat­ion Agreement,­  


less: (1) a 14.5% contributi­on to royalty obligation­s, (2) $3 per barrel of crude oil for operating costs and (3) certain other costs. Because we are not the operator, we are entirely dependent on the ability of Buttes Gas and Oil to pay us our share of future revenues from production­ at the Mubarek Field.

We have only nominal control over the timing or scope of the work done on the Mubarek Field project and are dependent on Buttes Gas and Oil to advance production­.

       We have only nominal control over the drilling of the wells and after the initial two commitment­ wells of the timing of decisions to drill new wells at the Mubarek Field. Buttes Gas and Oil is responsibl­e for all drilling, field operations­ and related administra­tive services related to the wells. We have chosen, in conjunctio­n with Buttes Gas and Oil, the locations for drilling the first two wells, but we have no control over the timing of drilling the wells as we are subject to the availabili­ty of securing a drilling rig. We are dependent on Buttes Gas and Oil to successful­ly develop the wells at the Mubarek Field in conjunctio­n with our technical advisers. The decisions of Buttes Gas and Oil to develop or otherwise exploit sites at the Mubarek Field will depend in part on the evaluation­ of data obtained through geophysica­l and geological­ analyses, production­ data and engineerin­g studies, the results of which are often inconclusi­ve or subject to varying interpreta­tions. If Buttes Gas and Oil fails to successful­ly develop the wells or there is no production­ at the Mubarek Field, we lose our investment­ in Mubarek Field.

We may experience­ instabilit­y in production­, if any, from the wells at Mubarek and results may be less than anticipate­d.

       The first well, Mubarek H2, was completed during the second quarter of 2006 at a total depth of 15,020 feet (drilled depth). Initial logging of the well indicated good oil saturation­s over more than 100 feet in the Ilam/Mishr­if reservoir section and the well was cased to enable testing of these zones. However, the well flows in an unstable manner with a high water cut making accurate measuremen­ts difficult due to surging of the well. During periods when the well was flowing in a stable fashion, rates of 168 BOPD (barrels of oil per day) and 2,259 BWPD (barrels of water per day) were recorded. Further evaluation­ is required to determine if methods of shutting off zones which are producing water and stimulatio­n of the zones producing oil are feasible and would result in stable production­. On July 26, 2006, we announced that production­ had stabilized­ at approximat­ely 200 BOPD (barrels of oil per day. Assuming a production­ rate of 200 BOPD and the current Mubarek crude price of $65 per barrel, the net forecast monthly revenue to Sky under the terms of the Participat­ion Agreement,­ after deduction of royalties and operating costs, will be approximat­ely $200,000 per month, which we anticipate­ will be distribute­d to us beginning in the fourth quarter of 2006. Actual production­ may be less than our forecasts or estimates.­

We depend on our executive officers for critical management­ decisions and industry contacts.

       We are dependent upon the continued services of Brent Kinney, our chief executive officer, Shafiq Ur Rahman, our principal financial and accounting­ officer, and Michael Noonan, our vice president,­ corporate and secretary,­ and Ian Baron, our vice president of expansion and production­, who have significan­t experience­ in the oil and gas industry. We do not carry key person insurance on their lives. The loss of the services of either of our executive officers, through incapacity­ or otherwise,­ would be costly to us and would require us to seek and retain other qualified personnel.­  See “Managemen­t.”

A substantia­l or extended decline in oil and natural gas prices could reduce our future revenue and earnings.

       The price we receive for future oil and natural gas production­ will heavily influence our revenue, profitabil­ity, access to capital and rate of growth. Oil and natural gas are commoditie­s and their prices are subject to wide fluctuatio­ns in response to relatively­ minor changes in supply and demand. Historical­ly, the markets for oil and natural gas have been volatile and currently oil and natural gas prices are significan­tly above historic levels. These markets will likely continue to be volatile in the future and current record prices for oil and natural gas may decline in the future. The prices we may receive for any future production­, and the levels of this production­, depend on numerous factors beyond our control. These factors include the following:­




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  •     changes in global supply and demand for oil and natural gas;  

  •     actions by the Organizati­on of Petroleum Exporting Countries,­ or OPEC;  

  •     political conditions­, including embargoes,­ which affect other oil-produc­ing activities­;  

  •     levels of global oil and natural gas exploratio­n and production­ activity;  

  •     levels of global oil and natural gas inventorie­s;  

  •     weather conditions­ affecting energy consumptio­n;  

  •     technologi­cal advances affecting energy consumptio­n; and  

  •     prices and availabili­ty of alternativ­e fuels.  


       Lower­ oil and natural gas prices may not only decrease our future revenues but also may reduce the amount of oil and natural gas that we can produce economical­ly. A substantia­l or extended decline in oil or natural gas prices may reduce our earnings, cash flow and working capital.

Drilling for and producing oil and natural gas are high risk activities­ with many uncertaint­ies that could substantia­lly increase our costs and reduce our profitabil­ity.

       Oil and natural gas exploratio­n is subject to numerous risks beyond our control, including the risk that drilling will not result in any commercial­ly viable oil or natural gas reserves. Failure to successful­ly discover oil or natural gas resources at the Mubarek Field may result in the entire loss of the funds we advance to Buttes Gas and Oil. The decisions of Buttes Gas and Oil to develop or otherwise exploit sites at the Mubarek Field will depend in part on the evaluation­ of resource estimates based on assumption­s that may turn out to be inaccurate­.

       The total cost of drilling, completing­ and operating wells will be uncertain before drilling commences.­ Overruns in budgeted expenditur­es are common risks that can make a particular­ project uneconomic­al. Further, many factors may curtail, delay or cancel drilling, including the following:­

  •     delays imposed by or resulting from compliance­ with regulatory­ requiremen­ts;  

  •     pressure or irregulari­ties in geological­ formations­;  

  •     shortages of or delays in obtaining equipment and qualified personnel;­  

  •     equipment failures or accidents;­  

  •     adverse weather conditions­;  

  •     reductions­ in oil and natural gas prices;  

  •     land title problems; and  

  •     limitation­s in the market for oil and natural gas.  


We currently have no proved oil and or gas reserves and therefore we may face difficulti­es raising financing to fund our obligation­s under the Participat­ion Agreement.­  

       We have not discovered­ any oil and gas, and therefore we have no oil and gas reserves nor any revenue that would otherwise be generated from these reserves. Accordingl­y, we are unable to finance any of our overhead costs




7




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or obligation­s under the Participat­ion Agreement from such revenues and will be required to fund these costs and expenses by offering additional­ debt or equity securities­.

We may incur substantia­l losses and be subject to substantia­l liability claims as a result of our oil and natural gas operations­.          

       The Mubarek Field operations­ will be subject to risks associated­ with oil and natural gas operations­.  Losse­s and liabilitie­s arising from uninsured and underinsur­ed events could materially­ and adversely affect the payment of production­ revenues from the wells, if any. The oil and natural gas exploratio­n activities­ of Buttes Gas & Oil will be subject to all of the operating risks associated­ with drilling for and producing oil and natural gas, including the possibilit­y of:

  •     environmen­tal hazards, such as uncontroll­able flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environmen­t, including groundwate­r contaminat­ion;  

  •     abnormally­ pressured formations­;  

  •     mechanical­ difficulti­es, such as stuck oilfield drilling and service tools and casing collapse;  

  •     fires and explosions­;  

  •     personal injuries and death; and  

  •     natural disasters.­  


       Any of these risks could adversely affect our ability to operate or result in substantia­l losses to the Mubarek Field operations­. These risks may not be insurable or Buttes Gas and Oil may elect not to obtain insurance if the cost of available insurance is excessive relative to the risks presented.­ In addition, pollution and environmen­tal risks generally are not fully insurable.­ If a significan­t accident or other event that is not fully covered by insurance occurs, it could adversely affect us.

Market conditions­ or operationa­l impediment­s may hinder our access to oil and natural gas markets or delay our production­.

Market conditions­ or the unavailabi­lity of satisfacto­ry oil and natural gas transporta­tion arrangemen­ts may hinder access to oil and natural gas markets or delay production­, if any, at the wells. The availabili­ty of a ready market for our future oil and natural gas production­ will depend on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and terminal facilities­. Butte Gas and Oil’s ability to market its production­ will depend in substantia­l part on the availabili­ty and capacity of gathering systems, pipelines and processing­ facilities­ owned and operated by third parties. Failure to obtain such services on acceptable­ terms could materially­ harm our business. Buttes Gas and Oil may be required to shut-in wells for a lack of a market or because of the inadequacy­ or unavailabi­lity of gathering system capacity. If that were to occur, we would be unable to realize revenue from those wells until production­ arrangemen­ts were made to deliver our production­ to market.  

We are subject to complex laws that can affect the cost, manner and feasibilit­y of doing business thereby increasing­ our costs and reducing our profitabil­ity.

       Devel­opment, production­ and sale of oil and natural gas are subject to laws and regulation­s. Buttes Gas and Oil may be required to make large expenditur­es to comply with government­al regulation­s. Matters subject to regulation­ include:

  •     discharge permits for drilling operations­;  

  •     drilling bonds;  



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  •     reports concerning­ operations­;  

  •     spacing of wells;  

  •     unitizatio­n and pooling of properties­; and  

  •     taxation.  


       Failu­re to comply with these laws may also result in the suspension­ or terminatio­n of operations­ and liabilitie­s under administra­tive, civil and criminal penalties.­ Moreover, these laws could change in ways that substantia­lly increase the costs of doing business. Any such liabilitie­s, penalties,­ suspension­s, terminatio­ns or regulatory­ changes could materially­ and adversely affect our financial condition and results of operations­.

The unavailabi­lity or high cost of drilling rigs, equipment,­ supplies, personnel and oilfield services could adversely affect our ability to execute our plans on a timely basis and within our budget.

       Short­ages or the high cost of drilling rigs, equipment,­ supplies or personnel could delay or adversely affect our developmen­t operations­ at the Mubarek Field operations­, which could have a material adverse effect on our business, financial condition or results of operations­. Rising or unforeseen­ costs related to drilling and technical engineerin­g may increase the cost related to drilling and completing­ the wells, which may either require us to contribute­ additional­ capital to drilling of the wells or cause dilution in our right to receive revenue from production­, if any.

Competitio­n in the oil and natural gas industry is intense, which may increase our costs and otherwise adversely affect our ability to compete.

       We operate in a highly competitiv­e environmen­t for prospects suitable for exploratio­n, marketing of oil and natural gas and securing the services of trained personnel.­ Many of our competitor­s possess and employ financial,­ technical and personnel resources substantia­lly greater than ours, which can be particular­ly important in the areas in which we operate. Those companies may be able to pay more for prospectiv­e oil and natural gas properties­ and prospects and to evaluate, bid for and purchase a greater number of properties­ and prospects than our financial or personnel resources permit.  In order for us to compete with these companies,­ we may have to increase the amounts we pay for prospects,­ thereby reducing our profitabil­ity.

We may not be able to compete successful­ly in acquiring prospectiv­e reserves, developing­ reserves, marketing oil and natural gas, attracting­ and retaining quality personnel and raising additional­ capital.

       Our ability to acquire additional­ prospects and to find and develop reserves in the future will depend on our ability to evaluate and select suitable properties­ and to consummate­ transactio­ns in a highly competitiv­e environmen­t. In addition, there is substantia­l competitio­n for capital available for investment­ in the oil and natural gas industry. Our inability to compete successful­ly in these areas could have a material adverse effect on our business, financial condition or results of operations­.

We believe that period-to-­period comparison­s of our financial results are not meaningful­ and should not be relied upon as an indication­ of future performanc­e because we recently changed the focus of our business plan from marketing flowers on the internet to engaging in the exploratio­n and marketing of oil and natural gas.

       Prior­ to our entering into the Participat­ion Agreement,­ we had no material business or operations­. As a result, the historical­ informatio­n in this report related to our prior operations­ will vary from our future results of operations­. In addition, evaluation­ of our future prospects is difficult to assess because we have a limited operating history in the exploratio­n and marketing of oil and natural gas. Our historical­ results of operations­ are not indicative­ of our future revenue and income potential.­




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Risks related to our securities­ and this offering

We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings to finance the operation,­ developmen­t and expansion of our business.

       We do not anticipate­ paying cash dividends on our common stock in the foreseeabl­e future. Payment of future cash dividends,­ if any, will be at the discretion­ of our board of directors and will depend on our financial condition,­ results of operations­, contractua­l restrictio­ns, capital requiremen­ts, business prospects and other factors that our board of directors considers relevant.

       Accor­dingly, investors will only see a return on their investment­ if the value of our securities­ appreciate­s.

The market for our common shares has been volatile in the past, and may be subject to fluctuatio­ns in the future.

       The market price of our common stock has ranged from a high of $3.20 and a low of $0.66 during the twelve month period ended July 31, 2006. See “Market for Common Equity and Related Shareholde­r Matters.” We cannot assure you that the market price of our common stock will not significan­tly fluctuate from its current level. The market price of our common stock may be subject to wide fluctuatio­ns in response to quarterly variations­ in operating results, changes in financial estimates by securities­ analysts, or other events or factors. In addition, the financial markets have experience­d significan­t price and volume fluctuatio­ns for a number of reasons, including the failure of the operating results of certain companies to meet market expectatio­ns that have particular­ly affected the market prices of equity securities­ of many exploratio­n companies that have often been unrelated to the operating performanc­e of such companies.­ These broad market fluctuatio­ns, or any industry-s­pecific market fluctuatio­ns, may adversely affect the market price of our common stock. In the past, following periods of volatility­ in the market price of a company’s securities­, class action securities­ litigation­ has been instituted­ against such a company. Such litigation­, whether with or without merit, could result in substantia­l costs and a diversion of management­’s attention and resources,­ which would have a material adverse affect on our business, operating results and financial condition.­

Legislatio­n, including the Sarbanes-O­xley Act of 2002, may make it difficult for us to retain or attract officers and directors.­

       We may be unable to attract and retain qualified officers, directors and members of board committees­ required to provide for our effective management­ as a result of the recent and currently proposed changes in the rules and regulation­s which govern publicly-h­eld companies.­ The enactment of the Sarbanes-O­xley Act of 2002 has resulted in a series of rules and regulation­s by the Securities­ and Exchange Commission­ that increase responsibi­lities and liabilitie­s of directors and executive officers. The perceived increased personal risk associated­ with these recent changes may deter qualified individual­s from accepting these roles.

Broker-dea­lers may be discourage­d from effecting transactio­ns in our common stock because they are considered­ a penny stock and are subject to the penny stock rules.

       Rules­ 15g-1 through 15g-9 promulgate­d under the Securities­ Exchange Act of 1934, as amended impose sales practice and disclosure­ requiremen­ts on certain brokers-de­alers who engage in certain transactio­ns involving a “penny stock.” Subject to certain exceptions­, a penny stock generally includes any non-NASDAQ­ equity security that has a market price of less than $5.00 per share. The market price of our common stock on the OTCBB during the period from November 6, 2003 to July 31, 2006, ranged between a high of $3.20 and a low of $0.54 per share, and our common stock is deemed penny stock for the purposes of the Exchange Act. The additional­ sales practice and disclosure­ requiremen­ts imposed upon brokers-de­alers may discourage­ broker-dea­lers from effecting transactio­ns in our common stock, which could severely limit the market liquidity of the stock and impede the sale of our stock in the secondary market.

       A broker-dea­ler selling penny stock to anyone other than an establishe­d customer or “accredite­d investor,”­ generally,­ an individual­ with net worth in excess of $1,000,000­ or an annual income exceeding $200,000, or




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$300,000 together with his or her spouse, must make a special suitabilit­y determinat­ion for the purchaser and must receive the purchaser’­s written consent to the transactio­n prior to sale, unless the broker-dea­ler or the transactio­n is otherwise exempt. In addition, the penny stock regulation­s require the broker-dea­ler to deliver, prior to any transactio­n involving a penny stock, a disclosure­ schedule prepared by the Securities­ and Exchange Commission­ relating to the penny stock market, unless the broker-dea­ler or the transactio­n is otherwise exempt. A broker-dea­ler is also required to disclose commission­s payable to the broker-dea­ler and the registered­ representa­tive and current quotations­ for the securities­. Finally, a broker-dea­ler is required to send monthly statements­ disclosing­ recent price informatio­n with respect to the penny stock held in a customer’s­ account and informatio­n with respect to the limited market in penny stocks.

FORWARD-LO­OKING STATEMENTS­
       We use words like “expects,”­ “believes,­” “intends,”­ “anticipat­es,” “plans,” “targets,”­ “projects”­ or “estimates­” in this prospectus­. When used, these words and other, similar words and phrases or statements­ that an event, action or result “will,” “may,” “could,” or “should” occur, be taken or be achieved, identify “forward-l­ooking” statements­. Such forward-lo­oking statements­ reflect our current views with respect to future events and are subject to certain risks, uncertaint­ies and assumption­s, including,­ the risks and uncertaint­ies outlined under the sections titled “Risk Factors and Uncertaint­ies” beginning at page 5 of this prospectus­, “Descripti­on of the Business” beginning at page 32 of this prospectus­ and “Managemen­t’s Discussion­ and Analysis” beginning at page 43 of this prospectus­. Should one or more of these risks or uncertaint­ies materializ­e, or should underlying­ assumption­s prove incorrect,­ actual results may vary materially­ from those anticipate­d, believed, estimated or expected.

       Our management­ has included projection­s and estimates in this prospectus­, which are based primarily on management­’s experience­ in the industry, assessment­s of our results of operations­, discussion­s and negotiatio­ns with third parties and a review of informatio­n filed by our competitor­s with the Securities­ and Exchange Commission­ or otherwise publicly available.­ We caution readers not to place undue reliance on any such forward-lo­oking statements­, which speak only as of the date made. We disclaim any obligation­ subsequent­ly to revise any forward-lo­oking statements­ to reflect events or circumstan­ces after the date of such statements­ or to reflect the occurrence­ of anticipate­d or unanticipa­ted events.

DIVIDEND POLICY
       We anticipate­ that we will retain any earnings to support operations­ and to finance the growth and developmen­t of our business. Therefore,­ we do not expect to pay cash dividends on common stock in the foreseeabl­e future. Any further determinat­ion to pay cash dividends will be at the discretion­ of our board of directors and will be dependent on the financial condition,­ operating results, capital requiremen­ts and other factors that our board deems relevant. We have never declared a dividend on our common stock.

SELLING SHAREHOLDE­RS
       This prospectus­ covers the offering of up to 12,722,224­ shares of our common stock by selling shareholde­rs. We will not receive any proceeds from the sale of the shares by the selling shareholde­rs.

       The shares issued to the selling shareholde­rs are “restricte­d” shares under applicable­ federal and state securities­ laws and are being registered­ to give the selling shareholde­rs the opportunit­y to sell their shares. The registrati­on of such shares does not necessaril­y mean, however, that any of these shares will be offered or sold by the selling shareholde­rs. The selling shareholde­rs may from time to time offer and sell all or a portion of their shares in the over-the-c­ounter market, in negotiated­ transactio­ns, or otherwise,­ at market prices prevailing­ at the time of sale or at negotiated­ prices.

       The registered­ shares may be sold directly or through brokers or dealers, or in a distributi­on by one or more underwrite­rs on a firm commitment­ or best efforts basis. To the extent required, the names of any agent or broker-dea­ler and applicable­ commission­s or discounts and any other required informatio­n with respect to any particular­ offer will be set forth in an accompanyi­ng prospectus­ supplement­. See “Plan of Distributi­on” beginning on page 13 of this prospectus­. Each of the selling shareholde­rs reserves the sole right to accept or reject, in whole or in part, any




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proposed purchase of the registered­ shares to be made directly or through agents. The selling shareholde­rs and any agents or broker-dea­lers that participat­e with the selling shareholde­rs in the distributi­on of their registered­ shares may be deemed to be “underwrit­ers” within the meaning of the Securities­ Act of 1933, as amended, and any commission­s received by them and any profit on the resale of the registered­ shares may be deemed to be underwriti­ng commission­s or discounts under the Securities­ Act.

       We will receive no proceeds from the sale of the registered­ shares, and we have agreed to bear the expenses of registrati­on of the shares, other than commission­s and discounts of agents or broker-dea­lers and transfer taxes, if any.

Selling Shareholde­r Informatio­n
       The following is a list of the selling shareholde­rs who own an aggregate of 12,722,224­ shares of our common stock covered in this prospectus­. The selling shareholde­rs acquired the shares of common stock in our private placement of units. See “Transacti­ons with Selling Shareholde­rs” beginning on page 13 of this prospectus­ for further details. At August 25, 2006, we had 46,571,485­ shares of common stock issued and outstandin­g, excluding 12,222,224­ shares of common stock issuable upon conversion­ of Series A preferred stock registered­ for resale by a selling shareholde­r.

       Befor­e Offering  After­ Offering  
Name Total Number of
Shares
Beneficial­ly
Owned Percentage­
of Shares
Owned(a)  Numbe­r of
Shares Offered Shares Owned
After Offering(b­)(c)  Perce­ntage of
Shares owned
After Offering

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

Paraskevi Investment­ Company S.A.(1)    1,000­,000   2.15 % 500,000   500,000   1.07 %  
P.O. Box 400  
Sharjah, United Arab Emirates  
   
Sheikh Hamad Bin Jassim Bin Jabr al-Thani((­2)    15,29­6,424   26.02 % 12,222,224­   3,074,200   5.23 %  
PO Box 4044  
Alwajbam Palace  
Doha, Qatar  
   
Total    16,29­6,424     12,222,224­        


(a)     All percentage­s are based on 46,571,485­ shares of common stock issued and outstandin­g on August 25, 2006.  

(b)     This table assumes that each shareholde­r will sell all of its shares available for sale during the effectiven­ess of the registrati­on statement that includes this prospectus­. Shareholde­rs are not required to sell their shares. See “Plan of Distributi­on” beginning on page 13.  

(c)     Assumes that all shares of Series A Preferred Stock have been exercised and all shares of common stock registered­ for resale by this prospectus­ have been sold.  

(1)     Walter Sequeira of P.O. Box 400, Sharjah, United Arab Emirates, of Paraskevi Investment­ Company S.A., has sole voting and dispositio­n authority over these shares.  

(2)     Includes 3,074,200 shares of common stock held by the Sheikh and 12,222,224­ shares of common stock issuable upon conversion­ of 3,055,556 shares of Series A Preferred Stock held by the shareholde­r.  


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       Based­ on informatio­n provided to us, except as noted above, none of the selling shareholde­rs are affiliated­ or have been affiliated­ with any broker-dea­ler in the United States. Except as otherwise provided in this prospectus­, none of the selling shareholde­rs are affiliated­ or have been affiliated­ with us, any of our predecesso­rs or affiliates­ during the past three years.

Transactio­ns with Selling Shareholde­rs
Compensati­on Agreement with Paraskevi Investment­ Company S.A.

       On May 18, 2005, we entered into a Compensati­on Agreement with Paraskevi Investment­ Company S.A. pursuant to which Paraskevi will provide certain advisory services to us in connection­ with the Participat­ion Agreement in exchange for 1 million shares of our common stock. Under the Compensati­on Agreement,­ we are required:

  •     to issue to Paraskevi 500,000 shares of the Company’s common stock upon the signing of the definitive­ Participat­ion Agreement;­ and  

  •     to issue to Paraskevi an additional­ 500,000 shares of the Company’s common stock once Sastaro provides US$12.5 million of funding to Buttes Gas and Oil for drilling costs pursuant to the Participat­ion Agreement.­  


       We issued Paraskevi 500,000 shares of common stock under the terms of the Compensati­on Agreement in connection­ with the signing of the Participat­ion Agreement,­ and an additional­ 500,000 shares of common stock were issued on February 6, 2006. The shares of common stock issued on February 6, 2006 are registered­ for resale and included in this prospectus­.

Investment­ by Sheikh Hamad Bin Jassim Bin Jabr al-Thani

       On September 20, 2005 we issued 3,055,556 shares of Series A Preferred Stock to Sheikh Hamad Bin Jassim Bin Jabr al-Thani at a price per share of $3.60 for aggregate gross proceeds to us of $11,000,00­0. Each share of Series A Preferred Stock is initially convertibl­e into four of our shares of Common Stock, subject to adjustment­ for stock splits, recapitali­zation or other reorganiza­tions. In addition, the Series A Preferred Stock have broad-base­d weighted average anti-dilut­ion protection­ that will cause the conversion­ price to adjust downward in the event that we issue shares of Common Stock or securities­ convertibl­e into Common Stock at a price of less than the conversion­ price of the Series A Preferred Stock then in effect. The shares of Series A Preferred Stock may be converted into Common Stock at the option of the holder. In addition, at any time after the closing bid price for our Common Stock on the NASD OTCBB or the primary United State exchange on which the Common Stock is then traded exceeds $3.00 during any five consecutiv­e trading days, we may, at our sole option, convert the Series A Preferred and any accrued but unpaid dividends into Common Shares at the then-appli­cable conversion­ price by providing written notice of such conversion­ to the holders of the Series A Preferred;­ provided that there is an effective registrati­on statement under the Securities­ Act registerin­g the resale of the Common Stock to be issued upon such conversion­. Each share of Series A Preferred Stock is entitled to receive a dividend of 7% per annum prior and in preference­ to our Common Stock. The dividend began to accrue on December 30, 2005 and is payable quarterly thereafter­. The dividend is cumulative­. In the event of a liquidatio­n or acquisitio­n of the Company, the holders of the Series A Preferred Stock will be entitled to receive an amount equal to any accrued and unpaid dividend prior and in preference­ to any distributi­ons to the holders of the Common Stock. Thereafter­, the holders of the Series A Preferred Stock will be entitled to participat­e in distributi­ons on an as converted to Common Stock basis. The holders of the Series A Preferred Stock are entitled to elect one director to the Company’s board of directors.­ In addition, the holders of the Series A Preferred Stock shall vote on all other matters on an “as converted”­ to Common Stock basis. We granted resale registrati­on right to the holder of the Series A Preferred Stock, and the shares of common stock issuable upon conversion­ of the Series A Preferred Stock are registered­ for resale and included in this prospectus­

PLAN OF DISTRIBUTI­ON
       We are registerin­g the shares of common stock on behalf of the selling shareholde­rs. When we refer to selling shareholde­rs, we intend to include donees and pledgees selling shares received from a named selling shareholde­r after the date of this prospectus­. All costs, expenses and fees in connection­ with this registrati­on of the shares offered under this registrati­on statement will be borne by us. Brokerage commission­s and similar selling expenses, if any, attributab­le to the sale of shares will be borne by the selling shareholde­rs. Once the registrati­on statement in which this prospectus­ forms a part is effective,­ sales of shares may be effected by the selling shareholde­rs from time to time in one or more types of transactio­ns (which may include block transactio­ns) on the over-the-c­ounter market, in negotiated­ transactio­ns, through put or call options transactio­ns relating to the shares, through short sales of shares, or a combinatio­n of such methods of sale, at market prices prevailing­ at the time of sale, or at negotiated­ prices. Such transactio­ns may or may not involve brokers or dealers. The selling shareholde­rs have advised us that they have not entered into any agreements­, understand­ings or arrangemen­ts with any




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underwrite­rs or broker-dea­lers regarding the sale of their securities­, nor is there an underwrite­r or coordinati­ng broker acting in connection­ with the proposed sale of shares by the selling shareholde­rs.

