American Natural Energy Corporation: Form 10-Q - Prepared by TNT Filings Inc.

10-Q 1 anec051409f10q.htm FORM 10-Q American Natural Energy Corporation: Form 10-Q - Prepared by TNT Filings Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

Mark One:

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2009; 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 No. 0-18956

American Natural Energy Corporation
(Name of Small Business Issuer in its Charter)

Oklahoma	73-1605215
(State or Other Jurisdiction of	(IRS Employer
Incorporation or Organization)	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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of May 15, 2009 54,057,673 shares of the Registrant's Common Stock, $0.001 par value, were outstanding.

AMERICAN NATURAL ENERGY CORPORATION

QUARTERLY REPORT ON FORM 10-Q

INDEX

		Page
PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets – March 31, 2009 and December 31, 2008	3

	Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2009 and March 31, 2008	4

	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2009 and March 31, 2008	5

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 4.	Controls and Procedures	17



PART II – OTHER INFORMATION

Item 3.	Defaults Upon Senior Securities	18

Item 6.	Exhibits	19

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN NATURAL ENERGY CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)

	March 31, 2009		December 31, 2008
	$		$

ASSETS
Current assets:
Cash and cash equivalents	17,648		56,162
Accounts receivable – oil and gas sales	65,367		18,761
Prepaid expenses and other	35,151		72,321
Oil inventory	13,407		6,268
Total current assets	131,573		153,512
Proved oil and natural gas properties, full cost method of accounting, net of
accumulated depletion, depreciation, amortization and impairment of $20,423,465 and $20,396,736	2,768,351		2,820,011
Unproved oil and natural gas properties	104,379		104,379
Equipment and other fixed assets, net of accumulated depreciation of $1,011,641 and $963,290	166,590		214,941
Deferred expenses	15,600		-

Total assets	3,186,493		3,292,843

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	3,461,318		3,190,328
Revenue payable	3,347,371		3,347,371
Accrued interest	2,638,299		2,399,233
Insurance note payable	10,555		16,746
Notes payable	124,717		99,717
Note payable – related party (Note 4)	260,851		192,851
Taxes due on dissolution of subsidiary	140,252		140,252
Convertible secured debentures	10,825,000		10,825,000
Other current liabilities	202,691		202,691
Total current liabilities	21,011,054		20,414,189

Asset retirement obligation	1,927,595		1,951,041
Total liabilities	22,938,649		22,365,230

Commitments and contingencies

Stockholders' equity:
Common stock (Note 5)
Authorized – 250,000,000 shares with par value of $0.001
– 54,057,673 and 52,997,673 shares issued and outstanding respectively	54,057		52,997
Additional paid-in capital	20,330,766		20,321,226
Accumulated deficit, since January 1, 2002 (in conjunction with the quasi-
reorganization stated capital was reduced by an accumulated deficit of $2,015,495)	(41,683,260	)	(41,213,342	)

Accumulated other comprehensive income	1,546,281		1,766,732
Total stockholders' deficit	(19,752,156	)	(19,072,387	)
Total liabilities and stockholders' deficit	3,186,493		3,292,843

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

AMERICAN NATURAL ENERGY CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
For the three-month periods ended March 31, 2009 and March 31, 2008

	Three months ended March 31,
	2009		2008
	$		$
Revenues:
Oil and gas sales	81,326		574,532
Operations income	-		-
	81,326		574,532

Expenses:
Lease operating expense	128,250		505,783
Production taxes	4,171		61,210
General and administrative	293,199		309,673
Foreign exchange (gain)/loss	(220,451	)	(514,221	)
Interest and financing costs	243,669		235,038
Related party interest	5,818		4,394
Depletion, depreciation and amortization – oil and gas properties	23,596		84,827
Accretion of asset retirement obligation	13,272		47,490
Depreciation and amortization – other assets	48,351		37,441
Write-down of inventory to market	11,369		-
Gain on settlement of notes payable	-		(24,273	)

Total expenses	551,244		747,362

Net loss	(469,918	)	(172,830	)

Other comprehensive income/(loss) –
net of tax:
Foreign exchange translation	(220,451	)	(514,221	)

Other comprehensive income/(loss)	(220,451	)	(514,221	)

