AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 2004
                                                     REGISTRATION NO. 333-109784
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                 AMENDMENT NO. 3
                                       TO
                                    FORM S-1
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                            ------------------------

                                 TENGASCO, INC.
--------------------------------------------------------------------------------
                    (EXACT NAME OF REGISTRANT AS SPECIFIED IN
                                  OUR CHARTER)


         TENNESSEE                   1311                  87-0267438
    --------------------     --------------------     --------------------
      (STATE OR OTHER          (PRIMARY STANDARD         (I.R.S. EMPLOYER
      JURISDICTION OF      INDUSTRIAL CLASSIFICATION  IDENTIFICATION NUMBER)
     INCORPORATION OR            CODE NUMBER)
       ORGANIZATION)

                           603 MAIN AVENUE, SUITE 500
                               KNOXVILLE, TN 37902
                                 (865) 523-1124
        ----------------------------------------------------------------
               (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
        INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                               RICHARD T. WILLIAMS
                                 TENGASCO, INC.
                           603 MAIN AVENUE, SUITE 500
                               KNOXVILLE, TN 37902
                                 (865) 523-1124
        ----------------------------------------------------------------
            (NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)

                                    COPY TO:

                                  GARY J. SIMON
                            HUGHES HUBBARD & REED LLP
                             ONE BATTERY PARK PLAZA
                               NEW YORK, NY 10004
                                 (212) 837-6000
                             -----------------------

     Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
     If any of the securities being registered on this form are to be offered on
a delayed or continuous  basis  pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
     If this form is filed to  register  additional  securities  for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list  the  Securities  Act  registration  statement  number  of the  earlier
effective registration statement for the same offering. / /
     If this form is a  post-effective  amendment  filed pursuant to Rule 462(c)
under the  Securities  Act,  check the following box and list the Securities Act
registration  statement number of the earlier effective  registration  statement
for the same offering. / /
     If this form is a  post-effective  amendment  filed pursuant to Rule 462(d)
under the  Securities  Act,  check the following box and list the Securities Act
registration  statement number of the earlier effective  registration  statement
for the same offering. / /
     If delivery of the  prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /



     THE REGISTRANT  HEREBY AMENDS THIS  REGISTRATION  STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY OUR EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER  AMENDMENT  WHICH  SPECIFICALLY  STATES  THAT  THIS  REGISTRATION
STATEMENT SHALL  THEREAFTER  BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES  ACT OF 1933 OR UNTIL THIS  REGISTRATION  STATEMENT  SHALL BECOME
EFFECTIVE  ON SUCH  DATE  AS THE  SECURITIES  AND  EXCHANGE  COMMISSION,  ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

================================================================================

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The  information in this  prospectus is not complete and may be changed.  We may
not sell  these  securities  until the  registration  statement  filed  with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell  these  securities  and we are not  soliciting  an  offer  to buy  these
securities in any state where the offer or sale is not permitted.
--------------------------------------------------------------------------------

                 SUBJECT TO COMPLETION, DATED FEBRUARY 13, 2004

                                   PROSPECTUS
                                 TENGASCO, INC.
                                   12,100,000
                               SUBSCRIPTION RIGHTS
                                   TO PURCHASE
                                   36,300,000
                             SHARES OF COMMON STOCK

     We are  distributing  to holders of our  outstanding  common  stock,  at no
charge,  nontransferable  subscription  rights to purchase up to an aggregate of
36,300,000 shares of our common stock at a cash subscription  price of $0.25 per
share.  You will  receive for each share of our common  stock you own a right to
purchase three shares of our common stock at an exercise price of $0.25 for each
share purchased. If you exercise your rights in full, you may over-subscribe for
the purchase of additional shares that remain  unsubscribed at the expiration of
the rights  offering,  subject to  availability  and  allocation of shares among
persons exercising this over-subscription  privilege.  In no event, however, may
any subscriber  purchase  shares of our common stock in the offering that,  when
aggregated  with all of the shares of our common  stock  otherwise  owned by the
subscriber  and his, her or its  affiliates,  would  immediately  following  the
closing represent more than 50% of our issued and outstanding  shares.  You will
not be entitled to receive  any rights  unless you hold of record  shares of our
common stock as of the close of business on _____, 2004.

     This rights offering is being made in order to obtain funds to pay non-bank
indebtedness, including to Dolphin Offshore Partners, L.P., which we refer to as
Dolphin,  in the aggregate  amount of up to  approximately  six million  dollars
(including  up to  $3,850,000  in  principal  amount  plus  accrued  interest to
Dolphin),  with the balance of the net proceeds,  if any, to be used to pay bank
indebtedness and/or for working capital purposes. See "Certain Relationships and
Related Transaction." Dolphin, of which Peter E. Salas, a member of our Board of
Directors,  is the general  partner  and the  controlling  person,  is deemed to
beneficially own approximately  19.8% of our outstanding common stock. Our Board
of Directors has  determined  that this rights  offering is advisable  under our
present financial,  operational and other circumstances.  Our Board of Directors
formed a four-person  special committee of its members charged with, among other
things,  recommending  to the full Board of Directors  the  financial  and other
terms of this rights  offering.  No special  committee  member is an employee of
ours nor has any personal interest in the rights offering. We have no agreements
or understandings  with any persons or entities,  including Dolphin,  members of
our Board of Directors,  our management and any broker dealers,  with respect to
their  exercise  of any  rights  offered  hereby  or their  participation  as an
underwriter,  broker or dealer in this  offering.  See "The  Rights  Offering  -
Background of the Rights Offering."