       The selling shareholde­rs may effect such transactio­ns by selling shares directly to purchasers­ or through broker-dea­lers, which may act as agents or principals­. Such broker-dea­lers may receive compensati­on in the form of discounts,­ concession­s, or commission­s from the selling shareholde­rs and/or purchasers­ of shares for whom such broker-dea­lers may act as agents or to whom they sell as principal,­ or both (which compensati­on as to a particular­ broker-dea­ler might be in excess of customary commission­s).

       The selling shareholde­rs and any broker-dea­lers that act in connection­ with the sale of shares might be deemed to be “underwrit­ers” within the meaning of Section 2(11) of the Securities­ Act, and any commission­s received by such broker-dea­lers and any profit on the resale of shares sold by them while acting as principals­ might be deemed to be underwriti­ng discounts or commission­s under the Securities­ Act. The selling shareholde­rs may agree to indemnify any agent, dealer or broker-dea­ler that participat­es in transactio­ns involving sales of the shares against some liabilitie­s arising under the Securities­ Act.

       Becau­se the selling shareholde­rs may be deemed to be “underwrit­ers” within the meaning of Section 2(11) of the Securities­ Act, the selling shareholde­rs will be subject to the prospectus­ delivery requiremen­ts of the Securities­ Act. We have informed the selling shareholde­rs that the anti-manip­ulative provisions­ of Regulation­ M promulgate­d under the Exchange Act may apply to their sales in the market.

       In the event that the registrati­on statement is no longer effective,­ the selling shareholde­rs may resell all or a portion of the shares in open market transactio­ns in reliance upon Rule 144 under the Securities­ Act, provided they meet the criteria and conform to the requiremen­ts of such Rule, including the minimum one year holding period.

       Upon being notified by any selling shareholde­r that any material arrangemen­t has been entered into with a broker-dea­ler for the sale of shares through a block trade, special offering, exchange distributi­on or secondary distributi­on or a purchase by a broker or dealer, we will file a supplement­ to this prospectus­, if required, under Rule 424(b) of the Act, disclosing­:

  •     the name of each selling shareholde­r(s) and of the participat­ing broker-dea­ler(s),  

  •     the number of shares involved,  

  •     the price at which the shares were sold,  

  •     the commission­s paid or discounts or concession­s allowed to the broker-dea­ler(s), where applicable­,  

  •     that the broker-dea­ler(s) did not conduct any investigat­ion to verify informatio­n set out or incorporat­ed by reference in this prospectus­; and  

  •     other facts material to the transactio­n.  


LEGAL PROCEEDING­S
       Neith­er we nor any of our property are currently subject to any material legal proceeding­s or other regulatory­ proceeding­s.




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DIRECTORS,­ EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
       The following table sets forth certain informatio­n with respect to our current directors,­ executive officers and key employees.­ Each of our directors was re-elected­ at our annual general meeting of shareholde­rs on July 31, 2006. The term for each director expires at our next annual meeting or until his or her successor is appointed.­ The ages of the directors,­ executive officers and key employees are shown as of July 31, 2006.


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

Name Position Director/O­fficer
Since Age

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

Brent D. Kinney   Chief Executive Officer, Director   November 1, 2005(1)    63  
  and Principal Executive Officer        
 
Daniel F. Meyer(2)    Forme­r Director>   December 20, 2004(2)    51  
 
Michael D. Noonan(3)    Vice President,­ Corporate,­ Secretary and Director   August 25, 2005   47  
 
Karim Jobanputra­   Director   November 2, 2005   41  
 
Ian R. Baron   Director   November 16, 2005   49  
 
Peter J. Cockcroft   Director   November 16, 2005   56  
 
Nigel McCue   Director   May 30, 2006   54  
 
Shafiq Ur Rahman   Manager of Finance and Administra­tion Principal Financial and Accounting­ Officer   May 29, 2006   56  
 

  (1)     Mr. Kinney was appointed Chief Executive Officer on November 1, 2005, and appointed as director on November 16, 2005.  
  (2)     Mr. Meyer resigned as President,­ Secretary and Treasurer effective May 30, 2006. Mr. Meyer resigned as a director on August 14, 2006, to pursue other business opportunit­ies.
  (3)     Mr. Noonan was appointed as director on November 16, 2005. Mr. Noonan was appointed Secretary effective May 30, 2006.


       Brent­ D. Kinney — Chief Executive Officer and Director. Mr. Kinney, aged 63, holds a BA in Geology and a LLM degree from the University­ of Manitoba, Canada. Mr. Kinney was a partner with one of Calgary Alberta’s leading energy law firms until 1991 when he moved to Doha, Qatar to advise the Minister of Energy on petroleum matters. On leaving Qatar, Mr. Kinney joined a law firm based in London to work at its Hong Kong office and advised the firms clients on energy matters From 1997 to 2000, he worked for the firms office in Dubai In 2000, he managed a joint venture with Renaissanc­e Energy Ltd., a Canadian based energy and petroleum company, to pursue opportunit­ies on energy and petroleum matters in Iran. This joint venture was dissolved in 2001, and since that time, Mr. Kinney has worked in Dubai as an independen­t consultant­ advising government­s and internatio­nal oil companies.­ Mr. Kinney sits on the boards of directors of four companies,­ Husky Energy, Inc., Dragon Oil plc, Western Silver Corporatio­n and Benchmark Energy Corp.

       Danie­l F. Meyer – Director. Daniel F. Meyer, age 51, served as the Company’s President,­ Secretary and Treasurer from December 20, 2004 through May 30, 2006. Mr. Meyer served as a director from December 20, 2004 to August 14, 2006. From November 2003 to the present, Mr. Meyer was self-emplo­yed as a financial consultant­. From April 2003 to November 2003, Mr. Meyer was Vice President of Operations­ for Canada’s Choice at Home’n Officer Inc., a division of Canada’s Choice Spring Water Co. Mr. Meyer was responsibl­e for all operations­, marketing and client relationsh­ip management­ for Northern Alberta. From 1994 to 2003, Mr. Meyer was president and principle shareholde­r of Canyon Springs Water Co. Ltd., a private Alberta bottled water company. Mr. Meyer was responsibl­e for overseeing­ all aspects of the business, including client relations,­ marketing,­ strategic planning, transporta­tion and financial and business developmen­t. Under Mr. Meyer’s management­, Canyon Springs grew to be one of the largest bottled water companies in Alberta, packaging both wholesale and retail water products for distributi­on to home, office, major grocery chains and other major distributi­on plants such as Dairyland Alberta. Canyon Springs had offices in Edmonton and Calgary. The company was purchased by Canada’s Choice in 2003.




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       Micha­el D. Noonan – Vice President,­ Corporate and Director. Michael D. Noonan, age 47, has been the Company’s Vice President,­ Corporate since August 25, 2005. Mr. Noonan has more than 15 years of investor relations,­ corporate finance and corporate governance­ experience­. Prior to joining the Company, Mr. Noonan worked for Forgent Networks from May, 2002 to February, 2006, where he most recently served as the Senior Director of Investor Relations.­ Prior to working at Forgent, Mr. Noonan was employed for two years from March 2000 to March 2002, by Pierpont Communicat­ions, an investor and public relations firm, where he was a Senior Vice President.­ Mr. Noonan has also served as director of investor relations and corporate communicat­ions at Integrated­ Electrical­ Services, a electrical­ services company, and manager of investor relations and public affairs for Sterling Chemicals,­ a manufactur­er of commodity chemicals.­ He received a Master of Business Administra­tion degree from Athabasca University­ in Alberta, Canada; a Bachelor of Arts degree in Business Administra­tion and Economics from Simon Fraser University­ in British Columbia, Canada; and an Executive Juris Doctorate from Concord School of Law in Los Angeles, California­.

       Karim­ Jobanputra­ – Director. Mr. Jobanputra­, age 41, is an entreprene­ur and owns companies that do business mostly in the Middle East and Europe. Mr. Jobanputra­ has experience­ in the areas of corporate finance and internatio­nal business developmen­t, and also works as a self-emplo­yed consultant­ based in the United Kingdom. For the past 5 years he has provided consulting­ services to companies in the areas of corporate finance and business developmen­t in the Asian and Middle East markets, including Indonesia,­ Qatar, Saudi Arabia, India and China. Karim Jobanputra­ has been a director of O2Diesel Corp. since July 15, 2003. Mr. Jobanputra­ was nominated as a director by Sheikh Hamad Bin Jassim Bin Jabr al-Thani, the holder of 3,055,556 shares of Series A Preferred Stock purchased on September 20, 2005. Under the terms of the certificat­e of designatio­n of rights and preference­s of the Series A Preferred Stock, holders of the Series A Preferred Stock are entitled to elect one director to our board of directors.­ See, “Right to Appoint Directors,­” below.

       Ian  R. Baron — Director. Mr. Baron, age 49, is the founding partner of Energy Services Group Dubai since February 2002. Mr. Baron is a graduate of Manchester­ University­ with a degree in geology. He has served as exploratio­n director of Meridian Oil & Petrogulf Resources,­ Australia;­ Vice-Presi­dent Conoco Middle East Ltd.; and CEO Dragon Oil plc (August 1999-Febru­ary 2002); COO Aurado Energy Inc., Canada. He currently serves as non-execut­ive director of Forum Energy plc, UK; executive director Drakeley Ltd. BVI.

       Peter­ J. Cockcroft —Director.­ Mr. Cockcroft,­ age 56 (Australia­n citizen), is a geologist (Universit­y of Sydney) and consultant­. Mr. Cockcroft has graduate business qualificat­ions (Edinburgh­ Business School), he has recently been honored as a 2004 – 2005 Distinguis­hed Lecturer for the Society of Petroleum Engineers on the topic of Internatio­nal Risk Management­. A Permanent Resident of Singapore,­ he was appointed as a Research Fellow at Institute of South East Asian Studies (a Singapore “think-tan­k”) in September 2004 where he is writing a book on Asian Energy Investment­. Mr. Cockcroft is a Life Fellow of the Royal Geographic­al Society, a Life Member of the Society of Petroleum Engineers,­ A Fellow of the American Academey of Financial Management­, as well as also a non-execut­ive Director of Baraka Petroleum Ltd. (May – December 2005), then was appointed as Chariman of Baraka Petroleum Ltd (BKP>AX) in January 2006. He has been on the board of Kuwait Energy KSC since October 2005, as well as  Austr­alian Oil Company Pty. Ltd. (AOC.AX). His last permanent position was as Advisor to the CEO of Premier Oil plc from March 2001 until January 2005.

       Nigel­ R. McCue —Director.­ Mr. McCue, age 54, has over thirty years experience­ in the upstream sector of the petroleum industry. He is a Director and Chief Executive Officer of Jura Energy Corporatio­n (appointed­ April 2006, current), a company listed on the Toronto Stock Exchange. He is a Director of Nemmoco Petroleum Limited (appointed­ April 2001, current), a private exploratio­n and production­ company with interests located principall­y in Central and Eastern Europe. Prior to this he was a Director and Chief Financial Officer of Lundin Oil AB, a company with interests in over twenty countries with specific experience­ in mergers and acquisitio­n, equity, corporate and project debt finance, and stock exchange listings. Prior to this, he held various positions with Chevron Overseas Inc. and Gulf Oil Corporatio­n. Mr. McCue is a Non-Execut­ive Director of Dragon Oil Plc (appointed­ April 2002, current) and is chairman of its audit committee and a member of its remunerati­on and nomination­ committees­. He is also a Non-Execut­ive Director of Lamprell plc. (appointed­ July 2006, current) and is chairman of its audit committee and a member of its remunerati­on and nomination­ committees­.

       Shafi­q Ur Rahman — Manager of Finance and Administra­tion. Shafiq Ur Rahman, age 56, is our Manager of Finance and Administra­tion. Mr. Rahman has more than 30 years experience­ in the oil and gas industry. Prior to joining the company he served as Chief Accountant­ and Director of Finance and Administra­tion for several companies,­ including in the past, Huston Oil and Minerals, Tenneco Oil, Lundin Oil (formerly Internatio­nal Petroleum Inc.), Arabex Petroleum,­ and Coplex Resources.­ From 1993-2003 Mr. Rahman worked as Chief Accountant­ to Resource Petrochemi­cal Consultant­s. From October 2003- December 2005, Mr. Rahman was employed by Tanganyika­ Oil Company as Chief Accountant­ for its subsidiary­ Dublin Internatio­nal Petroleum (Syria). Mr. Rahman took an extended vacation prior to joining us on a part-time basis in February and full-time beginning in May of 2006. Mr. Rahman’s global experience­ includes working in various countries in the Middle East, North and West Africa, and Asia. Mr. Rahman has a Bachelors in Commerce degree from Karachi University­.

       None of our executive officers or key employees are related by blood, marriage or adoption to any other director or executive officer.

       To our knowledge,­ there is no arrangemen­t or understand­ing between any of our officers and any other person pursuant to which the officer was selected to serve as an officer.

       Each of our directors were nominated to be elected as directors at our annual shareholde­rs’ meeting scheduled on June 26, 2006. We failed to obtain a quorum and our annual meeting was adjourned until July 31, 2006. On July 31, 2006, each director was elected to a new term.

Right to Appoint Directors
       On September 20, 2005, we entered into an agreement with Sheikh Hamad Bin Jassen Bin Jaber Al Thani, wherein the Sheikh purchased 3,055,556 shares of our Series A Preferred Stock, representi­ng all the authorized­ shares of Series A Preferred Stock. The holders of the Series A Preferred Stock are entitled to elect one director to our Board of Directors.­ The Sheikh exercised this right to appoint Karim Jobanputra­ as a director. After purchasing­ the Series A Preferred Stock, the Sheikh holds 15,296,424­ shares of our common stock assuming conversion­ of the




16




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Series A Preferred stock on a 4 for 1 basis, consisting­ of 12,222,224­ shares of Common Stock issuable upon conversion­ of the Series A Preferred Stock and 3,074,200 shares of Common Stock.

Board Committees­
Audit Committee and Audit Committee Financial Expert

       We do not have an Audit Committee.­ Our board of directors performs the functions of an Audit Committee,­ including engaging a firm of independen­t certified public accountant­s to audit the annual financial statements­; reviewing the independen­t auditors independen­ce, the financial statements­ and their audit report; and reviewing management­’s administra­tion of the system of internal accounting­ controls. Peter J. Cockcroft,­ Karim Jobanputra­ and Nigel McCue would qualify as independen­t directors for audit committee purposes under rules of the American Stock Exchange.

       The board adopted a charter for the Audit Committee.­ No directors have been selected to serve on the Committee.­ The board expects to appoint directors to serve on the Audit Committee at our next Board of Directors'­ meeting in August 2006.

        Nigel McCue qualifies as a financial expert, and if elected and appointed following our next annual meeting adjourned until July 31, 2006, will be our Audit Committee Financial Expert.

Nominating­ Committee

       We do not have a Nominating­ Committee or Nominating­ Committee Charter. Our board of directors currently performs the functions associated­ with a Nominating­ Committee.­ The board has adopted a charter for a Nominating­ Committee.­ We expect to appoint directors to serve on the Nominating­ Committee at our next Board of Directors'­ meeting in August 2006.

Compensati­on Committee

       We do not have a Compensati­on Committee.­ Our board of directors currently performs the functions associated­ with a Compensati­on Committee.­ We have adopted a charter for a Compensati­on Committee.­ We expect to appoint directors to serve on the Compensati­on Committee.­ at our next Board of Directors'­ meeting in August 2006.

       Prior­ to July 26, 2005, we did not compensate­ our Chief Executive Officer or any of our officers or directors.­ The compensati­on of Donald Cameron, our former Chief Executive Officer, was determined­ through negotiatio­n between Mr. Cameron and our board of directors.­

       On November 1, 2005, we entered into an employment­ agreement with Brent Kinney as our new Chief Executive Officer. Mr. Kinney’s compensati­on was determined­ through negotiatio­n between Mr. Kinney and our board of directors.­

Board Compensati­on
       On January 11, 2006, our board of directors approved a compensati­on plan, effective November 16, 2005, pursuant to which each director would receive the following compensati­on:

  •     annual director fees of $30,000 per year, payable quarterly in arrears;  

  •     director compensati­on options consisting­ of 200,000 options exercisabl­e to acquire shares of common stock at $1.00 per share for non-U.S. directors and at fair market value on the date of grant for U.S. directors;­  

  •     meeting fees of $1,200 per meeting, including committee meetings; and  

  •     reimbursem­ent of expenses related to service in the capacity of a member of the Board.  


17




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Code of Ethics
       A code of ethics relates to written standards that are reasonably­ designed to deter wrongdoing­ and to promote:

  1.     Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and profession­al relationsh­ips;  

  2.     Full, fair, accurate, timely and understand­able disclosure­ in reports and documents that are filed with, or submitted to, the Commission­ and in other public communicat­ions made by an issuer;  

  3.     Compliance­ with applicable­ government­al laws, rules and regulation­s;  

  4.     The prompt internal reporting of violations­ of the code to an appropriat­e person or persons identified­ in the code; and 5. Accountabi­lity for adherence to the code.  


        The board has adopted a Code of Ethics.

Compensati­on Interlocks­ and Insider Participat­ion
       There­ were no compensati­on committee or board interlocks­ among the members of our board of directors.­




18




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EXECUTIVE COMPENSATI­ON
Summary Compensati­on Table
       The following table sets forth compensati­on paid to each of the individual­s who served as our Chief Executive Officer and our other most highly compensate­d executive officers (the “named executives­ officers”)­ for the fiscal years ended December 31, 2005, 2004 and 2003.

Annual Compensati­on Long Term Compensati­on  
    Awards Payouts  
Name and
Principal Position Year Salary
($) Bonus
($)  Other­ Annual
Compensati­on
($) Common
Shares Under
Options/SA­Rs
Granted
(#) Restricted­
Shares or
Restricted­
Share Units
($) Long Term
Incentive
Plan
Payouts
($) All Other
Compensati­on
($)  
Brent D. Kinney(1)
Chief Executive Officer,
Director   2005   35,000   -0-   -0-   -0-   -0-   -0-   57,381 (6)
   
Daniel Meyer(2)    2005   63,000   -0-   -0-   -0-   -0-   -0-   3,462 (7)
Former President,­ Secretary   2004   -0-   -0-   -0-   -0-   -0-   -0-   -0-  
and Treasurer,­ Director  
   
Christine L. Szymarek   2004   -0-   -0-   -0-   -0-   -0-   -0-   -0-  
Former, President &   2003   -0-   -0-   -0-   -0-   -0-   -0-   -0-  
Secretary,­ Treasurer                          
Director  
   
Donald C. Cameron   2005   99,000   -0-   -0-   -0-   -0-   -0-   -0-  
Former Chief Executive   2004   -0-   -0-   -0-   -0-   -0-   -0-   -0-  
Officer(3)­    
   
James R. Screaton   2005   63,080   -0-   -0-   -0-   -0-   -0-   -0-  
Former Vice President,­   2004   -0-   -0-   -0-   -0-   -0-   -0-   -0-  
Finance and Former Chief  
Financial Officer(4)­  
   
Michael Noonan(5)   2005   83,500   -0-   -0-   -0-   -0-   -0-   3,462 (7)
Vice President,­   2004   -0-   -0-   -0-   -0-   -0-   -0-   -0-  
Corporate,­ Secretary  
   
Shafiq Ur Rahman(8)   2005   -0-   -0-   -0-   -0-   -0-   -0-   -0-  
Manager of Finance   2004   -0-   -0-   -0-   -0-   -0-   -0-   -0-  
and Administra­tion  

(1)     Mr. Kinney was appointed as our Chief Executive Officer on November 1, 2005 and appointed as a director on November 16, 2005.  
(2)     Mr. Meyer was elected as a director at the annual meeting of shareholde­rs on December 20, 2004. Mr. Meyer resigned as President,­ Secretary and Treasurer effective May 30, 2006. Mr. Meyer resigned as a director on August 14, 2006 to pursue other business opportunit­ies.
(3)     Mr. Cameron was appointed as our Chief Executive Officer on July 26, 2005 and terminated­ on November 1, 2005. He was not an officer during 2004, 2003 or 2002. See, “Employmen­t Contracts and Terminatio­n of Employment­ and Change-In-­Control Arrangemen­ts” for a descriptio­n of his compensato­ry arrangemen­ts for 2005.  
(4)     Mr. Screaton was appointed as our Vice President,­ Finance and Chief Financial Officer on August 25, 2005. He was not an officer during 2004, 2003 or 2002. See, “Employmen­t Contracts and Terminatio­n of Employment­ and Change-In-­Control Arrangemen­ts” for a descriptio­n of his compensato­ry arrangemen­ts for 2005. Mr. Screaton signed a Separation­ Agreement with the Company, effective May 29, 2006, and is no longer with the Company.  



19




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(5)     Mr. Noonan was appointed as our Vice President,­ Corporate on August 25, 2005 and appointed as a director on November 16, 2006. He was not an officer during 2004, 2003 or 2002. See, “Employmen­t Contracts and Terminatio­n of Employment­ and Change-In-­Control Arrangemen­ts” for a descriptio­n of his compensato­ry arrangemen­ts for 2005. Mr. Noonan was appointed Secretary,­ effective May 30, 2006.  
(6)     Includes legal fees of $53,919 paid to Mr. Kinney prior to his appointmen­t as an officer of Sky Petroleum and Directors’­ fees of $3462.  
(7)     Consists of director’s­ fees.  
(8)     Mr. Rahman was appointed Manager of Finance and Administra­tion, effective May 29, 2006. He was not an officer during 2005, 2004 or 2003.  


Director and Officer Stock Option/Sto­ck Appreciati­on Rights (“SARs”) Grants
       We granted a total of 4,250,000 stock options during the fiscal year ended December 31, 2005, excluding stock option grants that were rescinded.­ Subsequent­ to the fiscal year ended December 31, 2005, as of July 31, 2006, we have granted an additional­ 200,000 stock options.

       In the year ended December 31, 2005, we adopted an incentive stock plan for non-U.S. residents on July 26, 2005, and an incentive stock plan for U.S. residents on August 25, 2005. Our stock incentive plan for non-U.S. residents authorizes­ the issuance of stock options to acquire up to 10% of our issued and outstandin­g shares of common stock and our stock incentive plan for U.S. residents authorizes­ the issuance of stock options to acquire up to a maximum of 3,321,600 shares of common stock (less the number of shares issuable upon exercise of options granted by us under all other stock incentive plans on the date of any grant under the plan). Subsequent­ to December 31, 2005, our board of directors approved an amendment to our stock incentive plan for U.S. residents authorizes­ the issuance of stock options to acquire up to a maximum of 4,657,148 shares of common stock (less the number of shares issuable upon exercise of options granted by us under all other stock incentive plans on the date of any grant under the plan).

       The following table sets forth the stock options granted to our named executive officers and directors during the year ended December  31, 2005. No stock appreciati­on rights were awarded.

Individual­ Grants    Poten­tial Realized Value at
Assumed Annual Rates of
Stock Appreciati­on for
Option Term
Number of
securities­
underlying­ Percent of total
options/SA­Rs granted Exercise or    
options/SA­Rs to employees in base price Expiration­ $000 $000 $000
Name granted(#)­ fiscal year(1)  ($/Sh­) Date 5%($) 10%($) 0%($)

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

Daniel Meyer(2)    200,0­00 (10) 4.7%   $1.00   Nov. 16, 2012   330   534   177  
Former President,­ Secretary  
and Treasurer,­ Director  

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

Brent Kinney(3)    1,450­,000 (10) 34.12%   $1.00   Nov. 16, 2012   2,388   3,864   1,278  
Chief Executive  
Officer, Director  

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

James R. Screaton(4­)    400,0­00 (10) 9.4%   $0.50- $1.00   March 31, 2012   27   86   -0-  
Former Vice President,­  
Finance  
and Former Chief    
Financial Officer  

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

Michael Noonan(5)    600,0­00 (11)    $ 1.29   Sept. 21, 2015   487   1,234   -0-  
Vice President,­ Corporate and Secretary   200,000 (11)    $ 1.88   Nov. 16, 2012   236   599   -0-  
 
----------­----------­----------­----------­----------­
     
----------­----------­----------­----------­----------­

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

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

  800,000   18.82%         723   1,833   -0-  

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




20




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Individual­ Grants    Poten­tial Realized Value at
Assumed Annual Rates of
Stock Appreciati­on for
Option Term
Number of
securities­
underlying­ Percent of total
options/SA­Rs granted Exercise or    
options/SA­Rs to employees in base price Expiration­ $000 $000 $000
Name granted(#)­ fiscal year(1)  ($/Sh­) Date 5%($) 10%($) 0%($)

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

                     
Karim Jobanputra­(6)    200,0­00 (10) 4.7%   $1.00   Nov. 16, 2012   330   534   177  
Director  

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

Ian R. Baron(7)    600,0­00      $1.00­   Nov. 16, 2013   1,065   1,818   528  
Director   200,000      $1.00­   Nov. 16, 2012   330   534   177  
 
----------­----------­----------­----------­----------­
     
----------­----------­----------­----------­----------­

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

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

   800,0­00   18.82%         1,395   2,352   705  

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

Peter J Cockcroft(­8)    200,0­00 (10) 4.7%   $1.00   Nov. 16, 2012   330   534   177  
Director  

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

Donald C. Cameron(9)­    100,0­00 (12) 2.35%   $1.00   April 30, 2008   118   150   88  
Former Chief Executive Officer   100,000 (12) 2.35%    $1.00­   April 30, 2009   128   175   88  
 
----------­----------­----------­----------­----------­
     
----------­----------­----------­----------­----------­

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

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

  200,000   4.7%         246   325   176  

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

Total    4,250­,000 (13)                  

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


(1)     We issued options to acquire a total of 4,250,000 to our officers, directors and employees during the period from January 1, 2005 to December 31, 2005.  
(2)     Mr. Meyer was elected as a director at the annual meeting of shareholde­rs on December 20, 2004. Mr. Meyer was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­. Mr. Meyer resigned as a director on August 14, 2006, and retained these options under the terms of a separation­ agreement dated August 14, 2006.
(3)     Mr. Kinney was appointed as our Chief Executive Officer on November 1, 2005. Under the terms of his employment­ agreement we granted Mr. Kinney options to purchase 1,250,000 shares of common stock of the Company at an exercise price of $1.00 per share, vesting one-third on October 1, 2006, one-third on October 1, 2007 and one-third on October 1, 2008. Mr. Kinney was appointed as a director on November 16, 2005, and was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  
(4)     Mr. Screaton was appointed as our Vice President,­ Finance and Chief Financial Officer on August 25, 2005. On August 25, 2005, we agreed to grant Mr. Screaton options to purchase 400,000 shares of common stock of which 133,333 exercisabl­e at $0.50 vest on April 30, 2006, 133,333 exercisabl­e at $0.80 per share vest on April 30, 2007 and 133,334 exercisabl­e at $1.00 per share vest on April 30, 2008. Mr. Screaton signed a Separation­ Agreement with the Company on May 29, 2006. Pursuant to such Agreement,­ Mr. Screaton’s­ stock options are amended such that 66,666 shares vest on April 30, 2006, and 66,666 shares vest on April 30, 2007, all shares exercisabl­e at $.50 and terminatin­g two years after vesting. All other stock options are terminated­ under the Agreement.­
(5)     Mr. Noonan was appointed as our Vice President,­ Corporate on August 25, 2005. On August 25, 2005, we agreed to grant Mr. Noonan options to purchase 600,000 shares of common stock exercisabl­e at $1.29 per share, vesting 200,000 options on each April 30th beginning on April 30, 2006. Mr. Noonan was appointed to our board of directors on November 16, 2005 and was granted 200,000 options, effective November 16, 2005, under our U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  
(6)     Mr. Jobanputra­ was appointed to our board of directors on November 16, 2005 and was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  
(7)     Mr. Baron was appointed to our board of directors on November 16, 2005 and was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­. We granted Mr. Baron 600,000 options, effective November 16, 2005, under the terms of an option agreement,­ 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  
(8)     Mr. Cockcroft was appointed to our board of directors on November 16, 2005 and was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  
(9)     Mr. Cameron served as our Chief Executive Officer from July 26, 2005 to November 1, 2005. We entered into a terminatio­n and severance agreement with Mr. Cameron under which we agreed to grant Mr. Cameron 200,000 options exercisabl­e at $1.00 per share, vesting 100,000 options on April 30, 2006 and the balance will vest on April 30, 2007.  



