Productive Wells

Productive wells consist of producing wells, and wells capable of production, including shut-in wells. One or more completions in the same well bore are counted as one well. As of December 31, 2007, Powder River owned interests in 66 gross wells containing multiple completions. The following table summarizes our productive wells as of December 31, 2007, all of which are located in the United States:

Acreage

The following table summarizes developed and undeveloped acreage in which we owned a working interest or held an exploration license as of December 31, 2007 and 2006.  Acreage related to royalty, overriding royalty, and other similar interests is excluded from this summary, as well as acreage related to any options held by us to acquire additional leasehold interests.

Production, Average Sales Prices, and Production Costs

The following table reflects production, average sales price, and production cost information for the years ended December 31, 2007 and 2006.

Marketing and Delivery Commitments

Our oil and gas production is sold to various purchasers in accordance with our credit policies and procedures. These policies and procedures take into account the credit-worthiness of potential purchasers in choosing purchasers at a given delivery point. We believe that the loss of one or more of our current natural gas spot purchasers would not have a material adverse effect on our ability to sell our production, because any individual spot purchaser could be readily replaced by another spot purchaser, absent a broad market disruption.

Our natural gas production is typically sold on a month-to-month basis in the spot market, priced in reference to published indices. Our production of oil and natural gas liquids is typically sold under short-term contracts at prices based upon posted field prices, and is typically sold at the wellhead.

Item 1A. Risk Factors

The nature of the business activities conducted by Powder River subjects it to certain risks and hazards. The risks discussed below, any of which could materially and adversely affect our business, financial condition, cash flows, or results of operations, are not the only risks we face. We may experience additional risks and uncertainties not currently known to us or, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, cash flows, and results of operations.

Risk Factors Relating to Powder River

Oil and gas price declines could adversely affect our financial results and profitability.   Prices for oil and natural gas fluctuate widely. Our revenues, profitability, and future rate of growth depend substantially upon the prevailing prices of oil and natural gas. Increases and decreases in prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. Lower prices may also reduce the amount of oil and natural gas that we can produce economically. Any substantial or extended decline in the prices of or demand for oil and natural gas would have a material adverse effect on our financial condition and results of operations.

We cannot predict future oil and natural gas prices. Oil and gas prices are currently near historical highs and may fluctuate and decline significantly in the near future. Factors that can cause price fluctuations include: relatively minor changes in the supply of and demand for oil and natural gas; market uncertainty; the level of consumer product demand; weather conditions; domestic and foreign governmental regulations; the price and availability of alternative fuels; political and economic conditions in oil producing countries, particularly those in the Middle East, Russia, and South America; the price and quantity of oil and gas imports; or general economic conditions.

We may not be able to obtain adequate financing to execute our operating strategy.   We have historically addressed our long-term liquidity needs through the sales of working interests, cash provided by operating activities, and the issuance of equity securities.

Sales of our working interests depend on achieving production returns that meet or exceed our estimates.  To date such returns have been below our estimates which may impact our ability to conclude future working interest sales.  Based on our production capabilities to date, we cannot assure you that cash generated by operations will be available to meet our capital

requirements.  We may seek additional debt or equity financing but cannot assure you that such financing will be available to meet our capital requirements, or available on terms acceptable to us.

A curtailment of capital spending could adversely affect our ability to replace production and our future cash flow from operations and could result in a decline in our oil and gas reserves and production.

 We also continue to examine alternative sources of long-term capital such as credit facilities; the issuance of non-recourse production-based financing or net profits interests; sales of prospects and technical information; and joint venture financing.  The availability of these sources of capital will depend upon a number of factors, some of which are beyond our control. These factors include general economic and financial market conditions, oil and natural gas prices, the value and performance of Powder River, the value of our reserves, and the credit ratings assigned to Powder River by independent ratings agencies. We will be unable to execute our operating strategy if we cannot obtain adequate capital.

Estimates of oil and gas reserves are uncertain and inherently imprecise.   Estimating our proved reserves involves many uncertainties, including factors beyond our control. The estimates of proved reserves and related estimates of potential future net revenues described in this Form 10-K are based on various assumptions, which may ultimately prove inaccurate. Petroleum engineers consider many factors and make assumptions in estimating oil and gas reserves and future net cash flows. Lower oil and gas prices generally cause lower estimates of proved reserves. Ultimately, actual production, revenues, and expenditures relating to our reserves will vary from any estimates, and these variations may be material. Also, we may revise estimates of proved reserves to reflect production history, results of exploration and development, and other factors, many of which are beyond our control.

In estimating future net revenues from proved reserves, future prices and costs are assumed to be fixed and a fixed discount factor is applied. Our revenues, profitability and cash flow could be materially less than our estimates if these assumptions and discount factor are incorrect.   The present value of potential future net revenues from our proved reserves is not necessarily the actual current market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on fixed prices and costs as of the date of the estimate. Actual future prices and costs fluctuate over time and may differ materially from those used in the SEC net present value estimate. The timing and amount of development expenditures and the rate and timing of oil and natural gas production will affect both the timing of future net cash flows from our proved reserves and their present value. In addition, the 10% discount factor that we use to calculate the net present value of future net cash flows for reporting purposes in accordance with the SEC’s rules may not necessarily be the most appropriate discount factor. As a result, net present value estimates using actual prices and costs may be significantly less than the SEC estimate that is provided in this Form 10-K.

Lower oil and gas prices and other factors may cause us to record ceiling test writedowns.   We use the full cost method of accounting to report our oil and gas operations. Accordingly, we capitalize the cost to acquire, explore for, and develop oil and gas properties. Under full cost accounting rules, the net capitalized costs of oil and gas properties may not exceed a “ceiling limit,” which is based upon the present value of estimated future net cash flows from proved reserves, discounted at 10%. If net capitalized costs of oil and gas properties exceed the ceiling limit, we must charge the amount of the excess to earnings. This is called a “ceiling test writedown.” Under the accounting rules, we are required to perform a ceiling test each quarter. A ceiling test writedown would not impact cash flow from operating activities, but it would reduce our shareholders’ equity. The risk that we will be required to write down the carrying value of our oil and gas properties increases when oil and gas prices are low or volatile. In addition, writedowns may occur if we experience substantial downward adjustments to our estimated proved reserves or our undeveloped property values, or if estimated future development costs increase. We cannot assure you that we will not experience ceiling test writedowns in the future.

