10KSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

(Mark One)

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

For the fiscal year ended June 30, 2006

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

Commission File Number: 0-7775

WESTLAND DEVELOPMENT CO., INC.

(Exact name of Westland as specified in its charter)

New Mexico	85-0165021
(State or other jurisdiction of incorporation or other organization)	(I.R.S. Employer Identification No.)
401 Coors Boulevard, N.W., Albuquerque, New Mexico,	87121
(Address of principal executive offices)	(Zip Code)

Westland’s telephone number, including area code: 505-831-9600

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

No Par Value Common Stock

(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that Westland was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Westland’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  x

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

State issuer’s revenues for its most recent fiscal year: $20,538,312

State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days.

On September 20, 2006, there were 701,623 No Par Value Common shares and 41,700 Class B shares owned by non-affiliates. The last date any stock was bought or sold was August 25, 2005 and the price on that day was $20 per share. However, during the past year Westland has negotiated several merger agreements with unaffiliated third parties in which the price offered for the outstanding shares has risen to the current price of $315 per share. Thus the aggregate market value of the voting stock held by non-affiliates on September 25, 2006, was $13,868,380 while the merger value of such shares was $234,146,745 on that same date.

The number of shares outstanding of each of Westland’s classes of common stock, as of September 20, 2006, was: No Par Value Common: 709,827 shares; Class B $1.00 Par Value: 85,100 shares.

The following documents are incorporated into this Report by reference:

1. Agreement and Plan of Merger dated as of July 19, 2006 between the Registrant and SCC Acquisition Corp.

2. Schedule 14A filed with the SEC on September 20, 2006.

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INDEX

ITEM			Page No.
PART I			4
	ITEM 1.	Description of Business	4
	ITEM 2.	Description of Properties	11
	ITEM 3.	Legal Proceedings.	11
	ITEM 4.	Submission of Matters to a Vote of Security Holders	14
PART II			15
	ITEM 5.	Market for Common Equity and Related Stockholder Matters	15
	ITEM 6.	Management’s Discussion and Analysis or Plan of Operations	15
	ITEM 7.	Financial Statements	18
	ITEM 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	39
	ITEM 8A.	Controls and Procedures	39
	ITEM 8B.	Other Information	40
PART III			40
	ITEM 9.	Directors, Executive Officers Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act	40
	ITEM 10.	Executive Compensation	43
	ITEM 11.	Security Ownership of Certain Beneficial Owners and Related Stockholder Maters	45
	ITEM 12.	Certain Relationships and Related Transactions	47
	ITEM 13.	Exhibits and Reports on Items on Form 8-K	48
	Exhibits
	Certifications:
	31	Certification pursuant to Section 302 of the Sarbanes-Oxley Act
	32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99. Other Exhibits:
	99.1	Oil and gas lease between Westland and Great Northern Gas Co. (“GNG”) for 9068 acres dated September 17, 2001 filed herewith.
	99.2	Oil and gas lease between Westland and Sun Valley Energy Corp. (“Sun Valley”) for approximately 7,211 acres dated June 6, 2000 filed herewith.
	ITEM 14.	Principal Accountants Fees and Services	51

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PART I

ITEM 1: DESCRIPTION OF BUSINESS

Westland Development Co., Inc., a New Mexico for-profit corporation (“Westland”), is the successor to a community land grant corporation named Town of Atrisco, which itself was a successor to a Spanish community land grant named the Atrisco Land Grant. Information concerning the historical background of these predecessor organizations and the conversion in 1967 from a community land grant corporation into a business corporation can be found in Westland’s Form 10 and its Form 10-K for the fiscal year ended June 30, 1974. With limited exceptions, only lineal descendants of the incorporators of the Town of Atrisco may own shares of Westland’s Common Stock.

Westland’s executive offices are located in its own building at 401 Coors Boulevard, NW, Albuquerque, New Mexico, 87121, telephone (505) 831-9600, on land which was originally part of the Atrisco Land Grant.

Westland’s General Businesses.

Westland derives revenues through commercial and land leases, partnerships formed for various development projects, developed lot sales to homebuilders and bulk land sales to other land developers.

Proposed Merger with and Acquisition by SCC Acquisition Corp. (“SCC”)

On June 26, 2006, Westland’s board of directors received an offer from SCC and on June 30, 2006 Westland received additional materials from SCC, formally offering to increase the cash offered for Westland to $315.00 per share, to furnish at closing $2 million of the $1 million annual payments to be made to the Atrisco Heritage Foundation (a non-profit entity that would be formed pursuant to the proposed merger) for 100 years representing the first and second annual contribution to the Foundation, and to create a New Mexico limited liability company to be named Atrisco Oil & Gas LLC into which Westland would assign 100% of all rents, royalties and other benefits to which Westland is entitled under two current oil and gas leases and 50% of Westland’s existing mineral rights, except for damage payments related to the use of the surface for pipelines, drill sites, etc. Atrisco Oil & Gas LLC would have the right to explore for minerals, subject to compliance with the surface use restrictions set forth in a Quitclaim Deed to be entered into between Westland and Atrisco Oil & Gas LLC, On July 19, 2006, Westland and SCC entered into an Agreement and Plan of Merger (the “SCC Merger Agreement”) containing the terms discussed above, and, as part of that agreement SCC paid another company with which Westland had a similar agreement the sum of $15,000,000 as a break-up fee, which, in the event of termination of the SCC Agreement under certain conditions, Westland will be required to repay the amount of the break-up fee to SCC.

Westland’s purpose for engaging in the merger is to enable Westland’s shareholders to vote on whether they want to receive $315.00 per share in cash for each outstanding share of Westland no par value and Class B common stock. In addition, the current Westland shareholders will own Atrisco Oil & Gas LLC in the same proportion that they now own Westland, allowing them to receive a portion of the benefit from any oil, gas or other mineral value currently owned by Westland.

The SCC Merger Agreement contemplates a merger whereby SCC will be merged with and into Westland, and Westland will be the surviving company in the merger.

Immediately prior to the merger, Westland would:

• Create of Atrisco Oil & Gas LLC and dividend Atrisco Oil & Gas LLC’s Class A units to the current shareholders of Westland to the same extent as their current ownership of Westland. Westland will assign to Atrisco Oil & Gas LLC all rights to receive revenue under the two existing oil and gas leases of Westland and will deed 50% of all other mineral (including oil and gas) rights of Westland to Atrisco Oil & Gas LLC.

The completion of the merger will result in the following:

• the conversion of the issued and outstanding shares of Westland no par value and Class B common stock issued and outstanding immediately prior to the merger into the right to receive $315.00 per share in cash (other than shares of Westland common stock held by shareholders who perfect their dissenters’ rights under New Mexico law);

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• the amendment of Westland’s articles of incorporation, pursuant to which any currently existing restrictions on the transfer of Westland’s common stock will be removed; and

• SCC Acquisitions, Inc., the parent of SCC, owning all of the outstanding shares of Westland common stock.

Upon completion of the merger, Westland will be a wholly-owned direct subsidiary of SCC Acquisitions, Inc. Westland’s current shareholders will cease to have an ownership interest in Westland or rights as shareholders and will also not be shareholders of SCC Acquisitions, Inc. As such, Westland’s shareholders will not have the opportunity to share in any of Westland’s or SCC Acquisition, Inc.’s future earnings (other than from mineral, including oil and gas) or growth or any increase in Westland’s or SCC’s value after the merger, or bear the risk of any losses generated by Westland’s operations or any decrease in Westland’s value after the merger.

A. Lands held for Investment.

Westland is the owner of approximately 54,000 to 57,000 acres of land located on the west side of Albuquerque, New Mexico. Most of its property is held for long-term investment and is leased for cattle grazing at nominal amounts.

B. Land Development and Sale.

Over the past approximately 30 years, Westland developed six master planned areas, and sold all of them. Those master planned areas were previously identified as Atrisco Urban Center and El Rancho Atrisco, Phases I through V. These lands, except for the Phase V master plan, which was abandoned due to the introduction of the Petroglyph National Monument, have now been substantially developed and sold.

In 1998 the City of Albuquerque and the County of Bernalillo finalized the approval of a 6,400 acre master plan. In November 1998 Westland and the City executed a Pre-Annexation Agreement. In 2000, the City annexed an initial 1,665 acres. In fiscal year 2005 Westland completed construction at its own cost a pump station, a 4.3 million gallon reservoir and 36-inch transmission line for the water system to serve the initial 1,665 acres within the Master Plan area and donated said facilities to the City per the terms of the Pre-Annexation Agreement. The Pre-Annexation Agreement also requires that the City reimburse Westland its costs of constructing the sewer and water utilities for the initial 1,665 acres by paying all Utility Expansion Charges paid by or for residents within the Master Plan area to Westland until Westland is repaid its costs of construction of the sewer and water utilities aggregating approximately $7.2 million. In July and August, 2006, Westland received $1,505,039 of reimbursements of these costs. Westland currently has under design, is developing, is selling, or has sold lots or super pads to home builders in five subdivisions located within the Master Plan area (the Petroglyphs) aggregating approximately 534 acres, including Sundoro North (approximately 58 acres) and Sundoro South (approximately 67 acres), Watershed (approximately 47 acres), Grasslands (approximately 185 acres planned for single family detached homes and 70 acres of commercial and mixed uses), and Stormcloud (approximately 107 acres).

In addition, Westland will finance additional off site water and sewer distribution and collection lines, drainage facilities, and roads within the Master Plan Area. During the fiscal year ended June 30, 2005 Westland repaid loans obtained to finance construction costs of the water system.

To the extent that Westland develops the properties, the costs will be borne by Westland for on site water and sewer distribution and collection lines, drainage facilities, and roads within the annexed area Depending upon the growth of development in this area, it may take a decade or more for Westland to recover these costs through sales.

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The City of Albuquerque has adopted impact fees for payment of certain other costs associated with City development. The adoption of impact fees will increase the cost of new home construction on Albuquerque’s West side, which includes Westland’s annexed lands and may negatively impact Westland’s revenue to the extent it will raise the cost of housing. Impact fees were phased in beginning with 33% of such fees for the period from July 1, 2005 to January 1, 2006, then 66% from January 1, 2006 to January 1, 2007 and 100% thereafter. The fees are payable by the builder to the City on all subdivisions approved after July 1, 2005. Of the Master Plan subdivisions now under way, Sundoro South, Grasslands and Stormcloud are subject to impact fees.

Assuming continuation of the Company in more or less its current form with its current management, management remains committed to the construction of residential, industrial and commercial developments for lease or sale. Westland’s long term business philosophy is to create revenues by enhancing the value of Westland’s land through careful planning and development, while retaining ownership of a major portion of the land in perpetuity and to provide dividends for its shareholders, when consistent with Westland’s cash operating requirements to meet current and near term operating expenses.

C. Oil and Gas and Grazing Leases.

Approximately 50,000 acres are leased to non-affiliated people for cattle grazing. Because of the extreme drought in the area since 1998, Westland has granted rent abatements to the tenants in some of these years. In 2003, Westland entered into a five-year lease at $.40 per acre per year with the heirs of the prior tenant.

Westland has entered into two oil and gas leases on portions of its properties. Both leases will be transferred to Atrisco Oil & Gas LLC should the shareholders approve the Merger Agreement between Westland and SCC at a special shareholder’s meeting pursuant to which SCC will be merged with and into Westland with Westland as the surviving company. Information about these two leases is the following:

As of June 30, 2006, the leases were: (1) one was originally made with Great Northern Gas Co. (“GNG”) for 9,068 acres dated September 17, 2001, which terminates on September 16, 2006, if not extended, and (2) one originally made with Sun Valley Energy Corp. (“Sun Valley”) for approximately 7,211 acres dated June 6, 2000 that has been extended to and terminates on June 6, 2008. Westland’s retained owner’s royalty is 12.5% on the Sun Valley lease and is 13.5% on the GNG lease. These retained royalty interests will become the property of Atrisco Oil & Gas LLC should the shareholders approve the merger.

The Company also owns approximately 30,000 additional acres which may be suitable for oil and gas exploration in the future, if commercial quantities of oil and gas are found on the two existing leases. The approximately 17,000 acres of leased land lies on the western side of Westland’s north tract and extends westerly from north of I-40 on the south to the northern grant boundary near Double Eagle airport beginning several miles west of Paseo del Volcan. Fifty percent (50%) of the oil and gas minerals owned by Westland under these additional acres would, upon approval of the SCC Merger Agreement, be transferred to Atrisco Oil & Gas LLC.

The current assignee of the two leases, Tecton Energy LLC, has indicated an interest in drilling at least one well on each of the two leases. Tecton has requested and received consent from Westland for one drill site on each lease.

Current delay rental payments for the Sun Valley lease are $5.00 per acre per year. There is no agreement for delay payments for the GNG lease due to its termination on September 16, 2006 and no agreement as to the terms of an extension at this time.

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The latest drilling activity on Westland’s property occurred approximately two years ago when XTO Energy, Inc. drilled two wells on the GNG lease that were abandoned prior to completion, thus producing no commercial quantities of hydrocarbons.

In mid September Westland was informed by Tecton that it had commenced limited exploratory activities on one or both of its leases. Tecton has made public statements that it believes drilling on the leases will be successful; however, Westland has no knowledge and can provide no assurances to you as to whether Tecton’s efforts will be successful. Prior drilling efforts have not been commercially successful. However, if they are, any royalties from drilling under the Sun Valley and GNG leases would be held by Atrisco Oil & Gas, and not sold to SCC.

The SCC Merger Agreement between Westland and SCC contemplates that if the SCC Merger Agreement is approved by the shareholders a new company to be named Atrisco Oil & Gas LLC will be created into which Westland will contribute 100% of the rents and royalties under Westland’s two existing oil and gas leases and a 50% interest in all oil, gas and other mineral rights owned by Westland immediately prior to, and subject to the completion of, the merger.

Westland also owns and leases certain commercial buildings. (See “Revenue Producing Properties”.)

D. Other Projects.

1.	During fiscal 2006, the Company completed and sold many of the projects that have been ongoing for some years. Included in these projects were The Crossing, Sundoro and Sundoro South.
2.	Westland previously reported that in 1994 it entered into a lease/option arrangement related to approximately 37 acres located one mile north of I-40 on Paseo del Volcan known as The Campos De Suenos Ball Park. Westland took possession and ownership of the facility in 1997 as a result of default in the terms of the lease/option. The Park contains a fully developed recreation and softball complex. The lease of this property that was reported for fiscal 2005 terminated during fiscal 2006 and Westland is seeking a new lessee for this property.
3.	During the later months of fiscal 2005, Westland filed an application with Bernalillo County for approval of an approximately 15,000 acre master plan area located south of I-40. The planned area has been named Zacate and is in the early stages of development and approval. Westland was able to obtain from the County Planning Commission zoning for light industry within the Zacate Plan area. The site is located South of I-40 and West of Paseo del Volcan and zoning for industrial uses was approved by the Board of County Commissioners in fiscal 2007.
4.	Westland has a continuing corporate program of donating land or otherwise assisting in projects that management believes have a long term beneficial effect to the development and furtherance of the educational and health of the community and citizens. In the past it has donated lands for various purposes and continues to receive requests, which it has evaluated. During fiscal 2004, it donated 10 acres to a manufacturing company to assist it in locating its business to the City of Albuquerque. Another owner donated approximately an additional 40 acres, and the 50 acre parcel is being developed to meet the manufacturer’s needs. In fiscal 2005, Westland donated 15 acres to Albuquerque Public Schools as a part of the sale of land.

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E. Reinvestment Properties

As part of Westland’s plans to defer the tax burden arising from the sale of its lands to the National Park Service under threat of condemnation for inclusion in the Petroglyph National Monument, it reinvested the sale proceeds in the properties discussed below and two vacant land parcels. As a result of these purchases, Westland believes that it has deferred payment of taxes on the sales of land to the National Park Service. Westland extended this reinvestment program to other money received as a result of the condemnation of any of its properties by any governmental unit.

The Commercial properties are the following:

1. A commercial building at Coors Boulevard and Sequoia Road in Albuquerque at a cost of $2,630,000, $1,389,328 of which is subject to a Mortgage upon which Westland must pay monthly payments of $17,970. This building has been leased to Walgreen Company for 20 years at a fixed rent of $19,173 per month plus additional rent based upon a formula of gross sales up to a maximum rent of $460,161 in any one year.

2. A commercial building in Albuquerque’s Midway Industrial Park at a cost of $1,074,000, $555,689 of which is subject to a Mortgage upon which Westland must make monthly payments of $6,893. This building is currently leased to Optomec on a month to month basis at a fixed monthly rental of $7 per square foot.

3. A commercial building located at Coors Boulevard and Central Avenue at a cost of $3,593,000, which is subject to a mortgage of $2,157,558 requiring payments of $24,682 per month. The building has been leased to Walgreen Company on a minimum 20-year lease at a fixed rent of $26,122 per month plus a percentage of gross sales, with the maximum annual rent being capped at $626,922. Walgreen Company may continue the term of the lease for an additional 40 years.

4 A commercial building located at the SE corner of Eubank and Spain, N.E., at a cost of approximately $1,331,000, which is subject to a mortgage of $697,357 requiring payments of $9,079 per month. The building is leased to Marie Callender Pie Shops, Inc., on a minimum 10-year lease at a fixed rent of $11,000 per month, plus a Percentage Rent in the amount of 6% of Annual Gross Sales in excess of $2,200,000. The tenant has the right to renew the lease for as many as three 5-year terms. Although Marie Callender Pie Shops, Inc. continues to pay rent for the building, it has not occupied the building for more than the past year. The building was subleased by Marie Callender Pie Shops for a period of time, but that subtenant defaulted and the building is presently vacant.

5. A commercial building located in El Paso, Texas at a cost of approximately $3,907,000, which is subject to a mortgage of $2,674,661 requiring payments of $25,403 per month. The building is leased to Walgreen Company on a minimum 20-year lease at a fixed rent of $28,167 per month, plus a percentage of gross sales with a maximum annual rent of $676,000.

6. An office building located in Albuquerque, New Mexico at a cost of approximately $1,662,000 which is subject to a mortgage of $1,203,125 requiring payments of $5,208 plus interest at LIBOR + 2% (8% at June 30, 2006). 100% occupied multi-tenant office space with leases of 5 years.

7. An office building located in Albuquerque, New Mexico at a cost of approximately $1,553,000 which is subject to a mortgage of $993,667 requiring interest only payments of LIBOR + 2.5% (8.5% at June 30, 2006). 70% occupied multi-tenant office space with leases of 5 to 10 years.

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Current Real Estate Market Conditions

The market conditions for the development and sale of properties in Albuquerque appear to be stable for the near term although housing inventories for existing homes city-wide have grown and new home permits declined sharply in July, 2006. Westland has been able to sell the residential properties it has developed. Demand appears to be continuing for lots in the areas being developed by Westland. Management feels that sales will decrease slightly, due to an overall slowdown in the market. Management believes that for the foreseeable future, residential, commercial and industrial construction will continue at a moderate pace in the Albuquerque real estate market.

During the past fiscal year Westland was restricted in its ability to aggressively develop and market its properties because the prospective purchasers of the outstanding stock under the various Agreements and Plans of Merger wanted to maintain the integrity of the properties pending the completion of the vote by the shareholders to either approve or disapprove the agreements. It is now anticipated that the shareholders will meet in November 2006 to vote on the SCC Agreement.

Competition

Westland’s industrial parks: Volcano Business Park and the industrial lands within the planned area now compete, and will continue to compete, with other business and industrial parks in the Albuquerque area, including some that are more established and some that are located near the major population centers of Albuquerque.

Residential subdivisions on Westland’s land compete with other areas in the Albuquerque housing market (essentially Bernalillo County and portions of Sandoval County and Valencia County), as well as with other subdivisions on the west side of the City of Albuquerque. A number of large subdivisions to the north of Westland’s land are nearly fully sold. Growth continues in other large subdivisions located about five to six miles north of Westland’s lands as well as properties owned by others located on Albuquerque’s Southwest and Southeast Mesa and Sandoval and Valencia Counties.

The implementation of impact fees by the City of Albuquerque have resulted in builders asking for discounted prices for lots, but has not, as yet, had any adverse effect on Westland’s ability to sell property in competition with developers of land located in neighboring counties upon which no such impact fees may be assessed or are assessed at a lower number. (See “Governmental Regulations”)

Employees

As of June 30, 2006, Westland had thirteen full-time and three part-time employees. Westland’s president, who is also a director, is a full time employee. Ms. Georgia Baca, a director, is a part time employee. Westland also has contractual relationships with a person who is an officer and a director, who provides various services to Westland outside his duties as a director or officer.

Government Regulations

Westland’s ability to undertake an active program of development of its land and management of its rental properties (whether such development is performed by Westland itself or by sale of Westland’s land to others for development) is dependent on Westland’s ability to comply with laws and regulations of the State of New Mexico, Bernalillo County, and the City of Albuquerque, applicable to general environmental protection, land-use planning, annexation, zoning and subdivisions. Both the County and City regulate the subdivision of land and impose zoning and building permit requirements. The subdivision

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regulations of both Bernalillo County and the City of Albuquerque require, as a condition of approval of proposed subdivisions, that adequate provision be made by the developer for land use planning, water (both to quantity and quality), liquid waste disposal, solid waste disposal, sufficient and adequate roads and storm drain management.

The existing annexed properties in the Master Plan Area should not be affected by this new legislation.

Although compliance with federal, state, and local provisions relating to the protection of the environment, including laws regulating subdivisions and land-use planning and endangered species, has in recent years had no material effect upon the capital expenditures, earnings or competitive position of Westland, no assurance can be given that this situation will continue. Requests relating to drainage, traffic flow and similar matters from the City of Albuquerque have occasionally delayed the receipt of necessary approvals and required modification of development proposals. The expected opening of the Eclipse plant at Double Eagle II Airport to the north of Westland’s land on Paseo del Volcan may have an impact on the use of and planning for Westland’s land in the vicinity of the airport. Management believes the construction of the Eclipse factory at Double Eagle II Airport and the construction of a manufacturing plant in the same area, will favorably impact the value of Westland’s lands. However, City Council members have voted to downsize the connecting water line to be so small as to prohibit tie-ins by other users, including Westland.

As previously reported, at Westland’s request, the City of Albuquerque created Special Assessment Districts affecting the Atrisco Urban Center and El Rancho Atrisco areas for the financing of water, sewer, paving and other street improvements, and levied assessment liens on them. Management thought that this mechanism might provide a way to finance the improvements, and SAD’s for future development of Westland’s property. Westland also thought that legislation permitting the use of Public Improvement District bonds (PID’s) for this purpose and this form of tax assessment financing might be available to Westland. Management determined that if this financing was used control of the development related to the financing would be under the complete control of the City, which Management concluded was not acceptable.

A mandate by the State Legislature for implementation of Impact Fees may result in Westland’s lands being disadvantaged because the fees that surrounding municipalities and counties charge are much less than those that will be charged Westland by Albuquerque and Bernalillo County. Bernalillo County began the assessment of such fees on January 1, 1996, but Albuquerque implemented the fees in July of 2005. The fees charged by the City on the Westside are much higher than the fees charged in other areas of the City.

Availability of Water and Municipal Services

The unavailability of sufficient water has often been a major inhibiting factor in the land development business in the Southwest. The extent of Westland’s water rights has not been determined; however, Westland retained the services of two water specialists to investigate the existence of any Westland water rights and to otherwise consult with Westland on matters involving availability of water. As a result of these services, Westland has declared its ownership of a certain amount of water rights but the claimed rights have not been adjudicated to fully determine their validity. However, lack of ownership of water rights by Westland would not be an inhibiting factor to the development of Westland’s land if adequate water were to be made available through the newly created City-County Water Utility Authority and/or other water sources or by purchase by Westland or by a developer that might purchase and develop land. For example, Tierra West Mobile Home Park was created on land sold by Westland near Nine Mile Hill and the recreation complex leased or purchased water rights and drilled wells to meet their water needs.

Most of Westland’s land lies outside the municipal limits of the City of Albuquerque and is not furnished with water or other services. Westland experienced little difficulty in having its previous developments furnished with services, but the same cannot be assumed for other areas of Westland’s land and future developments.

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Other Factors Affecting Development of Westland’s Land

Various activist groups, as well as neighborhood organizations occasionally take actions that might have some impact upon or delay Westland’s plans for the development of some of its lands. Management is aware that some people or small groups of people continually express opposition to Westland’s operating plans.

ITEM 2: DESCRIPTION OF PROPERTIES

The major physical assets owned by Westland are its land, which is owned in fee simple. Until entering into the Agreements and Plan of Merger with parties interested in purchasing all of Westland’s outstanding shares of its common stock, Westland believed that it owned approximately 57,000 acres. Surveys of the land that were made as a part of those Agreements have established that Westland owns approximately 54,000 to 55,000 acres. The land is mostly comprised of undeveloped land held for long-term investment. Approximately 6,400 acres are located in Westland’s Master Plan area, of which 1665 acres have been annexed into the City of Albuquerque and another 900 acre tract, called the Atrisco Terrace, was condemned by the City of Albuquerque for open space.

Westland also owns free and clear of all debt the Atrisco Urban Center office building, comprising approximately 11,097 square feet, 4,166 of which is leased to a Bank, while the remainder is used by Westland for its executive offices.

Interstate Highway I-40, the main east-west highway through Albuquerque, crosses Westland’s land. Access to Westland’s land from Interstate 40 is provided by the Coors Boulevard interchange near the eastern edge of Westland’s land, by the Unser Boulevard interchange at the western edge of the Atrisco Urban Center, by the 98th Street interchange to the west of the Atrisco Urban Center and by the Paseo del Volcan interchange where I-40, Paseo del Volcan and Central Avenue meet. Running north from the I-40 interchange, Paseo del Volcan traverses about 4 1/2 miles of Westland’s land to the Double Eagle II Airport. Bernalillo County has extended Paseo del Volcan south of the I-40 interchange to the point at which it intersects Dennis Chavez Blvd. (formerly Rio Bravo) to form an inner loop for the City’s southwest quadrant.

Westland and other landowners and developers (the Northwest Loop Association) dedicated land and have paid a portion of the design costs for the Northwest Loop, which has been approved by the New Mexico State Highway Commission. The Northwest Loop will extend for approximately 39 miles and will connect I-40 and 1-25, through New Mexico State Highway 44, and will cross the western portion of Westland’s land lying within the Rio Puerco Valley. In 1995 Westland donated 169 acres for development of the Northwest Loop. Completion of the Northwest Loop is not expected for about 5 years.

Most of Westland’s land is remote and not readily accessible, not serviced by utilities, and Management believes that the bulk of its land will not be available for development in the foreseeable future. A large portion of the undeveloped land is leased for agricultural uses. (See “Item 1. Business.”). The bulk of Westland’s undeveloped land is held for long-term investment.

In the opinion of Westland’s Management, its developed property is adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS.

Other than ordinary routine litigation incidental to Westland’s business, neither Westland nor any member of management is the subject of any pending or threatened legal proceedings except the following:

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1. Rachel M. Stubbs, by her administrator Gordon H. Flynn, On Behalf of Herself and All Others Similarly Situated, Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 01455. This action was filed on February 21, 2006.