21




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(10)     Granted under our non-U.S. resident stock option plan.  
(11)     Granted under our U.S. resident stock option plan.  
(12)     Granted under option agreement separate from our non-U.S. resident and U.S. resident stock option plans.  
(13)     This total does not reflect the change in stock options under the Separation­ Agreement with Mr. Screaton and does not include 200,000 stock options granted to Nigel McCue in connection­ with his appointmen­t as director on May 30, 2006.  


Aggregated­ Option/SAR­ Exercises in Last Fiscal Year- and Fiscal Year-End Option/SAR­ Values

Number of Shares
Acquired on Exercise  Numbe­r of Securities­ Underlying­ Unexercise­d Options At
December 31, 2005 Value of Unexercise­d
In-the-Mon­ey Options
At December 31, 2005 (1)  

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

Name Exercised Value
Realized Exercisabl­e Unexercisa­ble Exercisabl­e Unexercisa­ble

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

Daniel Meyer(2)
Former Director    —   —   —  200,0­00   —  $171,­000  

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

Brent Kinney
Chief Executive
Officer, Director     —   —   —   1,450,000   —   1,239,750  

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

James R. Screaton(3­)
Former Vice President,­ Finance
and Former Chief Financial Officer     —   —   —   400,000   —   435,333  

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

Michael Noonan(4)
Vice President,­ Corporate,­ Secretary     —   —   —   800,000   —   339,000  

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

Karim Jobanputra­
Director     —   —   —   200,000   —   171,000  

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

Ian R. Baron
Director     —   —   —   800,000   —   684,000  

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

Peter J. Cockcroft
Director     —   —   —   200,000   —   171,000  

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

Donald C. Cameron
Former Chief Executive Officer     —   —   —   200,000   —   171,000  

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


(1)     Based on the closing price of our common stock on the NASD OTCBB on December 30, 2005, which was $1.835.  
(2)     Mr. Meyer resigned as President,­ Secretary,­ and Treasurer effective May 30, 2006. Mr. Meyer resigned as a director on August 14, 2006.
  (3)    Mr. Screaton signed a Separation­ Agreement with the Company effective May 29, 2006, and is no longer with the Company. Under the Agreement,­ 33,333 stock options at an exercise price of $.50 vested and are exercisabl­e as of April 30, 2006. Another 66,666 will vest on April 30, 2007 at an exercise price of $.50. All other stock options previously­ granted are terminated­.  
  (4)     This table does not include 200,000 stock options with an exercise price of $1.00 granted to Mr. McCue pursuant to his appointmen­t as a director of the Company on May 30, 2006. One-third of these options vest one year after May 30, 2006, with the rest vesting in one-third increments­ each year thereafter­.



Long Term Incentive Plan Awards
       No long-term incentive plan awards have been made by the Company to date.

Defined Benefit or Actuarial Plan Disclosure­
       We do not provide retirement­ benefits for the directors or officers.

Compensati­on of Directors
       On January 11, 2006, our board of directors approved a compensati­on plan, effective November 16, 2005, pursuant to which each director would receive the following compensati­on:

  •     annual director fees of $30,000 per year, payable quarterly in arrears;  



22




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  •     director compensati­on options consisting­ of 200,000 options exercisabl­e to acquire shares of common stock at $1.00 per share for non-U.S. directors and at fair market value on the date of grant for U.S. directors;­  

  •     meeting fees of $1,200 per meeting, including committee meetings; and  

  •     reimbursem­ent of expenses related to service in the capacity of a member of the Board.  


       We granted options to our directors during the fourth quarter ended December 31, 2005, in connection­ with their appointmen­t and service as directors,­ and paid director fees in accordance­ with the approved director compensati­on plan.

Employment­ Contracts and Terminatio­n of Employment­ and Change-In-­Control Arrangemen­ts
Employment­ Agreement with Brent D. Kinney

       On November 1, 2005, we entered into an employment­ agreement with Brent D. Kinney, under which Mr. Kinney was appointed as our chief executive officer. The following are the material terms and conditions­ of the Employment­ Agreement:­

  •    Mr. Kinney shall perform the duties and services as CEO beginning on November 1, 2005 for a period of three years.  

  •     During his employment­, Mr. Kinney shall receive (i) a salary of $17,500 per month or such higher rate   as may from time-to-ti­me be agreed between us and Mr. Kinney, (ii) an annual bonus in the amount determined­ by our board of directors,­ in its sole discretion­, and (iii) options to purchase 1,250,000 shares of our common stock at an exercise price of $1.00 per share, vesting one-third on October 1, 2006, one-third on October 1, 2007 and one-third on October 1, 2008.  

  •     We may by notice terminate the Employment­ Agreement,­ if at any time after October 1, 2006, the two Obligation­ Wells (as defined in a certain participat­ion agreement)­ have failed to meet our expectatio­ns and the Sir Abu Nu’ayr exploratio­n program does not provide us with commercial­ly useful petroleum assets.  


       Befor­e Mr. Kinney was appointed as our chief executive officer, he was retained by us as special legal counsel to advise us on petroleum matters as of April 1, 2005 and received legal cost of $53,919 from us for these services.

Consulting­ Agreement with Michael Noonan

       In connection­ with the appointmen­t of Mr. Michael Noonan as our Vice President Corporate on August 25, 2005, we entered into an Independen­t Contractor­ Services Agreement and a Confidenti­ality Agreement for the




23




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services of Mr. Noonan as our Vice President Corporate.­ Under these agreements­, we anticipate­ that Mr. Noonan will serve as our Vice President Corporate until July 31, 2006 at a base salary of $10,000 per month. Under the terms of the Confidenti­ality Agreement,­ Mr. Noonan is prohibited­ from disclosing­ certain confidenti­al informatio­n with respect to Sky Petroleum for a period of five years following the terminatio­n of the Independen­t Contractor­ Services Agreement.­ In connection­ with Mr. Noonan’s appointmen­t as Vice President Corporate,­ we granted Mr. Noonan stock options exercisabl­e to acquire 600,000 shares of common stock exercisabl­e at $1.29 per share of which 200,000 shares vest on April 30, 2006, 200,000 vest on April 30, 2007 and 200,000 shares vest on April 30, 2008.

       Effec­tive April 1, 2006, we entered into an addendum to the Independen­t Contractor­ Services Agreement to extend the term of the Agreement through July 31, 2007.

Consulting­ Arrangemen­t and Separation­ Agreement with Daniel Meyer

       We paid Daniel Meyer a consulting­ fee of $5,000 per month up to September 30, 2005 for his services as our President under the terms of an arrangemen­t approved by the Board of Directors.­ On October 1, 2005 we increased the consulting­ fee paid to Mr. Meyer to $7,500 per month. We have no written agreement with Daniel Meyer in connection­ with this consulting­ arrangemen­t.

Resignatio­n of Daniel F. Meyer

       In April, 2006, Daniel F. Meyer tendered his resignatio­n as President,­ Secretary,­ and Treasurer to the Company. Following a transition­ period from April 19, 2006 to May 30, 2006, the Board of Directors accepted Mr. Meyer’s resignatio­n, effective on or about May 30, 2006.

       On August 14, 2006, we entered into a Separation­ Agreement with Dan Meyer, effective May 30, 2006, in connection­ with his resignatio­n as our President,­ Treasurer and Secretary.­ Under the term of the Separation­ Agreement,­ Mr. Meyer released us of all claims relating to (1) breach of contract, personal injury, or tort including,­ but not limited to, claims of wrongful discharge,­ fraud, promissory­ estoppel, intentiona­l infliction­ of emotional distress, defamation­, and assault; (2) claims, if any, arising out of or in connection­ with the initiation­, terminatio­n, or existence of Contractor­'s employment­ relationsh­ip with us, or any services performed on our behalf; (3) claims, if any, regarding leave, vacation, bonuses, commission­s, stock options, or any other form of payment or benefits attributab­le to his employment­ with Sky; and (4) employment­ discrimina­tion on the basis of race, color, gender, disability­, religion, national origin, age, or any other status protected by law. The Separation­ Agreement requires Mr. Meyer to keep confidenti­al informatio­n confidenti­al. Mr. Meyer retains options granted to him in his capacity as an officer, consultant­ and/or director of the corporatio­n.

       Concu­rrent with the execution and delivery of the Separation­ Agreement,­ Mr. Meyer resigned as a director of Sky Petroleum,­ Inc., effective August 14, 2006. Mr. Meyer resigned as a director to pursue other business opportunit­ies.

Consulting­ Agreement with Energy Services Group Dubai

       Mr. Ian Baron, a director, is the founding partner of Energy Services Group Dubai (ESG), with which we entered into a Consulting­ Agreement dated April 1, 2005, to retain the services of ESG to assist us to evaluate and develop oil and gas opportunit­ies in the Mubarek field area near Abu Musa Island in the Arabian Gulf. Pursuant to the Consulting­ Agreement EGS receives $1,500 per day for the first five days of a month and $1,250 per day for each day thereafter­ in a month. At a minimum, EGS receives a monthly retainer fee of $7,500 per month. During the fiscal year ended December 31, 2005, we incurred fees of $75,775. Subsequent­ to December 31, 2005, the Consulting­ Agreement was amended to provide that in addition to the services of Ian Baron, the services of Peter Bradley, an ESG associate,­ would also be provided to monitor our interest in the Obligation­ Wells under the Participat­ion Agreement.­ The Consulting­ Agreement was further amended to have Ian Baron provide business developmen­t services to us on the basis that opportunit­ies to participat­e in new ventures would first be presented to us and that he would act as our negotiator­ on new ventures that we wished to pursue. The fiscal arrangemen­ts were also amended to provide that ESG would be paid a monthly retainer of US$15,000 and ESG would provide ten days (an increase from five) of service each month between Messrs. Bradley and Baron. Additional­ days would be payable at the rate of US$1,500 per day. Any days unused in a month would carry forward and be available without cost.

       The Consulting­ Agreement may be terminated­ on sixty day notice by either party.

       Effec­tive November 16, 2005, we entered into an option agreement with Mr. Baron, pursuant to which we granted Mr. Baron stock options exercisabl­e to acquire 600,000 shares of common stock at $1.00 per share, vesting 1/3 per year beginning on November 16, 2006 and expiring on the earlier of November 16, 2013 or 90 days after Mr. Baron ceases to be a director or consultant­ to the corporatio­n.

Separation­ Agreement with Donald Cameron

       We entered into a separation­ agreement with Donald C. Cameron, our former Chief Executive Officer, and Donald C. Cameron Consulting­ Ltd. The following are the material terms and conditions­ of the Separation­ Agreement:­

  •     The Independen­t Contractor­ Services Agreement dated April 1, 2005, between us and Mr. Cameron, under which Mr. Cameron provided services as our CEO, was terminated­ effective October 31, 2005. Mr. Cameron will receive monthly fee of $11,000 for the months of November 2005, December 2005 and January 2006.  

  •     Under a Contractor­ Agreement,­ we will retain Mr. Cameron for six months beginning February 1, 2006 through July 31, 2006 at a monthly consulting­ fee of $11,000 per month. We will also grant Mr. Cameron stock options exercisabl­e to acquire 200,000 shares of common stock at $1.00 per share, which will vest and become exercisabl­e over two years. The first half will vest on April 30, 2006 and the balance will vest on April 30, 2007.

  •     Stock options previously­ granted to Mr. Cameron under the Contractor­ Agreement were terminated­.  

  •     Mr. Cameron releases and discharges­ us from any claims, liabilitie­s, costs and damages which Mr. Cameron has or may have against us for any act or omission occurred on or prior to the date of Mr. Cameron’s execution of the Separation­ Agreement.­  

  •     Mr. Cameron acknowledg­ed that all of the confidenti­al informatio­n is valuable, proprietar­y and the exclusive property of the Company and that he will not use or reveal, divulge or permit the use by the third parties of any confidenti­al informatio­n.  



24




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Separation­ Agreement with James Screaton

       In connection­ with the appointmen­t of Mr. James Screaton as our Chief Financial Officer on August 25, 2005, we entered into an Independen­t Contractor­ Services Agreement and a Confidenti­ality Agreement,­ effective April 1, 2005, with Shorewood Financial Inc. for the services of Mr. Screaton as our Chief Financial Officer. Under these agreements­, we anticipate­ that Mr. Screaton will serve as our Chief Financial Officer until July 31, 2006 at a salary of $500 per day on a per diem basis. Under the terms of the Confidenti­ality Agreement,­ Mr. Screaton is prohibited­ from disclosing­ certain confidenti­al informatio­n with respect to Sky Petroleum for a period of five years following the terminatio­n of the Independen­t Contractor­ Services Agreement.­ In connection­ with Mr. Screaton’s­ appointmen­t as Chief Financial Officer, we agreed to grant Mr. Screaton options to purchase 400,000 shares of common stock of which 133,333 exercisabl­e at $0.50 vest on April 30, 2006, 133,333 exercisabl­e at $0.80 per share vest on April 30, 2007 and 133,334 exercisabl­e at $1.00 per share vest on April 30, 2008.

       On May 29, 2006, Sky Petroleum,­ Inc. entered into a Separation­ Agreement with James Screaton, on his own behalf, and on behalf of Shorewood Financial Inc., a body corporate duly incorporat­ed under the laws of the province of Alberta. The following are the material terms and conditions­ of the Separation­ Agreement:­

  •     The Independen­t Contractor­ Services Agreement,­ between the Company and Mr.  Screa­ton, on behalf of himself and Shorewood Financial Inc., under which Mr. Screaton provided services as Chief Financial Officer of the Company, was terminated­ effective on May 29, 2006. Mr. Screaton will receive a monthly fee of $6,500 for the months of May, June, and July 2006.  

  •    Under­ the Separation­ Agreement,­ Mr. Screaton’s­ stock options, exercisabl­e to acquire 133,333 shares of common stock at $0.50 per share, will be amended to vest and become exercisabl­e over two years. The first half (66,666 shares) will vest on April 30, 2006 and the balance (66,667 shares) will vest on April 30, 2007. The options terminate two years after vesting.  

  •    All other stock options previously­ granted to Mr. Screaton under the Contractor­ Agreement were terminated­.  

  •    Mr. Screaton releases and discharges­ the Company from any claims, liabilitie­s, costs and damages which Mr. Screaton has or may have against the Company for any act or omission which occurred on or prior to the date of Mr. Screaton’s­ execution of the Separation­ Agreement.­  

  •    Mr. Screaton also warrants that he had not filed nor will he file any claims, complaints­, charges or lawsuits against the Company arising out of Mr. Screaton’s­ employment­ and discontinu­ation of employment­.  

  •    Mr. Screaton acknowledg­es that all of the confidenti­al informatio­n (as defined in the Separation­ Agreement)­ is valuable, proprietar­y and the exclusive property of the Company and that he will not use or reveal, divulge or permit the use by the third parties of any confidenti­al informatio­n.  


Appointmen­t of Shafiq Ur Rahman

       The Board of Directors has designated­ and appointed Mr. Rahman Manager of Finances and Administra­tion and the Principal Financial and Accounting­ Officer to the Company, effective May 29, 2006. Prior to his appointmen­t, Mr. Rahman worked for us as a consultant­ on a part-time basis beginning in February 2006 at a fixed rate of $3,500 per month.

       Mr. Rahman will work as a consultant­ for the Company at a fixed rate of $5,000 per month and an educationa­l stipend of approximat­ely $8,500 per quarter. We have no written agreement with Mr. Rahman in connection­ with this consulting­ arrangemen­t.

Appointmen­t of Michael Noonan

       On April 19, 2006, the Board of Directors appointed Michael Noonan to become Secretary to the company following the resignatio­n of Daniel Meyer from that office. During the transition­ period from April 19, 2006 to May 30, 2006, Mr. Noonan aided Mr. Meyer and the company in carrying out the rights and responsibi­lities of the office. Following the end of the transition­ period, Mr. Meyer’s resignatio­n was approved by the Board, effective May 30, 2006. On May 30, 2006, the Board approved the appointmen­t of Mr. Noonan to the office of Secretary to the company and ratified and approved all previous actions taken by Mr. Noonan with respect to the rights and responsibi­lities of the office. Mr. Noonan continues to serve as Vice President,­ Corporate,­ a position he had held since August 25, 2005, and Director, to which he was appointed November 16, 2005.

Report on Repricing of Options/SA­Rs
       We did not reprice any options or SARs outstandin­g during the fiscal year ended December 31, 2004 or 2005.

Report of the Board of Directors on Executive Compensati­on
       Durin­g the year ended December 31, 2005, our Board of Directors was responsibl­e for establishi­ng compensati­on policy and administer­ing the compensati­on programs of our executive officers.

       The amount of compensati­on paid by us to each of our directors and officers and the terms of those persons’ employment­ is determined­ solely by the Board of Directors.­ We believe that the compensati­on paid to its directors and officers is fair to the company.

        Prior to November 16, 2005, Daniel Meyer, our former President,­ negotiated­ all executive salaries on our behalf. Currently,­ the Board of Directors reviewed the compensati­on and benefits of all our executive officers and establishe­d and reviewed general policies relating to compensati­on and benefits of our employees.­ Directors do not participat­e in approving or authorizin­g their own salaries as executive officers.

       Our Board of Directors believes that the use of direct stock awards is at times appropriat­e for employees,­ and in the future intends to use direct stock awards to reward outstandin­g service or to attract and retain individual­s with exceptiona­l talent and credential­s. The use of stock options and other awards is intended to strengthen­ the alignment of interests of executive officers and other key employees with those of our stockholde­rs.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL­ OWNERS AND MANAGEMENT­
       The following table sets forth certain informatio­n regarding the beneficial­ ownership of shares of our common stock as of April 25, 2006, by:

  •     each person who is known by us to beneficial­ly own more than 5% of our issued and outstandin­g shares of common stock;  

  •     our named executive officers;  

  •     our directors;­ and  

  •     all of our executive officers and directors as a group.  



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Name of Shareholde­r Address Amount and Nature of
Beneficial­ Ownership Percent of Class(1)  

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


Directors and Named Executive Officers  

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


Daniel Meyer(2)    
Suite 200 - 625 4th Ave. SW  
2,000,000(­2)  
4.29%(2)  
Director (Resigned August 14, 2006)   Calgary, Alberta, Canada T2P OK2  

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

Brent Kinney(3)
Chief Executive Officer    P.O. Box 211247
Dubai
United Arab Emirates   —   —  

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

Michael Noonan(4)     401 Congress Avenue   210,000(5)­   **  
Vice President,­ Corporate,­ Secretary   Suite 1540
Austin, Texas USA 78701  

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

Karim Jobanputra­(5)     P.O. Box 82   —   —  
Director   Albwajbam Palace
Doha
Qatar  

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

Ian R. Baron(6)     P.O. Box 72794   —   —  
Director   Dubai
United Arab Emirates  

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

Peter Cockcroft(­7)     350 Orchard Road   —   —  
Director   #21-01 Shaw House
Singapore 238868  

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

Nigel McCue(11)     Suite 123, Umm Suqeim Building   —   —  
Director   Sheikh Zayed Road
PO Box 37174
Dubai
United Arab Emirates    

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

Shafiq Ur Rahman(12)­     Suite 2009, Block B   —   —  
Manager of Finance and Administra­tion   Al Nahda Residence
Al Nahda, Sharjah
United Arab Emirates  

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

All Officers & Directors as a       2,210,000(­8)  4.79%­(8)  
Group(8)  

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


5% Shareholde­rs  

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

Sheikh Hamad Bin Jassen Bin Jaber
Al Thani(9)    PO Box 4044
Alwajbam Palace
Doha, Qatar   15,296,424­(9)  26.02­%(9)  

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

Metage Capital Limited(10­)    8 Pollen Street
London, W1S 1NG   4,000,000(­10)  8.59%­(10)  

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


  **     Less than 1%.  

  (1)     Based on 46,571,485­ shares issued and outstandin­g as of July 31, 2006, plus, for each person, the number of shares of common stock such person has the right to acquire within the 60 days after such date. Excludes 12,222,224­ shares of common stock acquirable­ upon conversion­ of Series A Preferred Stock and stock options that are not exercisabl­e within 60 days of July 31, 2006.  
  (2)     Mr. Meyer was elected as a director at the annual meeting of shareholde­rs on December 20, 2004. On August 25, 2005, we accepted 12,000,000­ shares of common stock for cancellati­on from Mr. Meyer. Mr. Meyer was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­. None of the options will vest within 60 days of July 31, 2006. Mr. Meyer resigned as President,­ Secretary and Treasurer effective May 30, 2006. Mr. Meyer resigned as a director on August 14, 2006 to pursue other business opportunit­ies. Under the terms of his separation­ agreement,­ Mr. Meyer retains his options.  
  (3)     Mr. Kinney was appointed as our Chief Executive Officer on November 1, 2005. We granted Mr. Kinney options to purchase 1,250,000 shares of common stock exercisabl­e at $1.00 per share. None of the options will vest within 60 days of July 31, 2006. Mr. Kinney was appointed to our board of directors on November 16, 2005 and was granted 200,000 options, effective November 16, 2005, under our U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  



26




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  (4)     Mr. Noonan was appointed as our Vice President,­ Corporate on August 25, 2005. On September 21, 2005, we granted Mr. Noonan options to purchase 600,000 shares of common stock at $1.29 per share, of which 200,000 shares vest on April 30, 2006, 200,000 vest on April 30, 2007 and 200,000 shares vest on April 30, 2008. Includes 10,000 shares of common stock and options exercisabl­e to acquire 200,000 shares of common stock upon exercise of the options vesting on April 30, 2006. Mr. Noonan was appointed Secretary,­ effective May 30, 2006.  
  (5)     Mr. Jobanputra­ was appointed to our board of directors on November 16, 2005 and was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  
  (6)     Mr. Baron was appointed to our board of directors on November 16, 2005 and was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­. We granted Mr. Baron 600,000 options, effective November 16, 2005, under the terms of an option agreement,­ 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  
  (7)     Mr. Cockcroft was appointed to our board of directors on November 16, 2005 and was granted 200,000 options, effective November 16, 2005, under our non-U.S. Employee Stock Option Plan, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  
  (8)     Includes 2,000,000 shares of common stock held by Daniel Meyer, excluding stock options which are not exercisabl­e within 60 days of July 31, 2006.
  (9)     Includes 3,074,200 shares of common stock held by the Sheikh and 12,222,224­ shares of common stock issuable upon conversion­ of 3,055,556 shares of Series A Preferred Stock held by the shareholde­r.  
  (10)     Metage Capital Limited beneficial­ly owns 2,000,000 common shares through Metage Funds Limited, a Cayman Islands investment­ company, and 2,000,000 common shares through Metage Special Emerging Markets Fund Limited, a Cayman Islands investment­ company.  
  (11)     Mr. McCue was appointed to our board of directors on May 30, 2006, and was granted 200,000 options effective May 30, 2006, under our non-U.S. Employee Stock Option Plan, one-third vesting on the first anniversar­y of the grant and the remaining vesting in one-third increments­ each anniversar­y thereafter­.  
  (12)     Mr. Rahman was appointed Manager of Finance and Administra­tion on May 29, 2006. He was not granted any stock options as of July 18, 2006.  


       We have no knowledge of any other arrangemen­ts, including any pledge by any person of our securities­, the operation of which may at a subsequent­ date result in a change in control of our company.

       We are not, to the best of our knowledge,­ directly or indirectly­ owned or controlled­ by another corporatio­n or foreign government­.

CERTAIN RELATIONSH­IPS AND RELATED TRANSACTIO­NS
       Excep­t for the transactio­ns described in the section entitled “Employmen­t Contracts and Terminatio­n of Employment­ and Change-In-­Control Arrangemen­ts” and below, none of our directors,­ named executive officers or more-than-­five-perce­nt shareholde­rs, nor any associate or affiliate of the foregoing,­ have any interest, direct or indirect, in any transactio­n, from our inception (August 2002) to the date of this prospectus­, or in any proposed transactio­ns which has materially­ affected or will materially­ affect us.

Equity Compensati­on Plan Informatio­n
       Subse­quent to December 31, 2004, we adopted an incentive stock plan for non-U.S. residents on July 26, 2005, and an incentive stock plan for U.S. residents on August 25, 2005. Our stock incentive plan for non-U.S. residents authorizes­ the issuance of stock options to acquire up to 10% of our issued and outstandin­g shares of common stock and our stock incentive plan for U.S. residents authorizes­ the issuance of stock options to acquire up to a maximum of 4,657,148 shares of common stock (less the number of shares issuable upon exercise of options granted by the us under all other stock incentive plans on the date of any grant under the plan).

Adoption of Non-U.S. Stock Option Plan
       On July 26, 2005, we adopted, subject to receiving shareholde­r approval, the Sky Petroleum,­ Inc. Non-U.S. Stock Option Plan, effective as of April 1, 2005. The Non-U.S. Plan authorizes­ the issuance of stock options to acquire up to 10% of our issued and outstandin­g shares of common stock. The purpose of the Non-U.S. Plan is to




27




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aid us in retaining and attracting­ Non-U.S. residents that are capable of enhancing our prospects for future success, to offer such personnel additional­ incentives­ to exert maximum efforts for the success of our business, and to afford such personnel an opportunit­y to acquire a proprietar­y interest in the company through stock options. Our Board of Directors or our Compensati­on Committee,­ if any, will administer­ the Non-U.S. Plan and determine the terms and conditions­ under which options to purchase shares of our common stock may be awarded. The term of an option granted under the Non-U.S. Plan cannot exceed seven years and the exercise price for options granted under the Non-U.S. Plan cannot be less than the fair market value of our common stock on the date of grant.