We may not be able to replace production with new reserves.   In general, the volume of production from oil and gas properties declines as reserves are depleted. The decline rates depend on reservoir characteristics. Our reserves will decline as they are produced unless we are successful in our exploration and development activities or acquire new producing properties. Our future natural gas and oil production is highly dependent upon our level of success in finding or acquiring additional reserves. Exploring for, developing, or acquiring reserves is capital intensive and uncertain. We may be unable to make the necessary capital investment to maintain or expand our oil and gas reserves if cash flow from operations declines or external sources of capital become limited or unavailable. We cannot assure you that our future exploration, development, and acquisition activities will result in additional proved reserves or that we will be able to drill productive wells at acceptable costs.

Our oil and gas drilling and production activities are subject to numerous operational and exploration risks.   Oil and gas drilling and production activities are subject to numerous risks, including the risk that no commercially productive oil or natural gas reservoirs will be found. The cost of drilling and completing wells is often uncertain. Oil and gas drilling and production activities may be shortened, delayed, or canceled as a result of a variety of factors, many of which are beyond our control. These factors include unexpected drilling conditions; geological irregularities or pressure in formations; equipment failures or accidents; shortages in supplies of drilling rigs and related equipment; shortages in labor; weather conditions; delays in the delivery of equipment; and failure to secure necessary regulatory approvals and permits. Further, we cannot assure you that the new wells we

drill will be productive or that we will recover all or any portion of our investment. Drilling activities can result in dry wells and wells that are productive but do not produce sufficient net revenues after operating and other costs and thus may be unprofitable.

We may not be insured against all of the operating risks to which our businesses are exposed.   The exploration, development, and production of oil and natural gas and the drilling activities performed by our recently acquired drilling subsidiary involve risks. These operating risks include the risk of fire, explosions, blow-outs, pipe failure, damaged drilling and oil field equipment, abnormally pressured formations, and environmental hazards. Environmental hazards include oil spills, gas leaks, pipeline ruptures, or discharges of toxic gases. If any of these industry operating risks occur, we could have substantial losses. Substantial losses may be caused by injury or loss of life, severe damage to or destruction of property, natural resources, and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties, and suspension of operations. In accordance with industry practice, we maintain insurance against some, but not all, of the risks described above. Generally, pollution related environmental risks are not fully insurable. We cannot assure that our insurance will be fully adequate to cover these losses or liabilities. Also, we cannot predict the continued availability of insurance at premium levels that justify its purchase.

Our international working interest sales may be adversely affected by currency fluctuations and economic and political developments.   The Company does not have any operations in foreign countries.  However, we do sell working interest in our leases to investors from other countries, and these sales may be adversely affected by political and economic developments, royalty and tax increases, and other laws or policies in these countries, as well as United States policies affecting trade, taxation, and investment in other countries.

Competition within our industry may adversely affect our operations.   We operate in a highly competitive environment. Powder River competes with major and independent oil and gas companies in acquiring desirable oil and gas properties and in obtaining the equipment and labor required to develop and operate such properties. We also compete with major and independent oil and gas companies in the marketing and sale of oil and natural gas. Factors that affect our ability to acquire properties include, among others, availability of desirable acquisition targets, staff and resources to identify and evaluate properties, available funds, and internal standards for minimum projected return on investment. Higher recent commodity prices have increased both equipment, service and labor costs in the industry as well as the cost of properties available for acquisition and most of the companies that we compete with have substantially larger staffs and significantly greater financial and operational resources. In addition, oil and gas producers are increasingly facing competition from providers of non-fossil energy, and government policy may favor those competitors in the future. Many of these competitors have financial and other resources substantially greater than ours. We can give no assurance that we will be able to compete effectively in the future and that our financial condition and results of operations will not suffer as a result.

Our growth may partially depend on our ability to acquire oil and gas properties on a profitable basis.   Acquisition of producing oil and gas properties is a key element of maintaining and growing reserves and production. Competition for these assets has been and will continue to be intense. The success of any acquisition will depend on a number of factors, including the acquisition price, future oil and gas prices, the ability to reasonably estimate or assess the recoverable volumes of reserves, rates of future production and future net revenues attainable from reserves, future operating and capital costs, results of future exploration, exploitation and development activities on the acquired properties, and future abandonment and possible future environmental liabilities. When acquiring new properties, there are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves, future production rates, and associated costs and potential liabilities with respect to prospective acquisition targets. Actual results from an acquisition may vary substantially from those assumed in the purchase analysis and acquired properties may not produce as expected, or there may be conditions that subject us to increased costs and liabilities including environmental liabilities.

We operate a drilling subsidiary and it involves many operating risks, any one of which could prevent us from realizing profits from the drilling subsidiary.   We seek to increase our oil and gas reserves, production, and cash flow through exploratory and development drilling activities and conducting other production enhancement activities. In January 2008, we purchased 100% interest in a full well service and drilling company, which included all of the related equipment and three full time service crews.  The drilling company performs services for Powder River and if the resources are available, it could also perform services for third parties. We believe these new operations complement our business model and will lessen our exposure to the risks and delays associated with obtaining drilling equipment from third parties in an intensely competitive market. The drilling company is subject to risks, including shortages in labor and the risks associated with drilling oil and gas wells. These risks include: fires; explosions; blow-outs and surface cratering; pipe failures; casing collapses; natural disasters; and environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures and discharges of toxic gases. If any of these events occur, we could incur substantial losses as a result of injury or loss of life, severe damage to and destruction of property, and environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of our operations.