Rachel Stubbs purports to represent a class of all of Westland’s shareholders and seeks both injunctive relief and damages arising out of Westland’s then-proposed merger with ANM. The complaint alleges that the individual defendants, all of Westland’s directors, breached their fiduciary duty to shareholders by entering into an agreement to sell Westland to ANM at all or for a price that is less than Westland’s true value (according to the plaintiff). The complaint alleges that the directors have conflicts of interest because they hold what the complaint alleges are “change in control” shares of Westland common stock and because of certain employment agreements. In addition to purporting to allege a breach of fiduciary duty, plaintiff alleges that the defendants engaged in insider trading in violation of New Mexico’s securities law, engaged in a conspiracy to do the alleged wrongful acts described in the complaint, and aided and abetted each other in the breach of fiduciary duty. Plaintiff also seeks to enforce a purported demand for inspection of Westland’s books and records pursuant to New Mexico’s Business Corporation Act.

The case is stayed by agreement of the parties. It appears most of the litigation activity relevant to this case will occur in the Rael case and that this case will either remain inactive for the time being or be consolidated with the Rael case. At this time, the ultimate outcome of this case cannot be predicted.

2. Maria Elena A. Rael, On Behalf of Herself and All Others Similarly Situated and Derivatively on Behalf of Westland Development, Inc., Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants, and Westland Development Company, Inc., Nominal Defendant. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 01756. This action was filed on March 2, 2006.

The verified complaint purports to be a shareholder class and derivative action on behalf of all shareholders of Westland and Westland. The action seeks declaratory relief, injunctive relief and compensatory and punitive damages arising out of Westland’s then-proposed merger with SHNM. The individual defendants are all directors of Westland.

The complaint purports to allege ten claims for relief against certain individual director defendants including: (1) that they breached their fiduciary duty by entering into the merger agreement with SHNM; (2) that they acquired Westland common stock while in possession of inside information; (3) that they misappropriated information relating to Westland’s financial condition; (4) that they conspired with one another to perform the wrongful acts listed in the complaint; and (5) that they engaged in corporate waste by awarding some director defendants lucrative severance contracts, enhanced indemnification provisions, obtaining additional director’s and officer’s liability insurance by removing restrictions on the transferability of certain shares of Westland stock and agreeing to severance payments.

In addition, plaintiff sought an order requiring Westland to hold its annual meeting of shareholders and seeks an order in the complaint to inspect certain corporate records under the New Mexico Business Corporation Act.

Plaintiff seeks declaratory, injunctive and compensatory relief including: (1) declaring that the individual defendants breached their fiduciary duties when they entered into the merger agreements with ANM and later with SHNM and that the agreements are “unlawful and unenforceable”; (2) enjoining the defendants from proceeding with the then-proposed merger with SHNM, “unless and until Westland adopts and implements a fair sale procedure or process”;

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(3) imposing a constructive trust in favor of Westland’s shareholders over all oil and gas rights owned by Westland; (4) ordering defendants to create and fund a permanent cultural heritage committee to oversee the creation and operation of a museum of Atrisco history as well as publishing certain information about Atrisco history; (5) ordering the defendants to ensure the perpetual operation of the cemeteries; (6) ordering the publication of all documents associated with the then-proposed merger with SHNM in Spanish as well as English; (7) ordering defendants to hold an annual shareholder meeting; (8) awarding an unspecified amount of compensatory damages; (9) awarding an unspecified amount of punitive damages; and (10) awarding plaintiffs’ costs and reasonable attorneys’ fees.

Discovery stayed by the court on July 17, 2006, and until the publication of the proxy statement relating to the current merger agreement. Since the proxy has been published, discovery is again underway, and depositions are expected to occur in October. A scheduling order has been agreed upon by the parties.

Westland and the individual defendants moved to dismiss the original complaint. Shortly before the hearings scheduled to address the motions, Plaintiff decided to file an amended complaint, which is expected to assert claims similar to the claims raised by the original complaint (though specific to the SunCal merger proposal instead of the SHNM agreement). If the allegations are as Westland anticipates, Westland expects to file a renewed motion to dismiss by September 26, 2006.

3. Lawrence Lane On Behalf of Himself and All Others Similarly Situated and Derivatively on Behalf of Westland Development, Inc., Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants, and Westland Development Company, Inc., Nominal Defendant. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 02055. This action was filed on March 13, 2006.

The verified complaint is identical in all material respects to the complaint in the Rael action discussed above.

The case is stayed by agreement of the parties. It appears most of the litigation activity relevant to this case will occur in the Rael case and that this case will either remain inactive for the time being or be consolidated with the Rael case. At this time, the ultimate outcome of this case cannot be predicted.

4. Yolanda Apodaca, On Behalf of Herself and All Others Similarly Situated Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 02055. This action was filed March 16, 2006.

This action purports to be a shareholder class action. The verified complaint alleges the same ten claims for relief as the Rael and Lane complaints described above and seeks the same relief. However, it does not purport to be a derivative action.

The case is stayed by agreement of the parties. It appears most of the litigation activity relevant to this case will occur in the Rael case and that this case will either remain inactive for the time being or be consolidated with the Rael case. At this time, the ultimate outcome of this case cannot be predicted.

Westland and the other defendants deny the allegations in, and intend to vigorously defend against, the complaints disclosed above.

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5. Henry Gabaldon, Jr. and Lillian Lund as Co-Conservators for Henry Gabaldon, Sr., Plaintiffs, vs. Richard L. Gonzales and Westland Development Co., Inc., Defendants. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 02827. This action was filed on April 11, 2006.

This action makes claims that Henry Gabaldon, Sr. sold 602 shares of Westland stock to Richard L. Gonzales in July 2005 after Mr. Gonzales allegedly had information about the interest of unnamed persons or entities in purchasing Westland’s stock. Plaintiffs claim Westland knew that various individuals were misrepresenting the true value of Westland stock to Westland shareholders, and therefore Westland had a duty to either suspend trading in Westland stock or to advise Westland shareholders of the “true value” of Westland stock prior to Mr. Gabaldon’s sale of the stock to Mr. Gonzales. Plaintiffs seek actual and treble damages, plus attorneys’ fees and costs.

Westland moved to dismiss the complaint in this case, and Plaintiffs agreed to the dismissal, but the court has permitted an amended complaint to be filed. Westland anticipates moving to dismiss all or portions of that complaint by December 4, 2006. Discovery is stayed until resolution of that motion. At this time, the ultimate outcome of this case cannot be predicted.

Westland denies the allegations in, and intends to vigorously defend against, the complaint in this case.

6. Tracie Jernigan vs. Richard L. Gonzales, Westland Development Co., Inc. and Does 1-100. State of New Mexico County of Bernalillo, Second Judicial District, CV 2006 05297. This action was filed on July 7, 2006.

This action makes claims that Tracie Jernigan sold 2,160 shares of Westland stock to Richard L. Gonzales in July 2005 after Mr. Gonzales allegedly acquired inside information about the interest of unnamed persons or entities in purchasing Westland’s stock or assets. Plaintiff claims an “unknown Westland insider” provided such information to Mr. Gonzales. Plaintiff seeks actual, punitive and trebled damages, attorneys’ fees and costs, certain injunctive relief, and also seeks to enforce a previously unasserted purported demand for inspection of Westland’s books and records pursuant to the New Mexico Business Corporation Act.

Plaintiff also alleges that the defendants engaged in unlawful insider trading of Westland stock and that they conspired to agree to do the acts alleged in the complaint.

Westland has moved to dismiss portions of the complaint in this case, and has moved for summary judgment as to the remaining portions of the complaint. The motions are set to be heard in late November, 2006. At this time, the ultimate outcome of this case cannot be predicted.

Westland denies the allegations in, and intends to vigorously defend against, the complaint in this case.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 8, 2006, Westland’s shareholders elected three Class B directors to the seats that each such director previously held. A proposed vote on the Agreement and Plan of Merger between Westland and SHNM Acquisition Corp. that had been planned for that meeting was adjourned until a future date because the price to be paid the shareholders and other provisions in the Agreement had been materially changed from the terms contained in the proxy statement submitted to the shareholders for that meeting. It was anticipated that the proxy statement would be amended to bring the information current and the meeting would be rescheduled. However an intervening bid by another party caused the SHNM agreement to be replaced with a new agreement with another party.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Because ownership of Westland common stock is restricted pursuant to Westland’s articles of incorporation as discussed below, no established public trading market exists. To Westland’s knowledge, no dealer has made, is making, or is attempting to create such a market from which to determine an aggregate market value of any Westland stock. In 1989, Westland entered into an arrangement with an independent stockbroker to broker transactions in Westland common stock between selling shareholders and eligible purchasers. Any fees or commissions charged by the stockbroker were borne entirely by Westland and the services provided by the stockbroker were solely for the benefit of Westland’s shareholders in facilitating the sale or purchase of Westland shares by matching eligible buyers with sellers. The stockbroker did not directly buy or sell Westland stock, and a shareholder was not required to use the stockbroker in order to dispose of shares. On August 4, 2005, upon receiving an offer to purchase all of the issued and outstanding shares of Westland’s common stock for a price substantially in excess of the then existing price for those shares established by trading between shareholders, Westland instructed the stockbroker to cease the facilitation of trades of Westland shares. Prior to August 4, 2005, the broker had informed Westland that the price at which Westland common stock had been bought and sold by Westland shareholders had been $20.00 per share. As discussed above, the current offer for all of the issued and outstanding Westland common shares through a merger agreement is $315.00 plus ownership of Atrisco Oil and Gas LLC.

Since 1982, the outstanding shares have been subject to restrictions imposed by a majority of Westland’s shareholders who amended Westland’s Articles of Incorporation. Those Articles prohibit (with certain limited exceptions) transfer of Westland stock to persons other than lineal descendants of the original incorporators of the Town of Atrisco (a New Mexico Community Land Grant Corporation).

The following table sets forth as of September 20, 2006, the number of holders of the classes of Westland’s shares.

Title of Class	Number of Record Holders
No par value common stock	6383
Class B common stock	41

Dividends: During fiscal year ended June 30, 2006 Westland paid cash dividends to shareholders of $797,159, inclusive of associated costs. Because of restrictions in the various merger agreements that Westland entered into during the year, no dividends were declared or paid during fiscal 2007.

ITEM 6: MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

In the past fiscal year, land sales were slightly lower than during the prior year as the Company experienced decreased sales of improved residential lots but increased revenue from the sale of undeveloped large parcels. Developed lot sales decreased by $2.1 million to $17.1 million in the current fiscal year from $19.2 million in fiscal year ended June 30, 2005. The larger 2005 revenue was predominantly attributable to a single sale of 140 lots for $5.3 million in April 2005. Undeveloped lot sales increased by $855,000 to $3.5 million in the current fiscal year from $2.6 million in the fiscal year 2005.

During fiscal 2005, Albuquerque continued the growth pattern that has benefited Westland during the past ten years. Albuquerque continues to be one of the fastest growing cities in the Southwest and, because of certain geographical and other limitations on its growth, Westland’s lands lie directly in the path of future predictable growth patterns.

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Westland’s future revenues will continue to be largely dependent upon the sale of land. The Company’s assets are illiquid, comprising principally undeveloped land. Sales are dependent upon the market conditions in Albuquerque.

Westland anticipates making capital commitments for land development projects over the next few years as the economy and opportunities dictate that such expenditures would be warranted. Capital commitments may include special assessment districts for roads and water and sewer lines on its land. In some cases infrastructure improvements are paid for by assessments, which increase the value of Westland’s land and make further development possible. Westland intends to incur capital expenditures when management determines such investments will increase the value of the land and generate future revenue.

Land is Westland’s principal capital resource, and is valued, for financial accounting purposes, at its 1907 value plus the cost of improvements. Westland’s balance sheet does not reflect the actual current value of this asset. The Company has had no current appraisals of the land and, therefore, the actual value of the land is not known. The carrying value of the land was increased during each of the last three fiscal years, due to increased investment. The carrying value will be increased or decreased regularly as Westland acquires, sells or develops parcels of land. Management believes the June 30, 2006 carrying value of the land is substantially less than its current market value. Westland’s balance sheet also segregates income-producing properties, which consist of commercial real estate and improvements. The actual value of Westland’s land varies depending on national and local market conditions and the amount and proximity of roads, utilities and other amenities to the land under development. As Albuquerque continues to grow, the land value of both developed and undeveloped land should increase.

As reported in prior years, Westland has received approval of its Master Plan, the initial 1,600 acres of which are called The Petroglyphs, by both the City of Albuquerque and Bernalillo County. The area lies north of Interstate 40 and south of the Petroglyph National Monument between Unser Boulevard and Paseo del Vulcan Road. It consists of approximately 6,400 acres, but does not include any land located within the Monument and will have no adverse impact on the Monument. During fiscal year 2001, the City of Albuquerque annexed the initial 1,665 acres of the master planned area. This has permitted sewer and water services to be extended in an orderly manner to that acreage as it is being developed. Westland agreed with the City and in 2003 and 2004 incurred the cost of the infrastructure normally paid for by the City for new development in the master planned area. These expenditures will be recovered through a fee (Utility Expansion Charge or “U.E.C.”) charged by the City as each lot is connected to the services. Sale of the initial parcels of land within the initially annexed area began in mid fall of calendar 2004, and is anticipated to continue into the foreseeable future.

Westland’s long term business philosophy is to enhance the value of its land through careful planning and development, and simultaneously increasing the value of Westland’s stock and to provide dividends for its shareholders, when consistent with Westland’s need for a sufficient cash flow to meet current operating expenses.

Financial Condition:

During fiscal 2006, total assets increased to $49.4 million from $42 million, and liabilities increased from $21.6 million to $22.7 million. During fiscal 2006 Westland invested $794,000 in income producing and other assets while during 2005 it invested $1.6 million in such property and assets. Cash and cash equivalents increased by $840,000. Operations generated $3.4 million during the period. In addition, the company increased its indebtedness under short-term lines of credit primarily related to expenditures with the Petroglyph development by $2.8 million, net. $797,000 was paid to shareholders in the form of dividends. Taken together, land held for development and income-producing properties, which aggregate approximately $29.5 million, increased by $6.2 million net of depreciation.

At June 30, 2006, the Company maintained lines of credit with a local bank aggregating $7 million, collateralized by approximately $4 million of treasury securities. The purpose of these lines is to provide funds necessary for its continued expansion. At year-end, the outstanding balances totaled $4.8 million.

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During fiscal 2007 (extended from June 30, 2006) the Company will be obligated to pay income tax of approximately $1.9 million should replacement properties totaling $4.7 million, for lands sold under condemnation, not be reinvested. Management diligently seeks income-producing properties for acquisition as replacement properties and fully expects to offset this tax obligation.

During the fiscal year ended June 30, 2006, the Company utilized cash generated from operations and cash on hand, as well as its liquidity arrangements, to cover its capital requirements and construction expenditures. The Company anticipates that internal cash generation and current debt capacity will be sufficient to meet all of its capital requirements and construction expenditures for the current fiscal year. To cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements. At June 30, 2006, the two largest components of the Company’s liabilities were notes and mortgages payable of $14 million and deferred taxes of $7.1 million. The mortgage debt service is paid from the receipt of rental revenue, and taxes deferred by the acquisition of the properties subject to these mortgages will not have to be repaid until and if the properties are sold. Beginning in 2003, the Company entered into various construction contracts for the development of a water infrastructure system for new residential and commercial properties. In March, 2005 the water system was transferred to the City of Albuquerque at a cost of $7.2 million. The Company began receiving reimbursement of the cost of this system in July, 2006.

Results of Operations:

In fiscal 2006, land revenues decreased by $1.2 million from $21.8 million in 2005 to $20.6 million. During 2006, non-condemnation large parcel land sales increased by $855,000 from $2.6 million to $3.5 million. Improved lot sales decreased by $2.1 million to $17.1 million from $19.2 million. The larger 2005 revenue was predominantly attributable to a single sale of 140 lots for $5.3 million in April 2005. The related cost of land revenues decreased by $3.2 million from $11.4 million in fiscal year ended 2005 to $8.2 million in fiscal year ended 2006. The gross profit ratio on all land sales increased from 48% to 61% because of the shift in sales make up to undeveloped large parcel sales from developed lot sales, which bear significantly higher improvement costs. Rental revenue increased from $1.4 million to $1.6 million and the related costs increased from $430,000 to $484,000. General, administrative and operating expense increased by $1.6 million from $2.5 million to $4.1 million predominantly as a result of expenses incurred in relation to the proposed mergers of the Company.

Other Income Changes:

During the current year, the Company recorded $2.2 million of other income in relation to partnership income received from Westland Economic Development, LLC.

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ITEM 7: FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Stockholders

Westland Development Co., Inc.

We have audited the accompanying balance sheet of Westland Development Co., Inc. as of June 30, 2006, and the related statements of earnings, stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2006. 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 audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westland Development Co., Inc. as of June 30, 2006, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Oklahoma City, Oklahoma

September 15, 2006

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Westland Development Co., Inc.

BALANCE SHEET

June 30, 2006

ASSETS
Cash and cash equivalents
Unrestricted	$	6,165,208
Restricted		4,192,635
		10,357,843
Receivables
Real estate contract (note B)		51,659
Utility Expansion Charges - Current (note C)		2,349,410
Other receivables		1,466,580
Federal tax overpayment		365,951
Prepaid expenses and other assets		134,519
Land and improvements held for future development (notes C and E)		16,122,076
Income-producing properties, net (notes D and E)		13,420,409
Property and equipment, net of accumulated depreciation of $686,884 (note E)		336,574
Utility Expansion Charges – Long-term (note C)		4,759,259
	$	49,364,280
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable, accrued expenses and other liabilities	$	1,666,695
Deferred income taxes (note F)		7,064,525
Notes and mortgages payable (note E)		13,968,789
Total liabilities		22,700,009
Commitments and contingencies (notes E and K)
Stockholders’ equity (note G)
Common stock - no par value; authorized, 736,668 shares; issued and outstanding, 709,827 shares		8,500
Class B common stock - $1 par value; authorized, 491,112 shares; issued and outstanding, 85,100 shares		85,100
Additional paid-in capital		491,061
Retained earnings		26,079,610
Total Stockholders’ equity		26,664,271
	$	49,364,280

The accompanying notes are an integral part of this statement.

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Westland Development Co., Inc.

STATEMENTS OF EARNINGS

Year ended June 30,

	2006			2005
Revenues
Land	$	20,538,312		$	21,829,050
Rentals		1,581,772			1,373,851
		22,120,084			23,202,901
Costs and expenses
Cost of land revenues		8,175,577			11,398,609
Cost of rentals		485,040			430,782
Other general, administrative and operating		4,082,084			2,534,093
		12,742,701			14,363,484
Operating income		9,377,383			8,839,417
Other (income) expense
Interest income		(197,602	)		(99,250	)
Gain on sale of assets		—			(16,511	)
Other income		(2,232,619	)		(303,658	)
Interest expense		246,130			381,598
Total other (income) expense		(2,184,091	)		(37,821	)
Earnings before income taxes		11,561,474			8,877,238
Income tax expense (note F)		4,451,565			3,575,093
NET EARNINGS	$	7,109,909		$	5,302,145
Weighted average common shares outstanding, basic and diluted		794,927			794,929
Earnings per common share, basic and diluted	$	8.94		$	6.67
Dividends paid per common share	$	1.00		$	1.00

The accompanying notes are an integral part of this statement.

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Westland Development Co., Inc.

STATEMENT OF STOCKHOLDERS’ EQUITY

Years ended June 30, 2006 and 2005

	Common stock no par value				Class B Common stock $1 par value			Additional paid-in capital		Retained earnings			Total
	Shares		Amount		Shares	Amount
Balances at June 30, 2004	709,834		$	8,500	85,100	$	85,100	$	491,061	$	15,261,892		$	15,846,553
Net earnings	—			—	—		—		—		5,302,145			5,302,145
Cash dividends paid - $1.00 per share	—			—	—		—		—		(797,159	)		(797,159	)
Acquisition and cancellation of common stock	(7	)		—	—		—		—		—			—
Balances at June 30, 2005	709,827			8,500	85,100		85,100		491,061		19,766,878			20,351,539
Net earnings	—			—	—		—		—		7,109,909			7,109,909
Cash dividends paid - $1.00 per share	—			—	—		—		—		(797,177	)		(797,177	)
Balances at June 30, 2006	709,827		$	8,500	85,100	$	85,100	$	491,061	$	26,079,610		$	26,664,271

The accompanying notes are an integral part of this statement.

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Westland Development Co., Inc.

STATEMENTS OF CASH FLOWS

Year ended June 30,

	2006			2005
Increase in Cash and Cash Equivalents
Cash flows from operating activities
Cash received from land sales and collections on real estate contracts receivable	$	20,071,582		$	21,132,216
Development and closing costs paid		(14,330,997	)		(11,391,603	)
Cash received from rental operations		1,571,064			1,373,851
Cash paid for rental operations		(104,732	)		(55,928	)
Cash paid for property taxes		(126,452	)		(99,309	)
Interest received		197,602			99,250
Interest paid		(214,776	)		(371,178	)
Income tax paid		(6,748,926	)		(3,134,512	)
Other general and administrative costs paid		(3,676,947	)		(1,779,112	)
Other		2,672			303,658
Net cash (used in) provided by operating activities		(3,359,910	)		6,077,333
Cash flows from investing activities
Capital expenditures		(794	)		(1,654,404	)
Partnership income		2,229,947			—
Proceeds from disposition of assets		—			16,511
Net cash provided by (used in) provided by investing activities		2,229,153			(1,637,893	)
Cash flows from financing activities
Borrowings on notes and mortgages		6,330,000			13,569,342
Repayments of notes and mortgages		(3,561,552	)		(16,624,103	)
Payment of dividends		(797,177	)		(797,159	)
Net cash provided by (used in) financing activities		1,971,271			(3,851,920	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		840,514			587,520
Cash and cash equivalents at beginning of year		9,517,329			8,929,809
Cash and cash equivalents at end of year	$	10,357,843		$	9,517,329

The accompanying notes are an integral part of this statement.

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Westland Development Co., Inc.

STATEMENTS OF CASH FLOWS - CONTINUED

Year ended June 30,

	2006			2005
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities
Net earnings	$	7,109,909		$	5,302,145
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation		446,633			404,363
Deferred income taxes		(152,901	)		(88,563	)
Gain on sale of assets		—			(16,511	)
Partnership income		(2,229,947	)		—
Change in
Income taxes payable		(2,144,460	)		529,144
Accounts and other receivable		(527,036	)		(8,023,518	)
Land and improvements held for future development		(6,208,984	)		8,227,906
Prepaid expenses and other assets		78,072			28,722
Deferred income leases		46,417			(45,901	)
Accounts payable, accrued expenses and other liabilities		177,144			(238,878	)
Accrued interest payable		31,354			10,420
Real estate contracts receivable		13,889			(11,996	)
Net cash (used in) provided by operating activities	$	(3,359,910	)	$	6,077,333

The accompanying notes are an integral part of this statement.

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Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS

June 30, 2006 and 2005

NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

1. History of Company and Beginning Basis of Financial Reporting

In 1892, the descendants of the owners of a land grant deeded in 1692 by the Kingdom of Spain became incorporators of a land grant corporation named Town of Atrisco. Ownership of the Town of Atrisco was based on proportionate ownership of the land grant. In 1967, the Town of Atrisco was reorganized and became Westland Development Co., Inc. (the “Company”), with the heirs receiving shares in the Company in proportion to their ancestors’ interests in the Town of Atrisco Corporation. The net assets of $232,582 at the date of reorganization were assigned as follows:

Value of no par common stock as stated in the Articles of Incorporation	$	8,500
Additional paid-in capital		224,082
	$	232,582

The Company estimated that it owned approximately 49,000 acres of land at the date of incorporation as Westland Development Co., Inc. Such acreage was used as the beginning cost basis for financial reporting purposes and was valued at $127,400 ($2.60 per acre) based on an appraisal in 1973 which determined the approximate value of the land in 1907. This date approximates the date that the Patent of Confirmation covering the land comprising the Atrisco Land Grant was given to the Town of Atrisco by the United States of America. Since the date of the Patent of Confirmation, the Company’s acreage has increased in market value, but a full determination of such value has not been made.

2. Nature of Operations

The Company develops, sells or leases its real estate holdings, most of which are located in or near Albuquerque, New Mexico. The Company may use joint ventures or participation in limited partnerships to accomplish these activities. Revenue sources for the years ended June 30, 2006 and 2005 consist primarily of proceeds from land sales and governmental condemnations and rentals from developed properties, such as single-tenant retail stores and office space. Land sales are primarily to commercial developers and others in the Albuquerque area and certain governmental agencies, and the terms of sale are generally cash upon closing. The Company has relied primarily upon cash land sales over the past several years due to the collection risk associated with real estate contracts.

3. Cash and Cash Equivalents

Cash and cash equivalents are considered to include highly liquid investments with maturities of three months or less and money market funds.

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits and in certain other funds which are not federally insured. Cash equivalents include approximately $4.2 million in a money market account with an investment banking company. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Restricted cash at June 30, 2006 represents amounts held in treasury securities pledged as collateral against a $5 million construction line of credit to be used to pay construction contracts for the development of new residential and commercial properties.

24

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED

4. Land and Improvements Held for Future Development

Land and improvements held for future development are recorded at cost not to exceed net realizable value. Improvements consist of abstracts, surveys, legal fees, master and sector plans, infrastructure improvements and other costs related to land held by the Company which are allocated to respective tracts primarily by specific identification of costs.

5. Income-Producing Properties and Property and Equipment

Income-producing properties and property and equipment are stated at cost, less accumulated depreciation, computed on a straight-line basis over their estimated lives of three to 30 years. The cost of the building in which the Company has its offices, a portion of which is rented to others, has been allocated to income-producing properties and property and equipment based upon square footage.

6. Recognition of Income on Real Estate Transactions and Rentals

Sales of developed lots to home builders are recognized on a case by case basis dependent upon the transactions satisfaction of the full accrual method requirements of Statement of Financial Accounting Standards (“SFAS”) No. 66 “Accounting for Sales of Real Estate”. Under New Mexico law, conveyance may begin once a final plat is filed for a given development. Obtaining a plat requires that the developer either complete in its entirety the infrastructure related to the project or provide financial guarantees in the form of bonds to ensure that the project will be completed. Generally, a homebuilder will contract to purchase a fixed number of lots in a given development. Westland’s contracts generally require the homebuilder to conclude the purchase of a small number of contracted lots (typically 5-10) at the time the final plat is recorded. Remaining lots are then scheduled in increments a certain number of days from ‘substantial completion’. In this event, the Company utilizes the City of Albuquerque Engineer’s Acceptance Letter as the event that triggers ‘substantial completion’. The vast majority of the Company’s sales to homebuilders occur under non recourse cash transactions, subsequent to the ‘substantial completion’ of the development and as such are recorded utilizing the full accrual method. At the period ended June 30, 2006, the Company was not obligated under additional construction commitments related to any recorded sale. As such, there are no open transactions requiring percentage of completion treatment pursuant to paragraphs 41 and 42 of SFAS 66.