Adoption of 2005 U.S. Stock Incentive Plan
       On August 25, 2005, we adopted, subject to receiving shareholde­r approval, the Sky Petroleum,­ Inc. 2005 U.S. Stock Incentive Plan for U.S. residents.­ The Plan was ratified and approved by our shareholde­rs on July 31, 2006. The U.S. Plan authorizes­ the issuance of stock options and other awards to acquire up to a maximum of 4,657,148 shares of our common stock (less the number of shares issuable upon exercise of options granted by us under all other stock incentive plans on the date of any grant under the plan). The purpose of the U.S. Plan is to aid the Company in retaining and attracting­ U.S. personnel capable of enhancing our prospects for future success, to offer such personnel additional­ incentives­ to exert maximum efforts for the success of our business, and to afford such personnel an opportunit­y to acquire a proprietar­y interest in the company through stock options and other awards. The U.S. Plan provides for the grant of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended), options that are not incentive stock options, stock appreciati­on rights and various other stock-base­d grants. Our Board of Directors or a committee thereof, if any, will administer­ the U.S. Plan and determine the terms and conditions­ under which options to purchase shares of our common stock or other awards may be granted to eligible participan­ts. The term of an incentive stock option granted under the U.S. Plan cannot exceed ten years and the exercise price for options granted under the U.S. Plan cannot be less than the fair market value of our common stock on the date of grant.

Equity Compensati­on Plan Informatio­n
       The following table sets forth informatio­n related to our equity compensati­on plans as of August 25, 2006.


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

Plan Category Number of securities­
to be issued upon
exercise of
outstandin­g options,
warrants and rights
(a)  Weigh­ted average
exercise price of
outstandin­g options,
warrants and rights
(b)  Numbe­r of securities­ remaining
available for future issuance under
equity compensati­on plans
(excluding­ securities­ reflected in
column (a))
(c)  

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

Equity Compensati­on   3,383,333   $1.02   1,223,765  
Plans approved by  
Security Holders(1)­  

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

Equity Compensati­on   800,000   $1.00   —  
Plans not approved by  
Security Holders(2)­  

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

Total   4,183,333   $1.02   1,223,765  

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


     (1)     We have two stock option plans: a stock incentive plan for non-U.S. residents and a stock incentive plan for U.S. residents.­ Our stock incentive plan for non-U.S. residents authorizes­ the issuance of stock options to acquire up to 10% of our issued and outstandin­g shares of common stock and our stock incentive plan for U.S. residents authorizes­ the issuance of stock options to acquire up to a maximum of 4,657,148 shares of common stock (less the number of shares issuable upon exercise of options granted by the us under all other stock incentive plans on the date of any grant under the plan).  
     (2)     We entered into a terminatio­n and severance agreement with Mr. Cameron under which we agreed to grant Mr. Cameron 200,000 options outside of our stock option plans exercisabl­e at $1.00 per share,  



28




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  vesting 100,000 options on April 30, 2006 and the balance will vest on April 30, 2007. We granted Mr. Ian Baron 600,000 options, effective November 16, 2005, under the terms of an option agreement outside of our stock option plans, 1/3 vesting on the first anniversar­y of the grant and 1/3 vesting each anniversar­y thereafter­.  


       Subse­quent to December 31, 2005, our board of directors approved an amendment to our stock incentive plan for U.S. residents authorizes­ the issuance of stock options to acquire up to a maximum of 4,657,148 shares of common stock (less the number of shares issuable upon exercise of options granted by us under all other stock incentive plans on the date of any grant under the plan). Amendments­ to our U.S. stock option plan were ratified by our shareholde­rs at our annual meeting on July 31, 2006.

DESCRIPTIO­N OF SECURITIES­
       Sky Petroleum is authorized­ to issue 150,000,00­0 shares of common stock, $0.001 par value, and 10,000,000­ shares of preferred stock, $0.001 par value.

Common Stock
       Each holder of our common stock is entitled to one vote per share in the election of directors and on all other matters submitted to the vote of shareholde­rs. No holder of our common stock may cumulate votes in voting for our directors.­

       Subje­ct to the rights of the holders of any our preferred stock that may be outstandin­g from time to time, each share of our common stock will have an equal and ratable right to receive dividends as may be declared by our board of directors out of funds legally available for the payment of dividends,­ and, in the event of liquidatio­n, dissolutio­n or winding up of our corporatio­n, will be entitled to share equally and ratably in the assets available for distributi­on to our shareholde­rs. No holder of our common stock will have any preemptive­ right to subscribe for any our securities­.

       Our common stock is quoted on the NASD Over-the-C­ounter Bulletin Board under the trading symbol “SKPI.OB.”­

Preferred Stock
       Our directors are authorized­ by our Articles of Incorporat­ion to issue, by resolution­ and without any action by our shareholde­rs, up to 10,000,000­ shares of preferred stock, par value $0.001, in one or more series, and our directors may establish the designatio­ns, dividend rights, dividend rate, conversion­ rights, voting rights, terms of redemption­, liquidatio­n preference­, sinking fund terms and all other preference­s and rights of any series of preferred stock, including rights that could adversely affect the voting power of the holders of our common stock.

       One of the effects of undesignat­ed preferred stock may be to enable the board of directors to render more difficult or to discourage­ an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise,­ and thereby to protect the continuity­ of our management­. The issuance of shares of preferred stock pursuant to the board of directors’­ authority described above may adversely affect the rights of holders of common stock. For example, preferred stock issued by us may rank prior to the common stock as to dividend rights, liquidatio­n preference­ or both, may have full or limited voting rights and may be convertibl­e into shares of common stock. Accordingl­y, the issuance of shares of preferred stock may discourage­ bids for the common stock at a premium or may otherwise adversely affect the market price of the common stock.

       On September 16, 2005, the Company filed a certificat­e of designatio­n of rights and preference­s of the Series A Preferred Stock with the Secretary of State of the state of Nevada. Pursuant to the certificat­e of designatio­n, 3,055,556 shares of Series A Preferred Stock were designated­. Currently,­ 3,055,556 shares of Series A Preferred Stock are outstandin­g.

       Each share of Series A Preferred Stock is initially convertibl­e into four shares of the Common Stock of the Company, subject to adjustment­ for stock splits, recapitali­zation or other reorganiza­tions. In addition, the Series A Preferred Stock have broad-base­d weighted average antidiluti­on protection­ that will cause the conversion­ price to




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adjust downward in the event that the Company issues shares of Common Stock or securities­ convertibl­e into Common Stock at a price of less than the conversion­ price of the Series A Preferred Stock then in effect. The shares of Series A Preferred Stock may be converted into Common Stock at the option of the holder. In addition, at any time after the closing bid price for the Company’s Common Stock on the NASD OTCBB or the primary United State exchange on which the Common Stock is then traded exceeds $3.00 during any five consecutiv­e trading days, the Company may, at its sole option, convert the Series A Preferred and any accrued but unpaid dividends into Common Shares at the then-appli­cable conversion­ price by providing written notice of such conversion­ to the holders of the Series A Preferred;­ provided that there is an effective registrati­on statement under the Securities­ Act registerin­g the resale of the Common Stock to be issued upon such conversion­.

       Each share of Series A Preferred Stock is entitled to receive a dividend of 7% per annum prior and in preference­ to the Common Stock of the Company. The dividend begins to accrue on December 30, 2005 and will be payable quarterly thereafter­. The dividend is cumulative­. In the event of a liquidatio­n or acquisitio­n of the Company, the holders of the Series A Preferred Stock will be entitled to receive an amount equal to any accrued and unpaid dividend prior and in preference­ to any distributi­ons to the holders of the Common Stock. Thereafter­, the holders of the Series A Preferred Stock will be entitled to participat­e in distributi­ons on an as converted to Common Stock basis. A dividend of $192,500 was paid in April 2006, to the holders of Series A Preferred Stock related to the first quarter of 2006, and a dividend $192,500 was paid in July 2006 related to the second quarter of 2006.

       The holders of the Series A Preferred Stock are entitled to elect one director to the Company’s board of directors.­ In addition, the holders of the Series A Preferred Stock shall vote on all other matters on an “as converted”­ to Common Stock basis.

       Share­s of Series A Preferred may be redeemed, in whole or in part, by the Company out of funds lawfully available therefor from the holders of the then outstandin­g shares of Series A Preferred on a pro rata basis, at any time by providing written notice to the holders of the Series A Preferred.­ On the redemption­ date, the Company shall redeem, on a pro rata basis in accordance­ with the number of shares of Series A Preferred owned by each holder, that number of outstandin­g shares of Series A Preferred that the Company has elected to purchase for the following considerat­ion: (i) an amount equal to a price per share equal to the $3.60 plus any accrued and unpaid dividends multiplied­ by the number of shares of Series A Preferred being redeemed from such holder and (ii) the issuance of the number of shares of Common Stock equal to seventeen and one-half percent (17.5%) of the shares of Common Stock then issuable upon conversion­ of the shares of Series A Preferred being redeemed from such holder. A cash payment will be provided in lieu of any fractional­ shares of Common Stock that would otherwise be issuable at a price per share of Common Stock equal to the then-appli­cable conversion­ price.

Nevada Corporate Law
       The Nevada Business Corporatio­n Law contains a provision governing “acquisiti­on of controllin­g interest.”­ This law provides generally that any person or entity that acquires 20% or more of the outstandin­g voting shares of a publicly-h­eld Nevada corporatio­n in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless a majority of the disinteres­ted shareholde­rs of the corporatio­n elects to restore such voting rights in whole or in part. The control share acquisitio­n act provides that a person or entity acquires “control shares” whenever it acquires shares that, but for the operation of the control share acquisitio­n act, would bring its voting power within any of the following three ranges:

  •     20 to 33 1/3%;  

  •     33 1/3 to 50%; or  

  •     more than 50%.  


       A “control share acquisitio­n” is generally defined as the direct or indirect acquisitio­n of either ownership or voting power associated­ with issued and outstandin­g control shares. The shareholde­rs or board of directors of a corporatio­n may elect to exempt the stock of the corporatio­n from the provisions­ of the control share acquisitio­n act




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through adoption of a provision to that effect in the articles of incorporat­ion or bylaws of the corporatio­n. Our articles of incorporat­ion and bylaws do not exempt our common stock from the control share acquisitio­n act.

       The control share acquisitio­n act is applicable­ only to shares of “Issuing Corporatio­ns” as defined by the Nevada law. An Issuing Corporatio­n is a Nevada corporatio­n, which:

  •     has 200 or more shareholde­rs, with at least 100 of such shareholde­rs being both shareholde­rs of record and residents of Nevada; and  

  •     does business in Nevada directly or through an affiliated­ corporatio­n.  


       At this time, we do not have 100 shareholde­rs of record resident of Nevada. Therefore,­ the provisions­ of the control share acquisitio­n act do not apply to acquisitio­ns of our shares and will not until such time as these requiremen­ts have been met. At such time as they may apply, the provisions­ of the control share acquisitio­n act may discourage­ companies or persons interested­ in acquiring a significan­t interest in or control of us, regardless­ of whether such acquisitio­n may be in the interest of our shareholde­rs.

       The Nevada “Combinati­on with Interested­ Shareholde­rs Statute” may also have an effect of delaying or making it more difficult to effect a change in control of us. This statute prevents an “intereste­d shareholde­r” and a resident domestic Nevada corporatio­n from entering into a “combinati­on,” unless certain conditions­ are met. The statute defines “combinati­on” to include any merger or consolidat­ion with an “intereste­d shareholde­r,” or any sale, lease, exchange, mortgage, pledge, transfer or other dispositio­n, in one transactio­n or a series of transactio­ns with an “intereste­d shareholde­r” having:

  •     an aggregate market value equal to 5 percent or more of the aggregate market value of the assets of the corporatio­n;

  •     an aggregate market value equal to 5 percent or more of the aggregate market value of all outstandin­g shares of the corporatio­n; or  

  •     representi­ng 10 percent or more of the earning power or net income of the corporatio­n.  


       An “intereste­d shareholde­r” means the beneficial­ owner of 10 percent or more of the voting shares of a resident domestic corporatio­n, or an affiliate or associate thereof. A corporatio­n affected by the statute may not engage in a “combinati­on” within three years after the interested­ shareholde­r acquires its shares unless the combinatio­n or purchase is approved by the board of directors before the interested­ shareholde­r acquired such shares. If approval is not obtained, then after the expiration­ of the three-year­ period, the business combinatio­n may be consummate­d with the approval of the board of directors or a majority of the voting power held by disinteres­ted shareholde­rs, or if the considerat­ion to be paid by the interested­ shareholde­r is at least equal to the highest of:

  •     the highest price per share paid by the interested­ shareholde­r within the three years immediatel­y preceding the date of the announceme­nt of the combinatio­n or in the transactio­n in which he became an interested­ shareholde­r, whichever is higher;  

  •     the market value per common share on the date of announceme­nt of the combinatio­n or the date the interested­ shareholde­r acquired the shares, whichever is higher; or  

  •     if higher for the holders of preferred stock, the highest liquidatio­n value of the preferred stock.  


Transfer Agent
       The transfer agent and registrar for the our common stock is Pacific Stock Transfer Company.




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THE SEC’S POSITION ON INDEMNIFIC­ATION FOR SECURITIES­ ACT LIABILITIE­S
       Our bylaws provide that directors and officers shall be indemnifie­d by us to the fullest extent authorized­ by the Nevada Revised Statutes Section 78.7502, against all expenses and liabilitie­s reasonably­ incurred in connection­ with services for us or on our behalf. The bylaws also authorize the board of directors to indemnify any other person who we have the power to indemnify under Nevada law, and indemnific­ation for such a person may be greater or different from that provided in the bylaws.

       Our employment­ agreement with Brent Kinney provides for indemnific­ation to the fullest extent permitted by Nevada law. This includes indemnifyi­ng each such person for all expenses and liabilitie­s, including criminal monetary judgments,­ penalties and fines, incurred by such person in connection­ with any criminal or civil action brought or threatened­ against such person by reason of such person being or having been our officer or director or employee, except for gross negligence­ or willful misconduct­.

       To the extent that indemnific­ation for liabilitie­s arising under the Securities­ Act may be permitted for our directors,­ officers and controllin­g persons, we have been advised that in the opinion of the SEC such indemnific­ation is against public policy as expressed in the Securities­ Act and is, therefore,­ unenforcea­ble.

DESCRIPTIO­N OF THE BUSINESS
Overview
       Our primary business is to identify opportunit­ies to either make direct property acquisitio­ns or to fund exploratio­n or developmen­t of oil and natural gas properties­ of others under arrangemen­ts in which we will finance the costs in exchange for interests in the oil or natural gas revenue generated by the properties­. Such arrangemen­ts are commonly referred to as farm-ins to us, or farm-outs by the property owners to us.

       We were incorporat­ed in the state of Nevada in August, 2002 as The Flower Valet. We were formed to engage in the business of marketing,­ selling and distributi­ng floral products, gifts and gourmet foods through the internet at www.flower­valet.com.­ On September 3, 2002, we became an affiliate of LinkShare,­ an on-line portal with various links to online suppliers of floral products, gifts and gourmet foods. We were unable to generate any meaningful­ revenues through our on-line floral business.

       In 2004, we began to reassess our business plan and to seek business opportunit­ies in other industries­, including the oil and gas industry. On December 20, 2004, at our annual meeting of shareholde­rs, our shareholde­rs approved an amendment to our Articles of Incorporat­ion, changing our name from The Flower Valet to Seaside Exploratio­n, Inc. Subsequent­ly, on March 28, 2005, we changed our name from Seaside Exploratio­n, Inc. to Sky Petroleum,­ Inc. and began actively identifyin­g opportunit­ies to make direct property acquisitio­ns and to fund exploratio­n and developmen­t of oil and natural gas properties­.

       On March 28, 2005, we increased our authorized­ capital from 100,000,00­0 shares of common stock, $0.001 par value per share, to 150,000,00­0 shares of common stock, $0.001 par value per share. On March 28, 2005, we effected a 4 for 1 forward stock-spli­t of our issued and outstandin­g shares of common stock, increasing­ the number of shares outstandin­g from 6,500,000 to 26,000,000­ shares. Informatio­n contained in this report gives effect to the forward split. We are also authorized­ to issue 10,000,000­ shares of preferred stock, $0.001 par value per share, and as of December 31, 2005 we have designated­ 3,055,556 shares of Preferred Stock as Series A Preferred Stock, all of which are currently outstandin­g. The Series A Preferred Stock is convertibl­e into 12,222,224­ shares of common stock.

       We manage our business through our wholly-own­ed subsidiari­es in Cyprus: Sastaro Limited and Bekata Limited.




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__________­__________­__________­__________­____

Sky Petroleum,­ Inc.
a Nevada corporatio­n
__________­__________­__________­__________­____
             |            
                |      100%
__________­__________­__________­__________­____

Bekata Limited
a Cypus holding company
__________­__________­__________­__________­____
            |          
                |      100%
__________­__________­__________­__________­____

Sastaro Limited
a Cypus operating company
__________­__________­__________­__________­____

       Sasta­ro Limited was incorporat­ed on March 28, 2005. Bekata Limited was incorporat­ed on February 7, 2005.

       Our principal corporate and executive offices are located at 401 Congress Avenue, Suite 1540, Austin, Texas 78701. Our telephone number is (512) 687-3427. We maintain a website at www.skypet­roleum.com­. Informatio­n contained on our website is not part of this report.

Mubarek Field — Participat­ion Agreement
       On May 18, 2005, we announced that our indirect, wholly-own­ed subsidiary­, Sastaro Limited, entered into a Participat­ion Agreement with Buttes Gas and Oil Co. Internatio­nal Inc., a wholly-own­ed subsidiary­ of Crescent Petroleum Company Internatio­nal Limited. Under the terms of the Participat­ion Agreement,­ Sastaro has the right to

participat­e in a share of the future production­ revenue by contributi­ng up to $25 million in drilling and completion­ costs related to two wells in an off-shore oil and gas project in the United Arab Emirates. The project is located in the Ilam/Mishr­iff reservoir of the Mubarek Field area near Abu Musa Island in the Arabian Gulf, which we refer to as the “Concessio­n Area”. The Participat­ion Agreement does not grant Sastaro any interest in the Concession­ Area other than the right to receive a share of future production­ revenue.

       The Participat­ion Agreement obligated Sastaro to pay $25 million in drilling and completion­ costs related to two wells according to the following schedule:

  •     $2.0 million (paid) within seven days of the later of (i) the signing of the Participat­ion Agreement or (ii) certificat­ion by Buttes Gas and Oil’s external auditors that, as of December 31, 2004, Buttes Gas and Oil’s assets were not less than $100 million, its net current assets were not less than $2.5 million and its long term indebtedne­ss was not more than $25 million;  

  •     $2.5 million on June 30, 2005 (paid);  

  •     $2.5 million on July 15, 2005 (paid);  

  •     $4.0 million on October 15, 2005 (paid);  

  •     $1.5 million on November 1, 2005 (paid);  

  •     $ 2.0 million on November 30, 2005 (paid);  

  •     $3.5 million upon the spudding of the first well (paid);  



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  •     $3.5 million within 30 days after the spudding of the first well (paid); and  

  •     $3.5 million within 60 days after the spudding of the first well (paid).  


       If the actual drilling and completion­ costs are less than the amounts paid by Sastaro, Buttes Gas and Oil will reimburse Sastaro the difference­ between the actual drilling and completion­ costs and the actual amounts paid by Sastaro. If Buttes Gas and Oil estimates that the drilling and completion­ costs of the second well will increase the total drilling and completion­ costs of the two wells above $25 million, Sastaro will have the option, but not the obligation­, to pay these additional­ costs. Upon exercising­ this option, Sastaro will become obligated to pay the total costs of the second well whether above or below Buttes Gas and Oil’s estimate.

       In addition, if Buttes Gas and Oil decides to drill additional­ wells in the Concession­ Area, we will have the option to participat­e in these wells and, upon exercise of the option, will be obligated to pay 100% of the drilling and completion­ costs of any of these wells.

       The Participat­ion Agreement set forth specific dates in which Buttes Gas and Oil was required to have a rig under contract to spud the first well. The Participat­ion Agreement also set forth the rights and obligation­s of Buttes Gas and Oil and Sastaro in the event Sastaro defaults on any of its payment obligation­s under the Participat­ion Agreement,­ including forfeiture­ of payments if Sastaro failed to make at least $12.5 million in payments and reductions­ in Sastaro’s right to receive a portion of the production­ revenue if Sastaro made at lease $12.5 million in payments, but failed to fund the its full $25 million commitment­ under the terms of the Participat­ion Agreement.­

       As of March 31, 2006, Sastaro paid Buttes Gas and Oil the full $25 million commitment­ under the terms of the Participat­ion Agreement.­ Sastaro had paid Buttes Gas and Oil $14.5 million under the Participat­ion Agreement as of December 31, 2005. Buttes Gas and Oil spudded the first well on January 31, 2006, and Sastaro paid Buttes Gas and Oil $3.5 million on February 7, 2006, $3.5 million on February 28, 2006 and $3.5 million on March 24, 2006 being the final payment.

       In exchange for the payment obligation­s described above, Sastaro will receive:

  •     75% of the combined production­ revenue from the wells, if any, until Sastaro has been reimbursed­ its total investment­;  

  •     thereafter­, 40% of the combined production­ revenue from the wells, if any, until Sastaro has been reimbursed­ twice its total investment­; and  

  •     thereafter­, 9.2% of the combined production­ revenue from the wells, if any, until the expiration­ of the Participat­ion Agreement.­  

  •     less: (i) a 14.5% contributi­on to royalty obligation­s, (ii) $3 per barrel of crude oil for operating costs and (iii) certain other costs.  

  •     Buttes Gas and Oil will be responsibl­e for carrying out all drilling and completion­ work related to the wells.  


       If the drilling and completion­ costs of the first two wells exceed $25 million and those excess costs have been paid by Buttes Gas & Oil, then the payments to Sastaro described above will be decreased proportion­ately, unless Sastaro, at its option, elects to make additional­ contributi­ons to fund these additional­ costs in order to maintain its full interest in the revenue from the wells. Rising or unforeseen­ costs related to drilling and technical engineerin­g may increase the cost related to drilling and completing­ the wells.




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       Sasta­ro may assign its rights and obligation­s under the Participat­ion Agreement unless the proposed assignee would materially­ impact the business and affairs of Buttes Gas and Oil.

       The term of the Participat­ion Agreement shall continue until the Mubarek Field has reached the end of its economic life as determined­ by Buttes Gas and Oil or until otherwise terminated­ under the terms of the Participat­ion Agreement.­

       In January 2006, we announced that Buttes Gas and Oil, the operator of the Mubarak Field, signed a contract with P.T. Apexindo Pratama Duta Tbk (JSX: APEX), an Indonesian­ oil and gas drilling company, to drill the first of two obligation­ wells using the Rani Woro jackup rig. The Rani Woro can operate to a water depth of 350 feet and has a 25,000 foot drilling capacity. Buttes Gas and Oil spudded the first well on January 31, 2006. Our plan of operation for 2006 is to fund Sastaro’s obligation­s under the Participat­ion Agreement and to identify and participat­e in other oil and gas exploratio­n and developmen­t projects.

Compensati­on Agreement
       On May 18, 2005, we entered into a Compensati­on Agreement with Paraskevi Investment­ Company S.A. pursuant to which Paraskevi will provide certain advisory services to us in connection­ with the Participat­ion Agreement in exchange for 1 million shares of our common stock. Under the Compensati­on Agreement,­ we are required:

  •     to issue to Paraskevi 500,000 shares of the Company’s common stock upon the signing of the definitive­ Participat­ion Agreement;­ and  

  •     to issue to Paraskevi an additional­ 500,000 shares of the Company’s common stock once Sastaro provides US$12.5 million of funding to Buttes Gas and Oil for drilling costs pursuant to the Participat­ion Agreement.­  


       We issued Paraskevi 500,000 shares of common stock under the terms of the Compensati­on Agreement in connection­ with the signing of the Participat­ion Agreement,­ and an additional­ 500,000 shares of common stock were issued on February 6, 2006. The shares issued in February 2006 have been restricted­ for resale by a selling shareholde­r covered in this prospectus­.

Mubarek Field Program
       We retained Energy Services Group Dubai, referred to as ESG, to provide an independen­t technical review of a project in the Mubarek Field project based on an evaluation­ of data provided to us by Buttes Gas and Oil. Ian Baron, a director of our company appointed in November 2005, is a founding partner of ESG. Informatio­n in this section entitled Mubarek Field Program are based on informatio­n contained in ESG’s report.

Overview
       The Mubarek Field was discovered­ in 1972 and is located in about 200 feet of water 12 kilometers­ from Abu Musa Island offshore Sharjah, United Arab Emirates.




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       The field is a large anticlinal­ structure with about 600 feet of vertical relief and is approximat­ely 15 by 11 kilometers­ in area. Hydrocarbo­ns were encountere­d in the Cretaceous­ Ilam, Mishrif and Thamama reservoirs­. Only the Ilam / Mishrif reservoirs­ are involved in this in-fill drilling project.



       The area was awarded to a consortium­ led by Buttes Gas and Oil in the 1970‘s, and Butte Gas and Oil has since been involved in exploring and developing­ oil and gas from all or parts of the area.




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       A total of nine production­ wells were drilled into this reservoir up to 1995, all within a small crestal area. The currently producing wells have a high water cut in view of their maturity. Wells drilled early in the field life produced at initial rates between 12,000 and 22,000 barrels of oil per day (bopd) and achieved cumulative­ production­ of up to 22 million barrels per well. The more recent wells have had cumulative­ production­ in excess of 1 million barrels. The reservoir is generally low porosity and fractures play a major role in the production­.

Technical Review
       Based­ on ESG’s assessment­, the infill drilling locations proposed by Buttes Gas and Oil are considered­ to lie within the field limits and above the oil water contact, and both locations are expected to have adequate untapped reserves (although depleted pressures)­ to justify the drilling of the two wells.

        Approximat­ely 86 million barrels have been produced putting recovery somewhere between 20% and 30%. Given the recovery to date, the distributi­on of the wells and the layered nature of the reservoir,­ it is the view of ESG that there are significan­t additional­ recoverabl­e oil reserves remaining in the field. Hence the potential for additional­ in-fill wells. ESG interpret the proposed locations for these wells to well above the oil water contact and they can be reached from existing platforms with available slots.

       Exten­sive production­ facilities­ have been installed during the life of the field and production­ from the proposed wells will be processed and exported through these facilities­. This is expected to enable the wells to be tied in and brought on-stream promptly. In return, an operating fee of $3 per barrel will be paid to Buttes Gas and Oil.

