UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO 1 TO

FORM 10-QSB

(Mark One)

þ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2006; or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                      to                     .

Commission File Number 0-18596

American Natural Energy Corporation

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

Oklahoma	73-1605215
(State or other jurisdiction of incorporation of organization)	(I.R.S employer identification no.)

One Warren Place, 6100 South Yale, Suite 300, Tulsa, Oklahoma 74136(Address of principal executive offices, zip code)

(918) 481-1440(Issuer’s Telephone Number, Including Area Code)

     Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o     No þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

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

Yes o     No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

     As of November 15, 2006, 52,997,673 shares of the Registrant’s Common Stock, $0.001 par value, were outstanding.

     General. On November 20, 2006, American Natural Energy Corporation filed its quarterly report on Form 10-QSB for the quarter ended September 30, 2006. In that Report, the Company disclosed that the interim financial statements included in the Report had not been reviewed by an independent public accountant using professional standards and procedures for conducting such reviews as required by Item 310(b) of Regulation S-B. The Company reported that this review had not been conducted because of the Company’s severe liquidity problem and shortage of working capital which resulted in the Company being unable to pay its independent accounting firm. On July 16, 2007, the Company engaged Malone & Bailey, PC (“Malone & Bailey”) as its independent registered public accounting firm.

This Form 10-QSB/A is being filed to amend our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006 filed November 20, 2006. The interim financial statements included in this Amendment have been reviewed by our independent accountants as is required by Item 310(b) of Regulation S-B.

AMERICAN NATURAL ENERGY CORPORATION

QUARTERLY REPORT ON FORM 10-QSB

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — September 30, 2006 and December 31, 2005		3
	Condensed Consolidated Statements of Operations — Three Months and Nine Months Ended September 30, 2006 and September 30, 2005		4
	Condensed Consolidated Statements of Cash Flows — Three Months and Nine Months Ended September 30, 2006 and September 30, 2005		5
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis or Plan of Operation		16
Item 3.	Controls and Procedures		26
PART II — OTHER INFORMATION
Item 3.	Defaults Upon Senior Securities		27
Item 6.	Exhibits		27
Certification of President and Chief Executive Officer
Certification of Chief Financial Officer
Certification of President and Chief Executive Officer Pursuant to Section 1350
Certification of Chief Financial Officer Pursuant to Section 1350

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN NATURAL ENERGY CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)

	September 30, 2006			December 31, 2005
	$			$
ASSETS
Current assets:
Cash and cash equivalents		22,697			185,268
Accounts receivable — joint interest billing		828,914			625,963
Accounts receivable — oil and gas sales		276,747			375,079
Accounts receivable — other		18,367			9,769
Prepaid expenses		72,797			129,376
Oil inventory		7,772			11,283
Total current assets		1,227,294			1,336,738
Proved oil and natural gas properties, net of accumulated depletion, depreciation, amortization and impairment of $19,698,038 and $19,353,778		2,719,470			2,625,550
Unproved oil and natural gas properties		3,441,143			3,278,257
Equipment and other fixed assets, net of accumulated depreciation of $621,475 and $532,174		489,555			572,708
Deferred expenses, net of accumulated amortization of $93,707 for 2005		—			208,887
Total assets		7,877,462			8,022,140
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		4,079,091			3,686,485
Revenue payable		3,987,376			3,273,800
Accrued interest		484,107			12,404
Insurance note payable		—			17,587
Notes payable		1,169,504			1,252,361
Note payable — related party		207,851			—
Asset retirement obligation		440,600			408,799
Taxes due on dissolution of subsidiary (Note 5)		302,870			302,870
Convertible secured debentures, net of discount at December 31, 2005 of $205,169		10,825,000			10,969,831
Total current liabilities		21,496,399			19,924,137
Noncurrent notes payable		—			142,259
Asset retirement obligation		1,290,867			1,139,848
Total liabilities		22,787,266			21,206,244
Commitments and contingencies (Note 5)
Stockholders’ deficit:
Common stock
Authorized — 250,000,000 shares with par value of $0.001		52,997			50,664
Issued and outstanding — 52,997,673 (2005 — 50,664,342) shares
Additional paid-in capital		20,321,226			19,973,090
Accumulated deficit, since January 1, 2002 (in conjunction with the quasi- reorganization stated capital was reduced by an accumulated deficit of $2,015,495)		(38,047,478	)		(35,471,289	)
Accumulated other comprehensive income		2,763,451			2,263,431
Total stockholders’ deficit		(14,909,804	)		(13,184,104	)
Total liabilities and stockholders’ deficit		7,877,462			8,022,140

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

AMERICAN NATURAL ENERGY CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2006			2005			2006			2005
	$			$			$			$
Revenues:
Oil and gas sales		323,355			387,581			1,252,015			1,897,896
Operations income		37,950			31,019			111,946			76,896
Interest and other income		—			10			11			28
		361,305			418,610			1,363,972			1,974,820
Expenses:
Lease operating expense		62,546			112,850			259,303			381,984
Production taxes		19,684			47,494			81,524			186,000
General and administrative		373,487			306,427			1,284,345			1,234,372
Foreign exchange loss		60,043			501,274			500,020			299,586
Interest and financing costs		381,556			248,467			1,020,127			2,883,661
Depletion, depreciation and amortization — oil and gas properties		113,729			211,264			493,805			879,503
Depreciation and amortization — other assets		115,936			69,601			301,037			476,492
Loss on extinguishment of debt		—			—			—			1,146,674
Total expenses		1,126,981			1,497,377			3,940,161			7,488,272
Net loss		(765,676	)		(1,078,767	)		(2,576,189	)		(5,513,452	)
Other comprehensive income (loss) — net of tax:
Foreign exchange translation		60,043			501,273			500,020			299,586
Other comprehensive income		60,043			501,273			500,020			299,586
Comprehensive loss		(705,633	)		(577,494	)		(2,076,169	)		(5,213,866	)
Basic and diluted loss per share		(0.01	)		(0.02	)		(0.05	)		(0.14	)
Weighted average number of shares outstanding
Basic and diluted		52,407,093			43,684,177			51,509,884			38,433,032

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

AMERICAN NATURAL ENERGY CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine months ended September 30,
	2006			2005
	$			$
Cash flows from operating activities:
Net loss		(2,576,189	)		(5,513,452	)
Non cash items:
Depreciation, depletion and amortization		794,842			1,355,995
Interest and financing costs		205,169			2,451,667
Foreign exchange loss		500,020			299,586
Loss on extinguishment of debt		—			1,146,674
Non cash compensation expense		469			47,250
Changes in working capital items:
Accounts receivable		(113,217	)		587,900
Oil inventory		3,859			(478	)
Prepaid expenses		105,058			20,628
Accounts payable, accrued liabilities and interest		2,180,634			145,723
Net cash provided (used) by operating activities		1,100,645			541,493
Cash flows from investing activities:
Purchase and development of oil and gas properties		(1,084,057	)		(1,847,046	)
Purchase of fixed assets		(8,998	)		(27,534	)
Proceeds from sale of participation rights		162,500			—
Net cash used in investing activities		(930,555	)		(1,874,580	)
Cash flows from financing activities:
Issuance of notes payable		207,851			100,000
Payment of notes payable		(473,891	)		(367,465	)
Proceeds from issuance of common stock for private placement		—			1,463,167
Private placement/debenture amendment costs		—			(87,650	)
Change in bank overdrafts outstanding		(66,621	)		—
Other		—			4,725
Cash provided (used) by financing activities		(332,661	)		1,112,777
Increase (decrease) in cash and cash equivalents		(162,571	)		(220,310	)
Cash beginning of period		185,268			303,817
Cash end of period		22,697			83,507