Rental income is recognized when earned under lease agreements. Rents received in advance are deferred until earned. Revenue from leases with escalating rental payments are recognized on a straight-line basis over the minimum lease term. For leases with provisions for additional rental payments based on percentage of annual sales, contingent rental income is recognized when the lessee provides an accounting which reflects the contingent rental income has been earned under the terms of the lease agreements.

The Company does not have any grazing lease income associated with any land to which the Company has capitalized project costs. Once a project is under construction or costs related to the development of a project begins being capitalized, no further leasing activities occur which could be offset against capitalized costs under paragraph 10 of SFAS 67. No land held for oil and gas drilling is subject to foreseeable future real estate development.

25

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED

7. Income Taxes

Deferred income tax assets or liabilities are determined based on the difference between financial statement and tax bases of certain assets and liabilities as measured by the enacted tax rates in effect using the liability method. Valuation allowances are established by management when necessary to reduce deferred tax assets to the amount expected to be realized.

8. Earnings Per Common Share

Earnings per common share are based upon the weighted average number of common shares outstanding during the year, including the number of no par value common shares which may be issued in connection with eliminating fractional shares (which resulted from the determination made by the Court in an heirship case) and the number of no par value common shares for which the Court ruled that no incorporator or heirs existed (5,047 total shares). The Company has no potential common stock items.

9. Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States, management is required to make estimates and assumptions that affect certain reported amounts and disclosures; accordingly, actual results could differ from those estimates.

10. Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment, generally on a property-by-property basis, whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses are recognized based upon the estimated fair value of the asset.

12. Derivative Instruments and Hedging Transactions

The Company utilizes derivative instruments with respect to the interest rate on a portion of its debt to achieve a more predictable cash flow, as well as to reduce its exposure to rate fluctuations. These transactions are generally interest rate swap agreements and are entered into with financial institutions.

The Financial Accounting Standards Board’s SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging Activities, and subsequent pronouncements require that all derivative instruments be recorded on the balance sheet at their respective fair values. The Company has elected not to designate derivative instruments as hedges in accordance with SFAS No. 133, even if they would otherwise qualify as a hedge. Therefore, the changes in fair value of these instruments that occur prior to their maturity are reported in the statements of earnings as an unrealized gain or loss on interest rate swaps. As of June 30, 2006, the fair value of the agreement was not significant to the financial statements. Amounts recorded as an unrealized gain or loss on interest rate swaps do not represent cash gains and losses. Rather these amounts are temporary valuation swings based on the anticipated future cash flows from the contract. The actual future cash flows will be based on the interest rate in effect at the time of settlement and may be more or less than fair value estimates used at year-end. Actual cash settlements are included in interest expense.

26

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE B - REAL ESTATE CONTRACT RECEIVABLE

The real estate contract receivable at June 30, 2006 consists of a contract with variable interest (8% at June 30, 2006), is due in a lump-sum payment of principal and interest at maturity in 2006 and is collateralized by land.

NOTE C - LAND AND IMPROVEMENTS HELD FOR FUTURE DEVELOPMENT AND UTILITY EXPANSION CHARGES

The Company estimates that it presently owns approximately 55,000 acres of land, primarily including land located within the boundaries of the Town of Atrisco Land Grant and land located elsewhere which the Company has acquired since incorporation. Improvements are currently in process on approximately 3,500 acres of the Company’s land (‘Master Plan’ residential community). Improvements consist of abstracts, surveys, legal fees, master and sector plans, infrastructure improvements and other costs related to land held by the Company which are allocated to respective tracts primarily by specific identification of costs.

During the fiscal year ended June 30, 2004, the Company constructed a water infrastructure for the future development of new residential and commercial properties. The total project cost was approximately $7,200,000, was completed in early July 2004, and was transferred to the City of Albuquerque in March 2005. The Company will receive Utility Expansion Charge (“UEC”) reimbursements from the City of Albuquerque at an approximate rate of $2,619 per residential hook up beginning in March 2006 until such time that the project cost has been recovered. The Company anticipates a recovery rate of 500 hook ups ($1,309,500) per year and anticipates full recovery within 5-7 years. Through August 2006, the Company had recovered $1,505,039 of the total reimbursement for hookups between March 2005 and June 30, 2006.

Plans for ultimate development of the remaining property have not been finalized.

Land and improvements consist of the following at June 30, 2006:

Land	$	3,058,672
Improvements		13,063,404
	$	16,122,076

NOTE D - INCOME-PRODUCING PROPERTIES

Income-producing properties consist primarily of five single-tenant retail store buildings and a portion of the Company’s office building and are summarized as follows at June 30, 2006:

Buildings and equipment	$	11,499,568
Less accumulated depreciation		2,784,347
		8,715,221
Land		4,705,188
	$	13,420,409

The Company’s rentals from income-producing properties are principally obtained from tenants through rental payments as provided for under noncancelable operating leases. The lease terms range from one to 20 years and typically provide for guaranteed minimum rent, five-year renewals at tenants’ option, percentage rent and other charges to cover certain operating costs. Three of the Company’s leases with total annual receipts of approximately $881,000 are with a single national retail drug store chain.

27

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE D - INCOME-PRODUCING PROPERTIES (CONTINUED)

Minimum future rentals from income-producing properties on noncancelable tenant operating leases as of June 30, 2006 are as follows:

Year ending June 30,
2007		1,466,109
2008		1,382,080
2009		1,136,999
2010		1,019,893
2011		963,078
Thereafter		5,416,616
	$	11,384,775

NOTE E - NOTES AND MORTGAGES PAYABLE

Notes and mortgages payable are summarized as follows at June 30, 2006:

Promissory note, due in monthly installments of $17,970 through May 2015, including interest at 9.37%; collateralized by income-producing properties	$	1,292,286
Promissory note, due in monthly installments of $9,079 through July 2014, including interest at 8%; collateralized by income-producing properties		642,208
Note payable, due in monthly installments of $6,893 through September 2015, including interest at 8.75%; collateralized by income-producing properties		520,196
Mortgage note, due in monthly installments of $24,682, including interest at 8.52%, due November 1, 2016; collateralized by income-producing properties		2,040,703
Mortgage note, due in monthly installments of $25,403, including interest at 7.8%, due April 15, 2020; collateralized by income-producing properties		2,574,933
Revolving line of credit with a bank with borrowings up to $2,000,000, variable interest payable quarterly (8.25% at June 30, 2006), payable on demand, if no demand is made principal due February 27, 2007; uncollateralized (1)		220,000
Mortgage note, due in monthly installments of $1,349, including interest at 9%, due January 2007; collateralized by specific tracts of land		7,899
Mortgage note, variable interest at LIBOR+2 (8.0% at June 30, 2006), principal in the amount of $5,208 due monthly with accrued interest. All outstanding principal and interest due September 24, 2009; collateralized by income producing properties (1)		1,140,625

28

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE E - NOTES AND MORTGAGES PAYABLE (CONTINUED)

Mortgage note, variable interest at LIBOR + 2.5 (8.5% at June 30, 2006), accrued interest due monthly. All outstanding principal and interest due November 19, 2009; Mortgage is subject to an interest rate swap agreement at a rate of 7%; collateralized by income producing properties (1), (2)		979,938
Revolving line of credit with a bank with borrowings up to $5,000,000, variable interest payable monthly at LIBOR + 2.25 (8.25% at June 30, 2006), payable on demand, if no demand is made principal due February 27, 2007; Collateralized by Treasury Bills account held with same bank. (1)		4,550,000
	$	13,968,789

(1) At June 30, 2006, the Company has debt agreements with one lender that contain certain covenants that require, among other things, that the Company maintain a specified tangible net worth, as defined in the agreement, and net profitability, and provides for limitations on indebtedness. At June 30, 2006, the Company was in compliance with all such covenants.

(2) In June 2006, the Company entered into an interest rate swap agreement with Compass Bank to mitigate risk associated with the floating interest rate on a portion of its debt by converting $979,938 of the debt to a fixed rate of 7%. Interest rate swaps are contractual agreements between two parties for the exchange of interest payments on a notional principal amount and agree-upon fixed or floating rates, for a defined period of time.

The interest rate swap agreement has not been designated as a hedging instrument. The estimated fair value of the agreement at June 30, 2006 is not significant to the financial statements. The fair value of the agreement is determined by Compass Bank and is based on the estimated future net cash flows anticipated under the terms of the agreement using the applicable yield curve as of the valuation date. The Company may be exposed to credit loss in the event of nonperformance by Compass Bank, but does not anticipate nonperformance.

Aggregate required principal payments on notes and mortgages payable as of June 30, 2006 are as follows:

Year ending June 30,
2007	$	5,282,553
2008		543,504
2009		585,788
2010		631,811
2011		1,604,177
Thereafter		5,320,956
	$	13,968,789

29

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE F - INCOME TAXES

An analysis of the deferred income tax assets and liabilities as of June 30, 2006 is as follows:

Deferred tax assets
Land improvements held for future development	$	124,240
Land repossession		101,783
Property and equipment		298,703
Accrual to cash conversion		68,765
Liabilities not currently deductible		28,474
		621,965
Deferred tax liabilities
Deferred tax gain on involuntary conversion of land		7,686,490
Net deferred tax liability	$	7,064,525

Income tax expense(benefit) consists of the following:

	Year ended June 30,
	2006			2005
Current
Federal	$	3,525,262		$	2,993,526
State		1,079,204			670,130
		4,604,466			3,663,656
Deferred
Federal		(133,298	)		(77,177	)
State		(19,603	)		(11,386	)
		(152,901	)		(88,563	)
	$	4,451,565		$	3,575,093

The income tax provision is reconciled to the tax computed at statutory rates as follows:

	Year ended June 30,
	2006			2005
Tax expense at statutory rates	$	3,930,901		$	3,021,661
State income taxes, net of federal benefit		581,454			448,548
Nondeductible expenses		10,376			18,737
Other		(71,166	)		86,147
Total expense	$	4,451,565		$	3,575,093

30

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE G - COMMON STOCK

Under its original Articles of Incorporation (the “Articles”), the Company was authorized to issue 1,964,448 shares of common stock. During 1999, the Articles were amended to eliminate the authority to issue 736,668 shares of Class A common stock for $1.45 per share. The remaining authorized stock is as follows:

(a) 736,668 shares of no par value common stock to represent $8,500 estimated value of land held by the Town of Atrisco;

(b) 491,112 shares to be sold for a price to be determined by the Board of Directors, designated as Class B, $1 par value common stock. The holders of no par value common stock have no preemptive rights to purchase Class B stock.

At June 30, 2006, 5,047 shares of no par value common stock, upon judicial determination, can be distributed to stockholders of record as of the date of incorporation.

There is no established market for the Company’s common stock. At June 30, 2006, 709,827 shares of the Company’s no par value common stock were issued and outstanding. There are 5,047 shares of no par value common stock issuable; 1,872 shares which may be issued in connection with eliminating fractional shares which resulted from the determinations made by the court in the heirship case and 3,175 shares which represent shares for which the court in the heirship case ruled that no incorporator or heirs existed. The Company also has reacquired and canceled 21,794 shares of no par value common stock which have been constructively retired. These shares have not been formally retired and, as such, may be issuable to stockholders of record as of the date of incorporation.

During the year ended June 30, 1999, the Board of Directors approved protection against takeover measures whereby a threat of change of three or more directors in any one year would result in directors threatened with replacement being granted an immediate Class B stock bonus of 5,000 shares if in office as a director ten years or more, and 2,500 shares of Class B stock if in office as a director for less than ten years. The maximum number of shares which could be issued under this agreement at June 30, 2006 is 35,000 shares.

On July 28, 2005, the Board of Directors approved payment of a $1 per share dividend to be paid on August 18, 2005 to holders of record on August 11, 2005.

31

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE H - SEGMENT INFORMATION

The Company operates primarily in two industry segments. They are as follows:

Land	-	Operations involve the development and sale of tracts, both residential and commercial. In addition, included are incidental revenues from leasing of grazing rights.
Rentals	-	Operations involve rentals from five single-tenant retail store buildings and a portion of the Company’s office building.

Financial information for each industry segment is summarized as follows:

	2006									2005
	Land		Rentals		General Corporate			Total		Land		Rentals		General Corporate			Total
Revenues	$	20,538,312	$	1,581,772	$	—		$	22,120,084	$	21,829,050	$	1,373,851	$	—		$	23,202,901
Operating income		12,362,735		1,096,732		(4,082,084	)		9,377,383		10,430,441		943,069		(2,534,093	)		8,839,417
Interest income		—		—		197,602			197,602		—		—		99,250			99,250
Interest expense		—		232,932		13,198			246,130		—		351,999		29,599			381,598
Other income		2,232,619		—		—			2,232,619		—		—		303,658			303,658
Income tax expense		—		—		4,451,565			4,451,565		—		—		3,575,093			3,575,093
Identifiable assets		24,748,984		13,420,409		11,194,887			49,364,280		9,913,092		13,800,717		18,245,786			41,959,595
Capital expenditures		—		—		794			794		—		1,552,897		101,507			1,654,404
Depreciation		—		380,308		66,325			446,633		—		374,855		29,508			404,363

General corporate assets consist primarily of cash, furniture, equipment and a portion of an office building, of which the remaining portion is included in rentals.

NOTE I - BENEFIT PLANS

The Company has certain defined contribution employee retirement plans that provide for employee and employer contributions. The Company’s contribution expense for these plans was approximately $231,000 and $148,000 for 2006 and 2005, respectively.

32

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE J - SALES TO MAJOR CUSTOMERS

Sales to major customers are summarized as follows:

During the year ended June 30, 2006, land sales to three customers individually accounted for 25%, 12% and 12% of total revenues.

During the year ended June 30, 2005, land sales to three customers individually accounted for 23%, 19% and 13% of total revenues.

NOTE K - COMMITMENTS AND CONTINGENCIES

The Company is engaged in various lawsuits either as plaintiff or defendant which have arisen in the conduct of its business which, in the opinion of management, based upon advice of counsel, would not have a material effect on the Company’s financial position or results of operations.

On July 20, 2006, Westland and SCC Acquisition Corp. entered into an Agreement and Plan of Merger (the “SCC Merger Agreement”) containing the terms discussed above, and, as part of that agreement SCC paid another company with which Westland had a similar agreement the sum of $15,000,000 as a break-up fee, which, in the event of termination of the SCC Merger Agreement under certain conditions Westland will be required to repay the amount of the break-up fee to SCC. The Company is also engaged in various lawsuits related to the proposed merger of the Company (See Note M).

The Company has entered into employment contracts with six of its key officers and employees for periods of one to six years and may include automatic renewals for 2 additional 6 year periods. In the event of involuntary employee termination, these employees may receive from one to seven times their annual compensation. The remaining terms under the agreements range from one to seven years and the maximum severance that could be paid under the contracts is approximately $3,200,000.

The Company has deferred gains for tax reporting for the involuntary conversion of land by governmental authorities resulting in deferred tax liabilities. The deferral requires that the Company replace the land with the proceeds of conversion within specified time limits. As of June 30, 2006, the Company must purchase replacement property of at least $4,724,208 by June 30, 2006 (extension to June 30, 2007 has been filed with the IRS), in order to comply with the requirements of its election for income tax deferral. If replacement property is not purchased, the Company may be required to pay income taxes on the conversions of approximately $1,890,000 for the year ended June 30, 2007.

NOTE L - FINANCIAL INSTRUMENTS

The following table includes various estimated fair value information, which pertains to the Company’s financial instruments, and does not purport to represent the aggregate net fair value of the Company. The carrying amounts in the table are the amounts at which the financial instruments are reported in the financial statements.

All of the Company’s financial instruments are held for purposes other than trading.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

33

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE L - FINANCIAL INSTRUMENTS (CONTINUED)

1. Cash and Cash Equivalents and Other Receivables

The carrying amount approximates fair value because either the Company has the contractual right to receive immediate payment or because of short maturities of the financial instruments. Restricted cash approximates fair value as the deposit account bears interest at market rates.

2. Real Estate Contract Receivable

This note receivable is collateralized by real estate and accrues interest at a variable rate. The fair value of the real estate note approximates the carrying amount.

3. Utility Expansion Charges

The discounted amount of future cash flows using the Company’s current incremental borrowing rate is used to estimate the fair value of long-term utility expansion charges.

4. Notes and Mortgages Payable

For fixed rate notes and mortgages, the discounted amount of future cash flows using the Company’s current incremental rate of borrowing for similar liabilities is used to estimate fair value. The fair value of variable rate notes approximates fair value because the rates adjust to market rate changes.

The carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2006 are as follows:

	Carrying amount		Estimated fair value
Financial assets
Cash and cash equivalents	$	10,357,843	$	10,357,843
Real estate contract receivable		51,659		51,659
Utility Expansion Charges – Current		2,349,410		2,349,410
Utility Expansion Charges – Long term		4,759,259		3,801,060
Other receivables		1,466,580		1,466,580
Financial liabilities
Fixed rate notes and mortgages payable	$	7,078,225	$	7,760,074
Variable rate notes payable		6,890,564		6,890,564

34

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE M – PROPOSED MERGER WITH AND ACQUISITION BY SCC ACQUISITION CORP. (“SCC”)

On June 26, 2006, Westland’s board of directors received an offer from SCC and on June 30, 2006 Westland received additional materials from SCC, formally offering to increase the cash offered for Westland to $315.00 per share, to furnish at closing $2 million of the $1 million annual payments to be made to the Atrisco Heritage Foundation (a non-profit entity that would be formed pursuant to the proposed merger) for 100 years representing the first and second annual contribution to the Foundation, and to create a New Mexico limited liability company to be named Atrisco Oil & Gas LLC into which Westland would assign 100% of all rents, royalties and other benefits to which Westland is entitled under two current oil and gas leases and 50% of Westland’s existing mineral rights, except for damage payments related to the use of the surface for pipelines, drill sites, etc. Atrisco Oil & Gas LLC would have the right to explore for the minerals, subject to compliance with the surface use restrictions set forth in a Quitclaim Deed to be entered into between Westland and Atrisco Oil & Gas LLC. On July 19, 2006, Westland and SCC entered into an Agreement and Plan of Merger (the “SCC Merger Agreement”) containing the terms discussed above, and, as part of that agreement SCC paid another company with which Westland had a similar agreement the sum of $15,000,000 as a break-up fee, which, in the event of termination of the SCC Agreement under certain conditions Westland will be required to repay the amount of the break-up fee to SCC.

Westland’s purpose for engaging in the merger is to enable Westland’s shareholders to vote on whether they want to receive $315.00 per share in cash for each outstanding share of Westland no par value and Class B common stock. In addition, the current Westland shareholders will own Atrisco Oil & Gas LLC in the same proportion that they now own Westland, allowing them to receive a portion of the benefit from any oil, gas or other mineral value currently owned by Westland.

The SCC Merger Agreement contemplates a merger whereby SCC will be merged with and into Westland, and Westland will be the surviving company in the merger.

Immediately prior to the merger, Westland would:

• Create Atrisco Oil & Gas LLC and dividend Atrisco Oil & Gas LLC Class A Units to the current shareholders of Westland to the same extent as their current ownership of Westland. Westland will assign to Atrisco Oil & Gas LLC all rights to receive revenue under the two existing oil and gas leases of Westland and will deed 50% of all other mineral (including oil and gas) rights of Westland to Atrisco Oil & Gas LLC.

The completion of the merger will result in the following:

• the conversion of the issued and outstanding shares of Westland no par value and Class B common stock issued and outstanding immediately prior to the merger into the right to receive $315.00 per share in cash (other than shares of Westland common stock held by shareholders who perfect their dissenters’ rights under New Mexico law);

• the amendment of Westland’s articles of incorporation, pursuant to which any currently existing restrictions on the transfer of Westland’s common stock will be removed; and

• SCC Acquisitions, Inc., the parent of SCC, owning all of the outstanding shares of Westland common stock.

35

Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE M – PROPOSED MERGER WITH AND ACQUISITION BY SCC ACQUISITION CORP. (“SCC”) (CONTINUED)

Upon completion of the merger, Westland will be a wholly-owned direct subsidiary of SCC Acquisitions, Inc. Westland’s current shareholders will cease to have an ownership interest in Westland or rights as shareholders and will also not be shareholders of SCC Acquisitions, Inc. As such, Westland’s shareholders will not have the opportunity to share in any of Westland’s or SCC Acquisitions, Inc.’s future earnings (other than from mineral, including oil and gas) or growth or any increase in Westland’s or SCC’s value after the merger, or bear the risk of any losses generated by Westland’s operations or any decrease in Westland’s value after the merger.

In relation to the proposed merger, Westland has become involved as defendant to the following lawsuits:

1. Rachel M. Stubbs, by her administrator Gordon H. Flynn, On Behalf of Herself and All Others Similarly Situated, Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 01455. This action was filed on February 21, 2006.

Rachel Stubbs purports to represent a class of all of Westland’s shareholders and seeks both injunctive relief and damages arising out of Westland’s then-proposed merger with ANM. The complaint alleges that the individual defendants, all of Westland’s directors, breached their fiduciary duty to shareholders by entering into an agreement to sell Westland to ANM at all or for a price that is less than Westland’s true value (according to the plaintiff). The complaint alleges that the directors have conflicts of interest because they hold what the complaint alleges are “change in control” shares of Westland common stock and because of certain employment agreements. In addition to purporting to allege a breach of fiduciary duty, plaintiff alleges that the defendants engaged in insider trading in violation of New Mexico’s securities law, engaged in a conspiracy to do the alleged wrongful acts described in the complaint, and aided and abetted each other in the breach of fiduciary duty. Plaintiff also seeks to enforce a purported demand for inspection of Westland’s books and records pursuant to New Mexico’s Business Corporation Act.

The case is stayed by agreement of the parties. It appears most of the litigation activity relevant to this case will occur in the Rael case and that this case will either remain inactive for the time being or be consolidated with the Rael case. At this time, the ultimate outcome of this case cannot be predicted.

2. Maria Elena A. Rael, On Behalf of Herself and All Others Similarly Situated and Derivatively on Behalf of Westland Development, Inc., Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants, and Westland Development Company, Inc., Nominal Defendant. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 01756. This action was filed on March 2, 2006.

The verified complaint purports to be a shareholder class and derivative action on behalf of all shareholders of Westland and Westland. The action seeks declaratory relief, injunctive relief and compensatory and punitive damages arising out of Westland’s then-proposed merger with SHNM. The individual defendants are all directors of Westland.

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Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE M – PROPOSED MERGER WITH AND ACQUISITION BY SCC ACQUISITION CORP. (“SCC”) (CONTINUED)

The complaint purports to allege ten claims for relief against certain individual director defendants including: (1) that they breached their fiduciary duty by entering into the merger agreement with SHNM; (2) that they acquired Westland common stock while in possession of inside information; (3) that they misappropriated information relating to Westland’s financial condition; (4) that they conspired with one another to perform the wrongful acts listed in the complaint; and (5) that they engaged in corporate waste by awarding some director defendants lucrative severance contracts, enhanced indemnification provisions, obtaining additional director’s and officer’s liability insurance by removing restrictions on the transferability of certain shares of Westland stock and agreeing to severance payments.

In addition, plaintiff sought an order requiring Westland to hold its annual meeting of shareholders and seeks an order in the complaint to inspect certain corporate records under the New Mexico Business Corporation Act.

Plaintiff seeks declaratory, injunctive and compensatory relief including: (1) declaring that the individual defendants breached their fiduciary duties when they entered into the merger agreements with ANM and later with SHNM and that the agreements are “unlawful and unenforceable”; (2) enjoining the defendants from proceeding with the then-proposed merger with SHNM, “unless and until Westland adopts and implements a fair sale procedure or process”; (3) imposing a constructive trust in favor of Westland’s shareholders over all oil and gas rights owned Westland; (4) ordering defendants to create and fund a permanent cultural heritage committee to oversee the creation and operation of a museum of Atrisco history as well as publishing certain information about Atrisco history; (5) ordering the defendants to ensure the perpetual operation of the cemeteries; (6) ordering the publication of all documents associated with the then-proposed merger with SHNM in Spanish as well as English; (7) ordering defendants to hold an annual shareholder meeting; (8) awarding an unspecified amount of compensatory damages; (9) awarding an unspecified amount of punitive damages; and (10) awarding plaintiffs’ costs and reasonable attorneys’ fees.

Discovery stayed by the Court on July 17, 2006, and until the publication of the proxy statement relating to the current merger agreement. Since the proxy has been published, discovery is again underway, and depositions are expected to occur in October. A scheduling order has been agreed upon by the parties.

Westland and the individual defendants have moved to dismiss the original complaint. Shortly before the hearings scheduled to address the motions, Plaintiff decided to file and amended complaint (though specific to the SunCal merger proposed instead of the SHNM agreement). If the allegations are as Westland Anticipates, Westland expects to file a renewed motion to dismiss by September 26, 2006.

3. Lawrence Lane On Behalf of Himself and All Others Similarly Situated and Derivatively on Behalf of Westland Development, Inc., Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants, and Westland Development Company, Inc., Nominal Defendant. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 02055. This action was filed on March 13, 2006.

The verified complaint is identical in all material respects to the complaint in the Rael action discussed above.

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Westland Development Co., Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

June 30, 2006 and 2005

NOTE M – PROPOSED MERGER WITH AND ACQUISITION BY SCC ACQUISITION CORP. (“SCC”) (CONTINUED)

The case was stayed by agreement of the parties. It appears most of the litigation activity relevant to this case will occur in the Rael case and that this case will either remain inactive for the time being or be consolidated with the Rael case. At this time, the ultimate outcome of this case cannot be predicted.

4. Yolanda Apodaca, On Behalf of Herself and All Others Similarly Situated Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 02055. This action was filed March 16, 2006.

The case is stayed by agreement of the parties. It appears most of the litigation activity relevant to this case will occur in the Rael case and that this case will either remain inactive for the time being or be consolidated with the Rael case. At this time, the ultimate outcome of this case cannot be predicted.

Westland and the other defendants deny the allegations in, and intend to vigorously defend against, the complaints disclosed above.

5. Henry Gabaldon, Jr. and Lillian Lund as Co-Conservators for Henry Gabaldon, Sr., Plaintiffs, vs. Richard L. Gonzales and Westland Development Co., Inc., Defendants. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 02827. This action was filed on April 11, 2006.

This action makes claims that Henry Gabaldon, Sr. sold 602 shares of Westland stock to Richard L. Gonzales in July 2005 after Mr. Gonzales allegedly had information about the interest of unnamed persons or entities in purchasing Westland’s stock. Plaintiffs claim Westland knew that various individuals were misrepresenting the true value of Westland stock to Westland shareholders, and therefore Westland had a duty to either suspend trading in Westland stock or to advise Westland shareholders of the “true value” of Westland stock prior to Mr. Gabaldon’s sale of the stock to Mr. Gonzales. Plaintiffs seek actual and treble damages, plus attorneys’ fees and costs.