Our oil and gas operations are subject to various environmental and other governmental regulations that materially affect our operations.   Our oil and gas operations are subject to various United States federal, state, and local governmental regulations. These regulations may be changed in response to economic or political conditions. Matters regulated include permits

for discharge of waste and other substances generated in connection with drilling and production operations, bonds or other financial responsibility requirements to cover drilling contingencies and well plugging and abandonment costs, reports concerning operations, the spacing of wells, and unitization and pooling of properties and taxation. At various times, regulatory agencies have imposed price controls and limitations on oil and gas production. In order to conserve supplies of oil and gas, these agencies may restrict the rates of flow of oil and gas wells below actual production capacity. A substantial spill from one of our facilities could have a material adverse effect on our results of operations, competitive position, or financial condition. United States laws regulate production, handling, storage, transportation, and disposal of oil and gas, by-products from oil and gas, and other substances and materials produced or used in connection with oil and gas operations. We cannot predict the ultimate cost of compliance with these requirements or their effect on our operations.

We have limited control over the activities on properties we do not operate.   Although we operate the properties from which most of our production is derived, other companies operate some of our other properties. We have limited ability to influence or control the operation or future development of these non-operated properties or the amount of capital expenditures that we are required to fund for their operation. The success and timing of drilling development activities on properties developed by others depend upon a number of factors that are outside of our control, including the timing and amount of capital expenditures, the operator’s expertise and financial resources, approval of other participants, and selection of technology. Our dependence on the operator and other working interest owners for these projects and our limited ability to influence or control the operation and future development of these properties could have a material adverse effect on the realization of our targeted returns on capital or lead to unexpected future costs.

Item 1B. Unresolved Staff Comments

None.

Item 2.

Properties

The Company has entered into lease agreements for its corporate office in Calgary as well as office space in Tulsa and an investor relations office in Singapore.  The term of the Calgary lease is for five years, expiring on April 27, 2010.  The annual basic rent payment in Canadian dollars is $28,460 plus GST for year one, $29,883 plus GST for years 2 – 3 and $31,306 plus GST for years 4 – 5.  The total area leased in Calgary is 2,846 square feet.  The Tulsa lease is on a month to month basis with monthly rental payments of $1,195.  The Singapore lease is for a term of two years, expiring on September 13, 2009.  The monthly rent payment in Singapore dollars is $5,400.  We believe these administrative offices will be adequate for our needs for the next 12 months.

At December 31, 2007, we held 80 to 100% working interest in the following shall lease properties in Wyoming, all of which were purchased prior to 2003, for future development:

Two wells were completed on the Zullig Lease in 2002 and tested again in 2004.  In 2006, we decided to seek to outsource further development on these wells.  As of December 31, 2007, we had no material or significant production from any of these properties in WY.

At December 31, 2007, the Company owned working interests in producing oil and gas leases as follows:

Specific production, development and reserves information about each of the above properties is included in Item 1.Description of Business above.

Investment Policies.  The Company does not invest in real estate, real estate mortgages, securities of persons which invest in real estate, except that the Company is engaged in the business of buying and selling working interests in oil and gas leases.   

Item 3.

Legal Proceedings

Before current management purchased control of the Company in December, 2003, a default judgment was taken against the Company in the case styled John Skinner v. Powder River Basin Gas Corp., Case No. 03-D-540 (MJW) in the US District Court for the District of Colorado for $111,500.   The judgment was for services provided to the Company prior to 2003.  New management did not learn of the matter until after it acquired control of the Company.  On June 29, 2004, the Company settled this judgment by delivering the plaintiff a promissory note for $115,000 payable in monthly installments of $3,000 through December 2007.  The promissory note was paid in full in November 2007. 

The Company was named defendant in a suit, Mader v. Powder River Basin Gas Corp., filed in Johnson County, Wyoming, CV 2007-0085.  The Plaintiff claims to have loaned $100,000 to a third party in January 2002 who in turn loaned the money to the Company in May 2002, however the Company has no records of such a loan ever being received.  The case is set for trial in May, 2008.  Settlement discussions are planned before trial.

The Company is a defendant in Tripovich v. Affiliated Holdings, Inc. et al., filed in the 16^th Judicial District Court, Parish of St. Martin, Louisiana, Case No. 72217.  Plaintiff claims to have contracted leukemia by exposure to benzine while working in the oil patch in Louisiana.  He has named Powder River along with over 100 other oil and gas companies which operate in Louisiana as defendants.  The Company owns a working interest in the Leonard Aires Project (consisting of 9 wells) in Acadia Parish, Louisiana, and a working interest in the Spring Hill Project (consisting of 16 wells) located in Webster and Bossier Parishes, Louisiana, both properties worked by independent operators. The Company does not operate any properties in LA. The Company records contain no reference to Plaintiff. This litigation is in the very early stage of discovery, but to date, the Company has uncovered no information which ties it to Plaintiff.  The Company intends to file a motion for summary judgment in the case soon. The Company believes that Plaintiff has no relationship with any of the properties owned or leased in LA and as such the Company believes that it has no liability (except cost of defense) in this matter.

              Various other claims have been made against the Company which, when resolved, in the aggregate will not have a material adverse effect upon the Company in the judgment of management of the Company.

Item 4.

Submission of Matters to a Vote of Security Holders

The following are the voting results of the proposals submitted to shareholders at the annual shareholder meeting held in Tulsa, Oklahoma on October 30, 2007:

1. Election of Directors;

2. Ratification of Chisholm Bierwolf & Nilson, LLC as the Company’s independent auditor;

3. Ratification and approval of the 2007 Incentive Stock Option Plan;

4. Change of domicile from the State of Colorado to the State of Oklahoma and a name change to Powder River Petroleum International, Inc.

Part II

Item 5.

Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities

Our common stock is traded on the NASDAQ OTC Bulletin Board under the symbol “PWDR”.  Quotations on the OTC Bulletin Board reflect bid and asked quotations, and may reflect inter-dealer prices, without retail markups, mark-downs or commissions, and may not represent actual transactions.

The following is the range of bid and asked prices on the OTC during the following periods:

During fiscal 2007, we issued shares of our restricted common stock in the following transactions:

During 2007, we issued a total of 9,192,472 shares through the exercise of common stock warrants at prices ranging from $0.04 to $0.30 per share, for total proceeds of $1,056,857 (less offering costs of $154,571), less a subscription receivable of $30,000.  The shares were valued based upon the market price of the shares on the date of board approval.  