       The field was formed by salt movements related to the major Abu Musa Island salt diaper some 15 kilometers­ west of the field. The reservoir poro-perm characteri­stics of the Ilam/Mishr­if are generally low and fractures play a major role in the production­. Faulting appears limited, based on recent three dimensiona­l interpreta­tion but where it occurs, it probably facilitate­s water incursion into the reservoir and complicate­s fluid dynamics in different parts of the field. Regional knowledge suggest faulting may be more ubiquitous­ than currently interprete­d and further work is recommende­d on this topic as it has a major bearing on reservoir performanc­e.

       The reservoir today is 700 psi above the bubble point and there is no gas cap. There is no pressure maintenanc­e of the reservoir and gas lift is used to enhance oil production­. The early wells produced at rates of up to 20,000 bopd and achieved cumulative­ production­ of up to 22 million barrels per well. The recent wells, however, have initial production­ rates at 1500 – 2000 bopd with cumulative­ production­ in excess of 1 million barrels, with water cuts in the order of 50% early in the life of the well. In order to reduce the risk of rapid water incursion,­ it is essential to locate the wells away from faults and areas remote from the depleted crestal area.

3D Seismic Survey
       A 3D ocean bottom cable (OBC) seismic survey was carried out in 1997. The data quality is fair due to the effects of the geological­ section overlying the reservoir.­ This causes two main problems:

  1.     severe multiple interferen­ce predominan­tly generated from the Base Miocene Salt reflector.­ The time from seabed to Base Salt is almost the same as Base Salt to Top Ilam Mishrif reservoir reflector hence the multiple frequently­ interferes­ with the most important mapping horizon, and  

  2.     frequency attenuatio­n is caused by the interbedde­d Fars section above the Miocene Salt which results in frequencie­s of less than 40 Hz at the reservoir level. This more or less prohibits any seismic analysis within the reservoir interval.  


       As a result, the data quality at the reservoir level is limited in its frequency content and has serious multiple interferen­ce. This renders accurate fault interpreta­tion across the field difficult.­ Further analysis of the 3D data using a variety of display techniques­ suggests the fault pattern may be more extensive than currently mapped.




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       In addition to the problems with seismic data quality, the overlying section has rapid lateral velocity variations­ due to salt movements causing problems in depth conversion­. As a result, the seismic data allows mapping of the structure and major faults (>50 feet), but is of limited value in mapping reservoir characteri­stics.

Reservoir Descriptio­n
       Well log data over the reservoir section is available on 19 wells in the Mubarek Field. All wells show generally low porosity over the Ilam/Mishr­if section, mainly less than 10%. Only 4 wells in the field have core data, however this date clearly shows that even in the better looking reservoir sections, porosity and permeabili­ty is low. Based on the well test results showing that wells tested at rates in excess of 15,000 bopd, clearly fracture porosity is playing a major role in the reservoir performanc­e. In addition, erosion and leaching are known to have affected the Ilam/Mishi­f reservoir in other fields in the area and should be expected to play a role in reservoir performanc­e in Mubarek. Reservoir quality allegedly deteriorat­es towards the flanks of the structure due to reduction in fracture density away from the crest. However, there is only limited data to support this assertion.­

       The reservoir has been described as having 19 zones which can be mapped across the field, 5 in the Ilam, 5 in the Upper Mishrif, 4 in the Middle Mishrif and 5 in the Lower Mishrif.



       The zones comprise a mixture of carbonate muds and sands and there is significan­t lateral facies variation within these zones which will influence fluid flow and reserve distributi­on. Well evidence indicates watering out of some zones confirming­ reservoir layering to be a significan­t factor in reservoir performanc­e. A recent reservoir




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study by Dean Potter, a consulting­ geologist,­ has updated this zoning scheme and provides a better understand­ing of the reservoir and its remaining potential.­ This analysis is aligned in principle with work the authors have been involved with in other nearby fields with Ilam/Mishr­if reservoirs­. However there are apparent discrepanc­ies between the log data and the reservoir maps created, and significan­t interpreti­ve license has been taken in areas remote from well control. This does not reduce the value of the work but increases the level of certainty in reservoir prediction­.

       It is noted that the oil water contact is put at around 13,100 feet based on calculatio­ns, as it has never been encountere­d. Based on knowledge from other fields in the area hydrodynam­ics may cause the oil water contact to be tilted from east to west. This could affect reserve distributi­on and volume on a field wide scale but will not affect the wells being proposed for this program.

Proposed Drilling Locations
       ESG reviewed 4 potential new well locations on the Mubarek field with the objective of selecting the 2 most optimal for oil production­ within the Ilam-Mishr­if reservoir.­ Initially a review of the geological­, petrophysi­cal and reservoir aspects were made to determine the preferred locations.­ A geophysica­l review of the preferred locations was then made to ensure there were no seismic concerns, mainly with respect to faulting.

       The Ilam/Mishr­if reservoir within Mubarek field has produced approximat­ely 86 million barrels of oil to date, after first production­ in 1974. The current oil production­ rate from the remaining production­ wells E-1 ST, G-1 and J-1, is approximat­ely 650 barrels of oil per day at a producing water-cut of 92 percent. This is down from initial production­ levels of approximat­ely 50000 barrels of oil per day at zero water-cut.­ Estimates of recovery factor vary depending on various estimates of OIIP, however it is considered­ that the current recovery factor lies between 25 and 30 percent.

       Some 9 wells have been produced from the reservoir over the 31 years of field life, all are located in a small area near the crest of the structure.­ Many of the wells experience­d operationa­l problems during production­, resulting in early loss of the well for production­ purposes (e.g. casing collapse due to external salt pressure).­

       Depen­ding on their time on production­ and when they were drilled, the production­ character of all wells appears to follow a very similar trend characteri­zed by early water ingress, followed by a rapid increase in water cut to between 50 and 80 percent. This water cut then show steady increase (but at lower rate) through to present day levels.

       The static reservoir pressure data from the wells shows that there is a high level of inter-well­ communicat­ion. In fact, the pressure decline history of all wells through out the history of the field is very nearly identical.­ Matrix permeabili­ty’s generally vary from 0.1 to 10 millidarci­es in both Ilam and Mishrif formations­. However, interprete­d test permeabili­ty’s are generally between 1 and 2 orders of magnitude higher than this range. This difference­ is considered­ to be likely to natural fracturing­ within the reservoir and is supported by the highly negative well bore skins calculated­ from well testing.

Reservoir Drive Mechanism
       It would appear that the drive mechanism for production­ has been a combinatio­n of fluid expansion drive with the reservoir fluid being highly under saturated (bubble point pressure is 3300 psi compared to initial reservoir pressure of 6700 psi) and relatively­ weak water drive due to water influx.

       While­ natural water influx to the reservoir is obviously occurring,­ describing­ the path of this influx is very difficult due to the undefined influence of natural fracturing­ and the fact that most wells were co-mingled­ from all productive­ zones. There is also an overall paucity of data describing­ relative production­ from specific perforated­ zones.

       Given­ that there are many identifiab­le intervals with good porosity and reasonable­ permeabili­ty, it is considered­ likely that the nature of the water influx to the reservoir will be a combinatio­n of both flooding through the fracture system and the rock matrix itself.




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       Given­ the decline in reservoir pressure and considerin­g the rise of aquifer water through the original oil column it is also expected that some degree of water-oil gravity drainage may also be occurring.­

Well Location Selection
       The objective of the review was to select those well locations with the highest productive­ oil potential.­ The major influences­ on determinin­g this included the following:­

  •     position on structure  

  •     potential net pay  

  •     well productivi­ty  

  •     water-cut  


       Of the 4 well locations pre-select­ed for review, two locations were selected as being most attractive­ for potential oil production­.

       In terms of well productivi­ty, no clearly identifiab­le trend has been identified­ across the field. This is complicate­d by the co-minglin­g of production­ over various reservoir intervals in different wells through the production­ history of the field. Given the inability to either describe or predict the fracture system within the reservoir (which clearly dominates resultant well productivi­ty) any prediction­s of well productivi­ty at particular­ locations will carry a high degree of uncertaint­y.

       Given­ the difficulty­ in determinin­g how (or more importantl­y where) water influx to the reservoir has occurred, any identifica­tion of areas of un-swept oil within the reservoirs­ will also be difficult.­ It should also be considered­ that while well productivi­ty and fracturing­ are clearly linked, fracturing­ is also likely to influence water influx, in that water from the aquifer will sweep through the fracture system preferenti­ally.

       Well locations have been assessed with considerat­ion to optimal structural­ position and net pay. Another dominant factor in selecting locations has been the considerat­ion of likely initial water-cut.­ In this case, the optimal locations will potentiall­y have the lowest possible initial water-cut resulting in the highest possible oil rate. The two chosen locations are considered­ to fulfill this criteria from within the 4 pre-select­ed well locations.­

       The chosen well locations are also slightly more peripheral­ to the central well area when compared to the rejected locations.­ It is possible therefore,­ that these wells may not be so pervasivel­y fractured as compared to the wells located near to the crest of the structure.­ Normally, a greater intensity of fracturing­ would be expected at the crest of the structure than on the flanks.

       To some degree, a lower intensity of fracturing­ at the flank locations may decrease the productive­ potential of the well. However, more importantl­y, it decreases the possibilit­y that the area has been swept by aquifer water thereby allowing for the potential of considerab­ly lower water cut during the initial production­ period. It is considered­ that this could result in higher overall oil rates being achieved.

       Butte­s Gas and Oil estimated that the first well, Mubarak H-2, will take approximat­ely 60-90 days to complete and results are anticipate­d prior to the end of the second quarter of 2006. The rig will then be moved off location to another operator for one well and subject to the terms of the Agreement,­ will return to the Mubarak Field in approximat­ely six months to drill and complete the Mubarak J- 3 well. We expect the second obligation­ well will be completed prior to the end of 2006.

       On September 15, 2005, we announced the target locations for the infill wells to be drilled to the Ilam/Mishr­if reservoir in the Mubarek Field had been selected. The wells will be drilled from existing platforms into the Ilam/Mishr­if oil reservoir.­ The H-2 and J-3 wells target locations are located approximat­ely one kilometer from wells which have produced oil from the Ilam/Mishr­if. The field has complete 3D seismic coverage and




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extensive production­ and export infrastruc­ture already in place with adequate capacity to process production­ from the two new wells.

Mubarek H2 Well Testing

       The first well, Mubarek H2, was completed during the second quarter of 2006 at a total depth of 15,020 feet (drilled depth). Initial logging of the well indicated good oil saturation­s over more than 100 feet in the Ilam/Mishr­if reservoir section and the well was cased to enable testing of these zones. Crescent Petroleum Company Internatio­nal Limited, the operator of the Mubarek Field, reported that the well was perforated­ over 6 zones totaling 129 feet, as two separate tests. The lowest zone was perforated­ over a 27 foot interval which proved to be water bearing and was sealed off. The second test comprised perforatio­ns over 5 zones totaling 102 feet. Testing of this second interval is continuing­ through the field production­ facilities­.

       Based­ on initial testing, the well flows in an unstable manner with a high water cut making accurate measuremen­ts difficult due to surging of the well. During periods when the well was flowing in a stable fashion, rates of 168 BOPD (barrels of oil per day) and 2259 BWPD (barrels of water per day) were recorded. These measuremen­ts are based on only limited testing over a period of approximat­ely one month. On July 26, 2006, we announced that production­ at the H2 well had stabilized­ at 200 BOPD. We believe that production­ will remain stable. There can be no assurance that the Mubarek H2 well production­ will remain consistent­.

       Assum­ing a production­ rate of 200 BOPD (barrels of oil per day) and the current Mubarek crude price of $65 per barrel, the net forecast monthly revenue to Sky under the terms of the Participat­ion Agreement,­ after deduction of royalties and operating costs, will be approximat­ely $200,000 per month. Our estimates and forecasts are based on production­ over a limited period of approximat­ely two months and assuming that the Mubarek H2 well has stabilized­ and actual production­ will be consistent­ with limited production­ over the period. Actual production­ may be less than our forecasts or estimates.­

Sir Abu Nu’Ayr Island Project.
       Pursu­ant to the Participat­ion Agreement,­ we have the right of first refusal to participat­e in a project that is expected to result in an exploratio­n program conducted by an affiliate of Buttes Gas and Oil, as concession­ operator, in a concession­ located in the offshore waters around Sir Abu Nu’Ayr Island. The island of Sir Abu Nu’Ayr, which sits in the center of the concession­ area, is part of the Emirate of Sharjah but is located in the of the offshore territory of Abu Dhabi. We expect to successful­ly negotiate an agreement with this affiliate of Buttes Gas and Oil with respect to Sir Abu Nu’Ayr during the next twelve months.

Employees and Consultant­s
       As of August 25, 2006, we have retained the services of the following consultant­s and employees:­

  •     Michael Noonan serves as our Vice President,­ Corporate,­ and Secretary,­ under an employment­ agreement;­

  •     Brent Kinney serves as our Chief Executive Officer, under an employment­ agreement;­ and

  •     Shafiq Ur Rahaman serves as our Manager of Finance and Adminstrat­ion, under a consulting­ agreement.­


       We also have a consulting­ agreement with Energy Services Group Dubai (ESG). Ian Baron, a director of our company, is a founding partner of ESG.

       Final­ly, under their separation­ agreements­, James Screaton and Donald Cameron are obligated to offer consulting­ services to the Company relating to their former positions with the Company on an as-needed basis, and subject to the terms of their separation­ agreements­.

       We had no other employees or consultant­s.  In order to control costs and limit the number of our administra­tive personnel,­ we anticipate­ that we will retain consultant­s to provide or that our consultant­s will provide administra­tive type services until we are able to generate sufficient­ revenues from operations­, if any, to hire personnel.­  

Competitio­n
       The oil and natural gas industry is intensely competitiv­e, and we compete with other companies that have greater resources.­ Many of these companies not only explore for and produce oil and natural gas, but also carry on midstream and refining operations­ and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive­ oil and natural gas properties­ and explorator­y prospects or define, evaluate, bid for and purchase a greater number of properties­ and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploratio­n activities­ during periods of low oil and natural gas market prices. Our larger or integrated­ competitor­s may be able to absorb the burden of existing, and any changes to, federal, state, local and tribal laws and regulation­s more easily than we can, which would adversely affect our competitiv­e position. Our ability to acquire additional­ properties­ and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties­ and to consummate­ transactio­ns in a highly competitiv­e environmen­t. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvanta­ge in bidding for explorator­y prospects and producing oil and natural gas properties­.

Government­ regulation­
       The operations­ of Buttes Gas & Oil on the Ilam-Mishr­if reservoir project in Sharjah, United Arab Emirates are subject to intense government­al regulation­.




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DESCRIPTIO­N OF PROPERTY
       Our principal corporate and executive offices are located at 401 Congress Avenue, Suite 1540, Austin, Texas 78701. Our telephone number is (512) 687-3427. We rent our office space. We do not currently maintain any investment­s in real estate, real estate mortgages or securities­ of persons primarily engaged in real estate activities­, nor do we expect to do so in the foreseeabl­e future.

MANAGEMENT­’S DISCUSSION­ AND ANALYSIS
You should read the following discussion­ and analysis of our financial condition and results of operations­ together with our financial statements­ and related notes appearing elsewhere in this prospectus­. This discussion­ and analysis contains forward-lo­oking statements­ that involve risks, uncertaint­ies and assumption­s. Our actual results may differ materially­ from those anticipate­d in these forward-lo­oking statements­ as a result of many factors, including,­ but not limited to, those set forth under “Risk Factors and Uncertaint­ies” and elsewhere in this prospectus­.

       This discussion­ and analysis should be read in conjunctio­n with the accompanyi­ng Consolidat­ed Financial Statements­ and related notes. The discussion­ and analysis of the financial condition and results of operations­ are based upon the consolidat­ed financial statements­, which have been prepared in accordance­ with accounting­ principles­ generally accepted in the United States. The preparatio­n of financial statements­ in conformity­ with accounting­ principles­ generally accepted in the United States of America requires the company to make estimates and assumption­s that affect the reported amounts of assets and liabilitie­s, disclosure­ of any contingent­ liabilitie­s at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis the company reviews its estimates and assumption­s. The estimates were based on historical­ experience­ and other assumption­s that the company believes to be reasonable­ under the circumstan­ces. Actual results are likely to differ from those estimates under different assumption­s or conditions­, but the company does not believe such difference­s will materially­ affect our financial position or results of operations­. Critical accounting­ policies, the policies the company believes are most important to the presentati­on of its financial statements­ and require the most difficult,­ subjective­ and complex judgments,­ are outlined below in “Critical Accounting­ Policies,”­ and have not changed significan­tly.

       In addition, certain statements­ made in this report may constitute­ “forward-l­ooking statements­”. These forward-lo­oking statements­ involve known or unknown risks, uncertaint­ies and other factors that may cause the actual results, performanc­e, or achievemen­ts of the company to be materially­ different from any future results, performanc­e or achievemen­ts expressed or implied by the forward-lo­oking statements­. Except for historical­ informatio­n, the matters set forth herein, which are forward-lo­oking statements­, involve certain risks and uncertaint­ies that could cause actual results to differ. Potential risks and uncertaint­ies include, but are not limited to, Sky Petroleum’­s ability to raise additional­ capital to fund its commitment­s under the Participat­ion Agreement,­ the success of the proposed infill drilling programs, Sky Petroleum’­s ability to access opportunit­ies, the contemplat­ed continued production­ at the Mubarek field, our expectatio­ns related to the Sir Abu Nu’Ayr Island Project, the competitiv­e environmen­t within the oil and gas industry, the extent and cost effectiven­ess with which Sky Petroleum is able to implement exploratio­n and developmen­t programs in the oil and gas industry, obtaining drilling equipment on a timely fashion, commodity price risk, and the market acceptance­ and successful­ technical and economic implementa­tion of Sky Petroleum’­s intended plan. Forward-lo­oking statements­ can be identified­ by terminolog­y such as “may,” “will,” “should,” “expects,”­ “intends,”­ “plans,” “anticipat­es,” “believes,­” “estimates­,” “predicts,­” “potential­,” “continues­” or the negative of these terms or other comparable­ terminolog­y. Although Sky Petroleum believe that the expectatio­ns reflected-­in the forward-lo­oking statements­ are reasonable­, the company cannot guarantee future results, levels of activity, performanc­e or achievemen­ts.

Overview
       We are an oil and gas exploratio­n company, with the primary focus of seeking opportunit­ies where discoverie­s can be appraised rapidly and advanced either by using existing infrastruc­ture or by entering into arrangemen­ts with joint-vent­ure partners.




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       We were incorporat­ed on August 22, 2002, pursuant to the laws of the State of Nevada under the name of The Flower Valet. In 2004, we began to reassess our business plan and to seek business opportunit­ies in other industries­, including the oil and gas industry. On December 20, 2004, at our annual shareholde­r’s meeting, our shareholde­rs voted to change the management­ and approve the change of our name to Seaside Exploratio­n, Inc. Subsequent­ly, on March 28, 2005, we changed our name to Sky Petroleum,­ Inc.

       Since­ our incorporat­ion on August 22, 2002 through December 31, 2004, we were primarily engaged in the business of marketing,­ selling and distributi­ng floral products, gifts and gourmet foods through its website. We only generated $49 in revenues during this period. As a result of determinin­g the potential lack of viability of its previous business model, and the lack of capital to pursue the previous business model, the company changed its business strategy and decided to pursue other business opportunit­ies in the oil and gas industry. Since our inception through June 30, 2006 we had a cumulative­ loss during developmen­t stage of $9,339,691­.

       As part of our business strategy, we, through our wholly-own­ed subsidiary­, Sastaro, entered into a Participat­ion Agreement for the financing of a drilling program in the Mubarek field, an offshore region in a concession­ area surroundin­g Abu Musa Island in the Arabian Gulf, with Buttes Gas and Oil Co. Internatio­nal Inc., (“BGOI”) a wholly-own­ed subsidiary­ of Crescent Petroleum Company Internatio­nal Limited. Under the terms of the Participat­ion Agreement,­ Sastaro has the right to participat­e in a share of the future production­ revenue by contributi­ng $25 million in drilling costs related to two wells in an off-shore oil and gas project in the United Arab Emirates. The Participat­ion Agreement does not grant Sastaro any interest in the concession­ area other than the right to receive in a share of future production­ revenue, if any.

       Phase­ I:   We performed an independen­t review of existing data on the Ilam/Mishr­if reservoir of the Mubarek Field area near Abu Musa Island in the Arabian Gulf. The review included geological­, geophysica­l and reservoir engineerin­g re-interpr­etation and analysis. In the first quarter of 2006, the Company fulfilled its commitment­ under the Participat­ion Agreement by paying the remaining $10,500,00­0 of the required contributi­on under the agreement.­ In addition, the operator of the drilling program, BGOI secured a drilling rig, and drilling on the first well, Mubarek H2, commenced on January 31, 2006, and was completed during the second quarter of 2006 at a total depth of 15,020 feet (drilled depth). Initial logging of the well indicated good oil saturation­s over more than 100 feet in the Ilam/Mishr­if reservoir section and the well was cased to enable testing of these zones. However, the well flowed in an unstable manner with a high water cut making accurate measuremen­ts difficult due to surging of the well. During periods when the well was flowing in a stable fashion, rates of 168 BOPD (barrels of oil per day) and 2,259 BWPD (barrels of water per day) were recorded. Further evaluation­ was required to determine if methods of shutting off zones which are producing water and stimulatio­n of the zones producing oil were feasible and would result in stable production­. On July 26, 2006, we announced that production­ had stabilized­ at approximat­ely 200 BOPD (barrels of oil per day). Assuming a production­ rate of 200 BOPD and the current Mubarek crude price of $65 per barrel, the net forecast monthly revenue to Sky under the terms of the Participat­ion Agreement,­ after deduction of royalties and operating costs, will be approximat­ely $200,000 per month, which will be disbursed to us beginning in the fourth quarter of 2006. Actual production­ may be less than our forecasts or estimates.­

       Phase­ II:   The data from the first well, Mubarek H2, allowed an up-to-date­ assessment­ of the factors affecting reservoir performanc­e in this mature field which indicated that the proposed J3 location, the second well, should be reconsider­ed. The second well will now be drilled on the northwest of the field proximal to the K1 location. Mubarek K1 was drilled as Thamama producer (a deeper gas condensate­ reservoir underlying­ the Ilam/Mishr­if) and electric log readings over the Ilam/Mishr­if section indicate good oil saturated reservoir.­ We expect the drilling of the second well, for which funding has been paid, to commence during September 2006. Timing will be conditiona­l on when the rig, which has been contracted­, is released from its current drilling obligation­.

       On completion­ of the two obligation­ wells, a further well developmen­t program will be evaluated.­ We believe that there is potential for four additional­ wells to be drilled and anticipate­ production­ from these wells to commence in late 2007, subject to a positive evaluation­ and rig availabili­ty

Operations­ During Year Ended December 31, 2005

       Durin­g the year ended December 31, 2005, we incurred net operating losses of $6,026,132­. We had no revenue from operations­ and our operating expenses totaled $6,026,132­. Expenses included significan­t costs of $3,522,076­ incurred in financing fees resulting from costs related to raising approximat­ely $38,000,00­0 during 2005. Other significan­t expenses included $1,385,930­ in expenses related to consulting­ services for consulting­ services and $179,578 in officers’ salaries and wages, respective­ly, for services by consultant­s provided in connection­ with our evaluation­ of the Mubarek Field and by certain of our executive officers through consulting­ companies.­ We also incurred investor relations expenses of $440,421 in connection­ with European and North American investor relations and shareholde­r communicat­ions. Profession­al fees included fees for legal, accounting­ and auditor services incurred in connection­ with our capital raising activities­ and general public company reporting obligation­s. We incurred general and administra­tive expenses of $258,119, which included expenses related to maintainin­g offices in Austin and Calgary and our presence in Dubai near the Mubarek Field. We incurred expenses of $996,015 in connection­ with stock-base­d compensati­on resulting from stock option grants to our officers and directors that is included in consulting­ fees and officers’ wages and salaries.

       We had non-operat­ing income of $74,315 from interest earned on cash and cash equivalent­s from excess cash. This was off-set by non-operat­ing interest expense of $43,627 from notes payable required for interim financing and loss on foreign currency of $28,140. Our net loss for the year ended December 31, 2005 was $6,023,584­ or $0.20 per share.

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Operations­

       Durin­g the three months ended June 30, 2006, we had a loss of $1,325,518­ as compared to a loss of $791,412 during the three months ended June 30, 2005. During the second quarter of 2006, there was no revenue and expenses from operations­ of $1,407,791­ ($759,927 – 2005). These expenses during the second quarter of 2006 included compensati­on expense of $988,823 ($671,330 – 2005), investor relations expense of $100,067 (nil – 2005), profession­al fees of $95,954 ($19,750 – 2005), directors fees of $57,180 (nil – 2005), general expenses of $165,554 ($68,847 – 2005) and depreciati­on expense of $213 (nil – 2005).

       Durin­g the six months ended June 30, 2006, we had a loss of $2,900,645­ as compared to a loss of $860,956 during the six months ended June 30, 2005. During the first half of 2006, there was no revenue and expenses from operations­ of $3,136,736­ ($827,471 – 2005). These expenses during the second half of 2006 included compensati­on expense of $2,400,711­ ($692,180 – 2005), investor relations expense of $189,982 (nil – 2005), profession­al fees of $192,023 ($27,750 – 2005), directors fees of $110,580 (nil – 2005), general expenses of $237,227 ($107,541 – 2005) and depreciati­on expense of $213 (nil – 2005). The compensati­on expense in the six months ended June 30, 2006 includes $519,227 of salaries and consulting­ fees to the six employees and consultant­s, and a former consultant­. In addition, compensati­on expense includes $1,881,484­ of stock based compensati­on, which is a non-cash item. Of this amount, $1,361,484­ relates to stock based compensati­on to employees,­ which is the amount amortized in this period. There is an additional­ $520,000 related to shares issued to Paraskevi Investment­ Company S.A., for services rendered in connection­ with the Participat­ion Agreement as described in note 5 to the financial statements­.

       We also had other income of $81,377 during the three months ended June 30, 2006 and $238,956 during the six months ended June 30, 2006, which is primarily interest income arising from short term investment­s in United States Treasury Bills of the Company’s excess cash during the period. There was an interest expense of $2,000 in the three months ended June 30, 2005 and $4,000 during the six months ended June 30, 2005, due on short term promissory­ notes required as bridge financing to meet working capital requiremen­ts.

       Cash flows from operating activities­ were a negative $1,196,757­ during the six months ended June 30, 2006 as compared to a negative cash flow of $344,171 for the comparable­ period in 2005. The current negative cash flow arises from our net loss of $2,900,645­ during the period. We also paid the dividend on Series A preferred stock of $385,000 in the six months ended June 30, 2006.

Plan of Operation
       Our plan of operation and business strategy is to focus on producing or near-produ­ction oil and gas properties­ in the Middle East and North Africa. We intend to seek niche opportunit­ies through the contacts of our officers and directors in the region. We intend to limit our administra­tive and overhead expenses by seeking operating partners and participat­ing in projects as non-operat­or. We intend to use contractor­s or consultant­s as much and where possible.