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

AMERICAN NATURAL ENERGY CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)(continued)

	Nine months ended September 30,
	2006		2005
	$		$
Supplemental disclosures:
Interest paid, net of capitalized interest		315,022		431,553
Non cash investing and financing activities:
Common stock issued for professional services provided relating to restructuring of Debentures		—		250,000
Principal amount of 8% debentures converted to common stock		350,000		500,000
Prepaid expenses financed		114,480		215,219
Accounts payable refinanced with notes payable		213,780		1,261,821

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

1	Significant accounting policies
	The accounting policies and methods followed in preparing these unaudited condensed consolidated financial statements are those used by American Natural Energy Corporation (the “Company”) as described in Note 1 of the notes to consolidated financial statements included in the Annual Report on Form 10-KSB. However, the unaudited condensed consolidated financial statements for the nine-month period ended September 30, 2006 and 2005 do not conform in all respects to the disclosure and information that is required for annual consolidated financial statements. These interim condensed consolidated financial statements should be read in conjunction with the most recent annual consolidated financial statements of the Company.
	In the opinion of management, all adjustments, all of which are of a normal recurring nature, considered necessary for fair statement have been included in these interim condensed consolidated financial statements. Operating results for the nine-month period ended September 30, 2006 are not indicative of the results that may be expected for the full year ending December 31, 2006.
	Stock-based compensation
	As discussed below in Note 7, the Company has a stock-based compensation plan, and effective January 1, 2006, accounts for stock options granted to employees under this plan in accordance with the provisions of Statement on Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”). Under the provisions of SFAS 123R, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the grantee’s requisite service period (generally the vesting period of the equity grant). Prior to this, the Company accounted for its share-based compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”) and related interpretations and the disclosure requirements of SFAS 123, Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting for Stock-Based Compensation-Transition and Disclosure. The company elected to adopt the modified-prospective transition method as provided under SFAS 123R and, accordingly, results for prior periods have not been restated.
	Income tax expense
	SFAS 109, Accounting for Income Taxes, requires that the Company record a valuation allowance when it is more likely than not that a portion or all of its deferred tax asset will not be realized. As a result of such evaluation as of December 31, 2005 and September 30, 2006, the Company concluded that it is more likely than not that no benefit from deferred tax assets will be realized. Therefore, for all periods presented, a full valuation allowance was recorded, causing the effective income tax expense to be zero.
	Interest and financing costs
	Interest expense is recognized in the period incurred, and consists primarily of interest cost associated with the Company’s 8% convertible secured debentures (the “Debentures”) issued in October 2003. Interest cost on the Debentures includes interest expense at the stated rate and the accretion of a discount, which is determined using the effective interest method. Discount accretion during the three and nine months ended September 30, 2006 and September 30, 2005 was $69,000 and $205,000 and $63,000 and $2,326,000, respectively. Additionally, upon conversion of the Debentures, any unamortized balance of the discount associated with principal converted is included in interest cost, net of any amounts capitalized. A portion

7

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

of interest cost consisting of all interest cost is capitalized on significant investments in unproved properties that were not being depreciated, depleted or amortized and on which exploration and development activities were in progress during the reporting period. The amount of interest cost to be capitalized is primarily determined using the weighted average interest rate on the outstanding borrowings. No interest was capitalized during the nine months ended September 30, 2006. During the nine months ended September 30, 2005, interest cost capitalized amounted to $328,000.

	New pronouncements
	In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140 (“SFAS No. 155”). SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation and clarifies several other related issues. The provisions of SFAS No. 155 are effective for all financial instruments acquired or issued in the first fiscal year beginning after September 15, 2006. The Company has determined that SFAS No. 155 will have no material impact on its financial position, results of operations or cash flows.
	In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109. FIN 48 provides guidance for recognizing and measuring uncertain tax positions, as defined in SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a threshold condition that a tax position must meet for any of the benefit of the uncertain tax position to be recognized in the financial statements. Guidance is also provided regarding de-recognition, classification and disclosure of these uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company has determined that FIN 48 will have no material impact on its financial position, results of operations or cash flows.
	In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact, if any, SFAS 157 will have on its financial position, results of operations or cash flows.
2	Earnings (loss) per share
	Basic earnings (loss) per share is computed by dividing net income or loss (the numerator) by the weighted average number of shares outstanding during the period (the denominator). The computation of diluted earnings per share is the same as for basic earnings per share except the denominator is increased to include the weighted average additional number of shares that would have been outstanding if previously granted stock options had been exercised, unless they are anti-dilutive.

8

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

3	Going Concern, Liquidity and Capital Resources
	The Company currently has a severe shortage of working capital and funds to pay its liabilities. The Company’s debentures in the amount of $10,825,000 which were due on September 30, 2006 have not been repaid or refinanced as of November 15, 2006 and are in default. As of September 30, 2006, interest in the amount of $484,000 on the debentures had accrued and was unpaid. The Company has no current borrowing capacity with any lender. The Company has sustained substantial losses during the nine months ended September 30, 2006 and during the year ended December 31, 2005, totaling approximately $2.6 million and $6.2 million, respectively, and has a working capital deficiency and an accumulated deficit at September 30, 2006 which leads to questions concerning the ability of the Company to meet its obligations as they come due. The Company also has a need for substantial funds to develop its oil and gas properties and repay borrowings as well as to meet its other current liabilities.
	The Company expects, as a consequence of its current financial condition, that it will examine various alternative means to maximize shareholder value including a possible merger, sale of assets or other business combination involving the Company or joint venture agreement involving the Company. The Company may seek to pursue a transaction leading to the possible acquisition of the Company or a sale of some or all of its assets. The Company is currently seeking to complete a restructuring or refinancing transaction relating to its debentures that are in default. Any such transaction would be dependent upon the ability of the Company to realize an acceptable terms and price. No representation is made as to the terms on which any such a transaction may be entered into or that such a transaction will occur. As of November 26, 2007, no letters of intent or other binding agreements with regard to any other transaction have been entered into and the Company is not currently engaged in negotiating the terms of any transaction that its management believes will lead to its acquisition or other material transaction. In the event the Company should seek or be required to raise additional equity capital, there can be no assurance that such a transaction will not materially dilute the interests of the Company’s existing security holders.
	The accompanying financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. As a result of the losses incurred and current negative working capital, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be liquidated or settled for the amounts recorded. The ability of the Company to continue as a going concern is dependent upon adequate sources of capital and the Company’s ability to sustain positive results of operations and cash flows sufficient to continue to explore for and develop its oil and gas reserves and pay its obligations.
	In the ordinary course of business, the Company is required to make substantial capital expenditures for the exploration and development of oil and natural gas reserves. Historically, the Company has financed its capital expenditures, debt service and working capital requirements with the proceeds of debt, private and public offering of its securities, notes payable and accounts payable. Cash flow from operations is sensitive to the prices the Company receives for its oil and natural gas. A reduction in planned capital spending or an extended decline in oil and gas prices could result in less than anticipated cash flow from operations and an inability to sell more of its common stock or refinance its debt with current lenders or new lenders, which would likely have a further material adverse effect on the Company.
	Management’s strategy has been to obtain additional financing or industry partners. Certain covenants included in the 8% convertible secured debentures in the amount of $10,825,000 due September 30, 2006, limit the amount of additional indebtedness the Company can incur to $2 million. As of November 26, 2007, these Debentures have not been repaid or refinanced and are in default. It is management’s intention to raise additional debt or equity financing to either repay or refinance these debentures and to fund its operations and capital expenditures or to enter into another transaction in order to seek to maximize

9

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

shareholder value. Failure to obtain additional financing can be expected to adversely affect the Company’s ability to pay its obligations, further the development of its properties, including the ExxonMobil area of mutual interest (the “AMI”), grow revenues, oil and gas reserves and achieve and maintain a significant level of revenues, cash flows, and profitability. There can be no assurance that the Company will obtain this additional financing at the time required, at rates that are favorable to the Company, or at all. Further, any additional equity financing that is obtained may result in material dilution to the current holders of common stock.