     Assuming that stockholders  exercise all of the rights we are offering,  we
will receive gross  proceeds of  approximately  $9,075,000.  The net proceeds of
this  offering,  however,  even  at a  full  participation  level,  may  provide
insufficient  working capital to us for any minimum period of time, will be used
in the priorities described in the first sentence of the preceding paragraph and
will  be  available  in the  following  approximate  amounts  at  the  following
participation levels: (i) if the participation level is 25%, then gross proceeds
would  be  $2,268,750  and  net  proceeds  would  be  $2,118,750;  (ii)  if  the
participation  level is 50%, then gross  proceeds  would be  $4,537,500  and net
proceeds  would be  $4,387,500;  (iii) if the  participation  level is 75%, then
gross proceeds  would be $6,806,250  and net proceeds  would be $6,656,250;  and
(iv) if the  participation  level is  100%,  then the  gross  proceeds  would be
$9,075,000 and the net proceeds would be $8,925,000. If should be noted from the
amounts above that, unless the offering is approximately 75% participated, there
may not be sufficient proceeds remaining for other purposes following payment of
non-bank indebtedness. See "Use of Proceeds."

     The rights will  expire if they are not  exercised  by 5:00 p.m.,  New York
City time, on _____,  2004 [not later than 30 days after the date  hereof],  the
expected  expiration date of the rights  offering.  We may extend the period for
exercising  the rights for up to an  additional  30 days.  Subscription  amounts
received will be held by the  subscription  agent until completion of the rights
offering,  during which period the right holders will not earn interest on those
subscription  amounts.  Rights that are not exercised by the expiration  date of
the rights  offering will expire and will have no value.  Rights may not be sold
or transferred  except under the very limited  circumstances  described later in
this prospectus.  You should carefully  consider whether to exercise your rights
before the expiration  date.  See "The Rights  Offering." Our Board of Directors
makes no recommendation regarding your exercise of rights.

     Shares of our common stock are traded on the American  Stock Exchange under
the symbol  "TGC." On February 9, 2004,  the last  reported  sales price for our
common stock was $1.20 per share.  Although  application  has been made to list
the shares of common stock offered  hereby on the American Stock  Exchange,  the


Company  cannot be sure that such  listing will be granted.  See "Risk  Factors.
Delisting of our common  stock from AMEX,  which is  possible,  would  adversely
affect us and holders of those shares.

     AN  INVESTMENT  IN OUR COMMON  STOCK IS VERY  RISKY.  YOU SHOULD  CAREFULLY
CONSIDER  THE  RISK  FACTORS  BEGINNING  ON  PAGE 8 OF  THIS  PROSPECTUS  BEFORE
EXERCISING YOUR RIGHTS.

                              PROCEEDS OF OFFERING
                                                        PER SHARE        TOTAL
                                                        ---------        -----
Subscription Price....................................    $0.25       $9,075,000
Estimated Expenses....................................   $0.004       $150,000
Net Proceeds to Tengasco..............................   $0.246       $8,925,000

NEITHER  THE  SECURITIES  AND  EXCHANGE  COMMISSION  NOR  ANY  STATE  SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS  IS TRUTHFUL OR  COMPLETE.  ANY  REPRESENTATION  TO THE CONTRARY IS A
CRIMINAL OFFENSE.


              THE DATE OF THIS PROSPECTUS IS FEBRUARY __, 2004.



                                   TABLE OF CONTENTS



                                                                         
 Summary.................................1     Management..........................45
 Risk Factors............................8     Certain Relationships And Related
 Forward Looking Statements.............14     Transactions........................50
 Use Of Proceeds........................15     Principal Stockholders..............53
 Price Range Of Common Stock............16     The Rights Offering.................55
 Capitalization.........................17     Description Of Capital Stock........66
 Selected Consolidated Financial               United States Federal Income Tax
 Data...................................18     Consequences........................69
 Management's Discussion And Analysis          Plan of Distribution................70
 Of Financial Condition And Results Of         Tennessee Anti-Takeover Law.........70
 Operations.............................19     Limitation Of Liability Of
 Quantitative And Qualitative                  Directors...........................70
 Disclosure About Market Risks..........27     Legal Matters.......................72
 Business...............................28     Experts.............................72
 Production.............................41     Where You Can Find More Information.72
 Legal Proceedings......................43     Index to Financial Statements......F-1




                                     SUMMARY

     THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS  SUMMARY MAY NOT CONTAIN ALL OF THE  INFORMATION  THAT IS IMPORTANT TO YOU.
THIS PROSPECTUS  INCLUDES  INFORMATION  ABOUT OUR BUSINESS AND OUR FINANCIAL AND
OPERATING DATA. BEFORE MAKING AN INVESTMENT  DECISION,  WE ENCOURAGE YOU TO READ
THE ENTIRE  PROSPECTUS  CAREFULLY,  INCLUDING  THE RISKS  DISCUSSED IN THE "RISK
FACTORS" SECTION.  WE ALSO ENCOURAGE YOU TO REVIEW OUR FINANCIAL  STATEMENTS AND
THE OTHER INFORMATION US PROVIDE IN THE REPORTS AND OTHER DOCUMENTS THAT WE FILE
WITH THE SEC, AS DESCRIBED UNDER "WHERE YOU CAN FIND MORE INFORMATION."