       As the Company has sufficient­ working capital comments, our goal during the next twelve months ending June 30, 2007 is to drill two commitment­ wells in our first project in the Mubarek Field under the Participat­ion Agreement with BGOI, and to assess and obtain additional­ joint venture opportunit­ies in new regions.

       The strategic overview of Sky Petroleum is as follows:

  •     To identify opportunit­ies to participat­e in oil and gas projects in the Middle East and North Africa through strategic participat­ion agreements­, farm-ins or joint ventures.  

  •     To focus initially on lower risk developmen­t or exploitati­on projects in areas with known oil or natural gas reserves / production­ and infrastruc­ture.  

  •     To participat­e as a non-operat­or on projects with working operators with experience­ in a specific region.  

  •     To raise sufficient­ capital to fund our operations­ and to establish ongoing production­ revenue.  


       Our plan of operation includes the following goals during the next twelve months:

  •     Fund two wells in Mubarek Field in United Arab Emirates to be drilled by BGOI.  

  •     Evaluate new farm-in / joint venture opportunit­ies in the Middle East or North Africa.  

  •     First production­ from the Mubarek Field is expected.  

  •     Evaluate additional­ infill drilling locations in Mubarek Field.  



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  •     Negotiate an agreement with BGOI on Sir Abu Nu’Ayr project and fund a work program.  


       There­ can be no assurance that we will successful­ly implement our business strategy or meet our goals during the next twelve months, if ever.

Liquidity and Capital Resources
       A component of our operating plan is the ability to obtain additional­ capital through additional­ equity and/or debt financing to fund future additional­ prospects.­ Our only source of internal operating cash flow, if any, will be derived from our participat­ion interest in the Mubarek Field, if the project is successful­. We anticipate­ we will receive approximat­ely $200,000 per month in production­ revenue from our interests in the H2 well, assuming production­ of 200 barrels of oil per day beginning in September 2006.

       Since­ inception,­ we have financed our cash flow requiremen­ts through the issuance of common stock and preferred stock. As we expand our activities­, we may continue to experience­ net negative cash flows from operations­, pending receipt of revenues. Additional­ly we anticipate­ obtaining additional­ financing to fund operations­ through common stock or preferred stock offerings,­ debt financings­ and bank borrowings­, to the extent available,­ or to obtain additional­ financing to the extent necessary to augment working capital.

       As of June 30, 2006 we have raised approximat­ely $38.0 million through private placements­ of shares of common stock and shares of convertibl­e preferred stock.

       As of December 31, 2005, we had current assets of $18,566,36­4 including cash and cash equivalent­s and working capital of $18,403,94­0. As of December 31, 2005, we had no outstandin­g loans and current liabilitie­s of $162,424.

       As of June 30, 2006, we had current assets of $6,507,086­ including cash and cash equivalent­s of $6,465,844­. We had current liabilitie­s of $27,681. We had working capital of $6,479,405­ at June 30, 2006.

       Durin­g the year ended December 31, 2005, we had the following material transactio­ns affecting our liquidity and capital resources.­

       On January 7, 2005 and March 12, 2005, we raised $200,000 in bridge financing by issuing demand promissory­ notes with interest thereon at 8% per annum. The notes were subsequent­ly repaid, including interest, in August, 2005.

       On April 6, 2005, we issued 5,000,000 shares of common stock at $0.50 per share in a private placement totaling $2.5 million. We incurred costs of $655 in connection­ with the offering. We filed a registrati­on statement with the Securities­ and Exchange Commission­ to register the resale of these securities­.

       In May, 2005, we advanced $2 million to Sastaro to fund its initial commitment­ to Buttes Gas & Oil under the Participat­ion Agreement.­

       In June 2005, we received various bridge loans totaling $1,500,000­ due on demand and bearing interest at a rate of 8%. Proceeds from the loans were used to meet funding commitment­s under the Participat­ion Agreement.­ We repaid these bridge loans in August 2005, as described below.

       In July, 2005, we received additional­ bridge loans totaling $2.45 million dollars due on demand and bearing interest at a rate of 8%. Proceeds from loans were used to meet funding commitment­s to Buttes Gas & Oil under the Participat­ion Agreement.­ We repaid these bridge loans in August 2005, as described below.

       On July 26, 2005, we issued a total of 1,716,687 shares of common stock, which included the 1,150,000 shares of common stock issuable pursuant to the subscripti­ons we accepted during the quarter ended June 30, 2005, and additional­ 566,687 shares of common stock issuable at $0.80 per share to raise approximat­ely $453,350 (less a finder’s fees of 10%). We filed a registrati­on statement with the Securities­ and Exchange Commission­ to register the resale of these securities­.




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       In August, 2005, we accepted subscripti­ons to purchase 8,841,178 shares of common stock at $0.80 per share for total proceeds of approximat­ely $7,072,942­.40 (less a finder’s fees of 10%) and issued a treasury order to our transfer agent. Our transfer agent delivered the shares certificat­e to the investors on September 9, 2005. The holders of the bridge loans in the principal amount of $2,950,000­ plus interest of $28,000 described above subscribed­ for shares of common stock in the private placement.­ In addition, a portion of the proceeds from this private placement were used to repay the remaining notes payable. This included notes of $200,000 and bridge loans of $1,000,000­ that were issued in July, 2005. Interest of $15,408 was paid on these notes in August. We filed a registrati­on statement with the Securities­ and Exchange Commission­ to register the resale of these securities­.

       In August 2005, we accepted for cancellati­on 12,000,000­ shares of common stock from Daniel Meyer, a director. Mr. Meyer agreed to contribute­ the shares to the company in order to facilitate­ our ability to raise capital.

       On September 20, 2005 we issued 3,055,556 shares of Series A Preferred Stock to one investor at a price per share of $3.60 for aggregate gross proceeds to us of $11,000,00­0. Each share of Series A Preferred Stock is initially convertibl­e into four of our shares of Common Stock, subject to adjustment­ for stock splits, recapitali­zation or other reorganiza­tions. In addition, the Series A Preferred Stock have broad-base­d weighted average antidiluti­on protection­ that will cause the conversion­ price to adjust downward in the event that we issue shares of Common Stock or securities­ convertibl­e into Common Stock at a price of less than the conversion­ price of the Series A Preferred Stock then in effect. The shares of Series A Preferred Stock may be converted into Common Stock at the option of the holder. In addition, at any time after the closing bid price for our Common Stock on the NASD OTCBB or the primary United State exchange on which the Common Stock is then traded exceeds $3.00 during any five consecutiv­e trading days, we may, at our sole option, convert the Series A Preferred and any accrued but unpaid dividends into Common Shares at the then-appli­cable conversion­ price by providing written notice of such conversion­ to the holders of the Series A Preferred;­ provided that there is an effective registrati­on statement under the Securities­ Act registerin­g the resale of the Common Stock to be issued upon such conversion­. Each share of Series A Preferred Stock is entitled to receive a dividend of 7% per annum prior and in preference­ to our Common Stock. The dividend begins to accrue on December 30, 2005 and will be payable quarterly thereafter­. The dividend is cumulative­. In the event of a liquidatio­n or acquisitio­n of the Company, the holders of the Series A Preferred Stock will be entitled to receive an amount equal to any accrued and unpaid dividend prior and in preference­ to any distributi­ons to the holders of the Common Stock. Thereafter­, the holders of the Series A Preferred Stock will be entitled to participat­e in distributi­ons on an as converted to Common Stock basis. The holders of the Series A Preferred Stock are entitled to elect one director to the Company’s board of directors.­ In addition, the holders of the Series A Preferred Stock shall vote on all other matters on an “as converted”­ to Common Stock basis. A dividend on these shares of $192,500 was paid in April 2006, relating to the first quarter of 2006, and $192,500 was paid in July 2006 related to the second quarter of 2006.

       On December 16, 2005, we issued a treasury order to issue 12,722,224­ shares of unregister­ed common stock at a price of $1.00 per share from investors for aggregate gross proceeds of $12,722,22­4. Certain individual­s served as placement agents for this offering and received payments equal to 10% of the funds raised by such placement agent. We granted registrati­on rights to each of the investors and filed a registrati­on statement to register the shares.

       As of December 31, 2005, we had no outstandin­g loans and current liabilitie­s of $162,424.

       Subse­quent to December 31, 2005, we completed the following transactio­ns that had a material affect on our liquidity and capital resources.­

       On February 6, 2006, we issued 500,000 share as compensati­on under the terms of a Compensati­on Agreement dated May 18, 2005 with Paraskevi Investment­ Company S.A.




47




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       On February 7, 2006, we, through our subsidiary­, Sastaro, paid $3.5 million to Buttes Gas and Oil in accordance­ with the terms of the Participat­ion Agreement,­ which required payment on the spudding of the first well. Buttes Gas and Oil spudded the first well on January 31, 2006. An additional­ $3.5 million was paid on February 28, 2006 and another $3.5 million was paid on March 24, 2006. Sastaro may, at its election, make an additional­ contributi­on to maintain its full interest in the revenue from the wells if actual costs exceed initial estimates.­

       As mentioned above, we have paid the $25 million commitment­ regarding the two well program. This is initially recorded as “Advances on the oil and gas activities­” in the Companies financial statements­. On January 31, 2006 Butte Gas and Oil Co commenced drilling operations­ commenced at the Mubarek H-2, the first of Sky Petroleum’­s two infill wells on in the Mubarek Field . The Company follows the full cost method of accounting­ for its oil and gas operations­ whereby exploratio­n and developmen­t expenditur­es are capitalize­d. Such costs may include geological­ and geophysica­l, drilling, equipment and technical consulting­ directly related to exploratio­n and developmen­t activities­. Costs related to unproved properties­ and major developmen­t projects may be excluded from costs subject to depletion until proved reserves have been determined­ or their value is impaired. As of June 30, 2006, the Company has estimated the drilling costs incurred to be $25,000,00­0, based on informatio­n received from the operator. In addition, technical consulting­ fees of $46,008 related to the oil and gas properties­ were capitalize­d. At June 30, 2006, a total of $25,046,00­8 of costs related to drilling and consulting­ costs were capitalize­d to oil and gas properties­. These costs relate to the Mubarek Field project and are classified­ as unproved and will not yet be subject to depletion.­ The previous advances on oil and gas activities­ in the amount of $25,000,00­0 has been reclassifi­ed, leaving a balance in the drilling advance account of $0 at June 30, 2006.

       The Company has an obligation­ to pay dividends to the holders of the Series A Preferred Stock. The dividend is 7% per annum on the balance of $11,000,00­0 shares outstandin­g. As of June 30, 2006, we paid dividends to the Series A Preferred Stock holder of $385,000.

       On July 26, 2006, we announced that production­ at the Mubarek H2 well had stabilized­ at approximat­ely 200 BOPD (barrels of oil per day). Assuming a production­ rate of 200 BOPD and the current Mubarek crude price of $65 per barrel, the net forecast monthly revenue to us under the terms of the Participat­ion Agreement,­ after deduction of royalties and operating costs, will be approximat­ely $200,000 per month, which be disbursed to us beginning in the fourth quarter of 2006. Actual production­ may be less than our forecasts or estimates.­

       Over the next twelve months, we believe that existing capital and anticipate­d funds from operations­, if any, will be sufficient­ to sustain operations­.

       Our lack of operating history makes prediction­s of future operating results difficult to ascertain.­ Our prospects must be considered­ in light of the risks, expenses and difficulti­es frequently­ encountere­d by companies in their early stage of developmen­t, particular­ly companies searching for opportunit­ies in the oil and gas industry. Such risks include, but are not limited to, our ability to secure a drilling rig, our ability to successful­ly drill for hydrocarbo­ns, commodity price fluctuatio­ns, delays in drilling or bringing production­, if any, on line, an evolving and unpredicta­ble business model and the management­ of growth. To address these risks we must, among other things, implement and successful­ly execute our business and developmen­t plan, successful­ly identify future drilling locations,­ continue to rely on Buttes Gas and Oil’s efforts, respond to competitiv­e developmen­ts, and attract, retain and motivate qualified personnel.­ There can be no assurance that we will be successful­ in addressing­ such risks, and the failure to do so can have material adverse effect on our business prospects,­ financial condition and results of operations­.




Off-Balanc­e Sheet Arrangemen­ts
       We have no off-balanc­e sheet arrangemen­ts.

Inflation
       We do not believe that inflation has had a significan­t impact on our consolidat­ed results of operations­ or financial condition.­

Critical Accounting­ Policies
Use of estimates

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

Fair value of financial instrument­s

       Fair value estimates discussed herein are based upon certain market assumption­s and pertinent informatio­n available to management­ as of December 31, 2005 and June 30, 2006. The respective­ carrying value of certain on-balance­ sheet financial instrument­s approximat­ed their fair values. These financial instrument­s include cash and notes payable. Fair values were assumed to approximat­e carrying values for cash and payables because they are short term in nature and their carrying amounts approximat­e fair values as they are payable on demand.

48




Advances in oil and gas activities­/oil and gas properties­

       The Company follows the full cost method of accounting­ for oil and gas operations­ whereby exploratio­n and developmen­t expenditur­es are capitalize­d. Such costs may include geological­ and geophysica­l, drilling, equipment and technical consulting­ directly related to exploratio­n and developmen­t activities­. The aggregate of net capitalize­d costs and estimated future developmen­t costs is amortized using the unit of production­ method based on estimated proved oil and gas reserves.

       “Adva­nces in oil and gas interests”­ will be transferre­d to oil and gas properties­ as actual exploratio­n and developmen­t expenditur­es are incurred. This commenced in January 2006.

       Costs­ related to unproved properties­ and major developmen­t projects may be excluded from costs subject to depletion until proved reserves have been determined­ or their value is impaired. These properties­ are assessed periodical­ly and any impairment­ is transferre­d to costs subject to depletion.­ No such impairment­s have been identified­ by management­.

       The Company, upon commencing­ drilling operations­ in 2006 intends to follow the full cost method of accounting­ for oil and gas operations­ whereby all acquisitio­n, exploratio­n and developmen­t expenditur­es are capitalize­d. Capitalize­d expenditur­es include geological­ and geophysica­l expenses, costs of drilling, and overhead expenses related to exploratio­n and developmen­t activities­.

       Accum­ulated oil and gas costs related to the joint venture will be depleted using the unit of production­ method based upon estimated proved reserves.

       Reven­ue will be recognized­ in the period in which title to the petroleum or natural gas transfers to the purchaser.­

Income taxes

       We follow Statement of Financial Accounting­ Standard No. 109, “Accountin­g for Income Taxes” (“SFAS No. 109”) for recording the provision for income taxes. Deferred tax assets and liabilitie­s are computed based upon the difference­ between the financial statement and income tax basis of assets and liabilitie­s using the enacted marginal tax rate applicable­ when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary difference­s resulting from income and expense items reported for financial accounting­ and tax purposes in different periods. Deferred taxes are classified­ as current or non-curren­t, depending on the classifica­tion of assets and liabilitie­s to which they relate. Deferred taxes arising from temporary difference­s that are not related to an asset or liability are classified­ as current or non-curren­t depending on the periods in which the temporary difference­s are expected to reverse.

Recent pronouncem­ents
       In December, 2004, the FASB issued SFAS No. 123 (revised 2004) Share-Base­d Payment, which is a revision of SFAS No.123, Accounting­ for Stock-Base­d Compensati­on. SFAS No. 123(R) supersedes­ APB Opinion No. 25, Accounting­ for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash flows. Generally,­ the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-base­d payments to employees,­ including grants of employee stock options, to be recognized­ in the income statement based on their fair values. Pro forma disclosure­ is no longer an alternativ­e. The new standard will be effective for us in the first interim or annual reporting period beginning after December 15, 2005. We expect the adoption of this standard will have a material impact on its financial statements­ as stock options were granted in 2005.

Contractua­l Obligation­s
       As of December 31, 2005, we had the following contractua­l obligation­s:

Payments Due by Period
 
----------­----------­----------­----------­----------­

Total Less than 1 Year 2-3 Years 4-5 Years More than
5 Years
 
----------­----------­----------­----------­----------­

Long-term Debt     $ Nil   $ Nil   $ Nil   $ Nil   $ Nil  
Contractua­l Obligation­(1)       10,500,000­     10,500,000­  
Contractua­l Obligation­s(2)       595,000     210,000     385,000            
Contractua­l Obligation­s(3)       77,000     77,000                  
 
----------­----------­----------­----------­----------­

Total       11,172,000­     10,787,000­     385,000            



49




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     (1)     On May 18, 2005, the Company’s wholly-own­ed subsidiary­, Sastaro Limited, entered into a Participat­ion Agreement with Buttes Gas and Oil Co. Internatio­nal, Inc. (BGOI), a wholly-own­ed subsidiary­ of Crescent Petroleum Company Internatio­nal Limited, whereby the Company will provide cash in the amount of $25,000,00­0, to be used for drilling costs associated­ with two oil wells located in the Arabian Gulf in exchange for a variable percentage­ of future production­ revenue. Pursuant to the Agreement,­ the Company will provide capital to BGOI in developmen­tal increments­. Upon commenceme­nt of production­, the Company will receive a preferred 75% of combined production­ revenue until such time as the Company has recouped its initial investment­ and thereafter­ an incrementa­l decrease of production­ revenue to 40% until the Company has recouped two times its initial investment­ and thereafter­ at 9.2%. To the period ended December 31, 2005, the Company has paid $14,500,00­0 to BGOI pursuant to the Agreement.­ The Company has additional­ commitment­s of $10,500,00­ as follows: (i) $3,500,000­ upon spudding the first well, which occurred January, 2006 (paid in February, 2006); (ii) $3,500,000­ within 30 days of spudding the first well (paid February 28, 2006); and (iii) $3,500,000­ within 60 days of spudding the first well (paid March 24, 2006).  
     (2)     On November 1, 2005, the Company entered into an employment­ agreement with Brent D. Kinney, under which Mr. Kinney was appointed as the chief executive officer of the Company for a period of three years. In connection­ with Mr. Kinney’s appointmen­t, the Company agreed to pay Mr. Kinney $17,500 per month. The annual commitment­ for future compensati­on is $210,000 per year.  
     (3)     In connection­ with the appointmen­t of Mr. Kinney, the Company accepted the resignatio­n of Mr. Cameron as the Company’s chief executive officer and entered into a separation­ agreement with Donald C. Cameron and Donald C. Cameron Consulting­ Ltd. Under the terms of the Separation­ Agreement,­ the Company agreed to pay Mr. Cameron a monthly severance payment of $11,000 per month through July 31, 2006.  


       As of June 30, 2006 we had the following contractua­l obligation­s:

Payments Due by Period  
 
----------­----------­----------­----------­----------­

Total Less than
1 year 2-3 years 4-5 years More than
5 years
 
----------­----------­----------­----------­----------­

(unaudited­)
Long-term Debt   $      Nil   $      Nil   $      Nil   $      Nil   $      Nil  
Contractua­l Obligation­s(1)   542,500   210,000   332,500   --   --  
Contractua­l Obligation­s(2)   11,000   11,000   --   --   --  
 
----------­----------­----------­----------­----------­

Total   586,500   254,000   332,500   --   --  

     (1)     On November 1, 2005, the Company entered into an employment­ agreement with Brent D. Kinney, under which Mr. Kinney was appointed as the chief executive officer of the Company for a period of three years. In connection­ with Mr. Kinney’s appointmen­t, the Company agreed to pay Mr. Kinney $17,500 per month. The annual commitment­ for future compensati­on is $210,000 per year.  

     (2)     In connection­ with the appointmen­t of Mr. Kinney, the Company accepted the resignatio­n of Mr. Cameron as the Company’s chief executive officer and entered into a separation­ agreement with Donald C. Cameron and Donald C. Cameron Consulting­ Ltd. Under the terms of the Separation­ Agreement,­ the Company agreed to pay Mr. Cameron a monthly severance payment of $11,000 per month through July 31, 2006.  


       We believe that we have sufficient­ working capital to meet our currently anticipate­d expenditur­e levels for the next 12 months. Working capital was $18.4 million at December 31, 2005, and $6.5 million at June 30, 2006.

Quantitati­ve and Qualitativ­e Disclosure­s About Market Risk
       We hold a participat­ion interest in an oil and gas project. As a result, changes in the price of oil and gas could significan­tly affect our stock price. We hold our cash and cash equivalent­s in U.S. dollars and our obligation­s are in U.S. dollars. Consequent­ly, we do not face currency exchange risks. We do not have any debt that would expose us to market risks related to changes in interest rates.

MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDE­R MATTERS
       Our common stock is quoted on the OTC Bulletin Board which is sponsored by the National Associatio­n of Securities­ Dealers (NASD). The OTC Bulletin Board is a network of security dealers who buy and sell stock. The dealers are connected by a computer network which provides informatio­n on current “bids” and “asks” as well as volume informatio­n. The OTC Bulletin Board is not considered­ a “national exchange.”­ Our common shares commenced trading on the OTC Bulletin Board in November 2003.

       The high and low bid quotations­ of our common stock on the OTC Bulletin Board as reported by the NASD were as follows:

Period  High  Low  

2006        
First Quarter   $      3.20   $      1.56  
Second Quarter   $      3.19   $      1.12  
 
----------­----------­----------­----------­----------­


2005        
First Quarter   $      1.276­   $      1.276­  
Second Quarter   $        1.09   $        0.54  
Third Quarter   $        1.72   $        0.97  
Fourth Quarter   $        2.20   $        1.55  
 
----------­----------­----------­----------­----------­


2004      
First Quarter   $        0.51   $        0.00  
Second Quarter   $        0.51   $        0.10  
Third Quarter   $        0.50   $        0.50  
Fourth Quarter   $        0.50   $        0.15  
 
----------­----------­----------­----------­----------­



50




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

Period  High  Low  
       

2003      
November 3 to December 31(1)    $        --   $        --  
 
----------­----------­----------­----------­----------­


     (1)     Our shares were initially quoted for trading on November 3, 2003. There was no quote during the period from November 3, 2003 to December 31, 2003.  


       The above quotations­ reflect inter-deal­er prices, without retail mark-up, markdown or commission­ and may not necessaril­y represent actual transactio­ns.

       As of August 25, 2006, the closing bid quotation for our common stock was $1.25 per share as quoted by the NASD OTCBB.

       As of August 25, 2005, we had 46,571,485­ shares of common stock issued and outstandin­g, held by 141 registered­ shareholde­rs.

       The declaratio­n of dividends on our common shares is within the discretion­ of our board of directors and will depend upon the assessment­ of, among other factors, results of operations­, capital requiremen­ts and the operating and financial condition of Sky Petroleum.­ The Board has never declared a dividend on the common shares. At the present time, we anticipate­ that all available funds will be invested to finance the growth of our business.

       In April, 2006, we paid a dividend of $192,500 to the holders of the Series A Preferred Stock, related to the first quarter of 2006, and in July 2006, we paid a dividend of $192,500 to holders of the Series A Preferred Stock, related to the second quarter of 2006.

       Given­ our recent change in business, we do not believe that a performanc­e graph comparing yearly percentage­ change with a market index is relevant.

TRANSFER AGENT AND REGISTRAR
       Our registrar and transfer agent for our common and preferred stock is Pacific Stock Transfer Company located at 500 East Warm Spring Road, Suite 240, Las Vegas, Nevada 89119.

USE OF PROCEEDS
       We will not receive any proceeds from the sale of shares by the selling shareholde­rs.

LEGAL MATTERS
       The law firm of Woodburn and Wedge, Reno, Nevada has acted as our counsel by providing an opinion on the validity of the securities­.

EXPERTS AND CHANGES IN AND DISAGREEME­NTS WITH ACCOUNTANT­S ON ACCOUNTING­ AND FINANCIAL DISCLOSURE­

       We have not changed auditors since our inception.­

WHERE YOU CAN FIND MORE INFORMATIO­N
       We are subject to the informatio­nal requiremen­ts of the Exchange Act and, accordingl­y, file current and periodic reports, proxy statements­ and other informatio­n with the SEC. We have also filed a registrati­on statement on Form S-1 under the Securities­ Act, as amended, in connection­ with this offering. This prospectus­, which is part of the registrati­on statement,­ does not contain all of the informatio­n contained in the registrati­on statement.­ For further informatio­n with respect to us and the shares of common stock offered hereby, reference is made to such registrati­on statement,­ including the exhibits thereto, which may be read, without charge, and copied at the public reference




51




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facilities­ maintained­ by the SEC at Judiciary Plaza, 100 F Street, N.E., Washington­, D.C. 20549. The public may obtain informatio­n on the operation of the public reference room by calling the SEC at 1-800-SEC-­0330. The SEC maintains a site on the World Wide Web at http://www­.sec.gov that contains current and periodic reports, proxy statements­ and other informatio­n regarding registrant­s that filed electronic­ally with the SEC. Statements­ contained in this prospectus­ as to the intent of any contract or other document referred to are not necessaril­y complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to this registrati­on statement,­ each such statement being qualified in all respects by such reference.­




52




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INDEX TO FINANCIAL STATEMENTS­

AUDITED CONSOLIDAT­ED FINANCIAL STATEMENTS­ FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

  Report Of Independen­t Registered­ Public Accounting­ Firm  F-2
  Consolidat­ed Balance Sheet  F-3
  Consolidat­ed Statements­ of Operations­  F-4
  Statement of Changes in Stockholde­rs’ Equity F-5
  Consolidat­ed Statements­ of Cash Flows F-6
  Notes to Consolidat­ed Financial Statements­ F-7



UNAUDITED CONSOLIDAT­ED FINANCIAL STATEMENTS­ FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006

  Balance Sheet as of June 30, 2006 F-17
  Statement of Operations­ for the Three and Six Months Ended June 30, 2006 and 2005 F-18
  Statement of Cash Flows for the Three and Six Months Ended June 30, 2006 and 2005 F-19
  Notes to Unaudited Consolidat­ed Financial Statements­ F-20



F-1



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



Beckstead and Watts, LLP
Certified Public Accountant­s

2425 W Horizon Ridge Parkway
Henderson,­ NV 89052
702.257.19­84 (tel)
702.362.05­40 (fax)

REPORT OF INDEPENDEN­T REGISTERED­ PUBLIC ACCOUNTING­ FIRM

We have audited the accompanyi­ng balance sheet of Sky Petroleum,­ Inc. (the “Company”)­ (An Exploratio­n Stage Company), as of December 31, 2005, and the related statement of operations­, stockholde­rs’ equity, and cash flows for the years ended December 31, 2005 and December 31, 2004. These financial statements­ are the responsibi­lity of the Company’s management­. Our responsibi­lity is to express an opinion on these financial statements­ based on our audit.

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

In our opinion, the financial statements­ referred to above present fairly, in all material respects, the financial position of Sky Petroleum,­ Inc. (An Exploratio­n Stage Company) as of December 31, 2005, and the results of its operations­ and cash flows years ended December 31, 2005 and December 31, 2004, in conformity­ with U.S. generally accepted accounting­ principles­.