4	Notes Payable and Long Term Debt
	8% Convertible secured debentures
	On October 21, 2003 and October 31, 2003, the Company completed financing transactions of $11.695 million and $305,000, respectively, by issuing Convertible Secured Debentures (the “Debentures”). The Debentures were repayable on September 30, 2005 with interest payable quarterly commencing December 31, 2003 at 8% per annum. At the dates of issuance, the outstanding principal of the Debentures was convertible by the holders into common shares of the Company at any time prior to maturity at a conversion price of $0.45 per share, subject to antidilution adjustment, and the Debentures are redeemable by the Company at any time after October 1, 2004 if the weighted average price per share on the TSX Venture Exchange for a 20 consecutive trading day period prior to the date notice of redemption is given has exceeded 166 2/3% of the conversion price. A finder’s fee in the amount of $360,000 was paid to Middlemarch Partners Limited of London, England in connection with the financing. The Debentures are collateralized by substantially all of the Company’s assets. The Debentures have covenants limiting unsecured borrowings to $2 million and restricting the payment of dividends and capital distributions.
	During the third quarter of 2004, the Company completed a Rights Offering. Due to the antidilution adjustment provisions contained in the Debenture Agreement, such transaction resulted in a reduction of the conversion price of the debentures from $0.45 to $0.43 per share and as a result changed the related Beneficial Conversion Feature by $858,000. The change in the Beneficial Conversion Feature caused the effective rate of the debentures to increase from 55% to 62%.
	In June 2005, the Debentures were amended with the approval by approximately 86% of the Debentureholders. The amendments extended the maturity date of the Debentures by one year to September 30, 2006, reduced through the maturity date of the Debentures the per share price at which the principal of the Debentures could be converted into shares of Common Stock to $0.15 per share, and provided for the partial release of the lien collateralizing the Debentures in the event a third party entered into an agreement with the Company pursuant to which the third party is granted the right to drill one or more wells on Company properties and commenced that drilling activity. Under the amendments, 72,166,667 shares were issuable upon full conversion of the Debentures at the reduced conversion price however, the conversion rights expired on September 29, 2006 and were not renewed. On June 23, 2005, stockholders of the Company voted to amend the Certificate of Incorporation to increase the number of shares of Common Stock of the Company from 100 million to 250 million and adjust par value from $0.01 to $0.001 per share. This increase in authorized shares, along with the approval of the TSX Venture Exchange to the transactions, provided final approval of the Debenture amendments.
	The amendments to the Debentures resulted in the extinguishment of debt and recognition of a loss of $1,147,000. As a result of the extinguishment and recognition of loss, these Debentures were recorded at their fair market value on June 23, 2005 reflecting the present value of future cash flows and the option value of the underlying convertible shares.

10

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

The Company failed to meet the interest payments due on June 30, 2006 and on September 30, 2006 on its outstanding 8% Convertible Secured Debentures due September 30, 2006. The interest payment also was not made before the end of the grace period on July 10, 2006 and October 10, 2006, respectively. In addition, the Company failed to repay or redeem the Debentures by the due date of September 30, 2006. Pursuant to the Indenture governing the Debentures, the Trustee may, and upon request in writing from the holders of not less than 25% of the principal amount of the Debentures then outstanding, declare the outstanding principal of and all interest on the Debentures and other moneys outstanding under the Indenture to be immediately due and payable. After conversion of $200,000 of the debentures into 1,333,333 shares of common stock during the third quarter of 2006, the principal amount of the Debentures outstanding at September 30, 2006 was $10,825,000 and accrued and unpaid interest at that date amounts to $434,000. Through November 26, 2007, neither the Trustee nor the requisite holders of principal amount of Debentures have declared the Debentures to be immediately due and payable.

The Company has agreed to file a registration statement and post-effective amendment under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”), to enable, upon effectiveness of the registration statement and post-effective amendment, the resale of the shares to be issued on conversion of the Debentures.

Notes payable

On February 2, 2005, the Company entered into a $100,000 unsecured short-term note with a NYP floating interest rate with Citizens Bank of Oklahoma. The note and interest were paid in full on July 6, 2007.

On August 24, 2005, the Company entered into a note payable with Parker Drilling Company for $507,000, which included the conversion of an accounts payable balance of $486,000 due to Parker Drilling Company. Monthly payments of $25,000 which include interest at the rate of 7% per annum are to be made through June 2007. At September 30, 2006, seven payments were past due. On July 9, 2007 the Company and Parker Drilling Company entered into a settlement agreement whereby the Company paid $50,000 in full satisfaction of the outstanding note payable to Parker Drilling Company.

On September 7, 2005, the Company converted its $86,000 accounts payable balance to Eaton Oil Tools to a note payable. Beginning September 15, 2005, twelve monthly payments of $7,435 were to be made with the final payment including all interest accrued at the rate of 6.5% per annum. At September 30, 2006, three payments were past due. This note has been paid during 2007.

On November 16, 2005, the Company agreed to convert its $420,000 accounts payable balance to Ambar Drilling Fluids to a note payable. Beginning November 16, 2005, interest is accrued at 4% per annum. The payment of principal balance and interest was due on or before May 16, 2006. On July 17, 2007 the Company and Ambar Drilling Fluids entered into a settlement agreement whereby the Company paid $112,000 in full satisfaction of the outstanding note payable to Ambar Drilling Fluids.

On October 15, 2005, the Company converted its $309,000 accounts payable balance to Leam Drilling Services to a note payable. Monthly payments of $26,697 which include interest at the rate of 8% per annum are to be made through September 2006. At September 30, 2006, three payments were past due. The remaining balance due on the note of $82,562 was paid in full on December 28, 2006.

On December 16, 2005, the Company converted its $99,000 accounts payable balance to Patterson Services to a note payable. Monthly payments of $8,710 which include interest at the rate of 10% per annum are to be made through December 2006. At September 30, 2006, six payments were past due.