OUR COMPANY

     We are in the business of exploring for, producing and transporting oil and
natural  gas in  Tennessee  and Kansas.  We lease  producing  and  non-producing
properties  with a view toward  exploration  and  development.  Emphasis is also
placed on pipeline and other infrastructure facilities to provide transportation
services. We utilize seismic technology to improve the discovery and recovery of
reserves.

     To date,  we have drilled  primarily on a portion of our  Tennessee  leases
known as the Swan Creek Field in Hancock  County focused within what is known as
the Knox  formation,  one of the geologic  formations in that field.  During the
first nine months of 2003, we produced an average of  approximately  1.2 million
cubic feet of natural  gas per day and  approximately  2,171  barrels of oil per
month from 23 producing  gas wells and six producing oil wells in the Swan Creek
Field.  We also  operate  wells in the State of  Kansas.  During  the first nine
months of 2003, we produced an average of  approximately  .73 million cubic feet
of natural gas per day and 10,531 barrels of oil per month from 59 producing gas
wells and 149 producing oil wells in Kansas.

     We were  initially  organized  under the laws of the State of Utah on April
18,  1916,  under  the  name  "Gold  Deposit  Mining  &  Milling   Company."  We
subsequently  changed  our  name  to  Onasco  Companies,  Inc.  We  were  formed
originally  for the purpose of mining,  reducing and smelting  mineral  ores. On
November 10, 1972, we conveyed to an unaffiliated  entity  substantially  all of
our assets and we ceased all business  operations.  From  approximately  1983 to
1991,  our  operations  were limited to seeking out the  acquisition  of assets,
property or businesses.  In 1995 we began  acquiring oil and gas assets and have
since  focused  our  efforts  on the  operation  of these  assets as well as the
acquisition of additional oil and gas assets.

     We are a  Tennessee  corporation,  the address of our  principal  executive
office is 603 Main Avenue,  Suite 500,  Knoxville,  TN 37902,  and our telephone
number at that address is (865)523-1124.

THE RIGHTS OFFERING

     You should read "Risk Factors" before you exercise your rights.

WHAT IS THE RIGHTS OFFERING?            The rights offering is a distribution to
                                        holders  of  our  common  stock,  at  no
                                        charge, of nontransferable  subscription
                                        rights  at the  rate  of one  right  (to
                                        purchase  three  shares  of  our  common
                                        stock)  for each  share of common  stock
                                        owned as of ________,  2004,  the record
                                        date.  Each right will be evidenced by a
                                        nontransferable rights certificate.

WHAT IS  A   SUBSCRIPTION   RIGHT?      Each  subscription  right  is a right to
                                        purchase  three  shares  of  our  common
                                        stock  and  carries   with  it  a  basic
                                        subscription     privilege     and    an
                                        over-subscription privilege.

WHAT IS THE BASIC SUBSCRIPTION          The basic subscription privilege of each
PRIVILEGE?                              right  entitles  you to  purchase  three
                                        shares  of  our  common   stock  at  the
                                        subscription   price  of  $0.75  in  the
                                        aggregate,   or  $0.25  per  each  share
                                        purchased.  You must  purchase all three
                                        shares  relating  to  each   outstanding
                                        share  if  you  wish  to  exercise   the
                                        subscription privilege relating thereto.
                                        Fractional  rights will be eliminated by
                                        rounding  up to the  next  higher  whole
                                        right.



WHAT IS THE OVER-SUBSCRIPTION           We  do  not  expect   that  all  of  our
PRIVILEGE?                              stockholders  will exercise all of their
                                        basic subscription  rights. By extending
                                        over-subscription   privileges   to  our
                                        stockholders,     we    are    providing
                                        stockholders  that exercise all of their
                                        basic  subscription  privileges with the
                                        opportunity  to  purchase  those  shares
                                        that   are  not   purchased   by   other
                                        stockholders  through  the  exercise  of
                                        their basic subscription privileges. The
                                        over-subscription   privilege   of  each
                                        right   entitles   you,   if  you  fully
                                        exercise    your   basic    subscription
                                        privilege,  to subscribe for  additional
                                        shares of our common stock  unclaimed by
                                        other  holders  of rights in the  rights
                                        offering, at the same subscription price
                                        per share. If an insufficient  number of
                                        shares is available to fully satisfy all
                                        over-subscription   privilege  requests,
                                        the available shares will be distributed
                                        proportionately among rights holders who
                                        exercised    their     over-subscription
                                        privilege  based on the number of shares
                                        each rights holder  subscribed for under
                                        the basic  subscription  privilege.  The
                                        subscription   agent  will   return  any
                                        excess payments by mail without interest
                                        or   deduction    promptly   after   the
                                        expiration of the rights offering.

HOW LONG WILL THE  RIGHTS  OFFERING     You  will  be  able  to  exercise   your
LAST?                                   subscription   rights   only   during  a
                                        limited  period.  If you do not exercise
                                        your  subscription  rights  before  5:00
                                        p.m.,    New   York   City   time,    on
                                        _____________,  2004 [not  later than 30
                                        days  after  the  date   hereof],   your
                                        subscription rights will expire. We may,
                                        in our  discretion,  extend  the  rights
                                        offering  for  up  to an  additional  30
                                        days.