Comprehensive loss	(690,369	)	(687,051	)

Basic and diluted loss per share	(0.01	)	0.00

Weighted average number of shares
outstanding
Basic	53,056,562		52,997,673
Diluted	53,056,562		52,997,673

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

AMERICAN NATURAL ENERGY CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three-month periods ended March 31, 2009 and March 31, 2008


	2009		2008
	$		$

Cash flows from operating activities:
Net loss	(469,918	)	(172,830	)
Non cash items:
Depreciation, depletion and amortization	71,947		122,268
Accretion of asset retirement obligation	13,272		47,490
Foreign exchange (gain)/loss	(220,451	)	(514,221	)

Write-down of inventory to market	11,369		-
Gain on settlement of notes payable	-		(24,273	)
Changes in working capital items:
Accounts receivable	(46,606	)	(251,643	)
Oil inventory	(15,374	)	(12,431	)
Prepaid expenses	21,570		(4,485	)
Accounts payable, accrued
liabilities and interest	520,657		886,617

Net cash provided by (used) in operating activities	(113,534	)	76,492

Cash flows from investing activities:
Purchase and development of oil and gas properties	(11,788	)	(83,537	)
Proceeds from sale of fixed assets	-		12,000

Net cash used in investing activities	(11,788	)	(71,537	)

Cash flows from financing activities:
Payment of notes payable	(6,192	)	(16,534	)
Issuance of notes payable	93,000		-

Net cash provided by (used) in financing activities	86,808		(16,534	)

Increase (decrease) in cash and cash equivalents	(38,514	)	(11,579	)

Cash beginning of period	56,162		136,856

Cash end of period	17,648		125,277

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

AMERICAN NATURAL ENERGY CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)(continued)
For the three-month periods ended March 31, 2009 and March 31, 2008

	2009	2008
	$	$

Supplemental disclosures:
Interest paid, net of capitalized interest	2,736	4,691

Non cash investing and financing activities:
Change in fixed assets resulting from adjustment to amounts previously billed		(172,517	)

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

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2008 and 2007

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-K. The unaudited condensed consolidated financial statements for the three-month period ended March 31, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and do not conform in all respects to the disclosure and information that is required for annual consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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 three-month period ended March 31, 2009 are not indicative of the results that may be expected for the full year ending December 31, 2009.

New pronouncements

In April 2009, the FASB issued FSP No. FAS 107-1 and Accounting Principles Bulletin (APB) No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for publicly traded companies for both interim and annual periods. Historically, these disclosures were only required annually. The interim disclosures are intended to provide financial statement users with more timely and transparent information about the effects of current market conditions on an entity’s financial instruments that are not otherwise reported at fair value. FSP No. FAS 107-1 is effective for interim reporting periods ending after June 15, 2009. Comparative disclosures are only required for periods ending after the initial adoption. The Company does not expect FSP No. FAS 107-1 to have a material impact on its financial position, results of operations or cash flows.

Reclassification of Prior Period Statements

Certain reclassifications of prior period financial statements balances have been made to conform to current reporting practices.

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2008 and 2007



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. Because of the net loss for the three months ended March 31, 2009 and 2008, the basic and diluted average outstanding shares are considered the same, since including the impact of the outstanding options would have an antidilutive effect on the net loss per share calculation

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 May 15 2009 and are in default. As of March 31, 2009, interest in the amount of $2,598,000 on the debentures had accrued and was unpaid when due. The Company has no current borrowing capacity with any lender. The Company incurred a net loss of $470,000 for the three months ended March 31, 2009. The Company has sustained substantial losses during the years ended December 31, 2008 and December 31, 2007, totaling approximately $61,000 and $3.2 million, respectively, and has a working capital deficiency and an accumulated deficit at March 31, 2009 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 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.

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 which were due September 30, 2006, limit the amount of additional indebtedness the Company can incur to $2 million. 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 maximize 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.

American Natural Energy Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2008 and 2007

4	Note payable – related party

	The balance of the note payable with Mike Paulk, an officer of the Company, at March 31, 2009 was $236,000. During the first quarter of 2009, $43,000 was loaned to the Company. Interest accrues at the rate of 10% per annum. Note payable is due on demand.