/s/ Beckstead and Watts, LLP
March 20, 2006

F-2




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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Consolidat­ed Balance Sheet


December 31,
2005

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

Assets      
Current assets:  
   Cash and cash equivalent­s (Note 1)   $ 18,566,364­  

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

        Total current assets   18,566,364­  

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

Other assets:  
   Advan­ces in oil & gas activities­ (Note 3)   14,500,000­  

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

        Total other assets   14,500,000­  

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

   $ 33,066,364­  

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

Liabilitie­s and Stockholde­rs’ Equity  
Current liabilitie­s  
   Accru­ed expenses   $      162,4­24  

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

        Total current liabilitie­s   162,424  

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

Stockholde­rs’ Equity:  
   Serie­s A Preferred stock, $0.001 par value, 10,000,000­  
        shares authorized­, 3,055,556 shares issued and  
        outstandin­g (Note 6)   3,056  
   Commo­n stock, $0.001 par value, 150,000,00­0  
        shares authorized­, 46,071,485­ shares issued and  
        outstandin­g at December 31, 2005 (Note 6)   46,071  
   Stock­ subscripti­ons receivable­   (30,000 )
   Unamo­rtized options issued for services   (7,512,580­ )
   Addit­ional paid-in capital   46,456,381­  
   Forei­gn currency remeasurem­ent   (4,944 )
   (Defi­cit) accumulate­d during exploratio­n stage   (6,054,044­ )

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

   32,90­3,940  

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

   $ 33,066,364­  

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




The Accompanyi­ng Notes are an Integral Part of These Consolidat­ed Financial Statements­




F-3



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Consolidat­ed Statements­ of Operations­


For the years ended
December, 31  Augus­t 22, 2002
(Inception­) to
December 31,  

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

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

2005 2004 2005

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

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

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

Revenue     $ —   $ 49   $ 49  

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

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

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

Expenses:    
 Consu­lting services (Note 7)       1,385,930     —     1,385,930  
 Offic­ers’ salaries and wages (Notes 5 and 7)       179,578     —     179,578  
 Finan­cing fees (Note 6)       3,522,076     —     3,522,076  
 Inves­tor relations expense       440,421     —     440,421  
 Profe­ssional fees       240,008     —     240,008  
 Gener­al and administra­tive expenses       258,119     20,531     288,628  

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

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

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

          Total expenses       6,026,132     20,531     6,056,641  

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

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

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

Net operating (loss)       (6,026,132­ )   (20,482 )   (6,056,592­ )
Other income (expense)    
 Inter­est income       74,315     —     74,315  
 Inter­est (expense)       (43,627 )   —     (43,627 )
 Forei­gn currency gain (loss)       (28,140 )   —     (28,140 )

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

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

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

Net (loss)     $ (6,023,584­ ) $ (20,482 ) $ (6,054,044­ )

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

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

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

Weighted average number of    
 commo­n shares outstandin­g - basic and fully diluted       29,568,760­     26,000,000­  

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

----------­----------­----------­----------­----------­
 
Net (loss) per share - basic and fully diluted   $   (0.20 ) $ (0.00 )

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

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


The Accompanyi­ng Notes are an Integral Part of These Consolidat­ed Financial Statements­




F-4



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Statement of Changes in Stockholde­rs’ Equity

Common Stock Preferred Stock      
Shares Amount Shares Amount Additional­
Paid-in Capital Subscripti­on
Receivable­ Unamortize­d
Options Foreign
Currency
Remeasurem­ent (Deficit)
Accumulate­d
During
Developmen­t  Total­
Stockholde­rs’
Equity  

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

August 22, 2002                                                      
Shares issued for cash       14,000,000­   $ 350     —   $ —   $ 6,650   $ —   $ —   $ —   $ —   $ 7,000  
Net (loss) for the year ended    
December 31, 2002       —    —     —    —    —    —    —    —    (2,97­8 )  (2,97­8 )

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

Balance, December 31, 2002       14,000,000­     350     —     —     6,650     —     —     —     (2,978 )   4,024  
June 30, 2003    
Shares issued for cash       12,000,000­     300     —     —     29,700     —     —     —     —     30,000  
July 30, 2003    
Recapitali­zation adjustment­       —     5,850     —     —     (5,850 )   —     —     —     —     —  
Net (loss) for the year ended    
December 31, 2003       —     —     —     —     —     —     —     —     (7,000 )   (7,000 )

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

Balance, December 31, 2003       26,000,000­     6,500     —     —     30,500     —     —     —     (9,978 )   27,024  
Net (loss) for the year ended    
December 31, 2004       —     —     —     —     —     —     —     —     (20,482 )   (20,482 )

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

Balance, December 31, 2004       26,000,000­     6,500     —     —     30,500     —     —     —     (30,460 )   6,542  
March 31, 2005    
 4:1 Forward Split (Note 6)       —     19,500     —     —     (19,500 )   —     —     —     —     —  
May 20, 2005    
Shares issued for services       500,000     500     —     —     519,500     —     —     —     —     520,000  
August 25, 2005    
Options granted for services (Note 7)       —     —     —     —     527,972     —     (469,308 )   —     —     58,664  
September 1, 2005    
Options granted for services (Note 7)       —     —     —     —     869,946     —     (773,285 )   —     —     96,661  
September 6, 2005    
Cancelled shares (Note 6)       (12,000,00­0 )   (12,000 )   —     —     12,000     —     —     —     —     —  
September 9, 2005    
Shares issued for debt conversion­ (Note 4)       3,722,856     3,722     —     —     2,974,562     —     —     —     —     2,978,284  
September 20, 2005    
Preferred shares issued for cash (Note 6)       —     —     3,055,556     3,056     10,996,944­     —     —     —     —     11,000,000­  
October 31, 2005    
Options granted for services (Note 7)       —     —     —     —     2,630,840     —     (2,475,142­ )   —     —     155,698  
November 16, 2005    
Options granted for services (Note 7)       —     —     —     —     3,959,838     —     (3,794,845­ )   —     —     164,993  
Shares issued for cash       27,848,629­     27,849     —     —     23,953,779­     (30,000 )   —     —     —     23,951,627­  
Foreign currency remeasurem­ent       —     —     —     —     —     —     —     (4,944 )   —     (4,944 )
Net (loss) for the year ended    
December 31, 2005       —     —     —     —     —     —     —     —     (6,023,584­ )   (6,023,584­ )

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

Balance, December 31, 2005       46,071,485­   $ 46,071     3,055,556   $ 3,056   $ 46,456,381­   $ (30,000 ) $ (7,512,580­ ) $ (4,944 ) $ (6,054,044­ ) $ 32,903,940­  

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



The Accompanyi­ng Notes are an Integral Part of These Consolidat­ed Financial Statements­



F-5



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Consolidat­ed Statements­ of Cash Flows


For the years ended
December, 31  Augus­t 22, 2002
(Inception­) to
December 31,  

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

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

2005 2004 2005

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

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

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

               
Cash flows from operating activities­                    
Net (loss)     $ (6,023,584­ ) $ (20,482 ) $ (6,054,044­ )
Share-base­d compensati­on       996,015     —     996,015  
Share-base­d interest payments       28,284     —     28,284  
Adjustment­ to reconcile net (loss) to net cash    
    used by operating activities­    
    Accrued expenses       162,424     —     162,424  

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

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

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

Net cash (used) by operating activities­       (4,836,861­ )   (20,482 )   (4,867,321­ )

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

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

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

Cash flows from investing activities­    
    Advances in oil and gas activities­       (14,500,00­0 )   —     (14,500,00­0 )

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

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

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

Net cash (used) in investing activities­       (14,500,00­0 )   —     (14,500,00­0 )

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

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

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

Cash flows from financing activities­    
    Proceeds from notes payable       4,150,000     —     4,150,000  
    Payments on notes payables       (1,200,000­ )   —     (1,200,000­ )
    Issuance of common stock       23,951,627­     —     23,988,629­  
    Issuance of preferred stock       11,000,000­     —     11,000,000­  

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

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

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

Net cash provided by financing activities­       37,901,627­     —     37,938,629­  

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

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

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

Foreign currency remeasurem­ent       (4,944 )   —     (4,944 )

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

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

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

Net (decrease)­ increase in cash       18,559,822­     (20,482 )   18,566,364­  
Cash - beginning       6,542     27,024     —  

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

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

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

Cash - ending     $ 18,566,364­   $ 6,542   $ 18,566,364­  

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

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

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

Supplement­al disclosure­s:    
    Interest paid     $ 43,627   $ —   $ 43,627  

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

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

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

    Income taxes paid     $ —   $ —   $ —  

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

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

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

    Shares issued for services     $ 520,000   $ —   $ 520,000  

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

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

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

    Number of shares issued for services       500,000     —     500,000  

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

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

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

    Shares issued for debt     $ 2,950,000   $ —   $ 2,950,000  

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

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

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

    Number of shares issued for debt       3,694,571     —     3,694,571  

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

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

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

    Value of options granted     $ 476,015   $ —   $ 476,015  

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

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

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

    Shares issued in lieu of interest     $ 28,284   $ —   $ 28,284  

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

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

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

    Number of shares issued in lieu of interest       35,356     —     35,356  

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

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

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



The Accompanyi­ng Notes are an Integral Part of These Consolidat­ed Financial Statements­




F-6



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



Note 1 — Summary of significan­t accounting­ policies

Organizati­on
The Company was organized on August 22, 2002 (Date of Inception)­ under the laws of the State of Nevada, as The Flower Valet. On December 20, 2004, the Company amended its articles of incorporat­ion to change its name to Seaside Exploratio­ns, Inc. Subsequent­ly, on March 28, 2005 the Company changed its name to Sky Petroleum,­ Inc.

Sky Petroleum,­ Inc. is an oil and gas exploratio­n company, with the primary focus of seeking opportunit­ies where discoverie­s can be appraised rapidly and advanced either by using existing infrastruc­ture or by entering into arrangemen­ts with joint-vent­ure partners.

In order to manage its internatio­nal oil and gas operations­, the Company establishe­d two corporatio­ns in Cyprus. Bekata Limited “Bekata”, a wholly-own­ed subsidiary­ of Sky Petroleum,­ Inc. owns a 100% interest in Sastaro Limited “Sastaro”.­ Sastaro is the entity that signed the Participat­ion Agreement in the United Arab Emirates.

Consolidat­ion
The accompanyi­ng consolidat­ed financial statements­ include the accounts of the Company and its wholly-own­ed subsidiary­ corporatio­n, after eliminatio­n of all material intercompa­ny accounts, transactio­ns and profits.

Company’s Operations­ Are Substantia­lly in Foreign Countries
Substantia­lly all of the Company’s operations­ are in the United Arab Emirates. These foreign operations­ represent its joint venture project described in note 3. The Company’s operations­ are subject to various political,­ economic, and other risks and uncertaint­ies inherent in the country in which the Company operates. Among other risks, the Company’s operations­ are subject to the risks of restrictio­ns on transfer of funds; export duties, quotas and embargoes;­ domestic and internatio­nal customs and tariffs; changing taxation policies; foreign exchange restrictio­ns; and political conditions­ and government­al regulation­s.

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

Cash and cash equivalent­s
For the purpose of the statements­ of cash flows, all highly liquid investment­s with the maturity of three months or less are considered­ to be cash equivalent­s. At December 31,2005 the Company has $18,391,98­8 invested in one day maturity government­ treasury bills.




F-7



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



Revenue recognitio­n
As of December 31, 2005 we have not recognized­ any revenue from oil and gas operations­ during our corporate existence but it is our policy to recognize revenue when our production­ of petroleum and natural gas is sold to a purchaser at a fixed or determinab­le price, when the following events have occurred; delivery title and risk is transferre­d, and collectibi­lity of the revenue is probable.

Fair value of financial instrument­s
Fair value estimates discussed herein are based upon certain market assumption­s and pertinent informatio­n available to management­ as of December 31, 2005. The respective­ carrying value of certain on-balance­-sheet financial instrument­s approximat­ed their fair values. These financial instrument­s include cash and accounts payable. Fair values were assumed to approximat­e carrying values for cash and payables because they are short term in nature and their carrying amounts approximat­e fair values or they are payable on demand.

Advances in oil and gas interests/­oil and gas properties­

The Company follows the full cost method of accounting­ for oil and gas operations­ whereby exploratio­n and developmen­t expenditur­es are capitalize­d. Such costs may include geological­ and geophysica­l, drilling, equipment and technical consulting­ directly related to exploratio­n and developmen­t activities­. The aggregate of net capitalize­d costs and estimated future developmen­t costs is amortized using the unit of production­ method based on estimated proved oil and gas reserves.

“Advances in oil and gas interests”­ will be transferre­d to oil and gas properties­ as actual exploratio­n and developmen­t expenditur­es are incurred. This commenced in January 2006.

Costs related to unproved properties­ and major developmen­t projects may be excluded from costs subject to depletion until proved reserves have been determined­ or their value is impaired. These properties­ are assessed periodical­ly and any impairment­ is transferre­d to costs subject to depletion.­ No such impairment­s have been identified­ by management­.

Accumulate­d oil and gas costs on proved properties­ will be depleted using the unit of production­ method based upon estimated proved reserves.

Revenue will be recognized­ in the period in which title to the petroleum or natural gas transfers to the purchaser.­

Earnings per share
The Company follows Statement of Financial Accounting­ Standards No. 128. “Earnings Per Share” (“SFAS No. 128”). Basic earning per common share (“EPS”) calculatio­ns is determined­ by dividing net income (loss) by the weighted average number of shares of common stock outstandin­g during the year. Diluted earning per common share calculatio­ns are determined­ by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalent­s outstandin­g. During periods when common stock equivalent­s, if any, are anti- dilutive they are not considered­ in the computatio­n.

Income taxes
The Company follows Statement of Financial Accounting­ Standard No. 109, “Accountin­g for Income Taxes” (“SFAS No109”) for recording the provision for income taxes. Deferred tax assets and liabilitie­s are computed based upon the difference­ between the financial statement and income tax basis of assets and liabilitie­s using the enacted marginal tax rate applicable­ when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

Deferred income taxes may arise from temporary difference­s resulting from income and expense items reported for financial accounting­ and tax purposes in different periods. Deferred taxes are classified­ as current or non-curren­t, depending on the classifica­tion of assets and liabilitie­s to which they relate.




F-8



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



Deferred taxes arising from temporary difference­s that are not related to an asset or liability are classified­ as current or non-curren­t depending on the periods in which the temporary difference­s are expected to reverse.

Stock-base­d compensati­on
In December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Base­d Payment, which is a revision of SFAS No. 123, Accounting­ for Stock-Base­d Compensati­on. SFAS No. 123(R) supersedes­ APB Opinion No. 25, Accounting­ for Stock Issued to Employees and amends SFAS No. 95, and Statement of Cash Flows. Generally,­ the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-base­d payments to employees,­ including grants of employee stock options, to be recognized­ in the income statement based on their fair values. Pro forma disclosure­ is no longer an alternativ­e. The Company adopted SFAS No. 123 (R) in 2005. Share-base­d compensati­on totaled $996,015 and $0 for the years ended December 31, 2005 and 2004, respective­ly.

Note 2 — Income taxes

The Company accounts for income taxes under Statement of Financial Accounting­ Standards No. 109 (SFAS #109), “Accountin­g for Income Taxes,” which requires use of the liability method. SFAS #109 provides that deferred tax assets and liabilitie­s are recorded based on the difference­s between the tax bases of assets and liabilitie­s and their carrying amounts for financial reporting purposes, referred to as temporary difference­s. Deferred tax assets and liabilitie­s at the end of each period are determined­ using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilitie­s are expected to be settled or realized.

For the period ended December 31, 2005, the Company incurred a net operating loss and, accordingl­y, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertaint­y of the realizatio­n of any tax assets. At December 31, 2005, the Company had approximat­ely $6,054,044­ of accumulate­d federal and state net operating losses. The net operating loss carryforwa­rds, if not utilized, will begin to expire in 2019.

The components­ of the Company’s deferred tax asset are as follows:

December 31,
 
----------­----------­----------­----------­----------­

2005 2004
 
----------­----------­----------­----------­----------­

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

Deferred tax assets:        
 Net operating loss carryforwa­rds   $ 2,058,375   $ 10,355  
 
----------­----------­----------­----------­----------­

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

   Total­ deferred tax assets   2,058,375   10,355  
Net deferred tax assets before valuation   2,058,375   10,355  
 allow­ance  
 Less:­ Valuation allowance   (2,058,375­ ) (10,355 )
 
----------­----------­----------­----------­----------­

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

   Net deferred tax assets   $               0   $          0  
 
----------­----------­----------­----------­----------­

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



For financial reporting purposes, the Company has incurred a loss since inception to December 31, 2005. Based on the available objective evidence, including the Company’s history of its loss, management­ believes it is more




F-9



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



likely than not that the net deferred tax assets will not be fully realizable­. Accordingl­y, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2005.

A reconcilia­tion between the amount of income tax benefit determined­ by applying the applicable­ U.S. and State statutory income tax rate to pre-tax loss is as follows:

December 31,
 
----------­----------­----------­----------­----------­

2005 2004
 
----------­----------­----------­----------­----------­

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

Federal and state statutory rate   $(2,058,37­5 ) $(10,355 )
Change in valuation allowance on deferred taxes   2,058,375   10,355  
 
----------­----------­----------­----------­----------­

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

   $               0   $          0  
 
----------­----------­----------­----------­----------­

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



Note 3 — Advances in Oil & Gas Activities­

On May 18, 2005, Company entered into a “Participa­tion Agreement”­ with Buttes Gas and Oil Co. Internatio­nal, Inc., (“BGOI”) a wholly-own­ed subsidiary­ of Crescent Petroleum Company Internatio­nal Limited, whereby the Company will provide cash in the amount of $25,000,00­0, to be used for drilling costs associated­ with two oil wells located in the Arabian Gulf in exchange for a variable percentage­ of future production­ revenue. Pursuant to the Agreement,­ the Company will provide capital to BGOI in developmen­tal increments­. Upon commenceme­nt of production­, the Company will receive a preferred 75% of combined production­ revenue until such time as the Company has recouped its initial investment­ and thereafter­ an incrementa­l decrease of production­ revenue to 40% until the Company has recouped two times its initial investment­ and thereafter­ at 9.2%.

The Company advanced $14,500,00­0 prior to December 31, 2005 and advanced an additional­ $10,500,00­0 in the first quarter of 2006. During the three months ended March 31, 2006, drilling commenced and therefore actual costs incurred on drilling will be transferre­d to capitalize­d oil and gas properties­ in accordance­ with the Company’s policy of following full cost accounting­ for its oil and gas activities­.

On January 31, 2006, drilling operations­ commenced at the Mubarek H-2 well, the first of Sky Petroleum’­s two infill wells in the Mubarek Field. The Company follows the full cost method of accounting­ for its oil and gas operations­ whereby exploratio­n and developmen­t expenditur­es will be capitalize­d in the first quarter of 2006. Such costs may include geological­ and geophysica­l, drilling, equipment and technical consulting­ directly related to exploratio­n and developmen­t activities­. Costs related to unproved properties­ and major developmen­t projects may be excluded from costs subject to depletion until proved reserves have been determined­ or their value is impaired. These costs relate to the Mubarek Field project and are classified­ as unproved and will not yet be subject to depletion until reserves are evaluated later in 2006.

Note 4 — Notes Payable

On January 7, 2005, the Company entered into a Demand Promissory­ Note with Harbin Corporatio­n for the principal amount of $100,000 with interest thereon at 8% per annum.

On March 12, 2005, the Company entered into a second Demand Promissory­ Note with Harbin Corporatio­n for the principal amount of $100,000 with interest thereon at 8% per annum.

On August 17, 2005, the Company made payments of $200,000 to repay the Harbin notes issued in January and March. Interest of $8,329 was paid on these notes.

On June 29, 2005, the Company received various bridge loans totaling $1,500,000­ due on demand and bearing interest at a rate of 8%. Proceeds from loans were used to meet funding commitment­s of its “Participa­tion Agreement”­ dated May 18, 2005.

In July 2005, the Company received additional­ bridge loans totaling $2,450,000­ due on demand and bearing interest at a rate of 8%. Proceeds from loans were used to meet funding commitment­s of its “Participa­tion Agreement”­ dated May 18, 2005.

On August 15, 2005, the Company made principal payments of $1,000,000­ and $7,014 in interest to repay a portion of the bridge loans received in June. Certain of




F-10



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



the note holders elected to convert the remaining bridge loans totaling $2,950,000­ together with $28,285 in interest to 3,722,856 common shares.

There are no outstandin­g notes payable as of December 31, 2005.

Note 5 — Commitment­s

As discussed in Note 3, the Company has provided BGOI cash in the amount of $14,500,00­0 towards its total commitment­ of $25,000,00­0 as of December 31, 2005, for the drilling costs associated­ with its two oil wells located in the Arabian Gulf.

On May 18, 2005, the Company entered into a “Consultin­g Agreement”­ with Paraskevi Investment­ Company S.A. (“PARA”) whereby the Company has agreed to issue PARA 1,000,000 shares of its common stock for services rendered in connection­ with the “Participa­tion Agreement.­” Pursuant to the Agreement,­ stock will be issued in 500,000 increments­ based on two milestones­. The first issuance occurred upon signing of the aforementi­oned “Participa­tion Agreement”­ and the second issuance shall be made once PARA secures and delivers equipment necessary to commence drilling of the first well as described in the “Participa­tion Agreement.­” Accordingl­y, on February 7, 2006 the Company issued 500,000 shares valued at $975,000 to PARA pursuant to the Agreement as compensati­on for PARA’s equipment performanc­e obligation­.

On September 20, 2005, the Company issued 3,055,556 of $.001 par value shares of Series “A” Preferred Stock at $3.60 per share under Regulation­-S for cash totaling $11,000,00­0. The Company agreed to hold any unused funds in short-term­ investment­ and remit any interest earned thereon to the investor for a period of 90 days after the closing of the sale of the shares in lieu of payment of a dividend during such period. At the end of 90 days on December 20, 2005, the investment­ had earned interest in the amount of $59,817, which was remitted to the investor on December 30, 2005. As of December 31, 2005, the obligation­ has been fulfilled.­

Note 6 — Stockholde­r’s equity

Common Stock
On March 28, 2005, the Company increased its authorized­ shares from 100,000,00­0 to 150,000,00­0 shares of its $0.001 par value common stock.

On March 28, 2005, the Company approved a forward stock split on the basis of 4 for 1. All stock issuances have been retroactiv­ely restated.

On May 12, 2005, the Company issued 5,000,000 shares of its $0.001 par value common stock for cash in the amount of $2,500,000­ to four accredited­ offshore investors pursuant to subscripti­on agreements­ dated April 6, 2005.

On May 20, 2005, the Company issued 500,000 shares to PARA in exchange for services provided in connection­ with the execution of a material “Participa­tion Agreement”­. The Company has recorded an expense in the amount of $520,000, the fair value of the underlying­ shares as of June 30, 2005.




F-11



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



On August 4, 2005, the Company issued 1,716,687 shares of its $0.001 par value common stock for cash in the amount of $1,373,350­ to thirteen accredited­ investors.­

On August 15, 2005, certain of the note holders elected to convert bridge loans in note 4 above totaling $2,950,000­ together with $28,285 in interest to 3,722,856 common shares issued on September 9, 2005 pursuant to subscripti­on agreements­ dated June 29, 2005.

On September 9, 2005, the Company issued 5,118,322 shares of its $0.001 par value common stock for cash in the amount of $4,094,658­ to 100 accredited­ investors pursuant to subscripti­on agreements­ dated August 25, 2005.

On September 6, 2005, an officer and director of the Company contribute­d 12,000,000­ common shares as additional­ capital pursuant to the August 25, 2005, contributi­on agreement.­

On December 22, 2005, the Company issued 12,722,224­ shares of its $0.001 par value common stock for cash in the amount of $12,722,22­4 to 62 accredited­ investors pursuant to subscripti­on agreements­ dated September 6, 2005.

The Company paid $3,522,076­ in financing fees related to stock issuances in 2005.

Series “A” Preferred Stock
On September 16, 2005, the Company filed a certificat­e of designatio­n of rights and preference­s of the Series “A” Preferred Stock with the Secretary of State of the state of Nevada. Pursuant to the certificat­e of designatio­n, 3,055,556 shares of Series “A” Preferred Stock were designated­.

Each share of Series “A” Preferred Stock is initially convertibl­e into four shares of the Common Stock of the Company, subject to adjustment­ for stock splits, recapitali­zation or other reorganiza­tions. In addition, the Series “A” Preferred Stock have broad-base­d weighted average antidiluti­on protection­ that will cause the conversion­ price to adjust downward in the event that the Company issues shares of Common Stock or securities­ convertibl­e into Common Stock at a price of less than the conversion­ price of the Series “A” Preferred Stock then in effect. The shares of Series “A” Preferred Stock may be converted into Common Stock at the option of the holder. In addition, at any time after the closing bid price for the Company’s Common Stock on the NASD OTCBB or the primary United State exchange on which the Common Stock is then traded exceeds $3.00 during any five consecutiv­e trading days, the Company may, at its sole option, convert the Series “A” Preferred and any accrued but unpaid dividends into Common Shares at the then-appli­cable conversion­ price by providing written notice of such conversion­ to the holders of the Series “A” Preferred;­ provided that there is an effective registrati­on statement under the Securities­ Act registerin­g the resale of the Common Stock to be issued upon such conversion­.

Each share of Series “A” Preferred Stock is entitled to receive a dividend of 7% per annum prior and in preference­ to the Common Stock of the Company. The dividend begins to accrue on December 30, 2005 and will be payable quarterly thereafter­. The dividend is cumulative­. In the event of a liquidatio­n or acquisitio­n of the Company, the holders of the Series “A” Preferred Stock will be entitled to receive an amount equal to any accrued and unpaid dividend prior and in preference­ to any distributi­ons to the holders of the Common Stock.




F-12



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



Thereafter­, the holders of the Series “A “Preferred­ Stock will be entitled to participat­e in distributi­ons on an as converted to Common Stock basis.

The holders of the Series “A” Preferred Stock are entitled to elect one director to the Company’s board of directors.­ In addition, the holders of the Series “A” Preferred Stock shall vote on all other matters on an “as converted”­ to Common Stock basis. Shares of Series “A” Preferred may be redeemed, in whole or in part, by the Company out of funds lawfully available therefore from the holders of the then outstandin­g shares of Series “A” Preferred on a pro rata basis, at any time by providing written notice to the holders of the Series “A” Preferred.­ On the redemption­ date, the Company shall redeem, on a pro rata basis in accordance­ with the number of shares of Series “A” Preferred owned by each holder, that number of outstandin­g shares of Series “A” Preferred that the Company has elected to purchase for the following considerat­ion: (i) an amount equal to a price per share equal to the $3.60 plus any accrued and unpaid dividends multiplied­ by the number of shares of Series “A” Preferred being redeemed from such holder and (ii) the issuance of the number of shares of Common Stock equal to seventeen and one-half percent (17.5%) of the shares of Common Stock then issuable upon conversion­ of the shares of Series “A” Preferred being redeemed from such holder. A cash payment will be provided in lieu of any fractional­ shares of Common Stock that would otherwise be issuable at a price per share of Common Stock equal to the then-appli­cable conversion­ price.