IS THERE ANY LIMITATION ON THE          Yes.  In no  event  may  any  subscriber
NUMBER OF MY RIGHTS THAT I MAY          purchase  shares of our common  stock in
EXERCISE?                               the offering that,  when aggregated with
                                        all of the  shares of our  common  stock
                                        otherwise  owned by the  subscriber  and
                                        his,  her  or  its   affiliates,   would
                                        immediately    following   the   closing
                                        represent  more  than 50% of our  issued
                                        and outstanding shares.

WHY IS TENGASCO ENGAGING IN A           The net proceeds of the rights  offering
RIGHTS OFFERING?                        will be used  initially  to pay non-bank
                                        indebtedness in the aggregate  amount of
                                        up to six million dollars  (including up
                                        to $3,850,000  in principal  amount plus
                                        accrued  interest to Dolphin),  with the
                                        balance of the net proceeds,  if any, to
                                        be  used  to  repay  bank   indebtedness
                                        and/or  for  working  capital  purposes,
                                        including  the  drilling  of  additional
                                        wells.  See "Certain  Relationships  and
                                        Related    Transactions."   The   rights
                                        offering  gives you the  opportunity  to
                                        participate in this fund-raising  effort
                                        and to purchase additional shares of our
                                        common stock.

WHAT HAPPENS IF I CHOOSE NOT TO         You will retain your  current  number of
EXERCISE MY SUBSCRIPTION RIGHTS?        shares  of common  stock  even if you do
                                        not exercise your  subscription  rights.
                                        If  you  choose  not  to  exercise  your
                                        subscription rights, then the percentage
                                        of our  common  stock  that you own will
                                        decrease.  Rights not exercised prior to
                                        the  expiration  of the rights  offering
                                        will expire.

HOW DO I EXERCISE MY SUBSCRIPTION       You may exercise your rights by properly
RIGHTS?                                 completing   and  signing   your  rights
                                        certificate.   You  must   deliver  your
                                        rights  certificate with full payment of
                                        the  subscription  price  (including any
                                        amounts     in     respect     of    the
                                        over-subscription   privilege)   to  the
                                        subscription  agent  on or  prior to the
                                        expiration date. If you use the mail, we
                                        recommend    that   you   use   insured,
                                        registered    mail,    return    receipt
                                        requested.  If you cannot  deliver  your
                                        rights  certificate to the  subscription
                                        agent  on  time,   you  may  follow  the
                                        guaranteed delivery procedures described
                                        under "The  Rights  Offering--Guaranteed
                                        Delivery  Procedures"  beginning on page
                                        55.

WHAT SHOULD I DO IF I WANT TO           If you hold  shares of our common  stock
PARTICIPATE IN THE RIGHTS OFFERING      through  a  broker,  custodian  bank  or
BUT MY SHARES ARE HELD IN THE NAME      other nominee,  we will ask your broker,
OF MY  BROKER, CUSTODIAN  BANK OR       custodian   bank  or  other  nominee  to
OTHER NOMINEE?                          notify  you of the rights  offering.  If
                                        you wish to exercise  your  rights,  you
                                        will need to have your broker, custodian
                                        bank or other nominee act for you.

                                        To indicate  your  decision,  you should
                                        complete  and  return  to  your  broker,
                                        custodian bank or other nominee the form
                                        entitled   "Beneficial   Owner  Election
                                        Form." You should receive this form from
                                        your  broker,  custodian  bank or  other
                                        nominee with the other  rights  offering
                                        materials.   You  should   contact  your
                                        broker,  custodian bank or other nominee
                                        if  you  believe  you  are  entitled  to
                                        participate  in the rights  offering but
                                        you have not received this form.

WHAT SHOULD I DO IF I WANT              The subscription  agent will mail rights
TO PARTICIPATE IN THE RIGHTS OFFERING   certificates  to you if you are a rights
AND I AM A STOCKHOLDER IN A FOREIGN     holder  whose  address  is  outside  the
COUNTRY OR IN THE ARMED SERVICES?       United  States  or if you  have  an Army
                                        Post  Office  or  a  Fleet  Post  Office
                                        address.  To exercise  your rights,  you
                                        must notify the subscription agent on or
                                        prior to 5:00 p.m.,  New York City time,
                                        on  _________  2004,  and take all other
                                        steps  which are  necessary  to exercise
                                        your  rights,  on or prior to that time.
                                        If you do not  follow  these  procedures
                                        prior to the  expiration  of the  rights
                                        offering, your rights will expire.

WHAT IF THE MARKET PRICE PER SHARE      Consult  your  broker.  Depending on the
OF OUR COMMON STOCK IS LESS THAN        market  price of our  common  stock,  it
THE SUBSCRIPTION PRICE PER SHARE        most likely will be more cost  effective
WHEN I AM DECIDING TO EXERCISE MY       for you to purchase shares of our common
SUBSCRIPTION RIGHTS?                    stock  on the  American  Stock  Exchange
                                        rather than exercise  your  subscription
                                        rights.

WILL I BE CHARGED A SALES COMMISSION    No.  We  will  not  charge  a  brokerage
OR A FEE BY TENGASCO IF I EXERCISE      commission  or a fee to  rights  holders
MY SUBSCRIPTION RIGHTS?                 for exercising their rights. However, if
                                        you  exercise  your  rights   through  a
                                        broker   or   nominee,   you   will   be
                                        responsible for any fees charged by your
                                        broker or nominee.