11

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

	On June 15, 2006 the Company converted its $214,000 accounts payable balance to Halliburton Energy Services to a note payable. Beginning July 15, 2006, monthly payments in the amount of $36,000 which include interest at the rate of 15% per annum are to be made through December 15, 2006.
	Note payable — related party
	On May 4, 2006, the Company entered into a note payable with Mike Paulk, an officer of the Company, in the amount of $198,000. On August 9, 2006 Mike Paulk loaned an additional $10,000 to the Company. Interest will accrue at the rate of 10% per annum.
5	Commitments and contingencies
	Citizens Bank of Oklahoma, N.A. has issued an irrevocable standby letter of credit, dated January 12, 2006 and originally expiring January 12, 2007 in the amount of $125,000 drawn in favor of RLI Insurance Company securing a surety bond in favor of the Louisiana Office of Conservation for plugging and abandonment obligations which may occur as a result of drilling operations in St. Charles Parish, Louisiana. The standby letter of credit has been withdrawn and surety bond released effective with Dune Energy assuming field operations September 1, 2007.
	On December 31, 2001, the Company acquired the oil and natural gas and related assets of Couba Operating Company which, at that time, was in Chapter 11 bankruptcy proceedings. As part of the acquisition price, the Company agreed that the Class 7 creditors to the ANEC/Couba Reorganization Plan (“Plan”) would receive a contingent payable from future production of the properties in the amount of approximately $4.9 million. The contingent payable is in the form of a net profits interest (“NPI”), the size of which is determined by the location of wells that may be drilled in the future. Wells existing at the effective date of the Plan receive an NPI of 50%, new wells drilled on acreage transferred by the Plan to the Company will receive an NPI of 15% and new wells drilled within the boundaries of a seismic shoot previously owned by Couba will receive an NPI of 6%. The Company is entitled to recover all capital and operating costs prior to the NPI becoming payable. At a minimum, the Class 7 creditors are to receive an overriding royalty interest that is in payment of the contingent payable. The Company is accounting for any contingent purchase price payments to the Class 7 creditors as additions to the full cost pool as production occurs.
	The Company agreed that, after repayment to the Company of 200% of all costs of bankruptcy, drilling, development and field operations from net revenues of the Bayou Couba Lease and the 23.5 square mile area of mutual interest, including payments made by the Company to all creditors of all classes under the Plan, the former holders of equity securities of Couba will be entitled to a working interest in the wells in the Bayou Couba Lease equal to 25% of the working interest obtained by the Company directly from Couba at the time of confirmation and as a result of the Plan of reorganization of Couba and a 25% interest in the Company’s interest in the 23.5 square mile area of mutual interest held by the Company on the effective date of the Plan.
	Effective January 31, 2005, the Company made application with applicable Canadian authorities to dissolve and terminate Gothic Resources Inc. (“Gothic”). In conjunction with the application for dissolution, the prior tax returns and tax status of Gothic are being reviewed by the Canada Customs and Revenue Agency (“CRA”). While no final determination, claim or assessment has been made by CRA, the Company has accrued $302,870 (Cdn$353,000) as an estimate of taxes due on dissolution of Gothic relating to questions by CRA on paid up capital and imputed interest. Additional amounts which may be assessed as a result of the review by CRA are uncertain and no estimate can be made of any additional exposure by the Company at this time.

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American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

	The Company is a defendant in a number of legal proceedings which it considers to be routine litigation that is incidental to its business. The Company does not expect to incur any material liability as a consequence of such litigation.
6	Asset retirement obligations
	Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). This statement applies to obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction and development of the assets.
	SFAS 143 requires that the fair value of a liability for a retirement obligation be recognized in the period in which the liability is incurred. For oil and gas properties, this is the period in which an oil or gas well is acquired or drilled. The asset retirement obligation is capitalized as part of the carrying amount of the asset at its discounted fair value. The liability is then accreted each period until the liability is settled or the asset is sold, at which time the liability is reversed.
	The components of the change in the Company’s asset retirement obligations for the period ended September 30, 2006 are shown below.

Asset retirement obligations, January 1	1,548,647
Additions and revisions	32,927
Settlements and disposals	—
Accretion expense	149,893
Asset retirement obligations, September 30, 2006	1,731,467

7	Stock-based compensation
	On January 1, 2006, the Company adopted FAS 123(R), which requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The Company has elected to use the modified prospective application method such that FAS 123(R) applies to new awards, the unvested portion of existing awards and to awards modified, repurchased or canceled after the effective date. The Company has equity incentive plans that provide for the issuance of stock options. These plans are discussed more fully in the Company’s Form 10-KSB for the year ended December 31, 2005. All options expire five years from the date of grant. Generally, stock options granted to employees and directors vest ratably over two years from the grant date. No new stock options have been granted subsequent to January 1, 2006. The Company recognizes stock-based compensation expense over the vesting period of the individual grants.
	Prior to January 1, 2006, the Company accounted for its long-term equity incentive plans under the intrinsic value method described in APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretation. The Company, applying the intrinsic value method, did not record stock-based compensation

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American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

cost for stock options issued to employees and directors because the exercise price of the stock options equaled the market price of the underlying stock at the date of grant.

For the nine months ended September 30, 2006, the Company recognized compensation costs of $469 related to stock options issued prior to January 1, 2006. There is no unrecognized compensation costs related to stock options not yet vested as all stock options are vested at September 30, 2006.

The fair value of stock options granted in 2005 was estimated on the date of the grant using a Black-Scholes valuation model that uses the following weighted average assumptions:

Weighted average life, in years		5.00
Risk-Free interest rate		3.60	%
Expected volatility		107.3	%
Expected Dividend Rate	None

The Company utilizes authorized but unissued shares when a stock option is exercised.

The following table illustrates the effect on net income and earnings per share in the comparable three and nine month period of the prior year as if the fair value based method under FASB Statement 123 had been applied to all outstanding vested and unvested awards in that period.

	Three Months			Nine Months
	Ended			Ended
	September 30, 2005			September 30, 2005
	$			$
Net loss, as reported		(1,078,767	)		(5,513,452	)
Add back: Total stock-based compensation expense included in net loss, net of related tax effects		6,750			47,250
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(46,625	)		(330,156	)
Pro forma net loss		(1,118,642	)		(5,796,358	)
Loss per share
Basic and diluted-as reported		(0.02	)		(0.14	)
Basic and diluted-pro forma		(0.03	)		(0.15	)

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American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006 and 2005

	There was no stock option activity in the first three quarters of 2006 or 2005. At September 30, 2006 there were 1,600,000 options outstanding and exercisable with a weighted average exercise price of $0.50. The weighted average remaining contractual term for these options at September 30, 2006 was 2.3 years. These options had no intrinsic value at September 30, 2006.
8	Subsequent events
	On October 4, 2006, the Company converted its $139,000 accounts payable balance to Landmark Graphics to a note payable. Beginning October 20, 2006 three monthly payments of $5,000 were made and then twelve monthly payments of $11,378 are to be made beginning January 20, 2007. Payments include interest at the rate of 15% per annum.
	Pursuant to the terms of the Exploration and Development Agreement (the “Agreement”) executed on October 19, 2005 between the Company and Dune Energy, Inc (“Dune Energy”) providing for the creation of an area of mutual interest covering an area of approximately 31,367 acres, Dune Energy agreed to pay to the Company a prospect fee in the amount of $1.0 million, of which $225,000 was paid on September 14, 2005, $225,000 was paid on September 30, 2005, $225,000 was paid on October 19, 2005, $162,500 was paid on November 30, 2005 and $162,500 was paid on January 10, 2006. These amounts reduced the Company’s unproved oil and gas properties. In the event the Company and Dune Energy elected to complete the first two exploratory wells drilled pursuant to the Agreement, upon the receipt by Dune Energy of a log from either of those two wells, Dune Energy agreed to pay the Company an additional prospect fee of $500,000. The terms of the Agreement were amended September 14, 2006 to waive the additional prospect fee in exchange for Dune paying 100% of the costs of an expanded 3D seismic survey over the Bayou Couba area.
	On June 26, 2007 Dune Energy, Inc. increased its participation to 75% of the Company’s interest under these agreements, excluding the area under the Bayou Couba lease itself where it retains a participation of 50% of the Company’s interest, with the payment of $3 million. On September 1, 2007 Dune was elected successor operator under the joint development agreement and Dune paid the Company an additional $500,000.
	On December 22, 2006, Dune Energy acquired $3.0 million principal amount of the Company’s 8% Convertible Subordinated Debentures. The principal of the Debentures was due and payable on September 30, 2006 and are currently in default.
	In January and February, 2007, Dune Energy acquired from the holders an additional $4,895,000 principal amount of Debentures bringing Dune Energy’s total holdings of the Company’s Debentures outstanding to $7,895,000 principal amount as of November 26, 2007.