Westland moved to dismiss the complaint in this case, and Plaintiffs agreed to the dismissal, but the court has permitted an amended complaint to be filed. Westland anticipates moving to dismiss all or portions of that complaint by December 4, 2006. Discovery is stayed until resolution of that motion. At this time, the ultimate outcome of this case cannot be predicted.

Westland denies the allegations in, and intends to vigorously defend against, the complaint in this case.

6. Tracie Jernigan vs. Richard L. Gonzales, Westland Development Co., Inc. and Does 1-100. State of New Mexico County of Bernalillo, Second Judicial District, CV 2006 05297. This action was filed on July 7, 2006.

This action makes claims that Tracie Jernigan sold 2,160 shares of Westland stock to Richard L. Gonzales in July 2005 after Mr. Gonzales allegedly acquired inside information about the interest of unnamed persons or entities in purchasing Westland’s stock or assets. Plaintiff claims an “unknown Westland insider” provided such information to Mr. Gonzales. Plaintiff seeks actual, punitive and trebled damages, attorneys’ fees and costs, certain injunctive relief, and also seeks to enforce a previously unasserted purported demand for inspection of Westland’s books and records pursuant to the New Mexico Business Corporation Act.

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Westland Development Co., Inc.

Plaintiff also alleges that the defendants engaged in unlawful insider trading of Westland stock and that they conspired to agree to do the acts alleged in the complaint.

Westland has moved to dismiss portions of the complaint in this case, and has moved for summary judgment as to the remaining portions of the complaint. The motions are set to be heard in late November, 2006. At this time, the ultimate outcome of this case cannot be predicted.

Westland denies the allegations in, and intends to vigorously defend against, the complaint in this case.

ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes in or disagreements with Accountants of the kind described by Item 304 of Regulation S-B at any time during Westland’s two (2) most recent fiscal years.

ITEM 8A. CONTROLS AND PROCEDURES

The Company maintains controls and procedures designed to ensure that information it must disclose in our filings with the SEC is recorded, processed, accumulated and reported on a timely basis. Our principal executive and financial officer has reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of June 30, 2006. Based on such evaluation, our principal executive and financial officer has concluded that, as of June 30, 2006, our disclosure controls and procedures were effective in timely alerting her to material information related to the Company (and its consolidated subsidiaries) required to be included in our periodic SEC filings.

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CHANGES IN INTERNAL CONTROLS

There has been no change in our internal control over financial reporting during the quarter ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

There was no unreported information required to be disclosed in a Report on Form 8-K during the fourth quarter of the year covered by this Form 10-KSB.

PART III

ITEM 9: DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Overview

Westland’s articles of incorporation provide for the division of the board of directors into three classes as nearly equal in number as possible. The following is a description of each of Westland’s directors and the Class of seat held by them and each of Westland’s other directors and officers. Each of Westland’s directors is also a director of ECS, Inc., a New Mexico non-profit corporation established by Westland to hold certain cemetery lands donated to it to be operated for the benefit of Atrisco Heirs.

Class A Directors:

Barbara Page, age 72, has been a director, a member of the executive committee and Westland’s president, chief executive officer and chief financial officer since 1989. Ms. Page has been a member of the Albuquerque Economic Forum, and is a member of National Association of Industrial and Office Properties, is a member of Albuquerque Economic Development Inc., and is also a member of the Albuquerque Chamber of Commerce, the Albuquerque West Side Association, the Albuquerque Hispano Chamber of Commerce and New Mexico Home Builders Association. Ms. Page also serves on the Advisory Board of Eclipse Aviation, a corporation whose business is the development of a new executive type aircraft to be manufactured on Albuquerque’s west side.

Randolph M. Sanchez, age 45, was first appointed by the board of directors in 2004 to fill the vacancy created by a director’s retirement. Mr. Sanchez holds a B.S. degree in Business from Columbia College, Columbia, Missouri with emphasis on shopping center management. For the past ten years, Mr. Sanchez has been the general manager of the Coronado Center in Albuquerque. Mr. Sanchez has also been the manager of shopping centers located in New Jersey, North Carolina, South Carolina and Texas. Mr. Sanchez has served as the Chairman of the New Mexico Retail Association from 1999 to present. Also, Mr. Sanchez has served as the president of the Uptown Business Association, as a board member of the New Mexico Chapter of NAIOP, and as president of the New Mexico chapter of the International Council of Shopping Centers. In addition, for the last three years, Mr. Sanchez has served as treasurer of the Hispano Chamber of Commerce. Mr. Sanchez is a past Member and Chairman of the Albuquerque/Bernalillo County Air Quality Control Board.

Charles V. Pena, age 53, has been a Director since 1996. He is a member of Westland’s executive committee. Mr. Pena retired from Safeway stores after 19 years in that employment. During part of that time, he was a member of the Retail Clerk’s Union where he sat on two negotiating committees and twice ran for the Presidency of the Union. Mr. Pena attended the University of New Mexico and the University of Albuquerque, majoring in business courses. Since 1993, Mr. Pena owned and operated CJs New Mexican Food Restaurant in Albuquerque, New Mexico until its sale in August of 2004.

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Class B Directors:

Sosimo Sanchez Padilla, age 75, is the chairman of Westland’s board of directors, its Executive Vice President and a member of the executive committee of the board of directors and the assistant secretary/treasurer. Mr. Padilla has served as a director since 1971 and has been the chairman of the board of directors for the last 17 years. Mr. Padilla has been retired from Albuquerque Publishing Company for more than 13 years. Mr. Padilla has served on the State of New Mexico Border Research Institute Support Council and National Association of Industrial and Office Properties; was Chairman of the New Mexico Highway Commission from 1982 to 1986; served as a Trustee for the University of Albuquerque; also served as a director of the Westside Albuquerque Chamber of Commerce; the Greater Albuquerque Chamber of Commerce, and the Albuquerque Hispano Chamber of Commerce. Mr. Padilla was a founder of, and for more than 20 years served as a director of, the Bank of Albuquerque.

Joe S. Chavez, age 68, has served as a Westland director since 1995 and as Secretary-Treasurer since 2003. Mr. Chavez is also a member of the executive committee of the board of directors. Mr. Chavez served on the Petroglyph National Monument Advisory Committee from 1992 to 2001. For over 40 years, until 2003, Mr. Chavez was a co-owner of Regina’s Dance Studio, a business specializing in the sale of gymnastics equipment costume and ballet apparel and coordination of dance performances and other functions. Mr. Chavez was employed as a Sales Consultant with Casey Luna Ford from 1986 to 1995. For more than the nine years, until 2004, Mr. Chavez was also employed by Galles Chevrolet as sales manager and director of the used car department. Mr. Chavez also served in the Naval Reserve as Front Line Operations, Hydraulics Structural-Line Trouble Shooter.

Ray Mares, Jr., age 55, was first appointed by Westland’s board of directors in 2004 to fill the vacancy created by the retirement of a director. Mr. Mares is a graduate of Rio Grande High School in Albuquerque. He is also a graduate of the University of New Mexico where he received a B.S. degree in Business. For more than the past 15 years, Mr. Mares has been the Owner/Manager of Briteway Services in Albuquerque.

Class C Directors:

Josie G. Castillo, age 74, has been a director since 1984, and served as Westland’s Treasurer from 1985 to 1989. She is a member of the executive committee of the board of directors and was a member of Westland’s disclaimer committee. From 1983 until her retirement in 1995, Ms. Castillo was employed by the Human Services Department of the State of New Mexico in Albuquerque, New Mexico.

Georgia M. Baca, age 72, was appointed by Westland’s board of directors in 2004 to fill the vacancy created by a director’s death. Ms. Baca has been employed by Westland for more than the past 10 years in its shareholder relations department. For 12 years prior to becoming employed by Westland, she was the credit manager for a local jewelry store. Ms. Baca is the board of directors’ liaison to Westland’s shareholders.

Troy K. Benavidez, age 39, was appointed by the board of directors in 2004 to fill the vacancy created by a director’s retirement. Mr. Benavidez is a graduate of Colorado College with a Bachelor degree in economics. For the past two years, Mr. Benavidez has been employed by AstraZeneca Pharmaceuticals, LP, in Albuquerque, New Mexico. Prior to that he served as the External Relations Director for the Honorable Jane M. Swift, Governor of Massachusetts; as the Northern Regional Director for the Honorable Pete V. Domenici, U.S. Senator for New Mexico; as Chief of Staff to the Honorable Walter D. Bradley, Lt. Governor of New Mexico; and as Deputy Chief of Staff for the Honorable Steven H. Schiff, U.S. Representative for the State of New Mexico.

Other Officers and Key Employees

Leroy J. Chavez, age 45, has been Westland’s vice president of development since April 1996. Westland has employed Mr. Chavez since August 1984, with his primary responsibility at that time being the supervision of engineering and development related to Westland’s properties. Mr. Chavez’ responsibilities include the development of Westland’s projects as well as the planning and zoning of its land holdings. Mr. Chavez holds a B.S. degree from the University of New Mexico in Civil Engineering. He is also the qualifying party for Westland’s General Contractor’s license.

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Brent Lesley, age 46, has been Westland’s vice president of marketing since April 1996 and has been employed by Westland since May 1986. Mr. Lesley’s responsibilities are currently focused on the sale of real property, from undeveloped land to developed lots, and include overseeing the acquisition of income property. Mr. Lesley holds a B.S. degree from Iowa State University and an MBA degree from the University of New Mexico.

Fred Ambrogi, age 56, has been a vice president in the Development Division since December 1999 and has been an employee of Westland since February 1993. Mr. Ambrogi’s responsibilities primarily focus on the planning, design, oversight and coordination of specific Westland development projects, including the negotiation, oversight and coordination of project related engineering and construction contracts. Mr. Ambrogi holds a B.F.A. degree from the University of New Mexico in Architecture. He has more than 24 years of experience in land development.

Linda Blair, age 55, was appointed to the position of vice president in 2002 and has been employed by Westland since 1985. Ms. Blair is Westland’s office manager and has the responsibility of managing Westland’s three cemeteries. Ms. Blair graduated from Kent State University in 1972 with a B.A. degree in Spanish and Sociology.

James B. Turk, age 42, became Westland’s controller in March, 2004. Mr. Turk holds a B.S. degree in Accounting from Adams State College. He was employed as an accountant by Grant Thornton from 1989 until 1992. Mr. Turk was the chief financial officer of Safe Car, Inc. from 1992 to 1996 and was the chief financial officer of Roses Southwest Papers, Inc. from 1996 to 2000. Until joining Westland, Mr. Turk was a self employed financial and technology consultant. Mr. Turk is primarily responsible for the procurement of project financing on both construction and permanent basis. Mr. Turk is the son of Westland’s outside counsel, Thad H. Turk.

Board Committees, Meetings and Compensation

Meetings of the Board of Directors

The board of directors holds regular monthly meetings and also holds special meetings to the extent deemed necessary and appropriate. During the past fiscal year, the full board of directors held 12 regular meetings and 30 special meetings. With exception of Mr. Benavidez, all members of the board of directors have attended, in person or by telephone, at least 80% of all meetings of the board of directors held during fiscal 2006 and, on the same basis, at least 80% of the aggregate of all meetings of the board of directors and its committees held during fiscal 2005. Mr. Benavidez’ schedule required that he be out of the City at various times during the year when meetings were held on short notice and he was able to attend approximately 75% of all of the meetings.

Each director is required to attend and participate in all shareholder meetings, except in cases of extreme personal or family emergency. All of the directors attended the last annual meeting of shareholders.

Committees of the Board of Directors

The board of directors does not have a standing audit committee, nominating committee or compensation committee but does, however, have an executive committee. The executive committee consists of Mr. Padilla, Ms. Page, Mrs. Castillo, Mr. Chavez and Mr. Pena. Pursuant to Westland’s bylaws, the executive committee performs those functions delegated to it by the board of directors. The executive committee met two times during the past fiscal year. Because the board of directors does not have a standing audit committee, the entire board of directors considers all audit and financial matters. The board of directors does not have an audit committee financial expert.

The board of directors had an insider transfer committee which reviewed the fairness of transactions engaged in by members of the board of directors or other insiders with respect to the purchase or sale of shares of Westland common stock. The insider transfer committee did not meet during the past two fiscal years because there were no purchases or sales of shares by any officer or director. Due to this inactivity, this committee was abandoned during fiscal 2005 and its functions were returned to the full board of

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directors. There have been interfamily transfers of shares resulting from gifts of stock, both received and given, which did not require a review by the committee or the board of directors because no purchase or sale was involved. The insider transfer committee was not active at the time of the investigation regarding the allegations of insider trading that were made to the New Mexico Securities Division. The full board of directors considered the allegations surrounding the investigation and the facts of the transactions that led to the initiation of the investigation, and with the advice of counsel, determined that there had been no insider trading by any of Westland’s officers or directors. The New Mexico Securities Division subsequently came to this same conclusion.

The board of directors also had a disclaimer committee which considers and acts upon claims of ownership of lands that are within or once within the boundaries of lands owned by Westland. The purpose of the disclaimer committee was to decide whether the owner of such land acquired it through a valid conveyance. This committee became inactive because of the lack of claims requiring its consideration. If any such claims now arise, they are considered by the full board of directors.

Westland maintains and is the beneficiary of a $1,000,000 key-man life insurance policy on the life of Ms. Page. The premiums of this policy are approximately $9,000 per year.

Family relationships

None of the Directors, nominees or other Officers of the Company is related (as first cousins or closer) by blood, marriage or adoption to any other Director, nominee, or Officer.

Westland’s El Campo Santo, Inc. (formerly El Campo Santo, Inc.)

Westland’s El Campo Santo, Inc. is a related non-profit corporation that owns, manages and operates 3 cemeteries maintained by the Company. The members of Westland’s board of directors are also the board of directors of this subsidiary.

Section 16(a) Beneficial Ownership Reporting Compliance.

No person is known to have failed to file on a timely basis any report required to be filed by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years.

Code of Ethics

The Company has adopted a code of ethics that applies to those officers described in Item 406 of Regulation S-B.

Beneficial Ownership Reporting Requirements

All Directors timely filed all required Forms 3 and Forms 4 relating to their share ownership at the time they became Directors and to report the acquisition or disposition of shares during the year.

ITEM 10: EXECUTIVE COMPENSATION

The following table sets forth the compensation for the fiscal year ended June 30, 2006, 2005 and 2004, including bonuses and deferred cash compensation (if any), of the certain Directors, the Company’s chief executive officer and the four other highest paid executive officers:

Summary Compensation Table

The following table sets forth the compensation for services rendered in all capacities to Westland during the fiscal years ended June 30, 2006, 2005 and 2004 for the chief executive officer and Westland’s

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other four highest paid executive officers who were serving as executive officers as of the last day of our previous fiscal year, as well as two additional individuals, the disclosure of which Westland believes is beneficial:

Name and Principal Position	(a) Year	(b) Salary		(c) Bonus		(d) Other Annual Compensation (3)		(e) Other Compensation
Barbara Page (1)	2006	$	143,600	$	—	$	73,500	$	35,900	(1)
President, CEO, CFO and Director	2005		110,000		—		18,000		27,500	(1)
	2004		110,000		—		16,083		27,380	(1)
Leroy C. Chavez (1)	2006		103,353		95,000		—		29,753	(1)
Vice President of Development	2005		107,741		30,000		—		20,661	(1)
	2004		108,300		25,000		—		19,995	(1)
Brent Lesley (1)	2006		111,350		95,000		—		30,953	(1)
Vice President of Marketing	2005		110,852		30,000		—		21,012	(1)
	2004		104,206		25,000		—		19,381	(1)
Fred Ambrogi (1)	2006		93,056		57,000		—		22,508	(1)
Vice President	2005		95,605		25,000		—		18,091	(1)
	2004		92,250		20,500		—		16,953	(1)
Linda Blair (1)	2006		72,024		68,500		—		21,079	(1)
Vice President	2005		68,870		25,000		—		14,081	(1)
	2004		69,322		20,500		—		13,473	(1)
Sosimo S. Padilla (2)	2006		—		—		131,904		—
Chairman of the Board of Directors	2005		—		—		75,752		—
	2004		—		—		53,781		—
James B Turk	2006		66,213		18,500		—		12,707
Controller	2005		—		—		—		—
	2004		—		—

(1) Each of the executive officers participates in a Money Purchase Profit Sharing Deferred Compensation Plan (see “Money Purchase Profit Sharing Deferred Compensation Plan” below). These amounts represent Westland’s contribution to the employee’s retirement account.

(2) Mr. Padilla is paid $50,000 per year pursuant to a consulting agreement.

(3) Includes $27,500 of contribution to the employee’s retirement account (see footnote (1)).

Money Purchase Profit Sharing Deferred Compensation Plan

Effective January 1, 1997, Westland established a Money Purchase Profit Sharing Deferred Compensation Plan (the “1997 Plan”) and abandoned the SEP-IRA plan, which it had established in 1991. No payments were made to the SEP-IRA plan after fiscal 1997. Under the 1997 Plan, Westland contributed

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up to 15% of the aggregate earnings of participating employees. During fiscal 2004, 2005 and 2006, $151,172, $147,507 and $226,803, respectively, were contributed by Westland pursuant to the 1997 Plan. Ms. Page, Mr. Chavez, Mr. Ambrogi, Mr. Lesley, Ms. Blair and Mr. Turk participate in all employee benefit plans, including the 1997 Plan. Mr. Chavez, Mr. Lesley, Mr. Ambrogi, Ms. Blair and Mr. Turk participate in all employee benefit plans and participate in any bonuses, which may be declared from time to time by the board of directors.

There were no options issued or outstanding at any time during the fiscal year relating to the purchase of shares of any Class of the Company’s securities by members of the Board of Directors.

The Company has no long-term compensation arrangements with its directors other than those discussed herein. Certain officers and directors are employed under consulting and employment contracts. See Item 12.

Employment and Consulting Agreements.

As described in Item 12, Westland has employment or consulting agreements with two of Westland’s directors, one of which is also an officer, and four of Westland’s officers who are not also directors or shareholders.

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND RELATED STOCKHOLDER MATERS

On September 20, 2006, there were 709,827 shares of No Par Value Common Stock and 85,100 shares of Class B Stock issued and outstanding. There are no other forms of authorized equity securities. The following table sets forth, as of September 20, 2006, the beneficial ownership of No Par Value Stock and Class B Stock by each nominee and each present Director of the Company and by all officers and Directors as a group. The information as to beneficial stock ownership is based on data furnished by each person. Each person has sole voting and investment power as to all shares unless otherwise indicated. No person is known by the Company to own beneficially 5% or more of its issued and outstanding equity securities.

NOTE: “Beneficial ownership” of stock, as defined by the Securities and Exchange Commission, includes stock which is not outstanding and not entitled to vote or receive dividends, but which an individual has the right to acquire within 60 days pursuant to a vested stock option. There are no unexercised stock options now issued or outstanding and there is not intent to issue any options in the future.

The number of shares of Westland common stock “beneficially owned” by each shareholder is determined under rules issued by the SEC regarding the beneficial ownership of securities. Under these rules, beneficial ownership of shares of Westland common stock includes (i) any shares as to which the person or entity has sole or shared voting power or investment power and (ii) any shares as to which the person or entity has the right to acquire beneficial ownership within 60 days, including any shares which could be purchased by the exercise of options within 60 days. As of September 20, 2006 no person was known to be the “beneficial” owner of more than 5% of the outstanding shares of Westland no par value common stock and on that date only Ms. Page, Mr. Padilla and Mrs. Castillo, all of whom are Westland directors, were each known to be the beneficial owners of more than 5% of the outstanding shares of Westland Class B common stock. The following table shows, as of September 20, 2006, the shares of the no par value common stock and Class B common stock beneficially owned by Westland’s directors and executive officers, as well as the shares of no par value common stock and Class B common stock beneficially owned by all directors and officers as a group. Unless otherwise indicated, the mailing address of each of the persons named is c/o Westland Development Co., Inc., 401 Coors Boulevard, N.W., Albuquerque, New Mexico 87121.

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	No Par Value Common Stock				Class B Common Stock
	No. of Shares Beneficially Owned		Percent of Class		No. of Shares Beneficially Owned	Percent of Class
Barbara Page (1)	2,647		*		9,800	11.51	%
Charles V. Pena	100		*		500	*
Randolph M. Sanchez	14		*		—	—
Sosimo S. Padilla	2,308	(2)	*		20,700	24.32	%
Joe S. Chavez	310		*		200	*
Ray Mares, Jr.	751		*		335	*
Troy K. Benavidez	100		*		—	—
Josie Castillo	738		*		9,500	11.16	%
Georgia Baca	1,236		*		—	—
Leroy J. Chavez (3)	—		—		—	—
Brent Lesley (3)	—		—		—	—
Fred Ambrogi (3)	—		—		—	—
Linda Blair (3)	—		—		—	—
Directors and Officers as a group (13 people)	8,204	(1)	1.16	%(1)	41,035	50.35	%

(1) Ms. Page transferred 2,000 of the shares of Class B common stock to her daughter and granddaughter, who have agreed to vote such shares as she directs. Ms. Page is also Westland’s president.

(2) Of the 2,308 shares of no par value common stock reflected above, 46 shares are owned by Mr. Padilla’s wife.

(3) The officer is not an Atrisco Heir (as defined in Westland’s articles of incorporation) and, as such, is prohibited from owning shares of Westland common stock pursuant to a restriction contained in the articles of incorporation.

* Represents less than 1% of the class of shares. The total number of shares of no par value common stock and Class B common stock owned by Westland’s officers and directors as a group is approximately 6.23% of all such shares that are issued and outstanding.

Beneficial Ownership Reporting Requirements.

Section 16(a) of the Exchange Act requires Westland’s executive officers and directors to file reports of ownership of Westland’s common stock with the Securities and Exchange Commission. Executive officers and directors are required to furnish Westland with copies of all Section 16(a) forms that they file. Based upon a review of these filings and representations from Westland’s directors and executive officers that no other reports were required, Westland notes that all reports for the 2006 fiscal year were filed on a timely basis.

There were no securities authorized for issuance under any equity compensation plan during any period covered by this Form 10-KSB.

Possible Future Change of Control

The Company’s Articles of Incorporation provide that the Company’s shares of common stock may be transferred only to lineal descendants of the incorporators of the Town of Atrisco, New Mexico. That restriction has effectively prevented any person not an heir from attempting to acquire control of the Company through the purchase of its shares. In August of 2005, in response to an offer from a third party to make an offer to the shareholders to purchase all of the issued and outstanding shares at a substantial price over the then market price for the shares, the board of directors concluded that the shareholders should have the opportunity to consider such an offer and if approved by the owners of a 2/3 majority of each class of stock, to amend the articles of incorporation to facilitate the purchase and transfer of shares tendered for

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purchase. As part of the understanding with the person wanting to make the offer, the Company’s board of directors agreed that if the owners of the majority of each class of shares agreed to amend the articles of incorporation that the board would resign to permit the new owner to appoint a new board of directors. Initially it was anticipated that the Directors would be issued certain change of control shares upon the approval of the merger and their resignation. Subsequently the board concluded that the shares could be issued only in the case of an adverse acquisition and therefore this provisional grant did not apply to the merger transactions. It was agreed by ANM holdings, Inc, that the value of these shares should be paid to the shareholders and the Agreement and Plan of Merger between Westland and SHNM Acquisition Crop. was amended to provide for that increase in value to the shareholders. No subsequent agreement and plan of merger included any reference to any change of control shares. Over the past year there have been three offers to purchase the shares that have been accepted by Westland, each offer being superior the prior offer. It is now anticipated that in November 2006, the shareholders will vote on whether to approve the sale through a merger agreement. The current bidder for the outstanding shares is SCC which proposed to purchase the shares for $315.00 per share, plus agreeing to the formation of the Atrisco Heritage Foundation and discussed elsewhere in the Report.

ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Directors

No bonuses have been paid to any Director since 2003. In February of 2004, all director fees were increased to $1,500 per meeting. Mr. Padilla, Mr. Joe Chavez and Ms. Castillo are paid an additional fee of $300 per month for their extra services as Chairman of the Board, as Secretary-Treasurer and as Chairman of the Executive Committee, respectively.

Applicable New Mexico gross receipts taxes are added to all amounts paid to directors.

The Company reimburses Management for their out of pocket expenses for lobbying efforts that any of them may spend on behalf of the Company.

As previously stated, during fiscal 2004, the board of directors authorized a severance package for any director who retired prior to December 31, 2003. The amount offered is an amount equal to two years of the retiring director’s annual director fees. Three Directors accepted the offer and resigned.

In December of 2002 and confirmed in August of 2004 the board authorized an issuance of Class B stock to board members upon either of two events occurring. The first event would be when there is a threat of change of control with three or more director seats threatened and the second event would be when an offer to acquire a majority of all issued and outstanding shares of Westland common stock. In either event, each director who has served as a director for 10 or more years will be granted a bonus of 5,000 such shares and each director who has served less than 10 years will be granted a bonus of 2,500 shares. At the current time, if such an event should occur, a total of 35,000 Class B shares would be issued to the board of directors. The Board of directors has determined that the structure of the Agreements and Plans of Merger that it has entered into with the various proposed purchasers is not a change of control contemplated by this authorization.

Employment and Consulting Arrangements with Current Officers:

Westland has employment or consulting agreements with two of Westland’s directors, one of which is also an officer, and four of Westland’s officers who are not also directors or shareholders. Those agreements will remain in effect after the completion of the merger. A summary of those agreements is set forth below:

• Since December of 1991, Ms. Page has been employed as Westland’s president under a renewable

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five year employment agreement. If Ms. Page’s employment is involuntarily terminated during the term of the agreement, the agreement provides that she will be paid, in addition to any salary earned to the date of such termination, an amount of cash equal to seven times the amount of her annual salary on the date of termination. Notwithstanding the foregoing, Ms. Page has not waived her right to this severance payment.

• Mr. Padilla, the chairman of Westland’s board of directors, is retained by Westland under a five year consulting agreement dated February 24, 2004, pursuant to which he is paid $50,000 per year for his services. This consulting agreement is renewable by Westland for successive five year periods. If Mr. Padilla’s consulting agreement is involuntarily terminated during the term of the agreement, the agreement provides that he will be paid, in addition to any compensation earned to the date of such termination, an amount of cash equal to seven times the amount of his annual compensation. Notwithstanding the foregoing, Mr. Padilla has waived his right to this severance payment that might arise under the SCC Agreement.

• On April 22, 2005, the employment agreements of three of Westland’s vice presidents, Ms. Linda Blair, Mr. Leroy Chavez and Mr. Brent Lesley, were amended to provide six year employment terms with automatic extensions for additional three-year terms. These employment agreements provide that if the officer’s employment is involuntarily terminated, he or she will be paid, in addition to any salary earned to the date of such termination, an amount of cash equal to six times the amount of his or her annual salary on the date of termination, plus the cash value of all other employment benefits that have accrued on the date of termination.

ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

2. Plan of purchase, Sale, Reorganization, Liquidation, or Succession:

2. 1	Agreement and Plan of Merger dated September 30, 2005 between Westland and ANM Holdings, Inc. filed as an exhibit to Form 10-QSB Quarterly Report filed on December 8, 2006, and incorporated herein by reference.
2.2	Amended and Restated Agreement and Plan of Merger between Westland and ANM Holdings, Inc. dated February 1, 2006, filed as an exhibit to Form 8-K Current Report filed on February 2, 2006 and incorporated herein by reference.
2.3	Agreement and Plan of Merger dated February 24, 2006, between Westland and SHNM Acquisition Corp. filed as an exhibit to Form 8-K Current Report filed on February 26, 2006, and incorporated herein by reference.
2.4	Amendment No. 1 dated April 1, 2006 to the Agreement and Plan of Merger dated February 24, 2006, between Westland and SHNM Acquisition Corp., filed as an exhibit to Form 8-K Current Report filed on April 10, 2006.
2.4	Amended and Restated Agreement and Plan of Merger between Westland and SHNM Acquisition Corp. filed as an exhibit to Form 8-K Current Report filed on June 6, 2006, and incorporated herein by reference.
2.5	Agreement and Plan of Merger dated as of July 19, 2006, between Westland and SCC Acquisition Corp. filed as an exhibit to Form 8-K Current Report filed on July 20, 2006, and incorporated herein by reference.

3. Articles of Incorporation and Bylaws:

3.1	Articles of Incorporation filed as an exhibit to Westland’s Registration Statement on Form 10-K on September 28, 1982 and incorporated herein by reference.
3.2	Articles of Amendment to the Articles of Incorporation filed as an exhibit to a Form 8-K dated October 2, 1997 and incorporated herein by reference.
3.3	Restated Bylaws filed as an exhibit with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993 and incorporated herein by reference.

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10. Material Contracts:

10.1	Consulting Agreement with Sosimo Padilla, dated December 18, 1992, as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993, and incorporated herein by reference.
10.2	Consulting Agreement with Polecarpio (Lee) Anaya, dated December 18, 1992, as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993, and incorporated herein by reference.
10.3	Employment Agreement with Barbara Page, dated December 18, 1992, as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993, and incorporated herein by reference.
10.4	Lease Agreement dated April 25, 1994, between Central Avenue Partners and Walgreen Co., as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998, and incorporated herein by reference.
10.5	Assignment of Lease dated April 20, 1995, from Central Avenue Partners to Westland, as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference.
10.6	Lease Agreement dated March 14, 1995, between George Brunacini and Jeannette Brunacini and Circuit City Stores, Inc., as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference.
10.7	Assignment of Lease dated June 28, 1995, from George Brunacini and Jeannette Brunacini to Westland, as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference.
10.8	Lease Agreement dated March 19, 1996, between C.A.P. II, a New Mexico general partnership, and Walgreen Co., as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996, and incorporated herein by reference.
10.9	Assignment of Lease dated June 21, 1996, from C.A.P. II, a New Mexico general partnership, to Westland, as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996, and incorporated herein by reference.
10.10	Lease Agreement dated June 29, 1999, between Marie Callender Restaurant and Pie Shop, a California corporation, as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999, and incorporated herein by reference.
10.11	Lease Agreement dated April 21, 1999 between C.A.P. II, a New Mexico general partnership and Walgreen, Co., an Illinois corporation as filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2001, and incorporated herein by reference.
10.12	Amended Consulting Agreement with Sosimo Padilla, dated February 24, 2004 filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004, and incorporated herein by reference.
10.13	Amended Employment Agreement with Barbara Page dated February 24, 2004 filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004, and incorporated herein by reference.
10.14	Employment Agreement with Linda Blair dated March 9, 2004 filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004, and incorporated herein by reference.
10.15	Employment Agreement with Leroy Chavez dated March 9, 2004 filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004, and incorporated herein by reference.
10.16	Employment Agreement with Brent Lesley dated March 9, 2004 filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004, and incorporated herein by reference.
10.18	Employment Agreement with Linda Blair dated April 22, 2005 filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005, and incorporated herein by reference.

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10.19	Employment Agreement with Leroy Chavez dated April 22, 2005 filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005, and incorporated herein by reference.
10.20	Employment Agreement with Brent Lesley dated April 22, 2005 filed with Westland’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005, and incorporated herein by reference.
Certifications:
31	Certification pursuant to Section 302 of the Sarbanes-Oxley Act
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.	Other Exhibits:
99.1	Oil and gas lease between Westland and Great Northern Gas Co. (“GNG”) for 9068 acres dated September 17, 2001 filed herewith.
99.2	Oil and gas lease between Westland and Sun Valley Energy Corp. (“Sun Valley”) for approximately 7,211 acres dated June 6, 2000 filed herewith.

Computation of Per Share Earnings:

Statement regarding computation of per share earnings is incorporated by reference to Note A(8) to the Financial Statements incorporated herein by reference to Westland’s Annual Report to Shareholders for the Fiscal year ended June 30, 2006.

Westland Associated Entities:

Westland is associated to and provides operating services at no cost to the following entities:

Name	State of Incorporation
Westland’s El Campo Santo, Inc.	New Mexico - non-profit
Westland Community Services, Inc	New Mexico - non-profit

If the shareholders approve the Agreement and Plan of Merger between Westland and SCC Acquisition Corp. operation of these entities will be assumed by a Foundation formed for the purpose of preserving the heritage of the Atrisco Land Grant and its heirs.

All other exhibits required by Item 601 of Regulation S-B are inapplicable to this filing.

(b) Reports on Form 8-K:

During the last quarter of the period covered by this report Westland filed the following reports on Form 8-K:

Filing Date	Subject matter of Report
1. April 10, 2006	To report the amendment of the Agreement and Plan of Merger between Westland and SHNM Acquisition Corp. to increase the price per outstanding shares to be paid from $255.00 to $263.23 and a press release reporting the above amendment to the Agreement and Plan of Merger.
2. May 30, 2006`	Notice of the receipt of a Superior Proposal from SCC Acquisition Corp.
3. June 6, 2006	To report the entry into an Amended Agreement and Plan of Merger with SHHM Acquisition Corp. in response to a Superior Proposal from SCC Acquisition Corp.
4. July 5, 2006	Notice of receipt of a second Superior Proposal from SCC Acquisition Corp.
5. July 20, 2006	Notice of entry into an Agreement and Plan of Merger between Westland and SCC Acquisition Corp.

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ITEM 14: PRINCIPAL ACCOUNTANTS FEES AND SERVICES

Audit Fees:	The aggregate amount of fees billed for each of the last two fiscal years for professional services rendered by Grant Thornton, the Company’s principal accountants, for the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-QSB or services that are normally provided by Grant Thornton in connection with statutory and regulatory filings or engagements was $52,243 for fiscal 2005 and $87,653 for fiscal 2006.
Audit Related Fees:	The aggregate amount of fees billed in each of the last two fiscal years for assurance and related services by Grant Thornton that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under Item 9(e) of Schedule was $0 in fiscal 2005 and $0 in fiscal 2006.
Tax Fees:	The aggregate amount of fees billed in each of the last two fiscal years for professional services rendered by Grant Thornton for tax compliance, tax advice, and tax planning was $12,924 in fiscal 2005 and $36,407 in 2006. The services comprising the fees consisted of tax preparation and tax advisory services.
All Other Fees:	The aggregate amount of fees billed in each of the last two fiscal years for products and services provided by Grant Thornton, other than services reported in Item 9(e)(1) through 9(e)(3) of Schedule 14A,was $6,895 in fiscal 2005 and $17,080 in fiscal 2006. The products and services comprising the fees consisted of accounting research and general advisory services.
Pre-Approval Policies and Procedures	The Company does not have an audit committee. In audit matters, the Company acts through its board of directors. The Pre-Approval Policies and Procedures followed by the Board of Directors include a review the timeliness and quality of past services and bills as well as a review of the cost for similar services provided by qualified audit and tax firms in Albuquerque, New Mexico with a view to determining the fairness of the services rendered and the fees billed by Grant Thornton.
% of Grant Thornton contribution:	The percentage of hours expended on Grant Thornton’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than Grant Thornton’s full-time, permanent employees was 0%.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, Westland caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WESTLAND DEVELOPMENT CO., INC.

By	/s/ Barbara Page	Date: September 20, 2006
	BARBARA PAGE, President, Chief Executive Officer,
	Chief Financial Officer and Director

In accordance with the Exchange Act, this report has been signed below by the following persons in behalf of Westland and in the capacities and on the dates indicated.

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By	/s/ Sosimo S. Padilla	Date: September 20, 2006
	SOSIMO S. PADILLA, Director and Chairman of the Board
By	/s/ Joe S. Chavez	Date: September 20, 2006
	JOE S. CHAVEZ, Secretary-Treasurer and Director
By	/s/ Josie Castillo	Date: September 20, 2006
	JOSIE CASTILLO, Director
By	/s/ Georgia Baca	Date: September 20, 2006
	GEORGIA BACA, Director
By	/s/ Troy K. Benevidez	Date: September 20, 2006
	TROY K. BENEVIDEZ, Director
By	/s/ Ray Mares, JR.	Date: September 20, 2006
	RAY MARES, JR., Director
By	/s/ Charles V. Pena	Date: September 20, 2006
	CHARLES V. PENA, Director
By	/s/ Randolph M. Sanchez	Date: September 20, 2006
	RANDOLPH M. SANCHEZ, Director

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EX-31

Exhibit 31

Certification

I, Barbara Page, the principal executive and financial officer, of Westland Development Co., Inc., certify that:

1. I have reviewed this annual report on Form 10-KSB of Westland Development Co., Inc., SEC file No 0-7775;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others within this entity, particularly during the period in which this annual report is being prepared:

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date.

5. I have disclosed, based on my most recent evaluation, to the registrant’s auditors and the registrant’s board of directors:

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	September 20, 2006
	/s/ Barbara Page Barbara Page, principal executive and financial officer

There are no other certifying officers.

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Barbara Page, principal executive and financial officer of Westland Development Co., Inc. (the “Company”), certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The annual Report on Form 10-KSB of the Company for the year ended June 30, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Barbara Page

Barbara Page

Principal Executive and Financial Officer

September 20, 2006

EX-99.1

Exhibit 99.1

New Mexico JBC 342, with Pooling

OIL & GAS LEASE

THIS AGREEMENT made this 17th day of September, 2001, between WESTLAND DEVELOPMENT CO., INC., A New Mexico Corporation, whose address is 401 Coors Blvd., N.W. Albuquerque, NM 87121 herein called Lessor (whether one or more) and GREAT NORTHERN GAS COMPANY, a Colorado corporation, whose address is 621 17th Street, Suite 2150, Denver, CO 80293, herein called Lessee.

1. Lessor, in consideration of TEN AND NO/ 100th DOLLARS in hand paid, receipt of which is hereby acknowledged, and of the royalties herein provided and of the agreements of the lessee herein contained, hereby grants, leases and lets exclusively unto lessee for the purpose of investigating, exploring, prospecting, drilling and operating for and producing oil and gas, injecting gas, waters, and other fluids, and air into subsurface strata, laying pipelines, storing oil, building tanks, roadways, telephone lines, and other structures and things thereon to produce, save, take care of, treat, process, store and transport said minerals, the following described land in Bernalillo County, New Mexico to wit:

See Exhibit “A” attached hereto and made a part hereof.

This lease also covers and includes all land owned or claimed by Lessor adjacent or contiguous to the land particularly described above, whether the same be in said survey or surveys or in adjacent surveys, although not included within the boundaries of the land particularly described above. For the purpose of calculating the rental payments hereinafter provided for, said land is estimated to comprise 9,068 acres, whether it actually comprises more or less.

2. Subject to the other provisions herein contained, this lease shall remain in force for a term of five (5) years from this date (called “primary term”), and as long thereafter as oil, gas, or other mineral is produced from said land or from land with which said land is pooled.

3. The royalties to be paid by lessee are: (a) on oil, and other liquid hydrocarbons saved at the well, 13.5% of that produced and saved from said land, same to be delivered at the wells of to the credit of lessor in the pipeline to which the wells may be connected; (b) on gas, including casinghead gas or other gaseous substances produced from said land and used off the premises or used in the manufacture of gasoline or other products, the market value at the well of 13.5% of the gas used, provided that on gas sold on or off the premises, the royalties shall be 13.5% of the net proceeds from such sale; (c) and at any time when this lease is not validated by other provisions hereof and there is a gas and/or condensate well on said land, or land pooled therewith, but gas and/or condensate is not being sold or used and such well is shut-in either before or after production therefrom, then on or before 90 days after said well is shut in, and thereafter at annual intervals, lessee may pay or tender an advance annual shut-in royalty equal to the amount of delay rentals provided for in this lease for the acreage then held under this lease by the party making such payment or tender, and so long as said shut-in royalty is paid or tendered, this lease shall not terminate and it shall be considered under all clauses hereof that gas is being produced from the leased premises in paying quantities. Each such payment shall be paid or tendered to the party or parties who at the time of such payment would be entitled to receive the royalties which would be paid under this lease if the well in fact were producing or be paid or tendered to the credit of such party or parties in the depository bank and in the manner hereinafter provided for the payment of rentals. The amount realized from the sale of gas on or off the premises shall be the price established by the gas sales contract entered into in good faith by lessee and gas purchaser for such term and under such conditions as are customary in the industry.

4. If operations for drilling are not commenced on said land or on land pooled herewith on or before one (1) year from this date, this lease shall terminate as to both parties, unless on or before one (1) year from this date lessee shall pay or tender to the lessor a rental of $______ (See Paragraph 22 of the addendum attached hereto), which shall cover the privilege of deferring commencement of such operations for a period of twelve (12) months. In like manner and upon like payments or tenders, annually, the commencement of said operations may be further deferred for successive periods of twelve (12) months each during the primary term. Payment or tender may be made to the lessor or to the credit of the lessor in the (See Paragraph 22 of the Addendum attached hereto) bank at _________________, which bank, or any successor thereof, shall continue to be the agent for the lessor and lessor’s heirs and assigns. If such bank (or any successor bank) shall fail, liquidate, or be succeeded by another bank or for any reason shall fail or refuse to accept rental, lessee shall

not be held in default until thirty (30) days after lessor shall deliver to lessee a recordable instrument making provision for another acceptable method of payment or tender, and any depository charge is a liability of the lessor. The payment or tender of rental may be made by check or draft of lessee, mailed or delivered to said bank or lessor, or any lessor if more than one, on or before the rental paying date. Any timely payment or tender of rental or shut-in royalty which is made in a bonafied attempt to make proper payment, but which is erroneous in whole or in part as to parties, amounts, or depositories shall nevertheless be sufficient to prevent termination of this lease in the same manner as though a proper payment had been made; provided, however, lessee shall correct such error within thirty (30) days after lessee has received written notice thereof by certified mail from lessor together with such instruments as are necessary to enable lessee to make proper payment.

5. Lessee is hereby granted the right and power, from time to time, to pool or combine this lease, the land covered by it or any part or horizon thereof with any other land, leases, mineral estate or parts thereof for the production of oil or gas. Units pooled hereunder shall not exceed the standard proration unit fixed by law or by the Oil Conservation Division of the Energy and Minerals Department of the State of New Mexico or by any other lawful authority for the pool or area in which said land is situated, plus a tolerance of ten percent. Lessee shall file written unit designations in the county in which the premises are located and such units way be designated from time to time and either before or after the completion of wells. Drilling operations on or production from any part of any such unit shall be considered for all purposes, except the payment of royalty, as operations conducted upon or production from the land described in this lease. There shall be allocated to the land covered by this lease included in any such unit that portion of the total production of pooled minerals from the wells in the unit, after deducting any used in the lease or unit operations, which the net oil or gas acreage in the land covered by this lease included in the unit bears to the total number of surface acres in the unit. The production so allocated shall be considered for all purposes, including the payment or delivery of royalty, to be the entire production of pooled minerals from the portion of said land covered hereby and included in said unit in the same manner as though produced from said land under the terms of this lease. Any pooled unit designated by lessee, as provided herein, may be dissolved by recording an appropriate instrument in the County where the land is situated at any time after the completion of a dry hole or the cessation of production on said unit.

6. If prior to the discovery of oil or gas hereunder, lessee should drill and abandon a dry hole or holes hereunder, or if after discovery of oil or gas the production thereof should cease for any cause, this lease shall not terminate if lessee commences reworking or additional drilling operations within sixty (60) days thereafter and diligently prosecutes the same, or (if be within the primary term) commences or resumes the payment or tender of rentals or commences operations for drilling or reworking on or before the rental paying date next ensuing after the expiration of three months from the date of abandonment of said dry hole or holes or the cessation of production. If at the expiration of the primary term, oil or gas is not being produced but lessee is then engaged in operations for drilling or reworking of any well, this lease shall remain in force so long as such operations are diligently prosecuted with no cessation of more than sixty (60) consecutive days. If during the drilling or reworking of any well under this paragraph, lessee loses or junks the hole or well and after diligent efforts in good faith is unable to complete said operations then within thirty (30) days after the abandonment of said operations lessee may commence another well and drill the same with due diligence. If any drilling, additional drilling, or reworking operations hereunder result in production, then this lease shall remain in full force so long thereafter as oil or gas is produced hereunder.

7. Lessee shall have free use of oil, gas and water from said land, except water from lessor’s wells and tanks, for all operations hereunder, and the royalty shall be computed after deducting any so used. Lessee shall have the right at any time during or after the expiration of this lease to remove all property and fixtures placed by lessee on said land, including the right to draw and remove all casing. When required by lessor, lessee will bury all pipelines on cultivated lands below ordinary plow depths, and no well shall be drilled within five hundred feet (500 ft.) of any residence or barn now on said land without lessor’s consent.

8. The rights of either party hereunder may be assigned in whole or in part and the provisions hereof shall extend to their heirs, executors, administrators, successors and assigns; but no change in the ownership of the land or in the ownership of, or rights to receive, royalties or shut-in royalties, however accomplished, shall operate to enlarge the obligations or diminish the rights of lessee and no such change or division shall be binding upon lessee for any purpose until 30 days after lessee has been furnished by certified mail at lessee’s principal place of business with acceptable instruments or certified copies thereof constituting the chain of title from the original lessor. If any such change in ownership occurs through the death of the owner, lessee may, at its option, pay or tender any royalties or shut-in royalties in the name of the deceased or to his estate or to his heirs, executor or administrator until such time as lessee has been furnished with evidence satisfactory to

lessee as to the persons entitled to such sums. In the event of an assignment of this lease as to a segregated portion of said land, the rentals payable hereunder shall be apportioned as between the several leasehold owners ratably according to the surface area of each, and default in rental payment by one shall not affect the rights of other leasehold owners hereunder. An assignment of this lease in whole or in part shall, to the extent of such assignment, relieve and discharge lessee of any obligations hereunder and, if lessee or assignee of part or parts hereof shall fail or make default in the payment of the proportionate part of royalty or shut-in royalty due from such-lessee or assignee or fail to comply with any of the provisions of this lease, such default shall not affect this lease insofar as it covers a part of said lands upon which lessee or any assignee thereof shall properly comply or make such payments. Lessee will not assign this lease, in whole or in part, without the prior written consent of the Lessor, said consent will not be unreasonably withheld.

9. Should lessee be prevented from complying with any express or implied covenant of this lease, or from conducting drilling or reworking operations hereunder, or from producing oil or gas hereunder by reason of scarcity or inability to obtain or use equipment or material, or by operation of force majeure, or by any Federal or state law or any order, rule or regulation of governmental authority, then while so prevented, lessee’s duty shall be suspended, and lessee shall not be liable for failure to comply therewith, and this lease shall be extended while and so long as lessee is prevented by any such cause from conducting drilling or reworking operations or from producing oil or gas hereunder, and the time while lessee is so prevented shall not be counted against lessee, anything in this lease to the contrary notwithstanding.

10. Lessor hereby warrants and agrees to defend the title to said land and agrees that lessee at its option may discharge any tax, mortgage or other lien upon said land, and in the event lessee does so it shall be subrogated to such lien with the right to enforce same and to apply rentals and royalties payable hereunder toward satisfying same. Without impairment of Lessee’s rights under the warranty, if this lease covers a less interest in the oil or gas in all or any part of said land than the entire and undivided fee simple estate (whether lessor’s interest is herein specified or not) then the royalties, shut-in royalty, rental, and other payments, if any, accruing from any part as to which this lease covers less than such full interest, shall be paid only in the proportion which the interest therein, if any, covered by this lease, bears to the whole and undivided fee simple estate therein. Should any one or more of the parties named above as lessors fail to execute this lease, it shall nevertheless be binding upon the party or parties executing the same.

11. Lessee, its or his successors, heirs and assigns, shall have the right at any time to surrender this lease, in whole or in part, to lessor or his heirs, successors, and assigns by delivering or mailing a release thereof to the lessor, or by placing a release thereof of record in the county in which said land is situated; thereupon lessee shall be relieved from all obligations, expressed or implied, of this agreement as to acreage so surrendered, and thereafter the rentals and shut-in royalty payable hereunder shall be reduced in the proportion that the acreage covered, hereby is reduced by said release or releases.

Executed the day and year above written.

Westland Development Co., Inc.	Great Northern Gas Company
/s/ Barbara Page	/s/ Thomas L. Di Grappa
By: Barbara Page, President and CEO	By: Thomas L. Di Grappa, President

CORPORATE ACKNOWLEDGMENT

State of New Mexico:

County of Bernalillo:

The foregoing instrument was acknowledged before me this 17 day of Sept., 2001 by Barbara Page, President and CEO of Westland Development Co., Inc., a New Mexico corporation on behalf of said corporation.

My Commission Expires: 8/5/05	/s/ Linda Blair
[SEAL]	Notary Public

CORPORATE ACKNOWLEDGMENT

State of Colorado:

County of Denver:

The foregoing instrument was acknowledged before me this 19th day of September, 2001 by Thomas L. Di Grappa, President of Great Northern Gas Company, a Colorado corporation on behalf of said corporation.

My Commission Expires: 12/24/2003
	Notary Public
	2746 So. Clayton Street
	Denver, Co 80210

ADDENDUM

To Oil & Gas Lease Between Westland Development Co., Inc., as Lessor and Great Northern Gas Company, as Lessee, dated September 17th, 2001.

12. Addendum Controlling: The terms and provisions of this Addendum are incorporated into and made a part of the Lease. In the event of any conflict between the terms and provisions of the Lease and the terms and provisions of this Addendum, the terms and provisions of this Addendum shall control.

13. Notwithstanding the grant herein of “oil, gas and all other minerals,” it is the intention of the parties hereto that such grant shall include only the oil, gas and all other liquefied and gaseous hydrocarbons together with other associated products mined or refined as by-products of or in connection with oil and/or gas production. This shall include gas and/or any liquid hydrocarbons produced from any coal or coal bearing formations as long as the surface disturbance is no greater than that anticipated for typical oil and gas exploration operations.

14. The “Mother Hubbard” clause contained in Paragraph 1 is for the purpose of including small strips of land contiguous to the land leased herein which are owned by Lessor that may have been inadvertently missed via the attached description and will not permit an unreasonable extension of the lands to be covered by said lease. To the extent that said strips increase the total leased acreage herein, said acreage amount shall include and add to the total acreage of this lease for the purpose of the payment of delay rentals in Paragraph 22 of the Addendum.

15. For the purpose of calculating the rental payments hereinafter provided for, said land is estimated to comprise 9,068 acres. The rental amount shall be adjusted upward or downward if it is determined that the acreage described on Exhibit “A” is determined to be more or less than 9,068 net acres. However, said adjustment shall not be retroactive, but shall be applicable from the date of discovery forward. Neither Lessor or Lessee shall be liable to the other for the return or payment of monies attributable to said adjustment.

16. Water: Lessee shall not use any of Lessor’s existing water rights without Lessor’s written consent. For each and every well drilled on the leased premises by or on behalf of Lessee, Lessee shall note in the drilling log all water-bearing strata and inform Lessor of the same. Lessor shall protect all water bearing strata as provided in New Mexico Oil Conservation Division Rule 106. If any well is nonproductive of oil or gas, Lessor shall have the option to take over said well for the purpose of producing fresh water if, by mutual agreement of Lessor and Lessee, said well can safely be used as a fresh water well. Lessor agrees to notify Lessee (via facsimile transmission), within 48 hours of notification by Lessee, that it wishes to take over the well for such purpose. If so notified, Lessee shall plug said well below the fresh water formation and turn the well over to Lessor. Lessor shall pay for the salvage value of any well casing it requests Lessee to leave in the ground. Lessor shall assume all further plugging liability for such wells.

However, notwithstanding the above, Lessee may retain ownership or use of any well drilled hereunder which is capable of producing fresh water for the purpose of appropriating water from the leased premises pursuant to New Mexico law, and using such water in connection with any and all of its operations on the leased premises, or land pooled, unitized, or communitized therewith. When and if this lease terminates. Lessee shall convey all of such water rights to Lessor by quitclaim deed. In the event Lessee finds water and water rights accrue therefrom, said water rights shall accrue to Lessor except that Lessee shall have the use of said water for its operations herein.

17. Surface Use: As to the leased premises on which Lessor owns the surface estate, the following provisions shall apply:

(a) Lessee shall use its best efforts to minimize surface use and surface disturbance resulting from its operations. If and when Lessee has production facilities, power stations and/or structures above ground of a permanent nature which are used in connection in the production and/or transmission of oil and/or gas, on the lease premises and said facilities lie and are visible within one-half mile of surface development by Lessor or paved road leading thereto, Lessee agrees that it will enter into good faith negotiations with Lessor in order to determine the best way to camouflage said facilities in a way that is both aesthetically pleasing to Lessor while being economically feasible to Lessee. In the event that the parties cannot come up with

a mutually acceptable plan, then said dispute shall be submitted to binding arbitration. The arbitrator shall be a retired Federal or State of New Mexico district or appellate judge mutually agreed to by the parties. Arbitration shall be conducted pursuant to the New Mexico Arbitration Act, except to the extent mutually modified by the parties in writing. The hearing shall be held within forty-five (45) days of the appointment of the arbitrator. The arbitrator may award attorney’s fees to the prevailing party and allocate the costs of arbitration as he sees fit. Discovery shall be conducted as provided by the arbitrator, and his decision may be reduced to judgment as provided in the New Mexico Arbitration Act. No act by either party shall constitute a waiver of this agreement to arbitrate. Nothing herein shall prevent any party from applying to a court of competent jurisdiction for equitable relief in the form of injunction or other equitable remedy. This arbitration clause applies only to this paragraph being the camouflaging of facilities.

(b) Prior to commencing drilling operations, Lessee shall select a drilling block comprised of no more than six sections (640 acres each) and shall select a proposed drillsite within the drilling block. Lessee shall submit this information, together with a proposed drillsite within the drilling block and access road location to Lessor in writing. Lessee shall have 30 days from date of receipt of the proposal to review the drillsite and road access location and respond to same. If Lessee does not receive a written objection within said 30 days, then the drillsite and access road are approved. If Lessor objects to the drillsite and/or access road location, then within said 30 day period it shall submit to Lessee, in writing, its objection together with its reasons therefore, and shall also propose a new drillsite and/or access road. Lessor’s consent shall not be unreasonably withheld, and a drillsite and access road cannot be prohibited by Lessor. An objection without a statement of reasons and without proposing an alternative location shall not be valid. The new drillsite location and access road shall not be more than 500 feet from the site proposed by Lessee.