Also during 2007, we issued 2,000,000 shares of common stock for expenses incurred on drilling projects and property development.  The issuance was valued at $0.23 per share, the market value of the shares on the date of the agreement.  This issuance resulted in a total cost of $460,000 to the Company.  

During 2007, we also issued 1,500,000 shares of restricted common stock at $0.23 per share to our CFO pursuant to an employment agreement.  The total expense related to this transaction was $345,000.  The shares were valued based upon the market price of the shares on the date of board approval.  

We issued the above shares in reliance on the exemption from registration and prospectus delivery requirements of the Act set forth in Section 3(b) and/or Section 4(2) of the Securities Act and the regulations promulgated there under.

In fiscal 2007, we extended previously outstanding warrants and issued new warrants for the purchase of our restricted common stock as follows:

In May 2007, we extended the maturity date on 2,000,000 common stock warrants issued to Mark Chang, exercisable at prices ranging from $0.18 to $0.24 per share.  The extension of these warrants resulted in an additional expense of $201,399 for the year ended December 31, 2007.

In May 2007, we extended the maturity date on 2,000,000 common stock warrants issued to various working interest holders, exercisable at $0.40 per share.  The extension of these warrants resulted in an additional expense of $75,589 for the year ended December 31, 2007.

In October 2007, we extended the maturity date on 4,000,000 common stock warrants exercisable at $0.185 per share. 2,000,000 of the warrants were extended on behalf of our President and CEO, and 2,000,000 warrants were extended on behalf of a significant shareholder.  An additional 500,000 common stock warrants exercisable at $0.21 per share, were extended on behalf of our general counsel.  The extension of these warrants resulted in an additional expense of $507,091 for the year ended December 31, 2007.

In October 2007, we further extended the maturity date on 2,000,000 common stock warrants issued to Mark Chang exercisable at prices ranging from $0.18 to $0.24 per share.  The extension of these warrants resulted in an additional expense of $209,117 for the year ended December 31, 2007.

In October 2007, we granted 2,500,000 common stock warrants exercisable at $0.25 per share. 1,000,000 of the warrants were granted to our President & CEO, each serving director was granted 500,000 warrants and the remaining 500,000 warrants were granted to our general counsel.  These grants resulted in an expense of $229,235 for the year ended December 31, 2007.

On October 30, 2007, the Board of Directors approved an exclusive Investment Banking Agreement with Sunrise Securities Corporation (“Sunrise”) wherein Sunrise will act as the Company’s exclusive financial advisor and investment banker to render financial and other general advice to the Company including without limitation advice relating to capital structure, enhancing shareholder value and allocation of corporate assets, as well as advice with respect to any financings or transactions.  Sunrise will assist the Company in identifying, analyzing, structuring, negotiating and financing suitable business opportunities.  The term of the agreement is five years.  As compensation to Sunrise, the Company issued warrants for the purchase of 7,500,000 shares of its common stock at an exercise price of $0.25 per share exercisable for five years.  In the event that the Company completes a financing transaction during the term of the agreement, the Company will also pay Sunrise a commission of 8 %.  If the transaction involves equity, Sunrise will also be entitled to warrants representing 7 % of the equity issuance.  The value of these warrants was recorded as a prepaid stock offering cost of $886,976 on the Company’s balance sheet as of December 31, 2007, and will be offset as a stock offering cost, against the proceeds expected to be received during 2008 and 2009.

During the year ended December 31, 2007, we repurchased and cancelled 895,100 shares of our own stock on the open market at prices ranging from $0.20 to $0.31 per share.  The total cost of these shares was approximately $250,000.  We have determined this program was ineffective and will no longer be pursued.

The Company uses the Black-Scholes model to value stock options and warrants.  The Black-Scholes model requires the use of employee exercise behavior data and the use of a number of assumptions, including volatility of the Company’s stock price, the weighted average risk-free rate, and the weighted average expected life of the options.  Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes model is zero. The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model pursuant to FASB Statement SFAS 123R “Share Based Payment,” “Accounting for Stock-Based Compensation”.  Under the provisions of SFAS 123, additional expense of $1,222,431 was recorded for the year ended December 31, 2007 pursuant to the Black-Scholes option pricing model for these warrants, which was calculated based upon the following assumptions:

 Based on our records in connection with mailing our Proxy Statement for our 2007 Annual Meeting of Shareholders, we estimate that there are approximately 210 persons and entities that own beneficial interests in our common stock.  

We have not paid any dividends on our common stock and do not intend to do so in the immediate future.  There are no restrictions on our ability to pay dividends in the future.

Securities Authorized For Issuance Under Equity Compensation Plans

The following table sets forth information as of December 31, 2007 with respect to compensation plans under which our equity securities are authorized for issuance.

Item 6. Selected Financial Data

Not applicable.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-looking Statements

This discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance or financial condition.  Such statements are only predictions and the actual events or results may differ materially from the results discussed in or implied by the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Part I. Item 1A. Risk Factors" as well as those discussed elsewhere in this report.   Examples of forward-looking statements include, but are not limited to: (a) projections of revenues, capital expenditures, growth, prospects, dividends, capital structure and other financial matters; (b) statements of plans and objectives of management and Board of Directors; (c) statements of future economic performance; (d) statements of assumptions

underlying other statements and statements about us and our business relating to the future; and (e) any statements using the words "anticipate," "expect," "may," "project," "intend" or similar expressions.

General

Until late December 2003, the Company was essentially dormant, holding oil and gas properties for future development and experiencing significant operating losses. In late December, 2003, the current management of the Company acquired control of the Company by purchasing a controlling block of the issued and outstanding stock of the Company. Our current operations consist of acquiring and operating oil and gas properties and exploration and development of oil and gas properties.  We do not refine or process any of the oil and gas produced from our properties. We sell the oil and gas produced from our properties under short-term contracts at market prices, generally at FOB field prices. We have generally financed the purchase of new oil and gas properties by selling a portion of the working interest we acquire.  It is management’s intention to continue to finance new acquisitions in this manner until revenue from operations or financing from other sources, such as credit lines or other financing facilities, are available to us on acceptable terms.