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Item 2. Management’s Discussion and Analysis or Plan of Operation

General

     We currently are experiencing a severe shortage of working capital and funds to pay our liabilities. Our debentures in the amount of $10,825,000 which were due on September 30, 2006 have not been repaid or refinanced as of November 26, 2007 and are in default. As of September 30, 2006, interest in the amount of $484,000 on the debentures had accrued and was unpaid when due. We have no current borrowing capacity with any lender. We have sustained substantial losses during the nine months ended September 30, 2006 and during the year ended December 31, 2005, totaling approximately $2.6 million and $6.2 million, respectively, and we have a working capital deficiency and an accumulated deficit at September 30, 2006 which leads to questions concerning our ability to meet our obligations as they come due. We also have a need for substantial funds to develop our oil and gas properties and repay borrowings as well as to meet our other current liabilities.

     We expect, as a consequence of our current financial condition, that we will examine various alternative means to maximize shareholder value including a possible merger, sale of assets or other business combination involving us or joint venture agreement involving us. We may seek to pursue a transaction leading to the possible acquisition of our company or a sale of some or all of our assets. We are currently seeking to complete a restructuring or refinancing transaction relating to our debentures that are in default. Any such transaction would be dependent upon the ability of us to realize acceptable terms and price. No representation is made as to the terms on which any such a transaction may be entered into or that such a transaction will occur. As of November 26, 2007, no letters of intent or other binding agreements with regard to any other transaction have been entered into and we are not currently engaged in negotiating the terms of any transaction that we believe will lead to our acquisition or other material transaction. In the event we should seek or be required to raise additional equity capital, there can be no assurance that such a transaction will not materially dilute the interests of our existing security holders.

     The accompanying financial statements in this Report have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. As a result of our losses incurred and current negative working capital, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be liquidated or settled for the amounts recorded. Our ability to continue as a going concern is dependent upon adequate sources of capital and our ability to sustain positive results of operations and cash flows sufficient to continue to explore for and develop our oil and gas reserves and pay our obligations.

     The independent registered public accounting firm’s report on our financial statements as of and for the year ended December 31, 2005 includes an explanatory paragraph which states that we have sustained substantial losses in 2005 and 2004 and have a working capital deficiency and an accumulated deficit at December 31, 2005, that raise substantial doubt about our ability to continue as a going concern.

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As described above, we failed to repay the principal on our outstanding 8% Convertible Secured Debentures at their maturity on September 30, 2006 and also failed to meet the interest payments due on June 30, 2006 and on September 30, 2006 . Accordingly, pursuant to the Indenture governing the Debentures, an Event of Default pursuant to section 7.1(b) of the Trust Indenture has occurred and is continuing at this time. Under those circumstances, the Trustee may, and upon request in writing from the holders of not less than 25% of the principal amount of the Debentures then outstanding, shall declare the outstanding principal of and all interest on the Debentures and other moneys outstanding under the Indenture to be immediately due and payable. In addition, the Trustee will have the right to enforce its rights on behalf of the Debenture holders against the collateral for the Debentures. The Debentures are collateralized by substantially all of our assets. At September 30, 2006, the Debentures are outstanding in the principal amount of $10,825,000 and accrued and unpaid interest at that date amounts to $434,000. Through November 26, 2007, neither the Trustee nor the requisite holders of principal amount of Debentures have declared the Debentures to be immediately due and payable.

     A Comparison of Operating Results For The Nine Months Ended September 30, 2006 and September 30, 2005

     We incurred a net loss of $2,576,000 during the nine months ended September 30, 2006 compared to a net loss of $5,513,000 for the nine months ended September 30, 2005. During the nine months ended September 30, 2006, our revenues were comprised of oil and gas sales and operations income totaling $1,364,000 compared with oil and gas sales and operations income of $1,975,000 during the same period of 2005. Our oil and gas sales and operations income for the nine months ended September 30, 2006 were lower as a result of decreased production which was partially offset by higher oil and gas prices. Our net average daily production for the nine month period ended September 30, 2006 decreased by 53% over the same period of the prior year, from 574 (149 net) barrels of oil equivalent per day to 339 (70 net) barrels of oil equivalent per day. Oil and gas sales were favorably affected by higher average realized prices, which increased by 26%, from an average of $52.20 per barrel of oil equivalent for the nine months ended September 30, 2005 to $65.58 per barrel of oil equivalent for the nine months ended September 30, 2006. Production from our existing wells is subject to fluctuation from time to time based upon the zones of the wells where we are obtaining production. Declines in our production was also the consequence of our shortage of capital and the limitations placed on our capital expenditures to enhance and increase production from new and existing wells.

     Our total expenses were $3,940,000 for the nine months ended September 30, 2006 compared to $7,488,000 for the nine months ended September 30, 2005. Our general and administrative expenses of $1,284,000 and $1,234,000 for the nine months ended September 30, 2006 and 2005, respectively, were consistent.

     Interest and financing costs decreased from $2,884,000 for the nine months ended September 30, 2005 to $1,020,000 for the nine months ended September 30, 2006. While debt outstanding was higher at September 30, 2006 compared to the same period for 2005, interest expense decreased as a result of amending our Debentures. Prior to the amendment, interest expense reflected the amortization of a beneficial conversion feature related to the issuance in

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October 2003 of our 8% Convertible Debentures. On the dates the Debenture transaction was completed, the closing price for our Common Stock was $0.70 per share. Because the conversion price was less than the market price on the dates the transaction was completed, a beneficial conversion feature of $6.7 million was attributed to the Debentures. An additional beneficial conversion feature of $858,000 was recorded in the third quarter of 2004 resulting from issuance of shares of our common stock pursuant to a Rights Offering. Due to antidilution provisions contained in the Debenture Agreement, the issuance of shares of common stock changed the conversion price of the debentures from $0.45 to $0.43 per share resulting in the additional beneficial conversion feature. Such amount was amortized to interest expense over the life of the Debentures prior to the amendment. In June 2005, the Debentures were amended with approval by approximately 86% of the Debentureholders. The amendments extended the maturity date of the Debentures by one year to September 30, 2006, reduced through the maturity date of the Debentures the per share price at which the principal of the Debentures could be converted into shares of Common Stock to $0.15 per share, and provided for the partial release of the lien collateralizing the Debentures in the event a third party entered into an agreement with us pursuant to which the third party is granted the right to drill one or more wells on our properties and commenced that drilling activity. As of November 26, 2007, the Debentures have not been repaid or refinanced and are in default.

     As of September 30, 2006, 72,166,667 shares of our common stock may be issued upon full conversion of the Debentures at the reduced conversion price. On June 23, 2005, our stockholders voted to amend our Certificate of Incorporation to increase the number of shares of Common Stock we are authorized to issue from 100 million to 250 million and adjust the par value from $0.01 to $0.001 per share. This increase in authorized shares, along with the approval of the TSX Venture Exchange to the transactions, provided final approval of the Debenture amendments. As a result of the amendment, a loss on extinguishment of debt of $1,147,000 was recognized and the Debentures were recorded on June 23, 2005 at their fair market value, reflecting the present value of future cash flows and the option value of the underlying convertible shares. Costs associated with the amendment totaling $303,000 have been amortized to interest expense over the amended life of the Debentures.