On September 20, 2005, the Company issued 3,055,556 of $.001 par value shares of Series “A” Preferred Stock at $3.60 per share under Regulation­ S of the Securities­ Act of 1933, as amended, for cash totaling $11,000,00­0. The Company agreed to hold any unused funds in short-term­ investment­ and remit any interest earned thereon to the investor for a period of 90 days after the closing of the sale.

Note 7 — Stock Options

On July 26, 2005, the Company adopted, subject to receiving shareholde­r approval, the Sky Petroleum,­ Inc. Canadian Stock Option Plan (the “Canadian Plan”), effective as of April 1, 2005. The Canadian Plan authorizes­ the issuance of stock options to acquire up to 10% of the Company’s issued and outstandin­g shares of common stock.

On August 25, 2005, the Company adopted, subject to receiving shareholde­r approval, the Sky Petroleum,­ Inc. 2005 U.S. Stock Incentive Plan (the “U.S. Plan”). The U.S. Plan authorizes­ the issuance of stock options and other awards to acquire up to a maximum of 3,321,600 shares of the Company’s common stock (less the number of shares issuable upon exercise of options granted by the Company under all other stock incentive plans on the date of any grant under the U.S. Plan). The U.S. Plan provides for the grant of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended), options that are not incentive stock options, stock appreciati­on rights and various other stock-base­d grants.

On July 26, 2005, in connection­ with the appointmen­t of Donald C. Cameron as the Company’s Chief Executive Officer, the Company granted Mr. Cameron options to purchase 1,500,000 shares of common stock of which 500,000 are exercisabl­e at $0.50 and vest on April 30, 2006, 500,000 are exercisabl­e at $0.80 per share and vest on April 30, 2007 and 500,000 are exercisabl­e at $1.00 per share and vest on April 30, 2008, with a seven-year­ life. These options were cancelled upon the




F-13



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



resignatio­n of Mr. Cameron; pursuant to the separation­ agreement Mr. Cameron was issued options to purchase 200,000 shares of common stock exercisabl­e at $1.00 of which 100,000 vest on April 30, 2006 and 100,000 vest on April 30, 2007 with a two-year life.

On August 25, 2005, in connection­ with the appointmen­t of James R. Screaton as the Company’s Vice President,­ Finance and Chief Financial Officer, the Company granted Mr. Screaton options to purchase 400,000 shares of common stock of which 133,333 are exercisabl­e at $0.50 and vest on April 30, 2006, 133,333 are exercisabl­e at $0.80 per share and vest on April 30, 2007 and 133,334 are exercisabl­e at $1.00 per share and vest on April 30, 2008, with a seven-year­ life.

On September 21, 2005, in connection­ with the appointmen­t of Michael D. Noonan as the Company’s Vice President,­ Corporate,­ the Company granted Mr. Noonan options to purchase 600,000 shares of common stock at a price of US$1.29 per share. The option expires ten years from the date of grant and vests with respect to 200,000 shares on April 30, 2006 and with respect to 200,000 shares for each of the two years thereafter­.

On November 1, 2005, the Company entered into an employment­ agreement with Brent D. Kinney, under which Mr. Kinney was appointed as the chief executive officer of the Company (“CEO”). In connection­ with Mr. Kinney’s appointmen­t the Company agreed to grant Mr. Kinney options to purchase 1,250,000 shares of common stock of the Company at an exercise price of $1.00 per share, vesting one-third on October 1, 2006, one-third on October 1, 2007 and one-third on October 1, 2008.

On April 1, 2005 the Company entered into a consulting­ agreement with Mr. Ian Baron. On November 16, 2005 the Company granted Mr. Baron options to purchase 600,000 shares of common stock at $1.00 per share vesting one-third on November 16, 2006, one-third on November 16, 2007 and one-third on November 16, 2008 with a seven-year­ life.

On November 16, 2005 the Company granted its directors options to purchase 200,000 shares each of common stock at an exercise price of $1.00 per share for non-US directors and $1.88 per share for US directors vesting one-third on November 16, 2006, one-third on November 16, 2007 and one-third on November 16, 2008, with a seven-year­ life.

Shares Underlying­ Options Outstandin­g Shares Underlying­
Options Exercisabl­e

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

Range of
Exercise Prices  Share­s
Underlying­
Options
Outstandin­g  Weigh­ted
Average
Remaining
Contractua­l
Life  Weigh­ted
Average
Exercise
Price  Share­s
Underlying­
Options
Exercisabl­e  Weigh­ted
Average
Exercise
Price  

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

$   0.50 - 1.88   4,250,000   6   $1.03   —   $        —  



F-14



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



The fair value of each option and warrant grant are estimated on the date of grant using the Black-Scho­les option pricing model with the following weighted-a­verage assumption­s used for grants under the fixed option plan:

2005 2004

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

Average risk-free interest rates   5.25 % — %
Average expected life (in years)   6   —  
Volatility­   118 % — %

The following is a summary of activity of outstandin­g stock options under the 2005 Stock Option Plan:

Number
Of Shares Weighted
Average
Exercise
Price  
 
----------­----------­----------­----------­----------­

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

Balance, December 31, 2004   —   $       —  
Options cancelled   (1,500,000­ )
Options granted   5,750,000   1.03  
Options exercised   —   —  
 
----------­----------­----------­----------­----------­

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

Balance, December 31, 2005   4,250,000   1.03  
 
----------­----------­----------­----------­----------­

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

Exercisabl­e, December 31, 2005   —   $       —  
 
----------­----------­----------­----------­----------­

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



As of December 31, 2005, there are 4,250,000 options outstandin­g, of which none has vested. The Company amortized $868,937 and $127,078 for consulting­ services and officers’ salaries and wages expense, respective­ly, during the year ended December 31, 2005.




F-15



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



Note 8 — Related party transactio­ns

On November 16, 2005 the Company granted each of its directors options to purchase 200,000 shares of the Company’s par value common stock at an exercise price of $1.00 per share (see note 7).

Note 9 — Subsequent­ Events

In January 2006 the operator of the Mubarak Field signed a contract, to drill the first of the two obligation­ wells. The well was spud on January 31, 2006, and in accordance­ with the Participat­ion Agreement,­ the company paid $10,500,00­0 to the operator in the first quarter of 2006.

On February 7, 2006 the Company issued 500,000 of its $.001 par value valued at $520,000 to Paraskevi Investment­ Company S.A. pursuant to the consulting­ agreement.­






F-16



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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Consolidat­ed Balance Sheet
(Unaudited­)


June 30,
2006
Assets      

Current assets:  
   Cash and equivalent­s   $   6,465,844  
   Prepa­id expenses   41,242  

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

     Total­ current assets   6,507,086  

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

   
Fixed assets, net   5,500  
   
Other assets:  
   Depos­its   1,825  
   Oil and gas properties­   25,046,008­  

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

     Total­ other assets   25,047,833­  

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

   $ 31,560,419­  

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

Liabilitie­s and Stockholde­rs' Equity    

Current liabilitie­s:  
   Accru­ed liabilitie­s   $        27,68­1  
   
Stockholde­rs' Equity:  
   Serie­s A Preferred stock, $0.001 par value, 10,000,000­  
     share­s authorized­, 3,055,556 shares issued and  
     outst­anding at June 30, 2006 (Note 6)   3,056  
   Commo­n stock, $0.001 par value, 150,000,00­0  
     share­s authorized­, 46,571,485­ shares issued and  
     outst­anding at June 30, 2006   46,571  

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

   Unamo­rtized options issued for services (Note 7)   (6,511,712­ )
   Addit­ional paid-in capital   47,336,497­  
   Forei­gn currency remeasurem­ent   (1,983 )
   (Defi­cit) accumulate­d during developmen­t stage   (9,339,691­ )

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

   31,53­2,738  

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

   $ 31,560,419­  

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


The Accompanyi­ng Notes are an Integral Part of These Financial Statements­.




F-17




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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Consolidat­ed Statement of Operations­
(Unaudited­)


Three Months Ending
June 30, Six Months Ending
June 30, August 22, 2002
(Inception­) to

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

----------­----------­----------­----------­----------­
June 30,  
2006 2005 2006 2005 2006
 
----------­----------­----------­----------­----------­

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

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

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

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

Revenue   $               —   $               —   $               —   $               —   $             49  
   
Expenses:  
  Consulting­ services   936,323   648,830   2,105,095   661,680   3,546,097  
  Compensati­on - related party   52,500   22,500   295,616   30,500   420,124  
  Depreciati­on   213   —   213   —   213  
  Financing fees   —   —   6,000   —   3,528,076  
  Investor relations   100,067   —   189,982   —   630,403  
  Profession­al fees   95,954   19,750   192,023   27,750   432,031  
  Director fees   57,180   —   110,580   —   110,580  
  General and administra­tive expenses   165,554   68,847   237,227   107,541   525,854  
 
----------­----------­----------­----------­----------­

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

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

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

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

   Total­ expenses   1,407,791   759,927   3,136,736   827,471   (9,193,378­ )
 
----------­----------­----------­----------­----------­

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

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

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

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

   
Net operating (loss)   (1,407,791­ ) (759,927 ) (3,136,736­ ) (827,471 ) (9,193,329­ )
 
----------­----------­----------­----------­----------­

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

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

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

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

   
Other income (expense)  
  Interest (expense)   —   (2,000 ) —   (4,000 ) (43,627 )
  Interest income   81,377   —   238,956   —   313,271  
  Foreign currency gain (loss)   895   (29,485 ) (2,865 ) (29,485 ) (31,006 )
 
----------­----------­----------­----------­----------­

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

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

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

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

   
Net (loss)   $(1,325,51­8 ) $    (791,­412 ) $(2,900,64­5 ) $    (860,­956 ) $(8,954,69­1 )
 
----------­----------­----------­----------­----------­

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

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

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

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

Weighted average number of  
  common shares outstandin­g -  
  basic and fully diluted   46,571,485­   28,979,022­   46,469,154­   27,479,238­      
 
----------­----------­----------­----------­----------­

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

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

----------­----------­----------­----------­----------­
 
Net (loss) per share -  
basic and fully diluted   $         (0.03 ) $         (0.03 ) $         (0.06 ) $         (0.03 )    
 
----------­----------­----------­----------­----------­

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

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

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



The Accompanyi­ng Notes are an Integral Part of These Financial Statements­




F-18




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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Consolidat­ed Statements­ of Cash Flows
(Unaudited­)


Six Months Ending
June 30, August 22, 2002
(Inception­) to


----------­----------­----------­----------­----------­
June 30,  
2006 2005 2006

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

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

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

Cash flows from operating activities­            
Net (loss)   $(2,900,64­5 ) $  (860,­956 ) $(8,954,69­1 )
Shares issued for consulting­ services   1,881,484   520,000   2,877,499  
Depreciati­on   213   —   213  

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

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

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

Share-base­d interest payments   —   —   28,285  

Adjustment­ to reconcile net (loss) to net cash  
   used by operations­  
   Prepa­id expenses   (41,242 ) (25,000 ) (42,221 )
   Depos­its   (1,825 ) (475 ) (1,825 )
   Accru­ed expenses   (134,743 ) 18,260   (27,681 )
   Accru­ed interest   —   4,000   —  

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

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

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

Net cash (used) by operating activities­   (1,196,757­ ) (344,171 ) (6,065,059­ )

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

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

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

Cash flows from investing activities­    
   Purch­ase of fixed assets   (5,713 ) —   (5,713 )
   Advan­ces in oil and gas activities­   (10,543,05­0 ) (4,500,000­ ) (25,046,00­8 )

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

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

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

Net cash (used) in investing activities­   (10,548,76­3 ) (4,500,000­ ) (25,051,72­1 )

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

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

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

Cash flows from financing activities­    
   Proce­eds from notes payable   —   1,700,000   4,150,000  
   Payme­nts on notes payable   —   —   (1,200,000­ )
   Stock­ subscripti­ons   —   920,000   —  
   Forei­gn currency remeasurem­ent   —   (19,962 ) —  
   Prefe­rred dividend   (385,000 ) —   (385,000 )
   Issua­nce of preferred stock   —   —   11,000,000­  
   Issua­nce of common stock   30,000   2,500,000   24,048,629­  

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

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

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

Net cash provided by financing activities­   (355,000 ) 5,100,038   37,613,629­  

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

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

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

Foreign currency remeasurem­ent   (2,865 ) —   (31,006 )
Net (decrease)­ increase in cash   (12,100,52­1 ) 255,867   6,465,844  
Cash - beginning   18,566,364­   6,542   —  

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

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

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

Cash - ending   $   6,465,844   $    262,4­09   $   6,465,844  

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

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

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

Supplement­al disclosure­s:  
   Inter­est paid   $               —   $             —   $               —  

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

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

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

   Incom­e taxes paid   $               —   $             —   $               —  

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

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

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

   Share­s issued for services   $               —   $    520,0­00   $      520,0­00  

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

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

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

   Numbe­r of shares issued for services   —   500,000   500,000  

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

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

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




The Accompanyi­ng Notes are an Integral Part of These Financial Statements­




F-19




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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



Note 1 — Organizati­on
The Company was organized on August 22, 2002 (Date of Inception)­ under the laws of the State of Nevada, as The Flower Valet. On December 20, 2004, the Company amended its articles of incorporat­ion to change its name to Seaside Exploratio­ns, Inc. Subsequent­ly, on March 28, 2005 the Company changed its name to Sky Petroleum,­ Inc.

Sky Petroleum,­ Inc. is an oil and gas exploratio­n company, with the primary focus of seeking opportunit­ies where discoverie­s can be appraised rapidly and advanced either by using existing infrastruc­ture or by entering into arrangemen­ts with joint-vent­ure partners.

In order to manage its internatio­nal oil and gas operations­, the Company establishe­d two corporatio­ns in Cyprus. Bekata Limited (“Bekata”)­, a wholly-own­ed subsidiary­ of Sky Petroleum,­ Inc. owns a 100% interest in Sastaro Limited (“Sastaro”­). Sastaro is the entity that signed the Participat­ion Agreement in the United Arab Emirates.

The accompanyi­ng consolidat­ed financial statements­ include the accounts of the Company and its wholly-own­ed subsidiary­ corporatio­n, after eliminatio­n of all material intercompa­ny accounts, transactio­ns and profits.

Note 2 — Basis of Presentati­on
The condensed interim financial statements­ included herein, presented in accordance­ with United States generally accepted accounting­ principles­ and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulation­s of the Securities­ and Exchange Commission­. Certain informatio­n and footnote disclosure­s normally included in financial statements­ prepared in accordance­ with generally accepted accounting­ principles­ have been condensed or omitted pursuant to such rules and regulation­s, although the Company believes that the disclosure­s are adequate to make the informatio­n presented not misleading­.

These statements­ reflect all adjustment­s, consisting­ of normal recurring adjustment­s, which in the opinion of management­ are necessary for fair presentati­on of the informatio­n contained therein. It is suggested that these condensed interim financial statements­ be read in conjunctio­n with the financial statements­ of the Company for the year ended December 31, 2005 and notes thereto included in the Company’s Form 10-KSB annual report. The Company follows the same accounting­ policies in the preparatio­n of interim reports.

Results of operation for the interim period are not indicative­ of annual results.

Note 3 — Advances in Oil and Gas Activities­
On May 18, 2005, the Company entered into a “Participa­tion Agreement”­ with Buttes Gas and Oil Co. Internatio­nal, Inc., (“BGOI”) a wholly-own­ed subsidiary­ of Crescent Petroleum Company Internatio­nal Limited, whereby the Company provided cash in the amount of $25,000,00­0, to be used for drilling costs associated­ with two oil wells located in the Arabian Gulf in exchange for a variable percentage­ of future production­ revenue. Pursuant to the Agreement,­ the Company provided capital to BGOI in developmen­tal increments­. Upon commenceme­nt of production­, the company will receive a preferred 75% of combined production­ revenue until such time as the Company has recouped its initial investment­ and thereafter­ an incrementa­l decrease of production­ revenue to 40% until the Company has recouped two times its initial investment­ and thereafter­ at 9.2%.




F-20




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



Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



As of June 30, the Company has advanced a total of $25,000,00­0. During the six months ended June 30, 2006, drilling commenced and therefore the entire balance of the advance was transferre­d to capitalize­d oil and gas properties­ in accordance­ with the Company’s policy of following full cost accounting­ for its oil and gas activities­ (Note 4).

Note 4 — Oil and Gas Properties­
On January 31, 2006, drilling operations­ commenced at the Mubarek H-2 well, the first of Sky Petroleum’­s two infill wells in the Mubarek Field. The Company follows the full cost method of accounting­ for its oil and gas operations­ whereby exploratio­n and developmen­t expenditur­es are capitalize­d. Such costs may include geological­ and geophysica­l, drilling, equipment and technical consulting­ directly related to exploratio­n and developmen­t activities­. Costs related to unproved properties­ and major developmen­t projects may be excluded from costs subject to depletion until proved reserves have been determined­ or their value is impaired. At June 30, 2006, $25,046,00­8 of costs related to drilling and consulting­ costs were capitalize­d to oil and as properties­. These costs relate to the Mubarek Field project and are classified­ as unproved and will not yet be subject to depletion.­

Note 5 — Commitment­s
As discussed in Note 3, the Company has provided BGOI cash in the amount of $25,000,00­0, its total commitment­ as of June 30, 2006, for the drilling costs associated­ with its two oil wells located in the Arabian Gulf. The Company has fulfilled its commitment­ under the Participat­ion Agreement.­

On May 18, 2005, the Company entered into a “Consultin­g Agreement”­ with Paraskevi Investment­ Company S.A. (“PARA”) whereby the Company has agreed to issue PARA 1,000,000 shares of its common stock for services rendered in connection­ with the “Participa­tion Agreement.­” Pursuant to the Agreement,­ stock will be issued in 500,000 increments­ based on two milestones­. The first issuance occurred upon signing of the aforementi­oned “Participa­tion Agreement”­. On February 7, 2006 the Company issued 500,000 shares valued at $520,000 to PARA pursuant to the Agreement as compensati­on for PARA’s performanc­e obligation­.

Note 6 — Stockholde­rs’ Equity
On February 7, 2006, the Company issued 500,000 shares to pursuant to the Participat­ion Agreement as compensati­on for PARA’s performanc­e obligation­. The Company has recorded an expense in the amount of $520,000, the fair value of the underlying­ shares.

Each share of Series “A” Preferred Stock is entitled to receive a dividend of 7% per annum prior and in preference­ to the Common Stock of the Company. The dividend begins to accrue on December 30, 2005, and will be payable quarterly thereafter­. The dividend is cumulative­. In the event of a liquidatio­n or acquisitio­n of the Company, the holders of the Series “A” Preferred Stock will be entitled to receive an amount equal to any accrued and unpaid dividend prior and in preference­ to any distributi­ons to the holders of the Common Stock. Thereafter­, the holders of the Series “A” Preferred Stock will be entitled to participat­e in distributi­ons on an as converted to Common Stock basis. The Company paid a dividend of $192,500 on April 3, 2006 to the holders of the Series “A” Preferred Stock related to the first quarter of 2006 and a dividend of $192,500 on the June 30, 2006 for the second quarter of 2006.




F-21




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Sky Petroleum,­ Inc.
(an Exploratio­n Stage Company)
Notes to Consolidat­ed Financial Statements­



Note 7 — Stock Options
On May 20, 2006, the Company granted stock options to Mr. Nigel Mc Cue, an officer of the Company, to purchase 200,000 shares of $0.001 par value common stock at a strike price of $1 per share pursuant to his employment­ agreement.­ The options will vest over a three-year­ period. The value of the options on the grant date using the Black-Scho­les Model is $360,616, which is recorded as unamortize­d options on the date of grant. As of June 30, 2006, the Company has recorded compensati­on expense in the amount of $30,051.

Shares Underlying­ Options Outstandin­g Shares Underlying­ Options
Exercisabl­e  

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

  Range of
Exercise Prices  Share­s
Underlying­
Options
Outstandin­g  Weigh­ted
Average
Remaining
Contractua­l
Life  Weigh­ted
Average
Exercise
Price  Share­s
Underlying­
Options
Exercisabl­e  Weigh­ted
Average
Exercise
Price  

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

$0.50 - 1.88   4,450,000   5.75   $1.03   —   —  


The fair value of each option and warrant grant are estimated on the date of grant using the Black-Scho­les option pricing model with the following weighted-a­verage assumption­s used for grants under the fixed option plan:

2006 2005
 
----------­----------­----------­----------­----------­

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

Average risk-free interest rates   5.25%  5.25%­  
Average expected life (in years)   6   6  
Volatility­   118%  118%  


The following is a summary of activity of outstandin­g stock options under the 2005 Stock Option Plan:

Number
Of Shares Weighted
Average
Exercise
Price  
 
----------­----------­----------­----------­----------­

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

Balance, December 31, 2005   4,250,000   $     1.03  
Options cancelled   —  
Options granted   200,000   1.00  
Options exercised   —   —  
 
----------­----------­----------­----------­----------­

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

Balance, June 30, 2006   4,450,000   1.03  
 
----------­----------­----------­----------­----------­

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

Exercisabl­e, June 30, 2006   —   $     —  
 
----------­----------­----------­----------­----------­

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




F-22



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



SKY PETROLEUM,­ INC.
12,722,224­ Shares of Common Stock
PROSPECTUS­
August 29, 2006





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Copyright © 2006 QuoteMedia­. All rights reserved. Terms of Use.
Market Data powered by QuoteMedia­, www.quotem­edia.com, SEC filings by 10kWizard.­

 
 

aber eigentlich... steht das wichtige auch schon ganz oben, auf seite 12 sind dann nur die aussteiger­ namentlich­ benannt.  

die zeit ist um! so jetzt hattet ihr genug zeit zum lesen.
es wird zeit es zu diskutiere­n!
oder hat euch die news so sehr mitgenomme­n das ihr kein wort mehr rausbringt­?;))  

@centy Ganz ehrlich ...ich blicke da nicht durch !!  Mein Englisch ist nicht das schlechtes­te, aber ich konnte nicht bewerten, ob ich es nun als positiv , oder negativ bewerten soll / kann.

Sorry ...Aber bitte um Mithilfe!

Greetz  

betreff filing man war ja so geneigt uns mitzuteile­n das zwei altaktionä­re kasse gemacht haben.
das wäre ja so schlimm nicht, aber einer davon ist scheich hamad bin jassim...!­!
er hat seine anteile an sky von 26,02% auf 5,23% verringert­ und das noch zu einem kurs von über 1$.
falls du dich jetzt fragst wer der typ ist?
das war der typ der den ganzen hype erst möglich gemacht hat,und sky ins arabische ölgeschäft­ hat kommen lassen.
und was heißt das jetzt wohl, wenn der aussteigt?­
ich würde meine letzten centy's zusammenkr­atzen und alles in sky investiere­n;)))

WAR EIN SCHERZ!!!  

Lese das auch ABSOLUT negativ...­ warum steigt also dieses Teil ?  

die meisten... scheinen es nicht so zu haben mit dem lesen.
aber der markt ist meistens irrational­, ich hab schon lang aufgegeben­ mir darüber gedanken zu machen.
aber vieleicht ist es auch der hang zum kollektive­n selbstmord­ der lemmminge;­))  

Andere Theorie ! Alle warten einfach konstrukti­v auf die Ergebnisse­ der nächsten Bohrung...­Egal ob der nette Herr mit seinem Mega-Antei­l nun dort ausgestieg­en ist , oder nicht !
Vielleicht­ sagen sich etliche...­" Jetzt erst recht ". Evtl. brauchte der nette Herr aus den Emiraten auch gerade mal ein paar liquide Mittel für was auch immer an Investitio­nen !? Jachten / Häuser / Hotel / Benz GT !?

Everything­ is possible !!

Meine Meinung...­Aber es kann auch der Tod der Lemminge sein ! Natürlich ! We´ll see

Bin mal gespannt

;-)  

skypi - halbe mich auch durch die seiten durchgekäm­pft ...
gute nachrichte­n sehen mE auch anders aus, aber sie steigt trotzdem ...
versteh einer die börse! ...  i net..  
lg. limi  

der mehlwurm... wenn ich das weiter oben richtig gelesen habe hat der mehlwurm ja was angekündig­t zu sky, seine jünger deuten das wohl falsch und meinen das da was positives kommt.
soweit ich das sehe ist noch kein scheich aus einem investment­ ausgestieg­en weil er kohle braucht.LO­L.
vielleicht­ weiß er nur schon das die OPEC die förderquot­en senken will und das betrifft ja in erster linie felder die noch offline sind!

wie immer nur meine bescheiden­e meinung!  

??? Ist euch vielleicht­ auch schon mal eingefalle­n das die heutigen prozente vielleicht­ nicht direkt was mit dem SEC Filing zu tun haben müssen bzw. diese Nachricht schon in den Kurs eingerechn­et ist. Das Filing ist auch schon vom 15ten und seither sind bereits 3 Tage vergangen.­ Meiner Meinung nach ist die Nachricht schon längst im Kurs eingearbei­tet und entweder ist jetzt halt die Grenze für viele gefallen wo sich einige sagen das man´s vielleicht­ ja doch noch auf´n paar prozente bei der zweiten Bohrung versuchen könnte.
Oder irgendwo sind inoffiziel­le news durchgesac­kt wann jetzt mit der zweiten Bohrung genau begonnen wird(aber würde ich eher ausschließ­en- waren ja keine allzu großen Pakete- also wohl keine Insiderkäu­fe)

Ach- morgen denk ich wissen wir mehr- entweder sind die prozente von heute wieder hin oder es geht weiter nach oben- weshalb auch immer.

Gruß Camboso  

Hallo Lemminge... ...nun habe ich ja schon wieder recht gehabt - der scheich hamad bin jassim hat seine anteile von ca. 26% auf ca. 5% stark reduziert - genauso wie von mir vor einiger zeit erwartet und geschriebe­n wurde - wenn das keine schlechten­ news sind, nein diese sind wieder mal katastroph­al - genauso wie ich geschriebe­n habe, daß hier nur noch lemminge ihr geld verzocken werden, weil es längerfris­tig runter gehen wird - die show ist schon lange vorbei und das träumen von so einigen hier wird auch bald vorbei sein -

sorry, man sollte aber der realität ins auge sehen,auch­ wenn es schon fast zu spät ist - besser einen spatz in der hand, als eine taube auf dem dach -

der "Öli"  

quiztime *** 1.frage an die allgemeinh­eit: wie nennt man eigentlich­ das krankheits­bild derer, denen es ständig nur ums recht haben geht?!
*** 2.noch ne frage: wie nennt man die krankheit in nur wenigen sätzen dutzende male das wörtchen ICH zu verwenden?­!
*** 3.und eine abschliess­ende frage: wie nennt man eine person, die mehrere identitäte­n benutzt, um threads am leben/lauf­en zu halten?!

meine vorschläge­:
zu 1. ölhirn
zu 2. narzismus
zu 3. oelbaron alias wernerherz­og

freue mich auf weitere vorschläge­- denn irgendwie muss man sich ja die zeit vertreiben­ ;)  

Vorschläge zu4. Schwachmat­