In the event Lessee disagrees with the drillsite and/or access road location proposed by Lessor, the parties shall meet within 30 days of Lessor’s objection and mutually agree on a drillsite location and/or access road.

Once a drillsite and/or access road is approved, it shall remain an approved drillsite and access road for the life of the lease subject to paragraph (17i) herein.

Lessee shall pay to Lessor a sum equal to $3,000 per acre for the number of acres of the leased premises so utilized by Lessee in connection with the placement of permanent production facilities associated with a well capable of producing oil and/or gas. Lessor shall retain ownership of the surface of said land so used by the Lessee. Lessee shall furnish Lessor with a survey plat outlining the acreage utilized in said operations. Permanent production facilities shall include the following items which are constructed by Lessee: compressor station sites, power stations and tank farms.

Lessee agrees to pay Lessor the sum of $5.00 per rod for the following permanent items constructed by Lessee and used in its operations which lie on the leased premises; pipelines, power lines, roads and telephone lines and other items of a similar and permanent nature which would require an easement or right-of-way.

(d) Lessor shall endeavor to regularly provide Lessee with copies of its surface leases, agreements, current maps or development plans to assist Lessee in choosing placement of its drillsites. Lessor reserves the right to sell, lease or convey all or any part of the surface estate of the leased premises. Lessor also reserves the right to develop the surface of the leased premises by constructing, or causing to be constructed, residential, recreational, commercial, or industrial structures or sites. If said lands lie within a drilling block, Lessor shall first obtain the permission of Lessee for said sale or lease which said permission shall not be unreasonably withheld and only with good reason which is documented. In the event Lessor sells, leases, or conveys a portion of the leased premises, Lessee shall execute such documents as are reasonably necessary for the sale or lease to occur, except that Lessee shall not be obligated to release all or any portion of the Lease or rights to use the surface for its operations and permanent production facilities, roads, power line, telephone lines or pipelines unless Lessor relocates any of Lessee’s permanent facilities, roads, power lines, telephone lines or pipelines, at Lessor’s sole cost, risk, expense and liability for such move or unless mutually agreed to by Lessor and Lessee, nor shall it be obligated to execute any documents for title exceptions having to do with the mineral estate and in the event said sale or lease by Lessor pertains to a tract of land greater than 160 acres, Lessor and Lessee shall mutually agree to a five acre square designated drillsite location and access, with no more than one drillsite per 80 acres. Said sale or lease of the surface by Lessor subsequent to the date of this oil, gas and mineral lease shall be made subject to this lease. Lessee and Lessor both hereby agree to work together whereby Lessor can meet its objective of developing the surface in conjunction with Lessee’s objective of developing the mineral estate.

(e) Lessee shall, to the extent possible or feasible, use existing roadways or rights-of-way for access to its drillsites. Lessee shall not locate a drillsite nearer than 200 feet from an existing or proposed right-of-way for any electric transmission or distribution line, or gas or oil pipeline (except pipelines used in connection with Lessee’s operations).

(f) Lessee agrees that it shall not locate, place, or construct a drillsite location or any production facilities or otherwise have use of the surface of the area lying within 1500’ either side of the center line of Interstate 40 and that certain roadway known as “Paseo Del Volcan” which lies north and south of Interstate 40, and the east-west roadway known as “Rio Bravo” Road lying south of Interstate 40 without prior written consent or permission of Lessor. However, Lessee shall have reasonable access across and/or from said roadways, subject to, local, state and federal rights and regulations, and shall consult with Lessor to establish routes used in its operations so as to minimize the effect of said access.

(g) Lessee shall not locate a drillsite within 500 feet of any house, hotel, office building, or proposed paved roadway or permanent structures of same or similar significance without first obtaining Lessor’s written consent.

(h) Lessee shall fence all producing well locations.

(i) Lessor agrees that in the event that any of its proposed development plans should disturb any of Lessee’s existing production facilities, roads, pipelines, power lines, telephone lines and other items of a similar and permanent nature (“items”), Lessor will have the option to move the portion of said production facility and/or “item” which interferes with its development at Lessor’s sole cost, risk, expense and liability to a location that will not prohibit or prevent lessee from continuing to utilize said production facility and operating its well(s).

(j) Prior to the commencement of any operation for the drilling of a well on the leased premises, Lessee shall conduct its own environmental assessment of the drillsite area which includes but is not limited to the taking of photos and random soil samples which will be analyzed by an independent third party in order to establish a baseline as to the contents of the soil. Said analysis will be made available to Lessor. Prior to the abandonment of any drillsite or production facility location on said leased premises, Lessee agrees to perform an environmental assessment of the area which shall include the taking of soil samples and their analysis by an independent third party, said analysis being provided to Lessor. Lessee further agrees that said cleanup and restoration shall conform to all of the applicable Federal, State and local regulations covering and affecting same.

18. Location of Roads and Pipelines: The procedures and limitations set forth in Paragraph 17 above shall be used to select and approve the location of roads, pipelines, and electric transmission or distribution lines proposed for Lessee’s operations;

Lessee shall bury Pipelines, permanent transmissions and permanent telephone lines a minimum of three feet under the surface, shall plainly mark the location of same constructed by Lessee and shall regularly submit to Lessor but not less than once a year if there have been any additions or changes thereto, a plat showing the location of all pipelines constructed and/or used by Lessee for its operations.

19. Compliance with Regulations: Lessee shall comply with all pertinent federal, state and local statutes and regulations regarding its operations on the leased premises. Lessee shall plug and abandon all wells in accordance with the rules and regulations of the New Mexico Oil Conservation Division.

20. Surface Restoration: Lessee shall restore all geophysical exploration sites and/or production facilities locations when abandoned to the condition existing prior to commencement of drilling activities, including filling all pits and leveling the location, as would a reasonable and prudent operator; provided that production equipment shall be allowed to remain on the drillsite location for any well capable of producing hydrocarbons, in accordance with the terms and provisions of this lease and addendum. Lessee shall have no obligation to re-seed the drillsite, plant trees or shrubbery or water same.

21. Geophysical Exploration: Lessor acknowledges that Lessee, its assigns or its contractee, shall have the exclusive right to conduct geophysical operations on the leased premises. Lessor shall be entitled to compensation, at the normal and customary rates in the area, for use of the surface in connection with such operations.

22. Rentals: Lessee shall pay directly to Lessor at 401, Coor’s Blvd., N. W., N.W., Albuquerque, New Mexico 87121 the following delay rental amounts which may become due pursuant to the terms and provisions of Paragraph 4 of the attached Oil and Gas Lease and Paragraph 15 of this Addendum during the primary term of this lease:

The first years signing bonus shall be $5 per net mineral acre.

The second year’s rental shall be Two Dollars ($2.00) per net mineral acre due, payable and commencing one year from this date and continuing until the next ensuing rental period. The third year’s rental shall be Three Dollars ($3.00) per net mineral acre due, payable commencing two years from this date, the fourth year’s rental shall be Four Dollars ($4.00) per net mineral acre due, payable and commencing three years from this date, and the fifth years rental shall be Five Dollars ($5.00) per net mineral acre due, payable and commencing four years from this date.

However, in the event Lessee elects a drilling block, it shall be relieved from paying delay rentals, for said acreage only, for the next ensuing rental period. Nonetheless, if Lessee does not commence the well within 180 days of approval of the well location or drillsite by both Lessor and the New Mexico Oil Conservation Division, Lessee shall pay to Lessor, within 60 days after the expiration of said 180 day period, the rentals which would have been due for said drilling block.

23. Pugh Clause: Subject to Paragraph 24 below, Drilling or reworking operations on or production of oil and/or gas from a pooled unit established under the provisions of Paragraph 17 of the lease above shall maintain this Lease in effect only as to that portion of the leased premises (also referred to as said land in the lease) which is included in such pooled unit. This Lease may be maintained in effect as to the remainder of the leased premises in accordance with the other provisions of this Lease; provided, however, that if such maintenance is by the payment of delay rentals during the primary term of this Lease, then the delay rentals shall be proportionately reduced and payable on a pro-rata acreage basis on only that portion of the leased premises not included in such pooled unit.

24. Continuous Drilling: At the end of the primary term, this lease shall remain in full force and effect as to all acreage included in each designated or existing drilling block. In order for a three (3) section drilling block to be in effect at the end of the primary term, there must be at least one (1) well producing or capable of producing oil and/or gas for its corresponding or associated three (3) section drilling block, or operations for the drilling of a corresponding well on a “drilling block” must be commenced. In order to hold or maintain said three (3) section “drilling block(s)” after the end of the primary term, Lessee must: a) be in compliance with the “Continuous Drilling Program” provisions contained herein on a three (3) section “drilling block”, said drilling operations holding the acreage attributable to the associated drilling block; or b) on drilling blocks in effect, but not in compliance with the continuous development program, Lessee shall pay a delay rental equal to $5.00 per acre as to the acreage within said drilling block(s), but only on the acreage outside the defined “well tracts”. Said payment initially becomes due 180 days after the end of the primary term and thereafter on the anniversary date of the lease. As to any acreage outside the drilling block(s) in effect at the end of the primary term, Lessee has the option within thirty (30) days to renew said acreage for $5.00 per acre on a separate oil and gas lease similar in terms to this lease. (Royalty: 13.5%; Term: 5 years; Initial Base Rental Rate: $2.00 per net acre with $1.00 per net acre per year escalation clause as contained herein). At the later of (1) 180 days following the end of the primary term of this lease, or (ii) the conclusion of the “Continuous Development Program”, as defined hereinafter, this Lease shall terminate as to all lands covered by this Lease not included within a “Well Tract”, as defined hereinafter except as to acreage renewed by Lessee pursuant to this paragraph. A “Well Tract” shall consist of any area surrounding each well which is capable of producing oil and/or gas containing 160 acres for each gas well and 40 acres for each oil well, plus a tolerance of 10% with the Well Tract for each such well being as nearly as practicable in the shape of a square or rectangle surrounding such well. Should, however, the governmental authority having jurisdiction prescribe or permit the creation of drilling or proration units having a larger area than the area above specified for Well Tracts, then said Well Tracts shall conform substantially in size with said drilling or proration units prescribed or permitted by governmental regulations. It is understood that should all or any portion of the lands covered by this Lease be pooled or unitized under the provisions of the pooling clause of Paragraph 4 hereof, that land so pooled or unitized shall be considered within the Well Tract of said pooled unit.

This “Continuous Development Program” for the purposes of this provision shall consist of a period during which Lessee conducts operations for the drilling of a well on any drilling block, or on land pooled therewith, with no lapse of more than 180 days between the completion of plugging and abandoning of one well and the commencement of operations on the next succeeding well, and with operations for drilling on each well being conducted with no cessation of more than 180 consecutive days and will hold and perpetuate the acreage only attributable to its associated drilling block.

For the purposes of this provision, completion of a well shall be deemed to be the date on which Form C-105 report is filed by, Lessee in conformance with the requirements on Rule 1105 (Well Completion or Recompletion Report and Log) of the New Mexico Oil Conservation Division. Commencement of operations shall be deemed to have occurred when Lessee provides Lessor with a drillsite location plat as provided for in Paragraph 14 hereinabove.

Notwithstanding the termination of this lease as to a portion of the lands covered hereby, Lessee shall nevertheless continue to have the right of ingress to and egress from the lands still subject to this Lease for all purposes provided in this Lease, together with easements and rights-of-way for roads, pipelines and other facilities on, over and across all the lands originally covered by this Lease, for access to and from the lands still subject to this Lease, and for the gathering or transportation of oil and/or gas produced from the retained land so long as in accordance with the terms and provisions of this lease and addendum.

25. Access: Lessor shall have freedom and access at all reasonable times at Lessor’s sole risk to inspect the derrick floor of all wells drilled on the leased premises as well as all other operational areas and equipment and structures located thereon. Upon Lessor’s written request, Lessee shall furnish Lessor with a copy of all electrical logs and any other non-interpretive information except geophysical data, regarding any well drilled on the leased premises. All information regarding or pertaining to Lessee’s exploration of oil and gas provided Lessor by Lessee shall be kept confidential.

26. Indemnification: Lessee shall indemnify and hold harmless Lessor from any and all actions, claims and damages arising from Lessee’s activities on and use of Lessor’s land, including without limitation environmental, tort and contact claims. However, Lessee shall not be obligated to indemnify Lessor for the negligent or intentional acts of Lessor, its directors, employees, agents or contractors.

27. Unitization: Lessee shall have the right to unitize all or any part of the above described lands as to one or more formations or pools thereunder with other lands in the same general area by entering into a unit agreement or plan of development of operation, approved by any governmental authority and, from time to time, with like approval, to modify, change or terminate any such agreement or plan. In such event, the terms, conditions and provisions of this lease shall be deemed modified to conform to the terms, conditions and provisions of such approved unit agreement or plan, and this lease shall not expire during the life of such agreement or plan.

28. Miscellaneous: Lessee shall be responsible for obtaining appropriate releases or waivers from Public Service Company of New Mexico (PNM), El Paso Electric Co. and Plains Electric Co. regarding their easements burdening the leased premises.

Lessor has made no representation as to net mineral acres owned by it under the land described on Exhibit “A” nor shall the obligations of Lessee be diminished should it be determined that Lessor owns less than 100% of all oil and gas interest under the land described on Exhibit “A”.

This lease is effective as to those lands under which Lessor owns a mineral estate. Should it be determined through further title examination, surveys, resurveys, or some other notice, finding or determination that the Lessor did not at the date of this lease own the mineral estate described on some portions of this lease, then Lessee agrees to file a release in the records of Bernalillo County, New Mexico of that interest which the Lessor did not own. Should it be a matter of an error, or an inaccuracy, or due to the vagueness of any particular legal description covering some of that portion of the lands covered by this lease, then in such event, the Lessor and the Lessee agree to execute additional instruments as necessary to correct the legal description of that portion of the Lease and to clarify the lands in question.

Signed For Identification:

Westland Development Co., Inc.		Great Northern Gas Company
/s/ Barbara Page		/s/ Thomas L. Di Grappa
By:	Barbara Page, President and CEO	By:	Thomas L. Di Grappa, President

ATTEST:
/s/ Leroy Chavez
By:	Leroy Chavez, Vice President, Development

EXHIBIT “A”

Attached to and made a part of that certain Oil & Gas Lease between Westland Development Co., Inc., as Lessor,

and Great Northern Gas Company, as Lessee, dated September 17, 2001.

All of the following lands, except those portions outside the description contained in that certain Quiet Title and Final Decree No. 8-76-03865 located within the Town of Atrisco Grant.

Township 9 North, Range 1 East, N.M.P.M.

Section 5: W1/2;

Section 6: That portion of the E1/2E1/2, lying east of the lands owned by Viola Singletary, et al;

Section 7: That portion of the E1/2NE1/4, lying east of the lands owned by Viola Singletary, et al. and north of the south boundary of the Town of Atrisco Grant;

Township 10 North, Range 1 East, N.M.P.M.

Section 7: All;

Section 18: All, except therefrom Tract D, Subdivision Plat of Armijo Ranch, according to Plat C32-97, and that-portion conveyed by Quit Claim Deed in Vol. 18A. Folio 736;

Section 19: The Easterly portion, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Section 20: All;

Section 31: The Southeast portion, being a 27.00 acre parcel, as delineated on that certain Plat of Survey of Westland Development Company – South Tract;

Section 32: That portion of the S1/2, being a 206.00 acre parcel, as delineated on that certain Plat of Survey of Westland Development Company – South Tract;

Township 10 North, Range 1 West, N.M.P.M.

Section 2: All;

Section 3: All;

Section 4: That portion lying east of the Rio Puerco, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Section 9: That portion lying east of the Rio Puerco, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Section 10: All;

Section 11: All;

Section 12: All;

Section 13: N1/2, and that portion of the N1/2S1/2, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Section 14: N1/2, and that portion of the N1/2S1/2, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Section 15: N1/2, and that portion of the N1/2S1/2, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Section 16: N1/2, and that portion of the N1/2S1/2, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Township 11 North, Range 1 West, N.M.P.M.

Section 28: That portion lying east of the Rio Puerco, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Section 33: That portion lying east of the Rio Puerco, within the Town of Atrisco Grant as described in that certain Quiet Title and Final Decree No. 8-76-03865;

Section 34: All;

Containing 9,068 acres, more or less.

Bernalillo County, New Mexico

AMENDMENT TO OIL AND GAS LEASE

State:	New Mexico
County:	Bernalillo
Lessor:	Westland Development Co., Inc., a New Mexico corporation, whose address is
	401 Coors Blvd., M.W., Albuquerque, NM 87121
Lessee:	Great Northern Gas Company, a Colorado corporation, whose address is
	621 17th Street, Suite 2150, Denver, CO 80293
Effective Date:	November 1, 2003

Lessee, named above, is the present owner of an Oil and Gas Lease (the “Lease”), dated September 17, 2001, from Lessor, named above, as recorded in Book A25, page 1245 of the Lease Records of the county and state named above. The Lease covers the following lands (the “Lands”):

9,068 acres of land, more or less, out of various sections within Township 9 North, Range 1 East, Township 10 North, Range 1 East, Township 10 North, Range 1 West, and Township 11 North, Range 1 West, N.M.P.M, all in Bernalillo County, New Mexico, as more fully described in Exhibit A attached hereto.

The Lease is recognized by Lessor as being in full force and effect. It is the desire of the Lessor and Lessee to amend the Lease as to the particular provisions set out below.

For adequate consideration, Lessor and Lessee do hereby amend the Lease in the following respects:

I. The following paragraph is hereby added to the Lease as Paragraph 29:

“29. All references in this lease to production of oil, gas or other minerals or wells producing or capable of producing (including, but not limited to those references in Paragraphs 2, 6, 23 and 24) shall be satisfied by production of water from a well drilled to any coal bearing sand under the lands covered by this lease for a period of time up to 36 months after commencement of the dewatering of any such well. The parties recognize that a well drilled to any such formation may require dewatering for an extended period of time prior to the actual production of gas or liquid hydrocarbons in significant quantities. Therefore, Lessee’s continued operations on a well for such purpose and production of water from such well for a period of time (not to exceed three (3) years, unless actual production of oil or gas in paying quantities is established within such period), will be deemed to be production of oil or gas in paying quantities during such period of time for all purposes of this lease.

II. The references in Paragraph 23 of the Lease to a pooled unit established under the provisions of “Paragraph 17 of the lease” and in Paragraph 24 of the Lease to the provisions of the pooling clause of “Paragraph 4 hereof”, are each amended to read. “Paragraph 5 hereof.”

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III. All references to a “drilling block”, as found in Paragraph 17 (b) referring to a “drilling block comprised of no more than six sections (640 acres each)” and in Paragraph 24 referring to a “three (3) section drilling block”, are in each instance amended to read, “drilling block composed of 1,920 acres of contiguous land covered by the lease”. This will provide uniformity of the drilling block concept, and allow for inclusion of partial sections covered by the lease within any such drilling block.

IV. The sentence defining a “Well Tract” located in Paragraph 24, is amended to read as follows:

“A ‘Well Tract’ shall consist of an acreage tract of land out of the drilling block including the well location, designated by Lessee, for each well which is capable of producing oil and/or gas, and shall contain no more than 176 acres for each gas well and no more than 44 acres for each oil well (provided that, a dewatering well drilled to any coal bearing sand under the lands will be deemed to be a gas well for this purpose).”

To the extent the amendments, set out above, vary from the provisions or terms already existing in the Lease, the amending provisions specifically supersede the provisions or terms originally contained in the Lease.

Lessor ratifies, adopts, and confirms the Lease as hereby amended. Additionally, Lessor grants, leases, and lets to Lessee, its successors and assigns, the lands described in the Lease and referred to in this Amendment for the purposes and upon the terms, conditions, and provisions contained in the Lease as hereby amended.

This Amendment shall be binding for all purposes on Lessor and Lessee, and their respective successors and assigns.

This Amendment is signed by Lessor and Lessee as of the date of the acknowledgment of their signatures below, but is effective for all purposes as of the Effective Date stated above.

Lessor
	Westland Development Co., Inc.
	By:	/s/ Barbara Page
		Barbara Page, President and CEO
Lessee
	Great Northern Gas Company
	By:	/s/ Thomas L. Di Grappa
		Thomas L. Di Grappa, President

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AMENDMENT OF OIL & GAS LEASE

UNDER DATE of September 17, 2001, Westland Development Co., Inc., as Lessor, delivered to Great Northern Gas Company, as Lessee, an Oil & Gas Lease (the “Lease”) as recorded in Book A25 Page 1245 of the Bernalillo County, New Mexico records on September 26, 2001 as document number 2001112988, covering certain lands located in Bernalillo County, New Mexico containing 9,068.00 acres, more or less, as described on the Exhibit “A” to said Lease.

WHEREAS, Great Northern Gas Company conveyed the subject lease to XTO Energy Inc., by an Assignment and Conveyance dated November 20, 2003, recorded in Book A69, Page 0100, reserving a certain overriding royalty interest.

WHEREAS, it is the desire of both Westland Development Co., Inc., and XTO Energy, Inc., to amend and modify the description of the lands on the Exhibit “A” to the Lease, the effect of which will be to include certain acreage that was inadvertently omitted from the description in the Lease.

NOW THEREFORE, the undersigned XTO Energy, Inc. and Westland Development Co., Inc. do hereby amend said lease to include the following described tract of land:

That certain 311.728 acre tract of land located in Sections 15 and 16 of Township 10 North, Range 1 West Bernalillo County, New Mexico acquired by Quitclaim Deed dated October 19, 1976 from Cora Armijo to Westland Development Co., Inc. recorded on November 3, 1976 in Book D-18A at page 217 of the Deed Records of Bernalillo County, New Mexico.

NOW, THEREFORE, in the consideration of the sum of TEN DOLLARS ($10.00) and other valuable considerations, the undersigned Westland Development Co., Inc., does hereby ratify, approve, confirm and adopt the above described Lease as amended, and does hereby lease, demise and let said Lands unto XTO Energy, Inc. subject to and under all of the terms and provisions of said Lease, and as to said Lands, does hereby agree and declare that said Lease is now in full force and effect and that payment has been duly made of the entire bonus consideration and delay rentals (paid-up Lease) to each of the undersigned.

IN WITNESS WHEREOF this instrument is executed this 26 day of August, 2004.

Westland Development Co., Inc.
/s/ Barbara Page
By:	Barbara Page, President & CEO
XTO Energy, Inc.
/s/ Edwin S. Ryan, Jr.
By:	Edwin S. Ryan, Jr., Sr. Vice President - Land

State of New Mexico:

County of Bernalillo:

The foregoing instrument was acknowledged before me this 26 day of August, 2004 by Barbara Page, President and CEO of Westland Development Co., Inc., on behalf of said corporation.

My Commission Expires 8/5/05	/s/ Linda Blair
	Notary Public
[SEAL]

State of Texas:

County of Tarrant:

The foregoing instrument was acknowledged before me this 26 day of August, 2004 by Edwin S. Ryan, Jr., Sr. Vice President - Land of XTO Energy, Inc on behalf of said corporation.

My Commission Expires 4-16-05.	/s/ Barbara Gardner Nichols
	Notary Public
[SEAL]

EX-99.2

Exhibit 99.2

OIL & GAS LEASE

THIS AGREEMENT made this 6^th day of June 2000, between WESTLAND DEVELOPMENT CO., INC., a New Mexico Corporation, whose address is 401 Coors Blvd., N.W., Albuquerque, NM 87121, herein called Lessor (whether one or more), and SUNVALLEY ENERGY CORPORATION, a New Mexico Corporation, whose address is P.O. Box 1000, Roswell, NM 88202-1000, herein called Lessee:

1. Lessor, in consideration of TEN AND NO/100th DOLLARS in hand paid, receipt of which is hereby acknowledged, and of the royalties herein provided and of the agreements of the Lessee herein contained, hereby grants, leases and lets exclusively unto Lessee for the purpose of investigating, exploring, prospecting, drilling and operating for and producing oil and gas, injecting gas, waters, and other fluids, and air into subsurface strata, laying pipelines, storing oil, building tanks, roadways, telephone lines, and other structures and things thereon to produce, save, take care of, treat, process, store and transport said minerals, the following described land in Bernalillo County, New Mexico to wit:

See Exhibit “A” attached hereto and made a part hereof

This Lease also covers and includes all land owned or claimed by Lessor adjacent or contiguous to the land particularly described above, whether the same be in said survey or surveys or in adjacent surveys, although not included within the boundaries of the land particularly described above. For the purpose of calculating the shut-in royalty payments hereinafter provided for, said land is estimated to comprise 6,364.54 acres, whether it actually comprises more or less.

2. Subject to the other provisions herein contained, this Lease shall remain in force for a term of Five (5) years from this date (called “primary term”), and as long thereafter as oil, gas, or other mineral is produced from said land or from land with which said land is pooled.

3. The royalties to be paid by Lessee are: (a) on oil, and other liquid hydrocarbons saved at the well, 1/8th (12.5%) of that produced and saved from said land, same to be delivered at the wells or to the credit of Lessor in the pipeline to which the wells may be connected; (b) on gas, including casinghead gas or other gaseous substances produced from said land and used on or off the premises or used in the manufacture of gasoline or other products, the market value at the well of 1/8th (12.5%) of the gas used, provided that on gas sold on or off the premises, the royalties shall be 1/8th (12.5%) of the net proceeds from such sale or the total used at the average price paid for gas by a third party; (c) and at any time when this Lease is not validated by other provisions hereof and there is a gas and/or condensate well on said land, or land pooled therewith, but gas and/or condensate is not being sold or used and such well is shut-in either before or after production therefrom, then on before 90 days after said well is shut in, and thereafter at annual intervals, Lessee may pay or tender an advance annual shut-in royalty equal to the amount of delay rentals provided for in this Lease for the acreage then held under this Lease by the party making such payment or tender, and so long as said shut-in royalty is paid or tendered, this Lease shall not terminate and it shall be considered under all clauses hereof that gas is being produced from the leased premises in paying quantities. Each such payment shall be paid or tendered to the party or parties who at the time of such payment would be entitled to receive the royalties which would be paid under this Lease if the well in fact were producing or be paid or tendered to the credit of such party or parties in the depository bank and in the manner hereinafter provided for the payment of rentals. The amount realized from the sale of gas on or off the premises shall be the price established by the gas sales contract entered into in good faith by Lessee and gas purchaser for such term and under such conditions as are customary in the industry.