Factors Affecting Results of Operations

Market Conditions - The price of oil at December 31, 2007 was $95.35 per barrel as compared to $60.80 per barrel at December 31, 2006. The price of natural gas at December 31, 2007 was $7.98 per mcf as compared with $5.60 per mcf at December 31, 2006. The Company expects that world demand for oil and gas will continue to increase.  The Company also believes that the current world political situation, particularly in the major oil and gas producing countries in the Middle East continues to be uncertain, thereby maintaining upward pressures on the price of oil and gas in the near future.

Weather Conditions – A substantial majority of our operating properties are in areas of the United States that experience severe weather conditions. Under some conditions, development and production may be delayed or halted due to weather-related problems.  For instance, during the months of September, October and November of 2007, our properties in Texas and Oklahoma suffered severe flooding, which caused delay in our development and production of our properties in these states.  In some cases, the flooding made it impossible for us to collect oil and gas that had been produced and was being stored in our collection tanks..  

Results of Operations for the Years Ended December 31, 2007 and 2006

Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality and potential variability of our revenues and cash flows. These key performance indicators include:

·

Oil and gas sales revenue, which is an indicator of the success of our production growth plans;

·

Working interest sales, which is an indicator of the success of our sales and marketing efforts;

·

Net comprehensive income, which is an indicator of both competitive pricing pressures and the cost of production;

·

Growth in our customer base for both oil and gas sales and working interest sales, which is an indicator of the success of our sales efforts; and

·

Availability and cost of production equipment and operators, which represents a limiting factor or our ability to increase production levels.

The following summary table presents a comparison of our results of operations for the fiscal years ended December 31, 2007 and 2006 with respect to certain key financial measures.  The comparisons illustrated in the table are discussed in greater detail below.

Total net revenues increased to $13,423,296 in 2007 compared to $13,174,394 in 2006.  Sales of property and working interests accounted for 81% of the gross revenues for 2007 as compared with the sale of property and working interests in 2006 (88%).  It is also important to note that gross oil and gas sales increased to $3,346,878 from $1,784,895 or 87% for the years ended December 31, 2007 and 2006 respectively.  With the addition of our drilling company that was purchased in January 2008 we anticipate that oil and gas sales will continue to increase substantially during the upcoming year.  It should also be noted that we have included the production payment made to the working interest investors as a contra revenue account in the statement of operations.  Each working interest purchased by the investors provides the holder with a pro-rata percentage of production revenues which is based on the portion of the working interest that they actually invested in.  However, regardless of production generated from the property, we have guaranteed a minimum payment of at least 9% per annum of the holder’s investment until the full amount of the holder’s principal has been repaid.  Once the holders reach this breakeven point whereby all of their capital has been recovered, they are only entitled to receive their portion of the production based on their initial investment in the working interest.  In most instances, this means that to date we have paid amounts to working interest holders that are well in excess of their pro-rata percentage of production revenues on properties where development has been slower and/or production is less than anticipated.

Total expenses increased to $11,371,864 in 2007 from $4,127,133 in 2006 or approximately 176%.  The main factors that contribute to this large increase are salary and wages, bonuses, legal and professional fees, marketing and administrative costs and lease operating costs.  See the following explanations for the increase in each of these areas.  

Salary and wages increased to $1,023,688 in 2007 from $264,775 in 2006 or approximately 286%.  The main reason for the increase is that we entered into two separate employment agreements during the year.  The first agreement entered into was with our CEO and was made effective January 1, 2007.  Per the terms of the agreement we pay the CEO a salary of $600,000 per year.   The second agreement entered into was with the CFO and was made effective August 15, 2007.  Per the terms of the agreement we pay the CFO a salary of $180,000 per year (or $67,500 in fiscal 2007 for the period from the effective date of the agreement through December 31^st).  The remaining amount of the increase is the expense to extend the maturity date on warrants held by the CEO which was recorded as a salary expense of the Company in the amount of $317,068 for the year ended December 31, 2007.

Bonus expense increased to $697,911 in 2007 from $104,400 in 2006 or approximately 568%.  Per the terms of the employment agreement with the CEO, in addition to his base salary, we will also pay a cash bonus of 10% of the Company’s net income before taxes that exceeds $750,000 per quarter.  Therefore, due to the amount of net income we reported for the first two quarters of 2007, the CEO was paid a bonus of approximately $320,000.  In addition, per the terms of the employment agreement with the CFO, he received a signing bonus in the amount of 1,500,000 shares of our common stock which was determined to have a value of $345,000 at the date of issuance.  This amount was recorded as a bonus expense to the Company at December 31, 2007.

Legal and professional fees increased to $934,138 in 2007 from $644,093 in 2006 or approximately 45%.  The increased in related to expenses incurred to extend the maturity date on warrants held by our general counsel and by a former director.  The total cost related to the extension of these warrants was recorded as an expense to legal and professional fees in the amount of $434,490.

Marketing and administration fees increased to $1,376,271 in 2007 from $25,500 in 2006 or approximately 5297%.  This increase is due to the maintenance and administrative costs associated with our working interest saless.  We anticipate that this

expense will continue to increase as long as we sell working interests in our oil and gas properties.  

Lease operating costs increased to $4,516,372 in 2007 from $1,223,848 in 2006 or approximately 269%.  This increase is related to several different factors.  First, the majority of these expenses are directly attributable to the increase in business activity in 2007 compared to 2006.  Second, we suffered significant weather damage on our properties in Oklahoma and Texas, which cost hundreds of thousands of dollars to clean up and to get the wells back into production.  We do not anticipate repeating this problem in the future and believe that the addition of our new drilling company will greatly assist us in recovery time in the event of future weather problems.  We anticipate that the costs associated with increased business activity will continue to increase as long as we are focused on increasing our revenue from oil and gas sales.  

The overall effect of the increases in revenue and expenses discussed above is that net income decreased substantially to $1,052,167 in 2007 from $5,725,150 in 2006.  

Liquidity and Capital Resources

Our principal sources of liquidity consist of net revenues from oil and gas production and income from the sales of working interests.  We have no long-term liabilities, and we do not have any significant credit arrangements. From time to time, we have obtained additional liquidity to fund our operations through the sale of shares of our common stock.  In assessing our liquidity, our management reviews and analyzes our current cash balances on-hand, short-term investments, accounts receivable, accounts payable, capital expenditure commitments and other obligations.