	The Company paid Mike Paulk $2,000 in interest in the first quarter of 2009 on the loans provided to the Company

	In addition, Steve Ensz, an officer of the Company, loaned $25,000 to the Company during the first quarter of 2009. Interest accrues at the rate of 10% per annum. Note payable is due on demand.

5	Common Stock

	On March 19, 2009 the TSX Venture Exchange approved the issuance of 1,060,000 shares of the Company’s common stock as payment for an outstanding invoice owed to Wakabayahsi Funds LLC in the amount of $10,600. The shares were issued on March 26, 2009.

6	Subsequent events

	The Company and Dune Energy, Inc on May 12, 2009 agreed to terms whereby the Company will re-purchase and retire $7.8 million, plus accrued and unpaid interest, of its 8% Secured Debentures held by Dune (including release of collateral rights), acquire Dune’s interest in producing wells and certain leasehold rights in the Bayou Couba field, resume operations of the Bayou Couba field and settle outstanding issues between the companies. In exchange, the Company will assign a portion of certain deep rights held by it and pay Dune a total of $1.3 million dollars with $1 million due at closing and an additional $300,000 due in quarterly payments commencing 90 days after resuming operations of the field. Closing of the transactions contemplated, which will require the execution of definitive agreements, is to occur as soon as practicable but not later than July 31, 2009.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 May 15, 2009 and are in default. As of March 31, 2009, interest in the amount of $2,598,000 on the debentures had accrued and was unpaid when due. We have no current borrowing capacity with any lender. We have incurred a net loss of $470,000 for the three months ended March 31, 2009. We have sustained substantial losses during the year ended December 31, 2008 and 2007, totaling approximately $61,000 and $3.2 million, respectively, and we have a working capital deficiency and an accumulated deficit at March 31, 2009 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.

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. The independent registered public accounting firm’s report on our financial statements as of and for the year ended December 31, 2008 includes an explanatory paragraph which states that we have sustained substantial losses in 2008 and 2007 and have a working capital deficiency and an accumulated deficit at December 31, 2008, that raise substantial doubt about our ability to continue as a going concern. 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.

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 any of the interest payments due quarterly from June 30, 2006 through May 15, 2009. Accordingly, pursuant to the Indenture governing the Debentures, an Event of Default 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, 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 which are collateralized by substantially all of our assets.

A Comparison of Operating Results For The Three Months Ended March 31, 2009 and March 31, 2008

We incurred a net loss of $470,000 during the three months ended March 31, 2009 compared to a net loss of $173,000 for the three months ended March 31, 2008. During the three months ended March 31, 2009, our revenues were comprised of oil sales totaling $81,000 compared with oil sales of $575,000 during the same period of 2008. Our oil sales for the three months ended March 31, 2009 were lower as a result of lower oil prices and a decrease in volumes. Our net average daily production for the three month period ended March 31, 2009 decreased by 68% over the same period of the prior year, from 379 (63 net) barrels of oil equivalent per day to 122 (22 net) barrels of oil equivalent per day. Oil prices decreased by 59% for the three month period ended March 31, 2009 over the same period of the prior year from $101.02 per barrel of oil equivalent to $41.51 per barrel of oil equivalent. Production from our existing wells is subject to fluctuation based upon which zones of wells are in production.

Our total expenses were $551,000 for the three months ended March 31, 2009 compared to total expenses of $747,000 for the three months ended March 31, 2008. Our general and administrative expenses decreased by $16,000 for the three months ended March 31, 2009 compared to the same period in 2008 at $293,000 and $309,000 respectively.

Interest and financing costs were consistent for the three months ended March 31, 2009 and 2008 at $249,000 and $239,000 respectively. Our interest expense primarily consists of interest costs related to our 8% convertible debentures.

Lease operating expenses of $128,000, production taxes of $4,000 and depletion, depreciation and amortization of $85,000 during the three months ended March 31, 2009 changed from $506,000, $61,000, and $170,000, respectively, during the three months ended March 31, 2008. Lease operating expenses decreased as a result decrease production and activity level of the operator of the field. Production taxes decreased principally as a result of decreased production and lower prices realized for the sale of oil during the quarter. The decrease in depletion, depreciation and amortization is due to a lower amortization rate and decreased production.