WHAT IS THE  BOARD OF  DIRECTORS'       Our board of directors is not making any
RECOMMENDATION  REGARDING  THE RIGHTS   recommendation  as to whether you should
OFFERING?                               exercise your subscription  rights.  You
                                        are urged to make your decision based on
                                        your  own   assessment   of  the  rights
                                        offering and Tengasco.

HOW MANY SHARES MAY I PURCHASE?         You  will  receive  one  nontransferable
                                        subscription  right  for  each  share of
                                        common   stock   that   you   owned   on
                                        ____________,  2004,  the  record  date.
                                        Each  subscription  right  contains  the
                                        basic  subscription  privilege  and  the
                                        over-subscription  privilege. Each basic
                                        subscription  privilege  entitles you to
                                        purchase  three  shares of common  stock
                                        for  $0.25  per  each  share  purchased.
                                        Fractional  rights will be eliminated by
                                        rounding  up to the  next  higher  whole
                                        right.   See  "The  Rights   Offering  -
                                        Subscription    Privileges    -    Basic
                                        Subscription Privilege."


                                        The over-subscription privilege entitles
                                        you to subscribe for  additional  shares
                                        of  our   common   stock   at  the  same
                                        subscription   price   per  share  on  a
                                        pro-rata  basis to the  number of shares
                                        you    purchased    under   your   basic
                                        subscription  privilege,   provided  you
                                        fully  exercise your basic  subscription
                                        privilege.     "Pro-rata"    means    in
                                        proportion  to the  number  of shares of
                                        our common  stock that you and the other
                                        rights  holders   electing  to  exercise
                                        their over-subscription  privileges have
                                        purchased   by   exercising   the  basic
                                        subscription    privileges    on   their
                                        holdings  of  common  stock.   See  "The
                                        Rights Offering - Subscription Privilege
                                        -Over-Subscription Privilege."

HOW WAS THE SUBSCRIPTION PRICE          The  subscription  price  per  share has
ESTABLISHED?                            been   recommended   to  our   Board  of
                                        Directors by a special  committee of our
                                        Board charged with,  among other things,
                                        recommending  to our Board the financial
                                        and other  terms of this  offering.  The
                                        special committee considered a number of
                                        factors, including the historic and then
                                        current   market  price  of  the  common
                                        stock,  our  business   prospects,   our
                                        recent   and    anticipated    operating
                                        results,   general   conditions  in  the
                                        securities   markets   and  the   energy
                                        markets,    our   need   for    capital,
                                        alternatives available to us for raising
                                        capital, the amount of proceeds desired,
                                        the pricing of similar transactions, the
                                        liquidity  of our  common  stock and the
                                        level  of  risk  to our  investors.  The
                                        matters   considered   by  the   special
                                        committee  in  its  determination   also
                                        included     negotiations     with     a
                                        representative of Dolphin,  of which Mr.
                                        Salas is the controlling person, as to a
                                        subscription   price  at  which  Dolphin
                                        might   participate   in  the  offering,
                                        although  Dolphin has not  entered  into
                                        any  agreement  with  the  Company  with
                                        respect  to  such   participation.   The
                                        special   committee's    recommendations
                                        regarding  subscription  price per share
                                        and  other  terms of the  offering  were
                                        finally   presented   to  our  Board  of
                                        Directors    (with    Mr.    Salas   not
                                        participating   with  respect  to  these
                                        matters) on December  23,  2003.  In its
                                        deliberations, the special committee was
                                        advised by a  financial  adviser  and by
                                        counsel.  See  "The  Rights  Offering  -
                                        Background of the Rights Offering."

IS EXERCISING MY SUBSCRIPTION           Yes.   The   exercise   of  your  rights
RIGHTS RISKY?                           involves  risks.  Exercising your rights
                                        means  buying  additional  shares of our
                                        common stock and should be considered as
                                        carefully  as  you  would  consider  any
                                        other  equity  investment.  Among  other
                                        things,  you should  carefully  consider
                                        the risks  described  under the  heading
                                        "Risk Factors," beginning on page 8.

MAY I TRANSFER MY RIGHTS IF I DO        No.  Should you  choose not to  exercise
NOT WANT TO PURCHASE ANY SHARES?        your rights, you may not sell, give away
                                        or  otherwise   transfer   your  rights.
                                        However,  rights will be transferable to
                                        certain  affiliates of the recipient and
                                        by operation of law - for example,  upon
                                        death of the recipient.

AM I REQUIRED TO SUBSCRIBE IN THE       No.
RIGHTS OFFERING?



HOW MANY SHARES WILL BE OUTSTANDING     Assuming  the rights  offering  is fully
AFTER THE RIGHTS OFFERING?              subscribed,  the  number  of  shares  of
                                        common  stock  that will be  outstanding
                                        immediately  after the  rights  offering
                                        will be approximately 48,400,000 shares,
                                        subject  to  any  increase(s)  that  may
                                        occur after the date of this  prospectus
                                        as a result of the exercise,  conversion
                                        or   exchange   of   outstanding   stock
                                        options,   convertible   securities   or
                                        exchangeable securities.