4. If operations for drilling are not commenced on said land or on land pooled herewith on or before one (1) year from this date, this lease shall terminate as to both parties, unless on or before one (1) year from this date Lessee shall pay or tender to the Lessor a rental of $     (See Paragraph 22 of the addendum attached hereto)      which shall cover the privilege of deferring commencement of such operations for a period of twelve (12) months. In like manner and upon like payments or tenders, annually, the commencement of said operations may be further deferred for successive periods of twelve (12) months each during the primary term. Payment or tender may be made to the Lessor or to the credit of the Lessor in the      (See Paragraph 22 of the Addendum attached hereto)      bank at                                     , which bank, or any successor thereof, shall continue to be the agent for the Lessor and Lessor’s heirs and assigns. If such bank (or any successor bank) shall fair, liquidate, or be succeeded by another bank, or for any reason shall fail or refuse to accept rental, Lessee shall not be held in default until thirty (30) days after Lessor shall deliver to Lessee a recordable instrument making provision for another acceptable method of payment or tender, and any depository charge is a liability of the Lessor. The payment or tender of rental may be made by check or draft of Lessee, mailed or delivered to said bank or Lessor, or any Lessor if more than one, on or before the rental paying date. Any timely payment or tender of rental or shut-in royalty which is made in a bonafide attempt to make proper payment, but which is erroneous in whole or in part as to parties, amounts, or depositories shall nevertheless be sufficient to prevent termination of this lease in the same manner as though a proper payment had been made; provided, however, Lessee shall correct such error within thirty (30) days after lease has received written notice thereof by certified mail from Lessor together with such instruments as are necessary to enable Lessee to make proper payment.

5. Lessee is hereby granted the right and power, from time to time, to pool or combine this Lease, the land covered by it or any part with any other land, leases, mineral estate or parts thereof for the production of oil or gas. Units pooled hereunder shall not exceed the standard proration unit fixed by law or by the Oil Conservation Division of the Energy and Minerals Department of the State of New Mexico or by any other lawful authority for the pool or area in which said land is situated, plus a tolerance of ten percent. Lessee shall file written unit designations in the county in which the premises are located and such units may be designated from time to time and either before or after the completion of wells. Drilling operations on or production from any part of any such unit shall be considered for all purposes, except the payment of royalty, as operations

conducted upon or production from the land described in this Lease. There shall be allocated to the land covered by this Lease included in any such unit that portion of the total production of pooled minerals from the wells in the unit which the net oil or gas acreage in the land covered by this Lease included in the unit bears to the total number of surface acres in the unit. The production so allocated shall be considered for all purposes, including the payment or delivery of royalty, to be the entire production of pooled minerals from the portion of said land covered hereby and included in said unit in the same manner as though produced from said land under the terms of this Lease. Any pooled unit designated by Lessee, as provided herein, may be dissolved by recording an appropriate instrument in the County where the land is situated at any time after the completion of a dry hole or the cessation of production on said unit.

6. If prior to the discovery of oil or gas hereunder, Lessee should drill and abandon a dry hole or holes hereunder, or if after discovery of oil or gas the production thereof should cease for any cause, this Lease shall not terminate if Lessee commences reworking or additional drilling operations within sixty (60) days thereafter and diligently prosecutes the same. If at the expiration of the primary term, oil or gas is not being produced but Lessee is then engaged in operations for drilling or reworking of any well within the lands identified on Exhibit “A”, this Lease shall remain in force so long as such as such operations are diligently prosecuted with no cessation of more than sixty (60) consecutive days. If during the drilling or reworking of any well under this paragraph, Lessee loses or junks the hole or well and after diligent efforts in good faith is unable to complete said operations then within thirty (30) days after the abandonment of said operations Lessee may commence another well and drill the same with due diligence. If any drilling, additional drilling, or reworking operations hereunder result in production, then this Lease shall remain in full force so long thereafter as oil or gas is produced hereunder.

7. Lessee shall not have free use of oil, gas and water from said land, for operations hereunder. Except as modified by Paragraph 16, Lessee shall have the right at any time during or after the expiration of this Lease to remove all property and fixtures placed by Lessee on said land, including the right to draw and remove all casing. When required by Lessor, Lessee will bury all pipelines on cultivated lands below ordinary plow depths, and not well shall be drilled within one thousand feet (1,000 ft.) of any residence or barn now on said land without Lessor’s consent.

8. The rights of either party hereunder may be assigned in whole or in part and the provisions hereof shall extend to their heirs, executors, administrators, successors and assigns; but no change in the ownership of the land or in the ownership of, or rights to receive, royalties or shut-in royalties, however, accomplished shall operate to enlarge the obligations or diminish the rights of Lessee: and no such change or division shall be binding upon Lessee for any purpose until 30 days after Lessee has been furnished by certified mail at Lessee’s principal place of business with acceptable instruments or certified copies thereof constituting the chain of title from the original Lessor. If any such change in ownership occurs through the death of the owner, Lessee may, at its option, pay or tender any royalties or shut-in royalties in the name of the deceased or to his estate or his heirs, executor or administrator until such time as Lessee has been furnished with evidence satisfactory to Lessee as to the persons entitled to such sums. In the event of an assignment of this Lease as to a segregated portion of said land, any rentals payable hereunder shall be apportioned as between the several leasehold owners ratably according to the surface area of each, and default in rental payment by one shall not affect the rights of other leasehold owners hereunder. An assignment of this Lease in whole or in part shall, to the extent of such assignment, relieve and discharge Lessee of any obligations hereunder and, if Lessee or assignee of part or parts hereof shall fail or make default in the payment of the proportionate part of royalty or shut-in royalty due from such Lessee or assignee or fail to comply with any of the provisions of this Lease, such default shall not affect this Lease insofar as it covers a part of said lands upon which Lessee or any assignee thereof shall properly comply or make such payments. Lessee will not assign this Lease, in whole or in part, without the prior written consent of the Lessor, said consent will not be unreasonably withheld.

9. Should Lessee be prevented from complying with any express or implied covenant if this Lease, or from conducting drilling or reworking operations hereunder, or from producing oil or gas hereunder by reason of scarcity of inability to obtain or use equipment or material, or by operation of force majeure, or by any Federal or State law or any order, rule or regulation of governmental authority, then while so prevented, Lessee’s duty shall be suspended, and Lessee shall not be liable for failure to comply therewith; and this Lease shall be extended while and so long as Lessee is prevented by any such cause from conducting drilling or reworking operations or from producing oil or gas hereunder, and the time while Lessee is so presented shall not be counted against Lessee, anything in this Lease to the contrary notwithstanding.

10. Lessor hereby warrants and agrees to defend the title to said land and agrees that Lessee at its option may discharge any tax, mortgage, or other lien upon said land, and in the event Lessee does so it shall be subrogated to such lien with the right to enforce same and to apply rentals and royalties payable hereunder toward satisfying same. Without impairment of Lessee’s rights under the warranty, if this Lease covers a less interest in the oil or gas in all or any part of said land than the entire and undivided fee simple estate (whether Lessor’s interest is herein specified or not) then the royalties, shut-in royalty, rental, and other payments, if any, accruing from any part as to which this Lease covers less than such full interest, shall be paid only in the proportion which the interest therein, if any, covered by this Lease, bears to the whole and undivided fee simple estate therein. Should any one or more of the parties named above as Lessors fail to execute this Lease, it shall nevertheless be binding upon the party or parties executing the same.

11. Lessee, its or his successors, heirs and assigns, shall have the right at any time to surrender this Lease, in whole or in part, to Lessor or his heirs, successors, and assigns by delivering or mailing a release thereof to the Lessor, or by placing a release thereof of record in the county in which said land is situated; thereupon Lessee shall be relieved from all obligations, expressed or implied, of this agreement as to acreage to surrendered, and thereafter the rentals and shut-in royalty payable hereunder shall be reduced in the proportion that the acreage covered hereby is reduced by said release or releases. Executed the day and year above written.

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Westland Development Co., Inc.		SunValley Energy Corporation
/s/ Barbara Page		/s/ Phelps Anderson
By:	Barbara Page, President and CEO	By:	Phelps Anderson, President

State of New Mexico	}{
	}{
County of Bernalillo	}{	CORPORATION ACKNOWLEDGMENT

The foregoing instrument was acknowledged before me this 6 day of June, 2000 by Barbara Page, President and CEO of Westland Development Co., Inc., a New Mexico corporation on behalf of said corporation.

My Commission Expires 8/5, 2001.	/s/ Linda Blair
	Notary Public

[SEAL]

State of New Mexico	}{
	}{
County of Chaves	}{	CORPORATION ACKNOWLEDGMENT

The foregoing instrument was acknowledged before me this 31 day of May, 2000 by Phelps Anderson, President of SunValley Energy Corporation, a New Mexico corporation on behalf of said corporation.

My Commission Expires 2/10, 2003.	/s/ Detra Reese
	Notary Public

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ADDENDUM

To Oil & Gas Lease Between Westland Development Co., Inc., as Lessor, and

SunValley Energy Corporation, as Lessee, dated June 6, 2000

12. Addendum Controlling: The terms and provisions of this Addendum are incorporated into and made a part of the Lease. In the event of any conflict between the terms and provisions of the Lease and the terms and provisions of this Addendum, the terms and provisions of this Addendum shall control.

13. Notwithstanding the grant herein of “oil, gas and all other minerals,” it is the intention of the parties hereto that such grant shall include only the oil, gas and all other liquified and gaseous hydrocarbons together with other associated products mined or refined as by-products of or in connection with oil and/or gas production.

14. The “Mother Hubbard” clause contained in Paragraph 1 is for the purpose of including small strips of land contiguous to the land leased herein which are owned by Lessor that may have been inadvertently missed via the attached description and will not permit an unreasonable extension of the lands to be covered by said Lease. To the extent that said strips increase the total leased acreage herein, said acreage amount shall include and add to the total acreage of this Lease for the purpose of the payment of annual delay rental and shut-in royalty.

15. For the purpose of calculating the delay rental payments hereinafter provided for, said land is estimated to comprise 6,364.54 acres. The delay rental amount shall be adjusted upward or downward if it is determined that the acreage described on Exhibit “A” is determined to be more or less than 6,364.54 net acres. However, said adjustment shall not be retroactive, but shall be applicable from the date of discovery forward. Neither Lessor or Lessee shall be liable to the other for the return or payment of monies attributable to said adjustment.

16. Water: Lessee shall not use any of Lessor’s existing water rights without Lessor’s written consent. For each and every well drilled on the leased premises by or on behalf of Lessee, Lessee shall note in the drilling log all water-bearing strata and inform Lessor of the same. Lessor shall protect all water bearing strata as provided in New Mexico Oil Conservation Division Rule 106. If any well is nonproductive of oil or gas, Lessor shall have the option to take over said well for the purpose of producing water if, by mutual agreement of Lessor and Lessee, said well can safely be used as a water well. Lessor agrees to notify Lessee (via facsimile transmission), within 48 hours of notification by Lessee, that it wishes to take over the well for such purpose. If so notified, Lessee shall plug said well below the water formation and turn the well over to Lessor. Lessor shall pay for the salvage value of any well casing it requests Lessee to leave in the ground. Lessor shall assume all further plugging liability for such wells.

However, notwithstanding the above Lessee may retain ownership or use of any well drilled hereunder which is capable of producing water for the purpose of appropriating water from the leased premises pursuant to New Mexico law, and using such water in connection with any and all of its operations of the leased premises, or land pooled, unitized, or communitized therewith. When and if this Lease terminates, Lessee shall convey all of such water rights to Lessor by quitclaim deed. In the event Lessee finds water and water rights accrue therefrom, said water rights shall accrue to Lessor except that Lessee shall have the use of said water for its operations herein.

17. Surface Use: As to the leased premises on which Lessor owns the surface estate, the following provisions shall apply:

(a) Lessee shall use its best efforts to minimize surface use and surface disturbance resulting from its operations. If and when Lessee has production facilities, power stations and/or structures above ground of a permanent nature which are used in connection in the production and/or transmission of oil and/or gas, on the lease premises and said facilities lie and are visible within one-half mile of surface development by Lessor or paved road leading thereto, Lessee agrees that it will enter into good faith negotiations with Lessor in order to determine the best way to camouflage said facilities in a way that is both aesthetically pleasing to Lessor while being economically feasible to Lessee. In the event that the parties cannot come up with a mutually acceptable plan, then said dispute shall be submitted to binding arbitration. The arbitrator shall be a retired Federal or State of New Mexico district or appellate judge mutually agreed to by the parties. Arbitration shall be conducted pursuant to the New Mexico Arbitration Act, except to the extent mutually modified by the parties in writing. The hearing shall be held within forty-five (45) days of the appointment of the arbitrator. The arbitrator may award attorney’s fees to the prevailing party and allocate the costs of arbitration as he sees fit. Discovery shall be conducted as provided by the arbitrator, and his decision may be reduced to judgement as provided in the New Mexico Arbitration Act. No act by either party shall constitute a waiver of this agreement to arbitrate. Nothing herein shall prevent any party from applying to a court of competent jurisdiction for equitable relief in the form of injunction or other equitable remedy. This arbitration clause applies only to this paragraph being the camouflaging of facilities.

(b) Prior to commencing drilling operations, Lessee shall select a “Drilling Block” comprised of no more than three sections (640 acres each) and shall select a proposed drillsite within the Drilling Block. Lessee shall submit this information, together with a proposed drillsite within the Drilling Block and access road location to Lessor in writing. Lessor shall have 30 days from date of receipt of the proposal to review the drillsite and road access

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location and respond to same. If Lessee does not receive a written objection within said 30 days, then the drillsite and access road are approved. If Lessor objects to the drillsite and/or access road location, then, within said 30 day period it shall submit to Lessee, in writing, its objection together with its reasons therefore, and shall also propose a new drillsite and/or access road. Lessor’s consent shall not be unreasonably withheld, and a drillsite and access road cannot be prohibited by Lessor. An objection without a statement of reasons and without proposing an alternative location shall not be valid. The new drillsite location and access road shall not be more than 500 feet from the site proposed by Lessee.

In the event Lessee disagrees with the drillsite and/or access road location proposed by Lessor, the parties shall meet within 30 days of Lessor’s objection and mutually agree on a drillsite location and/or access road.

Once a drillsite and/or access road is approved, it shall remain an approved drillsite and access road for the life of the Lease subject to paragraph (17i) herein.

(c) Lessee shall pay to Lessor a cash sum equal to $3,000 per acre for the number of acres of the leased premises to be utilized by Lessee in connection with the placement of permanent production facilities associated with a well capable of producing oil and/or gas. Lessor shall retain ownership of the surface of said land so used by Lessee. Lessee shall furnish Lessor with a survey plat outlining the acreage utilized in said operations. Permanent production facilities shall include the following items which are constructed by Lessee: compressor station sites, power stations and tank farms.

Lessee agrees to pay Lessor the sum of $5.00 per rod for the following permanent items constructed by Lessee and used in its operations which lie on the leased premises; pipelines, power lines, roads and telephone lines and other items of a similar and permanent nature which would require an easement or right-of-way.

(d) Lessor shall endeavor to regularly provide Lessee with copies of its surface leases, agreements, current maps or development plans to assist Lessee in choosing placement of its drillsites. Lessor reserves the right to sell, lease or convey all of any part of the surface estate of the leased premises. Lessor also reserves the right to develop the surface of the leased premises by constructing, or causing to be constructed, residential, recreational, commercial, or industrial structures or sites. If said lands lie within a Drilling Block, Lessor shall first obtain the permission of Lessee for said sale or lease which said permission shall not be unreasonably withheld and only with good reason which is documented. In the event Lessor sells, leases or conveys a portion of the leased premises, Lessee shall execute such documents as are reasonably necessary for the sale or lease to occur, except that Lessee shall not be obligated to release all or any portion of the Lease or rights to use the surface for its existing operations and permanent production facilities, roads, power line, telephone lines or pipelines unless Lessor relocates any of Lessor’s permanent facilities, roads, power lines, telephone lines or pipelines, at Lessor’s sole cost, risk, expense and liability for such move or unless mutually agreed to by Lessor and Lessee, nor shall it be obligated to execute any documents for title exceptions having to do with the mineral estate and in the event said sale or lease by Lessor pertains to a tract of land greater than 160 acres, Lessor and Lessee shall mutually agree to a five acre square designated drillsite location and access, with nor more than one drillsite per 80 acres. Said sale or lease of the surface by Lessor subsequent to the date of this oil, gas and mineral lease shall be made subject to this Lease. Lessee and Lessor both hereby agree to work together whereby Lessor can meet its objective of developing the surface in conjunction with Lessee’s objective of developing the mineral estate.

(e) Lessee shall, to the extent possible or feasible, use existing roadways or rights-of-way for access to its drillsites. Lessee shall not locate a drillsite nearer than 200 feet from an existing or proposed right-of-way for any electric transmission or distribution line, or gas or oil pipeline (except pipelines used in connection with Lessee’s operations).

(f) Lessee agrees that is shall not locate, place or construct a drillsite location or any production facilities or otherwise have use of the surface of the area lying within 1,500’ either side of the center line of Interstate 40 and that certain roadway known as “Paseo Del Volcan” which lies north and south of Interstate 40, and the east-west roadway known as “Rio Bravo” Road lying south of Interstate 40 without prior written consent or permission of Lessor. However, Lessee shall have reasonable access across and/or from said roadways, subject to local, state and federal rights and regulations, and shall consult with Lessor to establish routes used in its operations so as to minimize the effect of said access.

(g) Lessee shall not locate a drillsite within 1,000 feet of any house, hotel, office building, or proposed paved roadway or permanent structures of same or similar significance without first obtaining Lessor’s written consent.

(h) Lessee shall fence all producing well locations.

(i) Lessor agrees that in the event that any of its proposed development plans should disturb any of Lessee’s existing production facilities, roads, pipelines, power lines, telephone lines and other items of a similar and permanent nature (“items”), Lessor will have the option to move the portion of said production facility and/or “item” which interferes with its development at Lessor’s sole cost, risk, expense and liability to a location that will not prohibit or prevent Lessee from continuing to utilize said production facility and operating its well(s).

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(j) Prior to the commencement of any operation for the drilling of a well on the leased premises, Lessee shall conduct its own environmental assessment of the drillsite area, which includes but is not limited to the taking of photos and random soil samples which will be analyzed by an independent third party in order to establish a baseline as to the contents of the soil. Said analysis will be made available to Lessor. Prior to the abandonment of any drillsite or production facility location on said leased premises, Lessee agrees to perform an environmental assessment of the area which shall include the taking of soil samples and their analysis by an independent third party, said analysis being provided to Lessor. Lessee further agrees that said cleanup and restoration shall conform to all of the applicable Federal, State and local regulations covering and affecting same.

18. Location of Roads and Pipelines: The procedures and limitations set forth in Paragraph 17 above shall be used to select and approve the location of roads, pipelines, and electric transmission or distribution lines proposed for Lessee’s operations.

Lessee shall bury pipelines, permanent transmissions and permanent telephone lines a minimum of three feet under the surface, shall plainly mark the location of same constructed by or for Lessee and shall regularly submit to Lessor but not less than once a year if there have been any additions or changes thereto, a plat showing the location of all pipelines constructed and/or used by Lessee for its operations.

19. Compliance with Regulations: Lessee shall comply with all pertinent Federal, State and local statutes and regulations regarding its operations on the leased premises. Lessee shall plug and abandon all wells in accordance with the rules and regulations of the New Mexico Oil Conservation Division, except as modified in Paragraph 16 above.

20. Surface Restoration: Lessee shall restore and reseed all geophysical exploration sites and/or production facility locations when abandoned to the condition existing immediately prior to commencement of drilling activities, including filling all pits and leveling the location, as would a reasonable and prudent operator; provided that production equipment shall be allowed to remain on the drillsite location for any well capable of production hydrocarbons, in accordance with the terms and provisions of this Lease and Addendum.

21. Geophysical Exploration: Lessor acknowledges that Lessee, its assigns or its contractee, shall have the exclusive right to conduct geophysical operations on the leased premises. Lessor shall be entitled to compensation, at the normal and customary rates in the area, for use of the surface in connection with such operations.

22. Rentals: Lessee shall pay directly to Lessor at 401 Coors Blvd., N.W., Albuquerque, New Mexico 87121 the following delay rental amounts which may become due pursuant to the terms and provisions of Paragraph 4 of the attached Oil, and Gas Lease and Paragraph 15 of this Addendum during the primary term of this lease:

(a) Delay rentals for year’s two and three shall be One Dollar and Fifty Cents ($1.50) per year per net mineral acre, due payable and commencing one year from this date and continuing for the two ensuing rental periods.

(b) The fourth year’s delay rental shall be Two Dollars Fifty Cents ($2.50) per net mineral acre, due payable and commencing three years from this date and continuing until the next ensuing rental period.

(c) The fifth and final year’s delay rental shall be Three Dollars ($3.00) per net mineral acre, due payable and commencing four year’s from this date and continuing until the expiration of the primary term.

However, in the event Lessee elects a drilling block, it shall be relieved from paying delay rentals, for said acreage only, for the next ensuing rental period. Nonetheless, if Lessee does not commence the well within 180 days of approval of the well location or drillsite by both Lessor and the New Mexico Oil Conservation Division, Lessee shall pay to Lessor, within 60 days after the expiration of said 180 day period, the rentals which would have been due for said Drilling Block.

23. Pugh Clause: Subject Paragraph 24 below, drilling or reworking operations on or production of oil and/or gas from a pooled unit established under the provisions of Paragraph 5 of the Lease above shall maintain this Lease in effect only as to that portion of the leased premises (also referred to as said land in the Lease) which is included in such pooled unit. This Lease may be maintained in effect as to the remainder of the leased premises in accordance with the other provisions of this Lease; provided, however, that if such maintenance is by the payment of delay rentals during the primary term of this Lease, then the delay rentals shall be proportionately reduced and payable on a pro-rata acreage basis on only that portion of the leased premised not included in such pooled unit.

24. Continuous Drilling: At the end of the primary term, this Lease shall remain in full force and effect as to all acreage included in each designated or existing Drilling Block. In order for a three (3) section Drilling Block to be in effect at the end of the primary term, there must be at least one (1) well producing or capable of producing oil and/or gas for its corresponding or associated three (3) section Drilling Block, or operations for the drilling of a corresponding well on a Drilling Block must be commenced. In order to hold or maintain said three (3) section Drilling Block(s) after the end of the primary term, Lessee must: a) be in compliance with the “Continuous Drilling Program” provisions contained herein on a three (3) section Drilling Block; said drilling operations holding the acreage attributable to the associated Drilling Block or b) on Drilling Block(s) in effect, but not in compliance with the Continuous Development Program,

-6-

Lessee shall pay a delay rental equal to $5.00 per acre as to the acreage within said Drilling Block(s), but only on the acreage outside the defined “Well Tracts”. Said payment initially becomes due 180 days after the end of the primary term and thereafter on the anniversary date of the Lease. As to any acreage outside the Drilling Block(s) in effect at the end of the primary term, Lessee has the option within thirty (30) days to renew said acreage for $25.00 per acre on a separate oil and gas lease, which provides for a 1/6th (16.6666%) royalty, term of 5 years, initial base rental rate of $5.00 per net acre with a $2.50/acre per year escalation on rentals.

At the later of (i) 180 days following the end of the primary term of this Lease, or (ii) the conclusion of the Continuous Development Program, as defined hereinafter, this Lease shall terminate as to all lands covered by this Lease not included within a Well Tract, as defined hereinafter except as to acreage renewed by Lessee pursuant to this paragraph. A Well Tract shall consist of any area surrounding each well which is capable of producing oil and/or gas containing 40 acres for each well, plus a tolerance of 10% with the Well Tract for each such well being as nearly as practicable in the shape of a square or rectangle surrounding such well. Should, however, the governmental authority having jurisdiction prescribe or permit the creation of drilling or proration units having a larger than the area above specified for Well Tracts, then said Well Tracts shall conform substantially in size with said drilling or proration units prescribed or permitted by governmental regulations. It is understood that should all or any portion of the lands covered by this Lease be pooled or unitized under the provisions of the pooling clause of Paragraph 5 hereof, that land so pooled or unitized shall be considered with the Well Tract of said pooled unit.

This Continuous Development Program, for the purposes of this provision, shall consist of a period during which Lessee conducts operations for the drilling of a well on any Drilling Block, or on land pooled therewith, with no lapse of more than 180 days between the completion or plugging and abandoning of one well and the commencement of operations on the next succeeding well, and with operations for drilling on each well being conducted with no cessation of more than 180 consecutive days and will be hold and perpetuate the acreage only attributable to its associated Drilling Block. For the purposes of this provision, completion of a well shall be deemed to be the date on which Form C-105 report is filed by, Lessee in conformance with the requirements on Rule 1105 (Well Completion or Recompletion Report and Log) of the New Mexico Oil Conservation Division. Commencement of operations shall be deemed to have occurred when Lessee provides Lessor with a drillsite location plat as provided for in Paragraph 16 hereinabove.

Notwithstanding the termination of this Lease as to a portion of the lands covered hereby, Lessee shall nevertheless continue to have the right of ingress to and egress from the lands still subject to this Lease for all purposes provided in this Lease, together with easements and rights-of-way for roads, pipelines and other facilities on, over and across all the lands originally covered by this Lease, for access to and from the lands still subject to this Lease, and for the gathering or transportation of oil and/or gas produced from the retained land so long as in accordance with the terms and provisions of this Lease and addendum.

25. Access: Lessor shall have freedom and access at all reasonable times at Lessor’s sole risk to inspect the derrick floor of all wells drilled on the leased premises as well as all other operational areas and equipment and structures located thereon. Upon Lessor’s written request, Lessee shall furnish Lessor with a copy of all electrical logs and any other non-interpretive information except geophysical data, regarding any well drilled on the leased premises. All information regarding or pertaining to Lessee’s, exploration of oil and gas provided Lessor by Lessee shall be kept confidential.

26. Indemnification: Lessee shall indemnify and hold harmless Lessor from any and all actions, claims and damages arising from Lessee’s, it’s employees, agents, representatives, attorneys, invitee’s and contractors activities on and use of Lessor’s land, including without limitation environmental, tort and contract claims. However, Lessee shall not be obligated to indemnify Lessor for the negligent or intentional acts of Lessor, its directors, employees, agents or contractors.

27. Unitization: Lessee shall have the right to unitize all or any part of the above described lands as to one or more formations or pools thereunder with other lands in the same general area by entering into a unit agreement or plan of development of operation, approved by any governmental authority and, from time to time, with like approval, to modify, change or terminate any such agreement or plan. In such event, the terms, conditions and provisions of this Lease shall be deemed modified to conform to the terms, conditions, and provisions of such approved unit agreement or plan, and this Lease shall not expire during the life of such agreement or plan.

28. Miscellaneous: Lessee shall be responsible for obtaining appropriate releases or waivers from Public Service Company of New Mexico (PNM), El Paso Electric Co., and Plains Electric Co. regarding their easements burdening the leased premises.

Lessor has made no representation as to net mineral acres owned by it under the land described on Exhibit “A” nor shall the obligations of Lessee be diminished should it be determined that Lessor owns less than 100% of all oil and gas interest under the land described on Exhibit “A”.