Our need for new capital is directly related to the acquisition of new oil and gas properties and to associated drilling and operating expenses.  We expect to be able to finance new and existing drilling activities out of cash flow, but may seek financing if it is determined necessary.  We expect to continue to identify and acquire oil and gas properties for future development where the cost of acquiring a working interest in identified reserves that can be exploited for cost-efficient future production can be financed by selling a portion of the working interest to be acquired.

Cash Flows

The following table sets forth our consolidated cash flows for the fiscal years ended December 31, 2007 and 2006.

Cash and cash equivalents on hand at December 31, 2007, was $965,489 as compared to $1,511,717 at December 31, 2006.  The decrease in 2007 is due primarily to an overall increase in the total expense incurred by the Company during the year.

At December 31, 2007, accounts receivable from related parties totaled a net amount of $653,927 compared to a net amount of $513,625 at December 31, 2006.  The related party is the operating company for the Osage lease and will therefore collect profits from that lease on behalf of PWDR.  The increase is related to amounts collected by the related party on behalf of PWDR during the current year.  The related party is a company that is owned by the CEO of the Company.  Accounts receivable for the year ended December 31, 2007, totaled $1,200,850 compared to $4,251,599 for the prior year.  The decrease is related to the fact that the Company has been more aggressive in their collections of outstanding receivables.  The receivable balance for the current year consisted of amounts related to oil and gas operations of the Company during 2007.

Our property and equipment at December 31, 2007 was a net of $51,724 compared to $22,327 at December 31, 2006.  The increase was related to the purchased of two service trucks and some office equipment.  Property and equipment consists primarily of vehicles and computer equipment associated with operations.

At December 31, 2007, net oil and gas properties totaled $22,888,754, compared to $16,614,718 in 2006. The substantial increase in oil and gas properties occurred due to management’s aggressive acquisition of additional oil and gas properties during 2007.

At December 31, 2007, total assets were $27,841,623 compared to $24,720,054 in 2006, due to the acquisition of additional oil and gas properties.  Total liabilities decreased to $10,632,076 at December 31, 2007 from $11,209,786 at December 31, 2006 due primarily to decreases in accounts payable and stock deposits in 2007.

For the year ended December 31, 2007, cash flows provided by operations totaled $7,462,589.  Cash for operations was generated primarily from sales of properties and working interests.  For the prior year, cash flows from operations totaled $7,105,778.  The large increase in cash flows for 2007 compared with 2006 is due primarily to an increase in expenses related to the granting of warrants and the decrease in accounts receivable.  These amounts were offset by the increase in revenue that was generated through the sale of property and working interests owned by the Company.

For the year ended December 31, 2007, cash used by investing activities totaled $6,534,112, which was primarily for expenditures related to the development of oil and gas properties. In the prior year, cash used in investing activities totaled $4,427,981, which was also related primarily to expenditures for the development of properties, offset by proceeds from the sale of interests in leases.  

For the year ended December 31, 2007, cash used by financing activities was $1,472,000, including payments on notes payable and long-term liabilities, stock offering cost, cash paid for the repurchase of common stock offset by proceeds from the sale of common stock.  In the prior year, proceeds from financing activities was $1,548,941, including proceeds from stock deposits and from the issuance of common stock, offset by payments on notes payable and long-term liabilities.

Plans for continuing operations   

Management believes its business and marketing strategy is proving to be a successful strategy for operations.  We plan to continue to identify, evaluate, acquire working interests in oil and gas leases; sell a portion of the working interests so acquired, as necessary; and explore for, develop and market production from those operations.  We expect to continue to be able to finance some acquisitions through the sale of working interests but intend to explore other financing options, such as a credit facility or other debt financing, and anticipate being able to also use revenues from operations for acquisitions.  Management believes that revenues from operations of developed properties will increase substantially in fiscal 2008.  

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

We are exposed to changes in prevailing market interest rates affecting the return on our investments but do not consider this interest rate market risk exposure to be material to our financial condition or results of operations.  We invest primarily in United States Treasury instruments with short-term (less than one year) maturities.  The carrying amount of these investments approximates fair value due to the short-term maturities.  Under our current policies, we do not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage our exposure to changes in interest rates or commodity prices.

Item 8.

Financial Statements and Supplemental Data

Our financial statements required by this item are included on the pages immediately following the signature page and the Report of our independent accountants.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A (T). Controls and Procedures

Our principal executive and financial officers have participated with management in the evaluation of effectiveness of the controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act as of the end of the period covered by this report.  Based on that evaluation, our principal executive and financial officers believe that our disclosure

controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act), are effective as of the end of the period covered by the report.  

There have been no changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the period covered by this report.

Managements' Annual Report on Internal Control over Financial Reporting

Management has evaluated the effectiveness of our internal control over financial reporting (ICFR) as of December 31, 2007 based on the control criteria established in a report entitled Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO.  Based on our assessment and those criteria, our management has concluded that our internal control over financial reporting had the following deficiencies as of December 31, 2007:

1-   Certain control procedures were unable to be verified due to performance of the procedure not being sufficiently documented.  As an example, some procedures requiring review of certain reports could not be verified due to there being no written notation on the report by the reviewer.  Because we were unable to verify these procedures, we conclude that as of December 31, 2007 there were control deficiencies related to the preparation and review of our interim and annual consolidated financial statements, in particular with respect to certain account reconciliations, journal entries and spreadsheets, and the authorization of sales transactions and customer billing rates.  These control deficiencies resulted in various audit adjustments to our 2007 interim or annual consolidated financial statements, and they could result in a material misstatement to our interim or consolidated financial statements that would not be prevented or detected, and therefore we have determined that these control deficiencies constitute material weaknesses.

2-    Certain of our personnel had access to various financial application programs and data that was beyond the requirements of their individual job responsibilities.  While this control deficiency did not result in any audit adjustments to our 2007 interim or annual consolidated financial statements, it could result in a material misstatement to our interim or consolidated financial statements that would not be prevented or detected, and therefore we have determined that this control deficiency constitutes a material weakness.