WHAT HAPPENS IF THE RIGHTS OFFERING     Any rights not  exercised  after  giving
IS NOT FULLY SUBSCRIBED AFTER           effect    to    the    over-subscription
GIVING EFFECT TO THE                    privilege will expire.
OVER-SUBSCRIPTION PRIVILEGE?

HOW WILL THE RIGHTS OFFERING AFFECT     The  members  of our board of  directors
OUR BOARD'S OWNERSHIP OF OUR COMMON     and  their   affiliates  are  deemed  to
STOCK?                                  beneficially own 4,363,661 shares of our
                                        common stock, representing approximately
                                        34.5% of our  outstanding  common stock.
                                        Dolphin  is deemed to  beneficially  own
                                        2,441,019  shares of our  common  stock,
                                        representing  approximately 19.8% of our
                                        outstanding common stock. See "Principal
                                        Stockholders."

                                        If no rights  holders other than Dolphin
                                        exercise  their  rights  in  the  rights
                                        offering,  Dolphin  will, as a result of
                                        its subscription for and purchase of the
                                        maximum number of  unsubscribed  shares,
                                        be limited by the terms of this offering
                                        to ownership of not more than 50% of our
                                        issued and outstanding shares, when such
                                        ownership   is   aggregated   with   the
                                        ownership  of  its  affiliates.   If  no
                                        rights  holders  other  than  all of the
                                        members   of  our  board  of   directors
                                        exercise their respective  rights in the
                                        rights offering,  our board of directors
                                        collectively  will,  as a result  of its
                                        subscription  for  and  purchase  of all
                                        unsubscribed  shares,  own  81.9% of our
                                        issued  and  outstanding  shares  and be
                                        deemed to beneficially own approximately
                                        84.1%   of   our   common   stock.   See
                                        "Principal Stockholders."

AFTER I EXERCISE MY RIGHTS, CAN I       No.  Once you send in your  subscription
CHANGE MY MIND AND CANCEL MY            certificate   and   payment  you  cannot
PURCHASE?                               revoke the exercise of your rights, even
                                        if you later learn  information about us
                                        that you consider to be unfavorable  and
                                        even if the  market  price of our common
                                        stock  is  below  the  $0.25  per  share
                                        subscription   price.   You  should  not
                                        exercise your subscription rights unless
                                        you  are   certain   that  you  wish  to
                                        purchase additional shares of our common
                                        stock at a price of $0.25 per share. See
                                        "The Rights Offering - No Revocation."

WHAT ARE THE  FEDERAL  INCOME TAX       A  holder  of  common   stock  will  not
CONSEQUENCES OF EXERCISING MY           recognize  income  or loss  for  federal
SUBSCRIPTION  RIGHTS AS A HOLDER OF     income tax purposes in  connection  with
COMMON STOCK?                           the receipt or exercise of  subscription
                                        rights  in  the  rights  offering.   See
                                        "United   States   Federal   Income  Tax
                                        Consequences" on page 62.

WHEN WILL I RECEIVE MY NEW SHARES?      If you  purchase  shares of common stock
                                        through this rights  offering,  you will
                                        receive certificates  representing those
                                        shares as soon as practicable  after the
                                        expiration   of  the  rights   offering.
                                        Subject  to  state  securities  laws and
                                        regulations,  we have the  discretion to
                                        delay allocation and distribution of any
                                        shares  you may  elect  to  purchase  by
                                        exercise     of    your     basic     or
                                        over-subscription  privilege in order to
                                        comply with state securities laws.



WILL THE NEW SHARES BE INITIALLY        Yes.  Our common  stock is traded on the
LISTED ON THE AMERICAN STOCK            American Stock Exchange under the symbol
EXCHANGE AND TREATED LIKE OTHER         "TGC." On  February  9,  2004,  the last
SHARES?                                 reported sales price of our common stock
                                        on the AMEX was $1.20 per share.

IF THE RIGHTS OFFERING IS NOT           Yes.  The  subscription  agent will hold
COMPLETED, WILL MY SUBSCRIPTION         all funds it  receives  in escrow  until
PAYMENT BE REFUNDED TO ME?              completion  of the rights  offering.  If
                                        the right offering is not completed, the
                                        subscription agent will return promptly,
                                        without   interest,   all   subscription
                                        payments.

WHAT SHOULD I DO IF I HAVE OTHER        If   you   have    questions   or   need
QUESTIONS?                              assistance,    please   contact   Mellon
                                        Investor  Services LLC, the subscription
                                        agent, at: (800) 932-6798.


                                        For a more complete  description  of the
                                        rights   offering,   see   "The   Rights
                                        Offering" beginning on page 50.

AMERICAN STOCK EXCHANGE TRADING         TGC
SYMBOL:

TO WHOM SHOULD I SEND FORMS AND
PAYMENTS:

                                MELLON BANK, N.A.

                BY MAIL:                              BY HAND:

         Mellon Bank, N.A.                     Mellon Bank, N.A.
         c/o Mellon Investor Services LLC      c/o Mellon Investor Services LLC
         P.O. Box 3301                         120 Broadway, 13th Floor
         South Hackensack, NJ 07606            New York, New York 10271
         Attention: Reorganization Dept.       Attention: Reorganization Dept


               BY OVERNIGHT COURIER:

         Mellon Bank, N.A.
         c/o Mellon Investor Services LLC
         85 Challenger Road
         Overpeck Centre
         Ridgefield Park, NJ 07660
         Attention: Reorganization Dept.