This Lease is effective as to those lands under which Lessor owns a mineral estate. Should it be determined through further title examination, surveys, resurveys, or some other notice, finding or determination that the Lessor did not at the date of this Lease own the mineral estate described on some portions of this Lease, then Lessee agrees to file a release in the records of Bernalillo County, New Mexico of that interest which the Lessor did not own. Should it be a matter of an error, or an inaccuracy, or due to the vagueness of any particular legal description covering some of that portion of the lands covered by this Lease, then in such event, the Lessor and the Lessee agree to execute additional instruments as necessary to correct the legal description of that portion of the Lease and to clarify the lands in question.

-7-

Signed for identification:
Westland Development Co., Inc.	SunValley Energy Corporation
/s/ Barbara Page	/s/ Phelps Anderson
By: Barbara Page, President and CEO	By: Phelps Anderson, President
Attest:
/s/ Leroy Chavez
By: Leroy Chavez, Vice President, Development

-8-

EXHIBIT “A”

Attached to and made a part of that certain Oil & Gas Lease between Westland Development Co., Inc., as Lessor, and SunValley Energy Corporation, as Lessee, dated June 6, 2000.

All of the following lands, except for any lands described below not quieted in that certain Quiet Title Suit No. 8-76-03865, located within the Town of Atrisco Grant, Bernalillo County, New Mexico:

Township 9 North, Range 1 East, N.M.P.M.	Acreage Totals (Estimated)
Section 5: W/2	320.00
Section 6 & 7: That certain tract of land located in Section 6 & 7 of T-9-N, R-1-E containing 201.01 acres, more or less, being bounded now or formerly as follows: North by North line of Section 6; East by East line of Section 6 and; South by South line of Town of Atrisco Grant; and, West by lands of Viola Singletary et al.	201.01
Township 10 North, Range 1 East, N.M.P.M.
Section 3: W/2 of the South part located within the Town of Atrisco Grant.	191.44
Section 4: South part located within the Town of Atrisco Grant.	382.21
Section 5: South part located within the Town of Atrisco Grant	380.88
Section 7: E/2	320.00
Section 8: All	640.00
Section 9: All	640.00
Section 10: W/2	320.00
Section 15: W/2	320.00
Section 16: All	640.00
Section 17: All	640.00
Section 18: E/2	320.00
Section 29: W/2	320.00
Section 30: That certain tract of land located in the East part of Section 30 comprising 215.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Company - Northwest Tract.	215.00
Section 31: That certain tract of land located in the Northeast part of Section 31 comprising 87.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Company - Northwest Tract; and,
that certain tract of land located in the Southeast part of Section 31
comprising 27.00 acres, more or less, as delineated in that certain Plat of
Survey of Westland Development Company - South Tract.	114.00
Section 32: That certain tract of land located in the North part of Section 32 comprising 194.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Company - Northwest Tract; and,
that certain tract of land located in the South part of Section 32
comprising 206.00 acres, more or less, as delineated in that certain Plat of
Survey of Westland Development Company - South Tract.	400.00
	6,364.54	TOTAL

-9-

PARTIAL RELEASE AND AMENDED

OIL & GAS LEASE

UNDER DATE of June 6^th, 2000, Westland Development Co., Inc., as Lessor, delivered to SunValley Energy Corporation, as Lessee, an Oil & Gas Lease (the “Lease”) as recorded in Book A6 at Page 7854 of the Bernalillo County, New Mexico records covering certain lands located Bernalillo County, New Mexico containing 6,364.54, more or less, as described on the Exhibit “A” to said Oil & Gas Lease.

WHEREAS, it is the desire of both Westland Development Co., Inc., and SunValley Energy Corporation, to amend and modify the description and location of the lands on the Exhibit “A” to the Lease, the effect of which will be to release, relinquish, surrender and abandon certain acreage previously contained in the Lease and to add new acreage.

NOW THEREFORE, the undersigned SunValley Energy Corporation does hereby release, relinquish, surrender and abandon all of its rights, title and interest in and to the following lands described in the Lease:

Township 9 North, Range 1 East, N.M.P.M.	Relinquished Acreage Totals
Section 5: W/2	320.00
Section 6 & 7: That certain tract of land located in Sec. 6 & 7 of T-9-N, R-1-E containing 201.01 acres, more or less, being bounded now or formerly as follows: North by North line of Section 6; East by East line of Section 6 and; South by South line of Town of Atrisco Grant; and, West by lands of Viola Singletary et al.	201.01
Township 10 North, Range 1 East, N.M.P.M.
Section 3: W/2 of the South part located within the Town of Atrisco Grant.	191.44
Section 4: South part located within the Town of Atrisco Grant.	382.21
Section 5: South part located within the Town of Atrisco Grant.	380.88
Section 7: E/2	320.00
Section 18: E/2	320.00
Section 31: That certain tract of land located in the Southeast part of Sec. 31 comprising 27.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Co. - South Tract.	27.00
Section 32: That certain tract of land located in the South part of Sec. 32 comprising 206.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Co. - South Tract.	206.00
	2,348.54	TOTAL

The undersigned Westland Development Co., Inc., does hereby amend the Lease by agreeing to add the following described lands:

Township 10 North, Range 1 East, N.M.P.M.	Added Acreage Totals
Section 21: All	640.00
Section 22: W/2	320.00
Section 27: W/2	320.00
Section 28: All	640.00
Section 29: E/2	320.00
	2,240.00	TOTAL

AS HEREIN AMENDED, Westland Development Co., Inc. does hereby grant and lease the below described lands unto SunValley Energy Corporation in accordance with the terms and provisions of the Lease. All other terms and provisions of the Lease shall remain unchanged.

1

All of the following lands, except for any lands described below not quieted in that certain Quiet Title Suit No. 8-76-03865, located within the Town of Atrisco Grant, Bernalillo County, New Mexico:

Township 10 North, Range 1 East, N.M.P.M. Acreage Totals    

Section 8:	All	640.00
Section 9:	All	640.00
Section 10:	W/2	320.00
Section 15:	W/2	320.00
Section 16:	All	640.00
Section 17:	All	640.00
Section 21:	All	640.00
Section 22:	W/2	320.00
Section 27:	W/2	320.00
Section 28:	All	640.00
Section 29:	All	640.00
Section 30:	That certain tract of land located in the East part of Section 30 comprising 215.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Co. - Northwest Tract.	215.00
Section 31:	That certain tract of land located in the Northeast part of Section 31 comprising 87.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Co. - Northwest Tract.	87.00
Section 32:	That certain tract of land located in the North part of Section 32 comprising 194.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Co. - Northwest Tract.	194.00
		6,256.00	TOTAL

IN WITNESS WHEREOF this instrument is executed this 15th day of June, 2001.

Westland Development Co., Inc.		SunValley Energy Corporation
/s/ Barbara Page		/s/ Phelps Anderson
By:	Barbara Page, President and CEO	By:	Phelps Anderson, President

State of New Mexico	}{
	}{
County of Bernalillo	}{	CORPORATION ACKNOWLEDGMENT

The foregoing instrument was acknowledged before me this 15 day of June, 2001 by Barbara Page, President and CEO of Westland Development Co., Inc., a New Mexico corporation on behalf of said corporation.

My Commission Expires 8/5, 2001.	/s/ Linda Blair
	Notary Public
[SEAL]

State of New Mexico	}{
	}{
County of Chaves	}{	CORPORATION ACKNOWLEDGMENT

The foregoing instrument was acknowledged before me this 20 day of June, 2001 by Phelps Anderson, President of SunValley Energy Corporation, a New Mexico corporation on behalf of said corporation.

My Commission Expires 2/10, 2003.	/s/ Detra Reese
	Notary Public
[SEAL]

2

Second Addendum to Correct Oil and Gas Lease

That certain Oil and Gas Lease and Addendum between Westland Development Co., Inc., a New Mexico corporation, as Lessor and SUNVALLEY ENERGY CORPORATION, a New Mexico corporation, as Lessee, dated June 6, 2000, (hereinafter called “Lease”), is amended by-adding the following provision to correct the rental provision contained in said Lease and this Second Addendum is incorporated into said Lease and made a part thereof.

Paragraph 22. Rentals is amended by adding a sub paragraph (d) that shall read as follows:

(d) The first year’s rental for the first year of this Lease commencing on June 6, 2000, shall be $1.50 per net mineral acre and shall be payable upon execution of the Lease, receipt of which is hereby acknowledged by Lessor.

Integration. This Second Addendum shall be an integral part of the above described Lease, and is merged thereto by reference.

IN WITNESS WHEREOF, the parties hereto have set their hands the 2^nd day of August in the year 2000 in Albuquerque, N.M.

Lessor		Lessee
Westland Development Co., Inc. a New Mexico corporation		SunValley Energy Corporation, a New Mexico corporation
By:	/s/ Barbara Page	By:	/s/ Phelps Anderson
	Barbara Page,		Phelps Anderson, President
	President and C.E.O

SECOND AMENDMENT TO

OIL AND GAS LEASE

Under date of June 6th, 2000, Westland Development Co., Inc., as Lessor, delivered to SunValley Energy Corporation, as Lessee, an Oil and Gas Lease (the “Lease”) as recorded in book A6 at Page 7854 of the Bernalillo County, New Mexico records covering certain lands located in Bernalillo County, New Mexico.

Whereas, on June 15, 2000, Westland Development Co., Inc., as Lessor, and SunValley Energy Corporation, as Lessee, executed a Partial Release and Amended Oil and Gas Lease (the “First Amendment”) by which the Lease was amended, said First Amendment was recorded on July 6, 2001 in Book A21 at page 5985 in the Records of Bernalillo County as Document 2001077632 in the Office of the County Clerk of Bernalillo County, New Mexico.

Whereas, Westland Development Co., Inc., as Lessor, and SunValley Energy Corporation, as Lessee, wish to amend the Lease and First Amendment as follows:

Paragraph 22 of the Lease is amended so that the delay rental for the fourth year shall be deferred for one year, so that the delay rentals for the fourth year of $2.50 per mineral acre and delay rentals for the fifth year of $3.00 per mineral acre, which total Five Dollars Fifty Cents ($5.50) per mineral acre shall be due and payable on or before June 6, 2004.

All other terms and provisions of the Lease as amended in the First Amendment shall remain unchanged.

IN WITNESS WHEREOF, this instrument is executed on the date first above written.

Westland Development Co., Inc.		SunValley Energy Corporation
/s/ Barbara Page		/s/ Phelps Anderson
By:	Barbara Page, President and CEO	By:	Phelps Anderson, President

State of New Mexico	}{
	}{
County of Bernalillo	}{	CORPORATION ACKNOWLEDGMENT

The foregoing instrument was acknowledged before me this 3rd day of June, 2003 by Barbara Page, President and CEO of Westland Development Co., Inc., a New Mexico corporation on behalf of said corporation.

My Commission Expires May 15, 2006.	/s/ Robert S. Simon
	Notary Public
[SEAL]

State of New Mexico	}{
	}{
County of Chaves	}{	CORPORATION ACKNOWLEDGMENT

The foregoing instrument was acknowledged before me this 6 day of June, 2003 by Phelps Anderson, President of SunValley Energy Corporation, a New Mexico corporation on behalf of said corporation.

My Commission Expires 2/10, 2007.	/s/ Detra Reese
	Notary Public
[SEAL]

THIRD AMENDMENT TO OIL AND GAS LEASE

State:	New Mexico
County:	Bernalillo
Lessor:	Westland Development Co., Inc., a New Mexico corporation, whose address is 401 Coors Blvd., N.W., Albuquerque, NM 87121
Lessee:	SunValley Energy Corporation, a New Mexico corporation, whose address is P.O. Box 1000, Roswell, NM 88202-1000
Effective Date:	November 1, 2003

WHEREAS, Lessee, named above, is the present owner of all or a portion of that certain Oil and Gas Lease, described below, dated June 6, 2000, from Lessor, named above, as recorded in Book A6, Page 7854 of the Lease Records of the Bernalillo County, New Mexico, as such Lease was amended by Partial Release and Amended Oil and Gas Lease dated June 15, 2001, as recorded in Book A21, Page 5985, amended by Second Amendment to Oil and Gas Lease dated June 3, 2003 and further subject to that certain Term Assignment of Oil and Gas Lease, by and between Lessee and Great Northern Gas Company, covering a portion of the lands described herein, dated effective March 13, 2003, as recorded in Book A53, Page 330.

Township 10 North, Range 1 East, N.M.P.M. Acreage Totals    

Section   8:	All	640.00
Section   9:	All	640.00
Section 10:	W/2	320.00
Section 15:	W/2	320.00
Section 16:	All	640.00
Section 17:	All	640.00
Section 21:	All	640.00
Section 22:	W/2	320.00
Section 27:	W/2	320.00
Section 28:	All	640.00
Section 29:	All	640.00
Section 30:	That certain tract of land located in the East part of Section 30 comprising 215.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Co. - Northwest Tract.	215.00
Section 31:	That certain tract of land located in the Northeast part of Section 31 comprising 87.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Co. - Northwest Tract.	87.00
Section 32:	That certain tract of land located in the North part of Section 32 comprising 194.00 acres, more or less, as delineated in that certain Plat of Survey of Westland Development Co. - Northwest Tract.	194.00
		6,256.00	TOTAL

1

WHEREAS, the Lease is recognized by Lessor as being in full force and effect. It is now the desire of the Lessor and Lessee to amend the Lease, insofar and only insofar as it affects the lands and rights described hereinabove, as to the particular provisions set out below.

NOW THEREFORE, for adequate consideration, Lessor and Lessee do hereby amend the Lease in the following respects:

I. The following paragraph is hereby added to the Lease as Paragraph 29:

“29. All references in this lease to production of oil, gas, or other minerals or wells producing or capable of producing (including, but not limited to, those references in Paragraphs 2, 6, 23 and 24) shall be satisfied by production of water from a well drilled to any coal bearing sand under the lands covered by this lease for a period of time up to 36 months after commencement of the dewatering of any such well. The parties recognize that a well drilled to any such formation may require dewatering for an extended period of time prior to the actual production of gas or liquid hydrocarbons in significant quantities. Therefore, Lessee’s continued operations on a well for such purpose and production of water from such well for a period of time (not to exceed three (3) years, unless actual production of oil or gas in paying quantities is established within such period), will be deemed to be production of oil or gas in paying quantities during such period of time for all purposes of this lease.

II. All references to a “drilling block”, as found in Paragraph 17 (b) referring to a “drilling block comprised of no more than three sections (640 acres each)” and in Paragraph 24 referring to a “three (3) section drilling block”, are in each instance amended to read, “drilling block composed of no more than 1,920 acres of contiguous land covered by the lease”. This will allow for inclusion of partial sections covered by the Lease within any such drilling block, which may cover the entire Lease held by this Lessee.

III. The sentence defining a “Well Tract” located in Paragraph 24, is amended to read as follows:

“A ‘Well Tract’ shall consist of an acreage tract of land out of the drilling block including the well location, designated by Lessee, for each well which is capable of producing oil and/or gas, and shall contain no more than 176 acres for each gas well and no more than 44 acres for each oil well (provided that, a dewatering well drilled to any coal bearing sand under the lands will be deemed to be a gas well for this purpose).”

To the extent the amendments, set out above, vary from the provisions or terms already existing in the Lease, the amending provisions specifically supersede the provisions or terms originally contained in the Lease.

Lessor ratifies, adopts, and confirms the Lease as hereby amended. Additionally, Lessor grants, leases, and lets to Lessee; its successors and assigns, the lands described in the Lease and referred to in this Amendment for the purposes and upon the terms, conditions, and provisions contained in the Lease as hereby amended.

This Amendment shall be binding for all purposes on Lessor and Lessee, and their respective successors and assigns.

2

IN WITNESS WHEREOF, this Amendment is signed by Lessor and Lessee as of the date of the acknowledgment of their signatures below, but is effective for all purposes as of the Effective Date stated above.

Lessor		Lessee
Westland Development Co., Inc.		SunValley Energy Corporation
By:	/s/ Barbara Page	By:	/s/ Phelps Anderson
	Barbara Page, President and CEO		Phelps Anderson, President

ACKNOWLEDGMENTS

STATE OF NEW MEXICO	§
COUNTY OF BERNALILLO	§

The foregoing instrument was acknowledged before me on the 25 day of November, 2003, by Barbara Page, President and CEO of Westland Development Co. Inc, a New Mexico corporation, on behalf of said corporation.

/s/ Linda Blair

Notary Public, State of New Mexico

My Commission Expires: 8/5/05

[SEAL]

STATE OF NEW MEXICO	§
COUNTY OF CHAVES	§

The foregoing instrument was acknowledged before me on the 3 day of December, 2003, by Phelps Anderson, President of SunValley Energy Corporation, a New Mexico corporation, on behalf of said corporation.

/s/ Detra Reese

Notary Public, State of New Mexico

My Commission Expires: 2/10/07

[SEAL]

3

FOURTH AMENDMENT TO

OIL AND GAS LEASE AND OPTION AGREEMENT

This Amendment and Agreement entered into on the below specified date, by and between Westland Development Co., Inc., a New Mexico corporation, whose address is 401 Coors Boulevard, N.W., Albuquerque, New Mexico 87121 (herein called “Lessor”) and SunValley Energy Corporation, a New Mexico corporation, whose address is Post Office Box 1000, Roswell, New Mexico 88202-1000 (herein called “Lessee”).

WITNESSETH

Know all men by these presents:

A. Lessor and Lessee entered into that certain Oil and Gas Lease dated June 6, 2000 recorded in Book A6, page 7854 in the Office of the County Clerk of Bernalillo County, New Mexico which, as amended by Partial Release and Amended Oil and Gas Lease dated June 15, 2001, recorded in Book A21, page 5985 in the office of the County Clerk of Bernalillo County, New Mexico (herein collectively called “SunValley Oil and Gas Lease”), covered lands containing a total of 6,256 acres, more or less, located in Bernalillo County, New Mexico.

B. The SunValley Oil and Gas Lease was further amended by Second Addendum to Correct Oil and Gas Lease dated August 2, 2002, unrecorded, Second Amendment to Oil and Gas Lease dated June 3, 2003, unrecorded, which amended the said lease with respect to rental payment obligations and in certain other particulars, and Third Amendment to Oil and Gas Lease dated effective November 1, 2003, unrecorded, which added a new Paragraph 29 on the addendum to said lease and amended Paragraphs 17(b) and 24 on said addendum in certain particulars.

C. Lessor and Lessee now desire to enter into this fourth amendment and option agreement to further amend the SunValley Oil and Gas Lease and for Lessor to grant to Lessee an option to commit to the SunValley Oil and Gas Lease certain unleased lands owned by Lessor in the fashion provided in Paragraph 2 below.

NOW, THEREFORE, for and in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency which is hereby acknowledged, Lessor and Lessee agree as follows:

1. The SunValley Oil and Gas Lease, as amended as aforesaid, is further amended as follows:

(a) Paragraph 2 is amended by replacing the words “Five (5) years” with the words “Eight (8) years” so that the primary term

of said lease will now continue until June 6, 2008, rather than June 6, 2005.

(b) Upon execution of this amendment and agreement, Lessee shall pay to Lessor cash consideration of $100.00 which shall serve as delay rental under said lease for the sixth year ending June 6, 2006. Delay rentals for each of the seventh and eighth lease years shall be five dollars ($5.00) per year per net mineral acre, due and payable and commencing one year from June 6, 2005 and two years from said date, respectively. The above provisions pertaining to delay rental payments for the sixth, seventh and eighth lease years shall be deemed an amendment to Paragraph 22 on the addendum to the SunValley Oil and Gas Lease, but the remaining provisions of Paragraph 22 pertaining to payment of delay rentals where Lessee has elected a drilling block, shall not be deemed to be amended.

2. Lessor hereby grants to Lessee an option, for a period extending until June 6, 2008, to lease Lessor’s unleased mineral interest in the following described lands situated in Bernalillo County, New Mexico, to wit:

Township 10 North, Range 1 East, N.M.P.M.

Section 3:     W ¹/2 of South part within the Town of Atrisco Grant

Section 4:     South part within Town of Atrisco Grant

Section 5:     South part within Town of Atrisco Grant

containing 954.53 acres, more or less.

Said option shall be exercised in accordance with the provisions of that certain unrecorded letter agreement of even date herewith between Lessor and Lessee. If Lessee exercises said option, Lessor and Lessee shall execute and record an amendment to the SunValley Oil and Gas Lease adding said lands as a part of the lease premises covered by said lease.

3. Lessor hereby ratifies, adopts and confirms the SunValley Oil and Gas Lease, as previously amended and as further amended hereby, and does hereby lease, let and demise the lease premises covered by said lease to SunValley Energy Corporation, its successors and

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assigns, subject to and under all of the terms and provisions of the SunValley Oil and Gas Lease, as previously amended and as further amended hereby. For purposes, hereof, the assigns of SunValley Energy Corporation shall include Great Northern Gas Company under that certain Term Assignment of Oil and Gas Lease dated March 13, 2003, recorded in Book A53, page 330, from SunValley Energy Corporation to Great Northern Gas Company, as the same may be amended and extended, covering portions of the lease premises contained in the SunValley Oil and Gas Lease described therein.

Executed and effective this 3rd day of May, 2005.

LESSOR
WESTLAND DEVELOPMENT CO., INC.
By	/s/ Barbara Page
Barbara Page, President and CEO

STATE OF NEW MEXICO	)
	)	ss.
COUNTY OF BERNALILLO	)

The foregoing instrument was acknowledged before me on the 4th day of May, 2005, by Barbara Page, President and CEO of Westland Development Co., Inc., a New Mexico corporation, on behalf of said corporation.

/s/ Robert S. Simon

Notary Public

My Commission Expires: May 15, 2006.

[SEAL]

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LESSEE
SUNVALLEY ENERGY CORPORATION
By	/s/ Phelps Anderson
Phelps Anderson, President

STATE OF NEW MEXICO	)
	)	ss.
COUNTY OF CHAVES	)

The foregoing instrument was acknowledged before me on the 3 day of May, 2005, by Phelps Anderson, President of SunValley Energy Corporation, a New Mexico corporation, on behalf of said corporation.

/s/ Detra Reese

Notary Public

My Commission Expires: 2/10/07

[SEAL] [SEAL]

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EXHIBIT A

Township 10 North, Range 1 East, N.M.P.M.
Section 3:	W 1/2 of South part within the Town of Atrisco Grant
Section 4:	South part within Town of Atrisco Grant
Section 5:	South part within Town of Atrisco Grant

FIFTH AMENDMENT TO

OIL AND GAS LEASE

This Fifth Amendment entered into on the below specified date, by and between Westland Development Co., Inc., a New Mexico corporation, whose address is 401 Coors Boulevard, N.W., Albuquerque, New Mexico 87121 (herein called “Lessor”) and SunValley Energy Corporation, a New Mexico corporation, whose address is Post Office Box 1000, Roswell, New Mexico 88202-1000 (herein called “Lessee”).

WITNESSETH

Know all men by these presents:

A. Lessor and Lessee entered into that certain Oil and Gas Lease dated June 6, 2000 recorded in Book A6, page 7854 in the Office of the County Clerk of Bernalillo County, New Mexico which, as amended by Partial Release and Amended Oil and Gas Lease dated June 15, 2001, recorded in Book A21, page 5985 in the office of the County Clerk of Bernalillo County, New Mexico (herein collectively called “SunValley Oil and Gas Lease”), covered lands containing a total of 6,256 acres, more or less, located in Bernalillo County, New Mexico.

B. The SunValley Oil and Gas Lease was further amended by Second Addendum to Correct Oil and Gas Lease dated August 2, 2002, currently unrecorded, Second Amendment to Oil and Gas Lease dated June 3, 2003, currently unrecorded, which amended the said lease with respect to rental payment obligations and in certain other particulars, Third Amendment to Oil and Gas Lease dated effective November 1, 2003, currently unrecorded; which added a new Paragraph 29 on the addendum to said lease and amended Paragraphs 17(b) and 24 on said addendum in certain particulars, and Fourth Amendment to Oil and Gas Lease and Option Agreement dated and effective May 3, 2005, currently unrecorded, which amended said lease in certain particulars and in Paragraph 2 thereof, granted Lessee the option for a period extending until June 6, 2008 to lease lessor’s unleased mineral interest in 954.53 acres or less, in Bernalillo County, New Mexico described in Paragraph 1 below.

C. Lessor and Lessee now desire to enter into this fifth amendment to further amend the SunValley Oil and Gas Lease to reflect that lessee has exercised the option granted in Paragraph 2 in the above described Fourth Amendment to Oil and Gas Lease and Option Agreement to add the lands described therein to the lease premises currently covered by the SunValley Oil and Gas Lease.

NOW, THEREFORE, for and in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency which is hereby acknowledged, Lessor and Lessee agree as follows:

1. The SunValley Oil and Gas Lease, as amended as aforesaid, is further amended by adding the following described lands situated in Bernalillo County, New Mexico, to wit:

Township 10 North, Range 1 East, N.M.P.M.

Section 3: W ¹/2 of South part within the Town of Atrisco Grant

Section 4: South part within Town of Atrisco Grant

Section 5: South part within Town of Atrisco Grant

containing 954.53 acres, more or less, to the description of the lease premises covered by said lease. Lessor and lessee affirm that said option has been executed in accordance with the provisions of that certain unrecorded Letter Agreement dated May 3, 2005 between the parties hereto. This amendment shall be effective as of date of execution by the parties hereto.

2. Lessor hereby ratifies, adopts and confirms the SunValley Oil and Gas Lease, as previously amended and as further amended hereby, and does hereby lease, let and demise the lease premises covered by said lease, including the option lands described in Paragraph 1 above, to SunValley Energy Corporation, its successors and assigns, subject to and under all of the terms and provisions of the SunValley Oil and Gas Lease, as previously amended and as further amended hereby.

3. Lessor specifically gives its consent to Lessee to make a partial assignment of the SunValley Oil and Gas Lease, as amended through this fifth amendment, to Sierra Oil & Gas, Inc., Rally Exploration, Inc., KHL, Inc. and Tecton Energy, LLC.

Executed and effective this                  day of April, 2006.

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LESSOR
WESTLAND DEVELOPMENT CO., INC.
By	/s/ Barbara Page
Barbara Page, President and CEO

STATE OF NEW MEXICO	)
	)  ss.
COUNTY OF BERNALILLO	)

The foregoing instrument was acknowledged before me on the 21st day of April, 2006, by Barbara Page, President and CEO of Westland Development Co., Inc., a New Mexico corporation, on behalf of said corporation.

/s/ Robert S. Simon

Notary Public

My Commission Expires: May 15, 2006.

[SEAL]

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LESSEE
SUNVALLEY ENERGY CORPORATION
By	/s/ Phelps Anderson
Phelps Anderson, President

STATE OF NEW MEXICO	)
	)  ss.
COUNTY OF CHAVES	)

The foregoing instrument was acknowledged before me on the 11^th day of April, 2006, by Phelps Anderson, President of SunValley Energy Corporation, a New Mexico corporation, on behalf of said corporation.

Notary Public

My Commission Expires: 9/5/06.

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