During the three months ended March 31, 2009, we had a foreign exchange gain of $220,000, compared to a $514,000 foreign exchange gain for the three months ended March 31, 2008. Our foreign exchange gains and losses arise out of an inter-company indebtedness we owe to our wholly-owned subsidiary, Gothic, which is payable in Canadian dollars. The foreign exchange gain for the three months ended March 31, 2009 was caused by the strengthening of the US dollar against the Canadian dollar.

The Company incurred a charge of $11,000 in the first quarter of 2009 to write-down our inventory to lower of cost or market. There was no such charge in the same period of 2008.

During the first quarter of 2008, the Company settled $34,000 of vendor notes payable for a net gain of $24,000. There were no such gains for the same period in 2009.

Liquidity and Capital Resources

General

A decline in oil and natural gas production of 68% and a decrease of 59% in prices decreased revenues during the first quarter of 2009. 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 March 31, 2009, we do not have any available borrowing capacity and have negative working capital of approximately $20.9 million. Our current liabilities include $10.8 million of convertible secured debentures originally due on September 30, 2006, but which remain unpaid and outstanding as of May 15, 2009.

We have substantial need for capital to develop our oil and gas prospects and opportunities we believe that have been identified in our ExxonMobil AMI. Since 2001, we have funded our capital expenditures and operating activities through a series of debt and equity capital-raising transactions, drilling participations and through an increase in vendor payables and notes payable. We expect any future capital expenditures for drilling and development to 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; however, we currently have no firm commitment from any potential investors and such additional capital may not be available to us in the future.

A Comparison of Cash Flow For The Three Months Ended March 31, 2009 and March 31, 2008

Our net cash used in operating activities was $114,000 for the three months ended March 31, 2009 as compared to net cash provided by operating activities of $76,000 for the three months ended March 31, 2008, a decrease of $190,000. The decrease in net cash provided by operating activities for the three months ended March 31, 2009 was primarily due to negative changes in accounts receivable and a foreign exchange gain, partially offset by positive changes in accounts payable during the period. Changes in working capital items had the effect of increasing cash flows from operating activities by $480,000 during the three months ended March 31, 2009 due to an increase in accounts payable of $521,000, partially offset by an increase in accounts receivable and other current assets. Changes in working capital items had the effect of increasing cash flows from operating activities by $618,000 during the three months ended March 31, 2008 due to an increase in accounts payable of $887,000, partially offset by an increase in accounts receivable and other current assets.

We used $12,000 of net cash in investing activities during the three months ended March 31, 2009 compared to net cash used of $72,000 in 2008. The 2009 cash used in investing activities includes $12,000 for the purchase and development of oil and gas properties. We used $84,000 of cash for the purchase and development of oil and gas properties, partially offset by proceeds of $12,000 received for the sale of fixed assets.

We provided $87,000 of net cash in financing activities for the three months ended March 31, 2009 compared to $17,000 of net cash used in financing activities for the same period in 2008. For the three months ended March 31, 2009, we had issuance of notes payable of $93,000 offset by payments against outstanding notes of $6,000. For the three months ended March 31, 2008, net cash outflows from financing activities were primarily a result of payments against outstanding notes.

We have no other commitments to expend additional funds for drilling activities for the rest of 2009.

How We Have Financed Our Activities

Our activities since 2002 have been financed primarily from sales of debt and equity securities and drilling participations.

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 a conversion price of $0.45 per share, subject to antidilution adjustment. The Debentures are collateralized by substantially all of our assets and 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. Under the amendments, 72,166,667 shares were issuable upon full conversion of the Debentures at the reduced conversion price; however, the conversion rights feature expired on September 29, 2006 and was not renewed.

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 Agreement 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. At present, both of such Director positions are vacant and the holders of the Debentures have not designated any persons to fill the vacancies.

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.