         For instructions on how your subscription payment should be sent to the
         subscription  agent,  see "The  Rights  Offering  -  Required  Forms of
         Payment of Subscription Price" on page 55.

         If you have questions,  need additional copies of offering documents or
         otherwise need  assistance,  please contact the  information  agent for
         this offering:

         Mellon Investor Services LLC
         85 Challenger Road
         Overpeck Centre
         Ridgefield Park, NJ 07660
         800-932-6798

         To ask other  questions or to receive copies of our recent SEC filings,
         you also can  contact  us by mail or  telephone,  or refer to the other
         sources  described  under "Where You Can Find More  Information" on the
         inside back cover of this prospectus.




SUMMARY CONSOLIDATED FINANCIAL DATA

     The  following   summary  financial  data  should  be  read  together  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations," the consolidated  financial statements and notes thereto, and other
financial  information  included elsewhere in this prospectus.  Our consolidated
statement of loss data set forth below for the years ended December 31, 2002 and
2001 and 2000 and the  consolidated  balance  sheet data as of December 31, 2002
and 2001 have been derived from our audited  consolidated  financial  statements
which are included elsewhere in this prospectus.  The consolidated  statement of
loss data set forth below for the years ended December 31, 1999 and 1998 and the
consolidated balance sheet data as of December 31, 2000, 1999 and 1998 have been
derived from our audited consolidated financial statements that are not included
in this prospectus.  The balance sheet data and the statement of loss data as of
and for the nine months ended September 30, 2003 and 2002 have been derived from
our unaudited financial statements, included elsewhere in this prospectus, which
we  believe  have  been  prepared  on the same  basis as the  audited  financial
statements  and  include  all   adjustments,   consisting  of  normal  recurring
adjustments,  which we consider necessary for a fair presentation of the summary
financial data shown.



                                                                                                          Nine Months Ended
                                                Year Ended December 31, (1)                                 September 30,
                             ---------------------------------------------------------------------     -------------------------
                               2002           2001           2000         1999          1998               2003         2002
                                                                                                              (unaudited)
                                                                                               
LOSS STATEMENT DATA.
Oil and Gas Revenues         $5,437,723     $6,656,758    $5,241,076     $3,017,252      $2,078,101    $4,907,216    $3,859,050
Production Costs and Taxes   $3,094,731     $2,951,746    $2,614,414     $2,564,932      $1,943,944    $2,571,898    $2,084,597
Depreciation, Depletion
  and Amortization           $2,413,597     $1,849,963      $371,249       $283,907        $290,030    $1,887,333    $1,731,182
General and Administrative   $1,868,141     $2,957,871    $2,602,311     $1,961,348      $1,372,132    $1,112,289
Interest Expense               $578,039       $850,965      $415,376       $417,497        $574,906      $462,518      $448,046
Net Loss Before
  Cumulative Effect of a
  Change in Accounting
  Principle                 $(3,154,555)   $(2,262,787)  $(1,541,884)   $(2,671,923)    $(3,083,638)  $(1,897,568)  $(2,820,539)
Cumulative Effect of a
   Change in Accounting
   Principle                          -              -             -              -               -     $(351,204)           -
Net Loss Attributable to
   Common Stockholders      $(3,661,334)   $(2,653,970)  $(1,799,441)   $(2,791,270)    $(3,083,638)  $(2,248,772)  $(2,820,539)
Earnings Per Share Data:
Net Loss Before
  Cumulative Effect of a
  Change in Accounting
  Principle Per Share            $(0.33)        $(0.26)       $(0.19)        $(0.33)         $(0.42)       $(0.16)       $(0.26)
Cumulative Effect of a
   Change in Accounting
   Principle Per Share               -              -              -              -               -        $(0.03)           -
Net Loss Attributable to
  Common Stockholders Per
  Share                          $(0.33)        $(0.26)       $(0.19)        $(0.33)         $(0.42)       $(0.19)       $(0.26)




                                                                                                         Nine Months
                                                      As  of December 31,(2)(3)                             Ended
                            -------------------------------------------------------------------------    September 30,
                                2002            2001           2000           1999            1998           2003
                                                                                                         (unaudited)
                                                                                       
BALANCE SHEET DATA.
Working Capital Deficit     $(7,998,835)   $(6,326,204)     $(708,317)    $(1,406,263)   $(1,929,215)    $(9,296,959)
Oil and Gas Properties,     $13,864,321    $13,269,930     $9,790,047      $8,444,036     $7,747,655     $13,096,898
Net
Pipeline Facilities, Net    $15,372,843    $15,039,762     $11,047,038     $4,212,842     $4,019,209     $15,312,212
Total Assets                $32,584,391    $32,128,245     $25,224,724    $15,182,712    $13,525,777     $31,662,903
Debt                         $9,867,454    $10,302,588      $9,217,085     $4,894,378     $4,693,865      $9,549,053
Asset Retirement Obligations        --              --             --             --             --         $666,421
Mandatorily Redeemable       $6,762,218     $5,459,050      $3,938,900     $1,988,900       $800,000      $6,884,257
Preferred Stock
Stockholders Equity         $14,210,623    $14,991,847     $10,864,202     $7,453,930     $7,245,090     $12,458,833


(1)  All  references  in this table to common stock and per share data have been
     retroactively  adjusted  to reflect the 5% stock  dividend  declared by the
     Company effective as of September 4, 2001.
(2)  With respect to the pipeline  facilities,  during the years ended  December
     31, 2000,  1999, and 1998, this  information  included  portions which were
     under construction.
(3)  No cash dividends have been declared or paid by the Company for the periods
     presented.