     Lease operating expenses of $259,000, production taxes of $82,000 and depletion, depreciation and amortization of $795,000 during the nine months ended September 30, 2006 changed from $382,000, $186,000, and $1,356,000, respectively, during the nine months ended September 30, 2005. Lease operating expenses were lower due to a decrease in production and well maintenance. Production taxes decreased as a result of lower production. The decrease in depletion, depreciation and amortization is due to lower production in the first nine months of 2006 compared to the same period of 2005 which results in lower depletion.

     During the nine months ended September 30, 2006, we had a foreign exchange loss of $500,000, compared to $300,000 for the nine months ended September 30, 2005. The foreign exchange loss was caused by the weakening of the US dollar against the Canadian dollar.

     The amendments to the Debenture Indenture executed in June 2005, which extended the maturity date of the Debentures for one year to September 30, 2006 and reduced the conversion price from $0.43 per share to $0.15 per share, subject to anti dilution adjustment, among other

18

things, was treated under generally accepted accounting principles as an extinguishment of debt and resulted in a loss of $1,147,000 during the nine months ended September 30, 2005. There was no comparable charge during the nine months ended September 30, 2006.

Liquidity and Capital Resources

A Comparison of Cash Flow For The Nine Months Ended September 30, 2006 and September 30, 2005

     Our net cash provided by operating activities was $1,101,000 for the nine months ended September 30, 2006 as compared to net cash provided by operating activities of $541,000 for the nine months ended September 30, 2005, an increase of $560,000 resulting primarily from vendor financed costs and expenses reflected as an increase in current liabilities. Changes in working capital items had the effect of increasing cash flows from operating activities by $2,176,000 and $754,000 during the nine months ended September 30, 2006 and 2005, respectively, because accounts receivable turnover exceeded that of accounts payable, revenues payable and accrued liabilities.

     We used $931,000 of cash in investing activities during the nine months ended September 30, 2006 compared to net cash used of $1,875,000 in 2005. The 2005 cash used in investing activities includes $1,847,000 for the purchase and development of oil and gas properties and $28,000 for the purchase of fixed assets compared to $1,084,000 and $9,000, respectively, in 2006. Additionally in the first quarter of 2006, we had proceeds from the sale of participation rights of $163,000. The expenditures in 2006 are primarily the result of the change in accounts payable resulting from the development of oil and gas properties in prior periods and recompletions of two existing wells in the third quarter of 2006. The 2005 expenditures are primarily a result of recompletions of wells drilled in prior periods.

     We used $333,000 of net cash in financing activities for the nine months ended September 30, 2006 compared to $1,113,000 of net cash provided by financing activities for the same period in 2005. For the nine months ended September 30, 2006, net cash outflows from financing activities was primarily a result of payment of notes totaling $474,000 partially offset by the issuance of notes in the amount of $208,000. Cash inflows provided by financing activities during the nine months ended September 30, 2005 were primarily a result of prepayments for stock by participants in a private sale of our common stock resulting in proceeds of $1,463,000 and a bank loan in the amount of $100,000, partially offset by scheduled payments on certain of our obligations.

     A decline in production from our drilling program has decreased revenues during the year ended December 31, 2005 and the first nine months of 2006. To date, our production has not been sufficient to fund our operations and drilling program. We have funded our capital expenditures and operating activities through a series of private and public debt and equity transactions and through an increase in vendor payables and note payables. At September 30, 2006, we do not have any available borrowing capacity.

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     We have substantial needs for funds to develop our oil and gas prospects and opportunities identified in the AMI we share with ExxonMobil Corp. Any capital expenditures we currently intend to make will be funded from our available cash flows. To the extent additional funds are required to fully exploit and develop our unproved properties and the ExxonMobil Corp. AMI, it is management’s plan to seek to raise additional capital through the private or public sale of our equity securities, borrowings, or the sale of interests in our drilling activities or other alternative strategic transaction intended to maximize shareholder values. However, we currently have no firm commitment from any potential investors and such additional capital may not be available to us in the future.

     At September 30, 2006, we have no other commitments to expend additional funds for drilling activities for the rest of 2006.

     In November 2002, we entered into a four-year joint development agreement with ExxonMobil relating to both our Couba properties and additional properties owned by ExxonMobil. In December 2003, we entered into an amendment to that agreement (the “Expansion Amendment”). The second well drilled under the Expansion Amendment was abandoned after we encountered mechanical problems in removing the drilling tools after reaching a total depth of approximately 11,500 feet. We initiated a lawsuit against the supplier of the tools which we claimed caused the mechanical failure seeking to recover the damages we sustained, including, among other damages, the cost of redrilling the well and our expenses in attempting to mitigate our losses. The lawsuit was tried in August 2006 and we were unsuccessful in recovering any damages.

     On December 22, 2006, Dune Energy acquired $3.0 million principal amount of our 8% Convertible Subordinated Debentures. The principal of the Debentures was due and payable on September 30, 2006 and are currently in default.

     Subsequent to December 31, 2006, Dune Energy acquired from the holders an additional $4,895,000 principal amount of Debentures bringing Dune Energy’s total holdings of our Debentures outstanding to $7,895,000 principal amount as of October 31, 2007. In a Schedule 13D filing by Dune Energy with the U.S. Securities and Exchange Commission, Dune Energy stated, “Given Dune Energy’s past investment in this joint development project, coupled with the potential for substantial oil and gas within the area of mutual interest, Dune Energy has determined that it is in its best interests to acquire the Purchased Debentures and the corresponding security interest in the Lease.” Dune Energy further disclosed in the Schedule 13D that except for the foregoing, neither it nor any control person of it has any plan or proposal which relates to or which would have the effect of any acquisition of additional, or disposition of any, securities of ours, does not have any plan or proposal which relates to or would result in an extraordinary transaction involving us, does not have any plan or proposal which relates to or would result in a sale or transfer of a material amount of our assets, does not have any plan or proposal which relates to or would result in any change in our present board of directors or management, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board, does not have any plan or proposal which relates to or would result in a material change in our present capitalization or dividend policy, except that if Dune Energy converts the Purchased Debentures and/or acquires additional Debentures and

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converts them, then the issued and outstanding shares of our Common Stock will increase accordingly, does not have any plan or proposal which relates to or would result in a material change in our business or corporate structure, does not have any plan or proposal which relates to or would result in a change in our charter, by-laws or instruments corresponding thereto which may impede the acquisition of us by any person, does not have any plan or proposal which relates to or would result in causing a class of our securities to be de-listed from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, and does not have any plan or proposal which relates to or would result in a class of our equity securities becoming eligible for termination or registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended.

How We Have Financed Our Activities

     Our activities since 2002 have been financed primarily from sales of debt and equity securities and drilling participations. Beginning in 2005, we have also financed our activities through notes and accounts payable.