3-   We did not maintain adequate segregation of duties within certain areas impacting our financial reporting.  While this control deficiency did not result in any audit adjustments to our 2007 interim or annual consolidated financial statements, it could result in a material misstatement to our interim or consolidated financial statements that would not be prevented or detected, and therefore we have determined that this control deficiency constitutes a material weakness.

To the extent reasonably possible given our resources, we will seek the advice of outside consultants and utilize internal resources to implement additional internal controls to address the above identified material weaknesses.  We are taking steps to implement additional review and approval procedures applicable to our financial reporting process.

Through these steps, we believe that we are addressing the deficiencies that affected our internal control over financial reporting as of December 31, 2007.  Because the remedial actions require relying extensively on manual review and approval processes, and possibly hiring of additional personnel, we may not be able to conclude that these material weaknesses have been remedied until these controls have been successfully operational for some period of time.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.  It is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.  It also can be circumvented by collusion or improper management override.

Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.  However, these inherent limitations are known features of the financial reporting process.  Therefore, it is possible to design into the process certain safeguards to reduce, though not eliminate, this risk.  Management is responsible for establishing and maintaining adequate internal control over our financial reporting.

This report does not include an attestation of our registered public accounting firm regarding internal control over financial reporting, pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable

Part III

Item 10. Directors, Executive Officers, and Corporate Governance

The following table sets forth the name, age, position, and year first elected of each current director and executive officer of the Company:

Biographical Information on Directors and Officers

Brian Fox has been in management in the oil and gas exploration and production business for more than 28 years.   In addition to his positions with the Company, during the past 6 years, Mr. Fox has been President of Renco Energy, Inc. and Renard Resources, Inc., both Oklahoma corporations engaged in acquiring and developing working interests in oil and gas properties in the United States and in marketing the production from those properties.  Mr. Fox has also been President of Zorro Resources, Inc., an Alberta Canada corporation which engages in oil and gas exploration, production and development in Canada.  

Jonathan Niles Havelock was appointed to the Board of Directors in August 2007.  Since 2001, Mr. Havelock has been President and Managing Director of Strategic Relations Inc., a company that provides organizations with strategic roadmaps on government, regulatory structures and competing stakeholder interests.  From 1993 to 2001, Mr. Havelock served as a Member of the Alberta Legislature for Calgary Shaw, during which time he held positions of Minister of Economic Development (1999 to 2001) and Minister of Justice and Attorney General (1997 to 1999).  Prior to entering the legislature, Mr. Havelock worked in marketing, real estate and law, including as Legal Counsel with Amoco Canada Petroleum Company in Calgary, Alberta (1982 to 1988) and Senior Real Estate Representative with Amoco Corporation in Chicago (1988 to 1989).  He has served on the Board of Governors of the Northern Alberta Institute of Technology (2001-2004), as an Alderman for the City of Calgary (1986 to 1988) and on the Calgary Board of Education, as Chair the last two years of his term (1983 to 1986). Mr. Havelock has earned a B.C. with Honors from the University of Alberta and a B.A. (Law) and M.A. from Downing College, University of Cambridge, England.  Mr. Havelock resigned as a director on March 17, 2008.

Mark Chang was appointed to the Board of Directors in August 2007.  Since 2003, Mr. Chang has been the Chief Executive Officer of OL&M Business International Pte. Ltd. (“OL&M”), an investment company focusing on oil, land and minerals.  Mr. Chang is the creator of OilPods, a wholly-owned subsidiary of OL&M, an oil and gas investment organization that has a long term understanding and arrangement with the Company regarding the purchase of oil and gas interests. In 2002, Mr. Chang served as Team Manager for Walton International Group, a land bank company operating in Singapore.  In 2001, he worked as Independent Certificated Mortgage reviewer for various Australian banks.  From 1988 to 2001, Mr. Chang was an instructor pilot with the Republic of Singapore Air Force.  Mr. Chang earned a BBA in Finance from the University of Wichita, Kansas in 1988.  Mr. Chang resigned as a director on March 17, 2008.

On March 17, 2008, Jon Havelock and Mark Chang resigned their positions as members of our board of directors.  Mr. Havelock and Mr. Chang were originally appointed as directors in August 2007, and were subsequently elected as directors by the shareholders in October 2007.  Mr. Havelock and Mr. Chang have resigned to pursue other activities.

Jeffery Q. Johnson was appointed as Chief Financial Officer in August 2007.  Mr. Johnson is currently a manager with the accounting firm of Stayner Bates & Jensen P.C., in Salt Lake City, Utah.  He was formerly a senior auditor with Piercy Bowler Taylor & Kern of Las Vegas, Nevada from 2002 to 2006.  Mr. Johnson received a Bachelor’s degree in Business Administration from Southern Utah University in 2002 as well as a Masters of Accountancy degree from Southern Utah

University in 2002.  He has worked as both an auditor and outside consultant with many small to medium sized public companies in numerous industries.  

 No person named as a director, officer or other material employee of the Company has been a party to any bankruptcy or similar proceeding, been convicted of a crime or found to have violated any securities laws or similar laws required to be disclosed by this item.

Board Committees

The Company does not have any board committees.  The entire board acts as the audit committee.  The board also reviews and sets executive compensation and director compensation.

Code of Ethics

The Company is reviewing a code of ethics governing the conduct of our officers and directors and expects to adopt one shortly. Upon adoption, the code will be added to our website at www.powderrivergascorp.com.

Item 11.

Executive Compensation

Brian Fox is the President and is, at this filing date, the sole director of the Company.  On May 10, 2007 the Company entered into an employment agreement with Brian naming him the Chief Executive Officer (CEO), this agreement was made effective January 1, 2007.  Per the terms of the agreement the Company is to pay the CEO a salary of $600,000 per year, payable semi-monthly.  In addition, the Company will also pay a cash bonus of 10% of the Company’s net income before taxes to the Company that exceeds $750,000 per quarter.  The CEO was paid compensation of approximately $600,000 by the Company during 2007.  The Company also reimbursed approximately $579,147 in out of pocket expenses incurred by the CEO in connection with business for the Company.   For the year ended December 31, 2007, the amount of bonus related to this agreement was approximately $320,000, which was related primarily to the first two quarters of the year.