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 three 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. Pursuant to the terms of the Agreement, Dune Energy agreed to pay us in installments a prospect fee in the amount of $1.0 million, all of which has been paid. Under the original Agreement, in the event we and Dune Energy elect 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 would pay to us an additional prospect fee of $500,000. However, as a result of Dune Energy paying 100% of the costs for our participation in the 3D seismic survey being conducted by SEI and described above, the terms of the Agreement between us and Dune Energy were amended to waive any additional prospect fees that may be due from Dune Energy. On June 26, 2007, Dune Energy increased its participation to 75% of our interest under these agreements, excluding the area under the Bayou Couba lease itself where it retains a participation of 50% of our interest, with the payment of $3 million. On September 1, 2007 Dune Energy was elected successor operator under the joint development agreement and Dune Energy paid us an additional $500,000. We used the proceeds from these payments to reduce outstanding obligations.

During the year ended December 31, 2005, we converted an aggregate of approximately $1.74 million of accounts payable and other current obligations into notes payable. During the year 2006, we converted an aggregate of approximately $340,000 of accounts payable into notes payable. At March 31, 2009, $75,000 principal amount of such notes was outstanding and past due.

Future Capital Requirements and Resources

At March 31, 2009, we do not have any available borrowing capacity under existing credit facilities and our current assets are $132,000 compared with current liabilities of $21.0 million. Our current liabilities include approximately $10.8 million of secured indebtedness, which was due September 2006 and is currently in default and accounts payable, revenues payable, notes payable (a portion of which is past due), and other current obligations aggregating to approximately $10.2 million. We have substantial needs for funds to pay our outstanding payables and debt due during 2009. In addition, we have substantial need for capital to develop our oil and gas prospects and opportunities identified in our ExxonMobil AMI. At March 31, 2009, we have no commitments for additional capital to fund drilling activities in 2009.

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 payable. Any capital expenditures for drilling purposes during 2009, we expect will be funded from the sale of drilling participations and equity capital. It is our intention to raise additional capital through the sale of interests in our drilling activities or other strategic transaction; however, we currently have no firm commitment from any potential investors and such additional capital may not be available to us in the future.

Our business strategy requires us to 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. Without such funding, our revenues will continue to be limited and it can be expected that our operations will not be profitable. In addition, any additional equity funding that we obtain may result in material dilution to the current holders of our common stock.

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 Statements 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 May 15, 2009 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 May 15, 2009.

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 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-K for the year ended December 31, 2008 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 2009 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 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report on Form 10-Q, our Chief Executive Officer and our Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, the Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of the end of the period covered by this report on Form 10-Q that the Company's disclosure controls and procedures are not effective to provide reasonable assurance that: (i) information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure by the Company; and (ii) information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In our evaluation of disclosure controls and procedures as of December 31, 2008, we concluded there were material weaknesses in our internal controls over financial reporting which we viewed as an integral part of our disclosure controls and procedures. The material weaknesses as noted below have not been remediated as of March 31, 2009.

Changes in Internal Control Over Financial Reporting

As of December 31, 2008 the Company identified material weaknesses in our internal controls over financial reporting. The material weaknesses relate to:

1.	Deficiencies in segregation of duties due to:

	a.	the CEO and CFO’s active involvement in the preparation of the financial statements resulting in an inability to provide an independent review and quality assurance function; and

	b.	a limited number of qualified accounting personnel resulting in management and accounting personnel having wide-spread access to create and post accounting entries into the accounting system and an inability to independently review and approve accounting entries.


2.	The failure to identify during the year end financial statement closing process all the journal entries required for certain complex and non-routine transactions. These entries were identified by our independent registered public accounting firm.

In order to mitigate these material weaknesses to the fullest extent possible, all financial reports are reviewed by the CEO and CFO. All unexpected results are investigated. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it is immediately implemented. As soon as our finances allow, we will hire sufficient staff and implement appropriate procedures to address the segregation of duties and improve the closing process.

There were no significant changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the last fiscal quarter that have materially affected or that are 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 quarterly since June 30, 2006 on our outstanding 8% Convertible Secured Debentures due September 30, 2006. 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 has 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 March 31, 2009, the Debentures are outstanding in the principal amount of $10,825,000 and accrued and unpaid interest at that date amounts to $2,598,000. Subsequent to May 15, 2009, 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 toSection 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.

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.

Date: May 15, 2009

AMERICAN NATURAL ENERGY CORPORATION
(Registrant)

/s/ Michael K. Paulk
Michael K. Paulk
President and Chief Executive Officer

/s/ Steven P. Ensz
Steven P. Ensz
Principal Financial and Accounting Officer