     On October 21, 2003 and October 31, 2003, we completed financing transactions of $11.695 million and $305,000, respectively, by issuing our Convertible Secured Debentures (the “Debentures”). Initially, the Debentures were repayable on September 30, 2005 with interest payable quarterly commencing December 31, 2003 at 8% per annum. At the dates of issuance, the outstanding principal of the Debentures was convertible by the holders into our common shares at any time prior to maturity at a conversion price of $0.45 per share, subject to antidilution adjustment. The Debentures are redeemable by us at any time after October 1, 2004 if the weighted average price per share of our common stock on the TSX Venture Exchange for a 20 consecutive trading day period prior to the date notice of redemption is given has exceeded 166 2/3% of the conversion price. The Debentures are collateralized by substantially all of our assets. The Debentures have covenants limiting unsecured borrowings to $2 million and restricting the payment of dividends and capital distributions. A finder’s fee in the amount of $360,000 was paid to Middlemarch Partners Limited of London, England in connection with the financing.

     In June 2005, the Debentures were amended with approval by approximately 86% of the Debentureholders. The amendments extended the maturity date of the Debentures by one year to September 30, 2006, reduced through the maturity date of the Debentures the per share price at which the principal of the Debentures could be converted into shares of common stock to $0.15 per share, and provided for the partial release of the lien collateralizing the Debentures in the event a third party entered into an agreement with us pursuant to which the third party is granted the right to drill one or more wells on our properties and commenced that drilling activity. As of September 30, 2006, 72,166,667 shares of our common stock were issuable upon full conversion of the Debentures at the reduced conversion price, however, the conversion rights expired on September 29, 2006 and were not renewed. As of November 26, 2007, the Debentures have not been repaid or refinanced and are in default. On June 23, 2005, our stockholders voted to amend our Certificate of Incorporation to increase the number of shares of common stock we are authorized to issue from 100 million shares to 250 million shares and reduced the par value from $0.01 to $0.001 per share. This increase in authorized shares, along with the approval of

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the TSX Venture Exchange to the transactions, provided final approval of the Debenture amendments.

     Out of the proceeds from the sale of the Debentures in 2003, we used approximately $5.9 million for the repayment of secured debt, approximately $2.1 million for the payment of accounts payable and used the balance primarily for exploration and development of our Bayou Couba oil and gas leases within the ExxonMobil Joint Development Project in St. Charles Parish, Louisiana. In addition, we paid out of the proceeds a $1.7 million production payment owing to TransAtlantic. TransAtlantic retained a 10% participation right in our AMI with ExxonMobil which we granted in March 2003 as partial consideration for the $2.0 million financing entered into at that time. On both October 21 and 31, 2003, the dates the transaction was completed, the closing sale prices for our shares were $0.70 on the TSX Venture Exchange.

     Purchasers of the Debentures included TransAtlantic, $3.0 million principal amount, and Quest Capital Corp., $500,000 principal amount. Mr. Brian Bayley, who has been a Director of our company since June 2001, is also President and Chief Executive Officer of Quest Capital Corp. and a Director of TransAtlantic. Quest Capital Corp. is engaged in merchant banking activities in Canada and elsewhere which includes providing financial services to small and mid-cap companies operating primarily in North America. Quest Investment Corporation is a predecessor company of Quest Capital Corp.

     In connection with the Debenture financing and under the terms of the transaction, two persons were designated to serve as Directors of our company. Pursuant to these terms, Mr. Jules Poscente, Chairman and Director of Eurogas Corp. of Calgary, Alberta and Gerry Curtis of Bermuda were elected to our Board of Directors. Mr. Curtis died March 24, 2006 and a successor director has not been named.

     In August 2004, we completed the sale, pursuant to the issuance of stock purchase rights to all our stockholders, of 6,941,414 shares of our common stock for gross proceeds of $1,665,939. After deducting the expenses of the offering, $1,433,287 of the net proceeds was applied to our oil and natural gas well drilling activities, including the re-drilling of the ExxonMobil Fee 2 well.

     During the third quarter of 2005, we completed a private sale of 12,193,333 shares of our common stock for gross proceeds of $1,463,000 ($1,428,000 net). Additionally, 2,170,000 shares were issued as payment for professional services in the amount of $250,000 relating to restructuring of our Debentures. The net proceeds were used for working capital and the drilling of 3 wells.

     On October 19, 2005, we executed the definitive Exploration and Development Agreement (the “Agreement”) with Dune Energy, providing for the creation of an area of mutual interest covering an area of approximately 31,367 acres. A preliminary agreement which provided for the execution of a definitive agreement was entered into on September 12, 2005.

     Pursuant to the terms of the Agreement, Dune Energy agreed to pay us a prospect fee in the amount of $1.0 million, of which $225,000 was paid on September 14, 2005, $225,000 was

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paid on September 30, 2005, $225,000 was paid on October 19, 2005, $162,500 was paid on November 30, 2005 and $162,500 was paid on January 10, 2006. In the event we and Dune Energy elected to complete the first two exploratory wells drilled pursuant to the Agreement, upon the receipt by Dune Energy of a log from either of those two wells, Dune Energy agreed to pay to us an additional prospect fee of $500,000. The terms of the Agreement were amended September 14, 2006 to waive the additional prospect fee in exchange for Dune paying 100% of the costs of an expanded 3D seismic survey over the Bayou Couba area.

     The area of mutual interest created by the Agreement, in which we have agreed with Dune Energy to share all rights, title and interest owned or acquired on an equal basis, includes our Bayou Cuba lease acreage of approximately 1,319 acres, the acreage covered by our development agreement with ExxonMobil of approximately 11,486 acres included in the 31,367 acre area, as well as any additional acreage offered to us or Dune Energy by ExxonMobil as the result of the acquisition of additional 3-D seismic data by the parties under the terms of the Agreement. If either party acquires any interests in lands included in the area of mutual interest created by the Agreement, the acquiring party is required to notify the non-acquiring party which will have the opportunity to participate in the acquisition by paying its proportionate share of the price for such properties. On June 26, 2007 Dune Energy, Inc. increased its participation to 75% of the Company’s interest under these agreements, excluding the area under the Bayou Couba lease itself where it retains a participation of 50% of the Company’s interest, with the payment of $3 million. On September 1, 2007 Dune was elected successor operator under the joint development agreement and Dune paid the Company an additional $500,000.

     Under the terms of the Agreement, we agreed to share with Dune Energy our 3-D seismic data covering an area of approximately 23.138 square miles within the area of mutual interest. The Agreement provides that either party can propose drilling prospects with the non-proposing party given the right to participate in the drilling prospect and pay its proportionate share of all drilling and completion costs. We will be the operator of each drilling prospect and completed well, subject to the rights of ExxonMobil under its development agreement with us. The Agreement will remain in effect so long as our development agreement with ExxonMobil remains in effect. The Agreement excludes certain specified existing wells which we own, certain of our litigation rights, and our production facility and equipment and personal property. Our interest in the area of mutual interest created by the Agreement is subject to the terms of other agreements to which we are a party.

     During the year ended December 31, 2005 and the quarter ended June 30, 2006, we converted an aggregate of approximately $1.95 million of accounts payable and other current obligations into notes payable. At September 30, 2006, $1.38 million principal amount of such notes were outstanding, of which $900,000 is due on various dates through December 31, 2006 and the balance is due on various dates through June 2007.