Effective August 15, 2007 the Company entered into an employment agreement with its Chief Financial Officer (CFO).  Per the terms of the agreement the Company is to pay the CFO a salary of $180,000 per year, payable semi-monthly.  In addition, the Company will also pay a cash bonus of 3% of the Company’s net income before taxes as determined at the end of each fiscal quarter, on net income before taxes to the Company that exceeds $750,000 per quarter.  On October 30, 2007, the Board of Directors approved an amended employment agreement with the CFO effective November 1, 2007, extending the term of his employment agreement as Chief Financial Officer to December 31, 2010 and adding a signing bonus of 1,500,000 shares of restricted common stock with forfeiture provisions for early termination of the employment agreement.  The annual compensation and bonus provisions remain the same. The CFO was paid compensation of approximately $67,500 by the Company during 2007.  The Company also reimbursed approximately $24,241 in out of pocket expenses incurred by the CFO in connection with business for the Company.  For the year ended December 31, 2007 the amount of bonus related to this agreement was approximately $345,000 which was the cost associated with the issuance of restricted common stock.

In August 2007, the Company adopted a compensation plan for non-employee directors.  The plan includes base annual compensation of US$36,000.  The plan also provided that Board members may be awarded performance bonuses based on increases in the profitability of the Company, and may be granted options under the 2007 Incentive Stock Option Plan. Under the compensation plan, Jon Havelock and Mark Chang received payment in fiscal 2007 for their service as directors from August through December 31, 2007 of $9,000 each,  

In addition to general Board duties, Mr. Havelock has been assigned speaking and presentation duties for which he was to receive additional compensation.  For the year ended December 31, 2007 the Company has paid $1,500 to Mr. Havelock for speaking assignments.

Item 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following tables set forth as of March 21, 2008 the name and address and the number of shares of our common stock held of record or beneficially by each person who held of record, or was known by us to own beneficially, more than 5% of the shares of our common stock issued and outstanding, and the name and shareholdings of each Director and of all officers and Directors as a group. The information on share numbers and percentage ownership listed assumes: a) the exercise of warrants by the beneficial owner (all included warrants are currently exercisable); and b) a corresponding increase in the number of shares issued and outstanding.

Beneficial ownership is determined in accordance with the rules of the SEC.  In determining the number of shares beneficially owned by a person, options or warrants to purchase common stock held by that person that are currently exercisable, or become exercisable within 60 days following March 21, 2008, are deemed outstanding; however, such shares are not deemed outstanding for purposes of computing the percentage ownership of any other person.  We believe that all of the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and except as indicated in the other footnotes to this table.

As of March 21, 2008, 149,417,566 shares of common stock were issued and outstanding.

Securities Ownership of Officers and Directors

(1) Includes 200,000 shares held by spouse and 6,900,000 shares held by Renco Resources, Inc., a company of which Mr. Fox is a principal.  Also includes warrants for the purchase of 2,000,000 shares exercisable at $0.185 per share until 12/31/10 and warrants for the purchase of 1,000,000 shares exercisable at $0.25 per share until 12/31/10.

 (2)Includes warrants for the purchase of 2,000,000 shares exercisable at $0.185 per share, until 12/31/10.

Item 13.

 Certain Relationships and Related Transactions, and Director Independence

On December 17, 2003, effective January 1, 2004, Renard Resources, Inc. assigned to the Company the Leonard Heirs Lease in Acadia Parish, LA in exchange for 38,500,000 shares of common stock of the Company at $.007 per share, the fair market value of the common stock on the date of the assignment.  Brian Fox is the sole owner of Renard Resources.

Brian Fox is the principal of Renco Energy, Inc., a company that operates oil and gas properties for the Company and collects fees which are then remitted to the Company.  At December 31, 2007, the Company had an outstanding receivable due from Renco for a total of $653,927.  None of the transactions between Renco and the Company may be deemed to be at arms length.

Mark Chang is the principal of OilPods, a Singapore investment and marketing firm.  In fiscal 2007 and 2006, the Company paid OilPods approximately $4,274,236, and $4,940,528, respectively.  Mr. Chang’s marketing and investment firm receives a 20% commission on working interest sales generated through his company, as well as ongoing account maintenance fees related to those sales.

Mr. Fox has been a director of the Company since 2003.  Mr. Chang joined the board of directors in August 2007 and resigned March 17, 2008. Neither Mr. Fox nor Mr. Chang is deemed to be an independent director.

Jonathan Havelock joined the Company’s board of directors in August 2007 and resigned March 17, 2008.  Mr. Havelock was deemed to be independent.

Item 14. Principal Accountant Fees and Services

(1)

Audit Fees.  During 2007 and 2006 the Company paid professional services rendered in audit fees of $38,251 and $39,712,  respectively, for the audit of the Company financial statements and for the review of financial statements included in the Company’s Form 10-KSB  and Forms 10-QSB  to Chisholm Bierwolf & Nilson, LLC, the principal independent Certified Public Accountants for the Company.

(2)

Audit Related Fees.  None.

(3)

Tax Compliance Matters. During 2007 and 2006, the Company paid professional services rendered in tax preparation fees of $1,860 and $1,500, respectively, for preparation of tax returns to Chisholm, Bierwolf & Nilson, LLC.

(4)

All Other Fees. None

Item 15. Exhibits

Signatures

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

POWDER RIVER PETROLEUM INTERNATIONAL, INC.

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Powder River Petroleum International, Inc.

(formerly Powder River Basin Gas Corp.)

Calgary, Alberta, CANADA

We have audited the accompanying consolidated balance sheets of Powder River Petroleum International, Inc.  (formerly Powder River Basin Gas Corp.) as of December 31, 2007 and 2006, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Powder River Petroleum International, Inc. (formerly Powder River Basin Gas Corp.) at December 31, 2007 and 2006 , and the results of its operations and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/Chisholm, Bierwolf & Nilson, LLC

Chisholm, Bierwolf & Nilson, LLC

Bountiful, UT

March 19, 2008