Future Capital Requirements and Resources

     Since 2001, we have funded our capital expenditures and operating activities through a series of debt and equity capital-raising transactions, drilling participations and, during the last two quarters of 2004 and all of 2005 and 2006, through an increase in vendor payables and notes

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payable. At September 30, 2006, we do not have any available borrowing capacity under existing credit facilities and our current assets are $1.2 million compared with current liabilities of $21.5 million. Our current liabilities include approximately $10.8 million of secured indebtedness due in September 2006. As of November 26, 2007, this secured indebtedness has not been repaid or refinanced and is in default. Also included in current liabilities are accounts payable, revenues payable, notes payable, and other current obligations aggregating to approximately $10.7 million. We have substantial needs for funds to pay our outstanding payables and debt. In addition, we have substantial need for capital to develop our oil and gas prospects and opportunities identified in our ExxonMobil AMI. Any capital expenditures for drilling purposes during 2006 we expect will be funded from the sale of drilling participations and equity capital. It is management’s plan to raise additional capital through the sale of interests in our drilling activities or other strategic transaction intended to maximize shareholder values; however, we currently have no firm commitment from any potential investors and such additional capital may not be available to us in the future.

     At September 30, 2006, we have no commitments for additional capital to fund drilling activities during 2006. Any capital expenditures will be funded from monies raised through industry participations, or, if available, borrowings or equity capital. We currently have no borrowing capacity with any lender and no firm commitment from any potential investors and such additional capital may not be available to us in the future.

     In order for us to pursue our business strategy we must obtain additional financing and our failure to do so can be expected to adversely affect our ability to further the development of our ExxonMobil AMI, grow our revenues, oil and gas reserves and achieve and maintain a significant level of revenues and profitability. There can be no assurance we will obtain this additional funding. Such funding may be obtained through the sale of drilling participations, joint ventures, equity securities or by incurring additional indebtedness or other strategic transaction. Without such funding or other transaction, our revenues will continue to be limited, and it can be expected that our operations will not be profitable and our ability to meet our current obligations will be doubtful. In addition, any additional equity funding that we obtain may result in material dilution to the current holders of our common stock.

     New Accounting Standards

     In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140 (“SFAS No. 155”). SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation and clarifies several other related issues. The provisions of SFAS No. 155 are effective for all financial instruments acquired or issued in the first fiscal year beginning after September 15, 2006. We have determined that SFAS No. 155 will have no material impact on our financial position, results of operations or cash flows.

     In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109. FIN 48 provides guidance for

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recognizing and measuring uncertain tax positions, as defined in SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a threshold condition that a tax position must meet for any of the benefit of the uncertain tax position to be recognized in the financial statements. Guidance is also provided regarding de-recognition, classification and disclosure of these uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006. We have determined that FIN 48 will have no material impact on our financial position, results of operations or cash flows.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently assessing the impact, if any, SFAS 157 will have on our financial position, results of operations or cash flows.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

     With the exception of historical matters, the matters we discussed below and elsewhere in this Report are “forward-looking statements” as defined under the Securities Exchange Act of 1934, as amended that involve risks and uncertainties. The forward-looking statements appear in various places including under the headings Item 1. Financial Information and Item 2. Management’s Discussion and Analysis or Plan of Operation. These risks and uncertainties relate to

• our ability to repay or extend the maturity of our Debentures which were due in September 2006 and as of November 15, 2006 are in default,

• our ability to raise capital and fund our oil and gas well drilling and development plans,

• our ability to fund the repayment of our current liabilities,

• our ability to negotiate and enter into any agreement relating to a merger or sale of all or substantially all our assets or enter into a restructuring or refinancing transaction relating to our outstanding debentures and the terms of such a transaction and the price we are able to realize in such a transaction, and

• the likelihood that the Trustee under our outstanding Debentures or the requisite holders of principal amount of Debentures will demand immediate payment of the Debentures and seek to foreclose on our assets as a consequence of our existing default in the payment of interest and redemption of the Debentures which were due on September 30, 2006 and remain in default as of November 15, 2006.

These risks and uncertainties also relate to our ability to attain and maintain profitability and cash flow and continue as a going concern, our ability to increase our reserves of oil and gas through successful drilling activities and acquisitions, our ability to enhance and maintain production from existing wells and successfully develop additional producing wells, our access

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to debt and equity capital and the availability of joint venture development arrangements, our ability to remain in compliance with the terms of any agreements pursuant to which we borrow money and to repay the principal and interest when due, our estimates as to our needs for additional capital and the times at which additional capital will be required, our expectations as to our sources for this capital and funds, our ability to successfully implement our business strategy, our ability to maintain compliance with covenants of our loan documents and other agreements pursuant to which we issue securities or borrow funds and to obtain waivers and amendments when and as required, our ability to borrow funds or maintain levels of borrowing availability under our borrowing arrangements, our ability to meet our intended capital expenditures, our statements and estimates about quantities of production of oil and gas as it implies continuing production rates at those levels, proved reserves or borrowing availability based on proved reserves and our future net cash flows and their present value.

     Readers are cautioned that the risk factors described in our Annual Report on Form 10-KSB for the year ended December 31, 2005 and other reports filed with the Commission, as well as those described elsewhere in this Report, in some cases have affected, and in the future could affect, our business plans and actual results of operations and could cause our actual consolidated results during 2006 and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf.

     Our common shares have no trading market in the United States, and there can be no assurance as to the liquidity of any markets that may develop for our common shares, the ability of the holders of common shares to sell their common shares in the United States or the price at which holders would be able to sell their common shares. Any future trading prices of the common shares will depend on many factors, including, among others, our operating results and the market for similar securities.

ITEM 3. CONTROLS AND PROCEDURES

Disclosure Controls

     Under the supervision and with the participation of our management, including Michael K. Paulk, our President and Chief Executive Officer, and Steven P. Ensz, our Vice President, Finance and Chief Financial Officer, we undertook an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective to ensure (a) that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) that information required to be disclosed is accumulated and communicated to management to allow timely decisions regarding disclosure.

Changes in Internal Controls

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No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 3. Defaults Upon Senior Securities.

     We failed to meet the interest payments due on June 30, 2006 and on September 30, 2006 on our outstanding 8% Convertible Secured Debentures due September 30, 2006. The interest payment also was not made before the end of the grace period on July 10, 2006 and October 10, 2006 respectively. In addition, we failed to repay or redeem the Debentures by the due date of September 30, 2006. Accordingly, pursuant to the Indenture governing the Debentures, an Event of Default pursuant to section 7.1(b) of the Trust Indenture resulting from our failure to timely pay interest due on June 30, 2006, occurred and is continuing at the time. Under those circumstances, the Trustee may, and upon request in writing from the holders of not less than 25% of the principal amount of the Debentures then outstanding, shall declare the outstanding principal of and all interest on the Debentures and other moneys outstanding under the Indenture to be immediately due and payable. In addition, the Trustee will have the right to enforce its rights on behalf of the Debenture holders against the collateral for the Debentures. The Debentures are collateralized by substantially all of our assets. At September 30, 2006, the Debentures are outstanding in the principal amount of $10,825,000 and accrued and unpaid interest at that date amounts to $434,000. Subsequent to July 10, 2006 through November 15, 2006, neither the Trustee nor the requisite holders of principal amount of Debentures have declared the Debentures to be immediately due and payable.

Item 6. Exhibits

31.1	Certification of President and Chief Executive Officer Pursuant to Rule 13a-14(a)(1)
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)(1)
32.1	Certification of President and Chief Executive Officer Pursuant to Section 1350 (furnished, not filed)(1)
32.2	Certification of Chief Financial Officer Pursuant to Section 1350 (furnished, not filed)(1)

⁽¹⁾ Filed or furnished herewith.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMERICAN NATURAL ENERGY CORPORATION
	(Registrant)
Date: December 10, 2007	/S/ Michael K. Paulk Michael K. Paulk
	President and Chief Executive Officer
	/S/ Steven P. Ensz Steven P. Ensz
	Principal Financial and Accounting Officer

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