                                  RISK FACTORS

     THIS OFFERING AND AN INVESTMENT IN THE SHARES OF OUR COMMON STOCK INVOLVE A
HIGH DEGREE OF RISK.  YOU SHOULD  CAREFULLY  CONSIDER THE FOLLOWING  FACTORS AND
OTHER  INFORMATION  PRESENTED OR  INCORPORATED  BY REFERENCE IN THIS  PROSPECTUS
BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. IF WE DO NOT SUCCESSFULLY ADDRESS
ANY ONE OR MORE OF THE RISKS DESCRIBED BELOW,  THERE COULD BE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION, OPERATING RESULTS AND BUSINESS.

RISKS RELATED TO OUR BUSINESS

     OUR  AUDITORS  HAVE  GIVEN  US A GOING  CONCERN  QUALIFICATION,  INDICATING
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

     Our independent certified public accountants have indicated in their report
on our Consolidated  Financial  Statements for the year ended December 31, 2002,
that these  circumstances  raise substantial doubt about our ability to continue
as a going concern,  which depends upon our ability to obtain  long-term debt or
raise capital to satisfy our cash flow  requirements.  We must make  substantial
capital expenditures for the acquisition, exploration and development of oil and
gas reserves.  Historically,  we have paid for these expenditures with cash from
operating activities,  proceeds from debt and equity financings and asset sales.
Our ability to re-work  existing  wells and resume our  drilling  program in the
Swan Creek  Field is  dependent  upon our  ability  to fund these  expenditures.
Although  we  anticipated  that  by  this  time we  would  be  able to fund  the
completion  of our drilling  program in the Swan Creek Field from  revenues from
the  sales  of  gas,  we are  unable  to do so.  Further,  the  availability  of
additional  borrowings  under our credit facility with Bank One has been revoked
by Bank One. As a result of Bank One's revocation of the credit facility and the
corresponding demand for repayment,  combined with the fact that we are still in
the early stages of our oil and gas operating history, during which time we have
a  history  of  losses  from  operations  and  have an  accumulated  deficit  of
$(30,147,538)  and a working capital deficit of $(9,296,959) as of September 30,
2003 our independent  certified  public  accountants  have indicated their going
concern qualification as described above.

     WE  HAVE  SIGNIFICANT  CAPITAL  REQUIREMENTS  AND  A  NEED  FOR  ADDITIONAL
FINANCING.

     At the present time and if and until we are able to increase our production
and  sales of gas,  we must  obtain  the  necessary  funds to  proceed  with our
drilling  program  from other  sources,  such as this  offering as well as other
equity  investments,  bank  loans or joint  ventures  with other  companies.  In
addition,  our revenues or cash flows could  decline in the future  because of a
variety of reasons,  including lower oil and gas prices or the  inoperability of
some or all of our existing wells. If our revenues or cash flows decrease and/or
we are unable to procure  additional  financing,  we would be required to reduce
production  over time or would  otherwise  be  adversely  affected,  which would
adversely  impact our  ability to  continue  in  business.  Where we are not the
majority  owner or  operator of an oil and gas  project,  we may have no control
over the timing or amount of capital  expenditures  required with the particular
project.  If we cannot  fund our  capital  expenditures  in such  projects,  our
interests  in such  projects  may be reduced or  forfeited.  In  addition to our
operational cash  requirements,  we have a significant amount of loans and other
obligations  either due or  maturing  January  4, 2004 and April 4, 2004.  These
loans, excluding our obligations to Bank One (in outstanding principal amount in
excess  of  $4.7  million),  include  interest-bearing  loans  in the  aggregate
principal  amount of  approximately  $5.6 million (of which  approximately  $3.9
million is owed to Dolphin) plus accrued  interest and past due accounts payable
in the aggregate amount of approximately $600,000 (including preferred dividends
in  arrears  in an  aggregate  amount  in  excess  of  $600,000).  See  "Certain
Relationships and Related  Transactions." We cannot assure you that the proceeds
of this  offering  will be  sufficient  to pay all of our loans and  obligations
currently  due or maturing as described  above or that we will be able to obtain
any additional funding required as described above, in either or which events we
may not be able to continue as a going concern.

     DECLINES IN OIL AND GAS PRICES WILL MATERIALLY ADVERSELY AFFECT US.

     Our future  financial  condition and results of  operations  will depend in
part upon the prices  obtainable  for our oil and natural gas production and the
costs of finding,  acquiring,  developing and producing reserves. Prices for oil
and natural  gas are subject to  fluctuations  in response to  relatively  minor
changes in supply,  market  uncertainty and a variety of additional factors that
are beyond our control.  These factors include worldwide  political  instability



(especially  in the Middle East and other  oil-producing  regions),  the foreign
supply  of oil and gas,  the price of  foreign  imports,  the level of  drilling
activity,  the level of consumer  product  demand,  government  regulations  and
taxes, the price and availability of alternative  fuels and the overall economic
environment.  A substantial or extended decline in oil and gas prices would have
a material  adverse  effect on our financial  position,  results of  operations,
quantities  of oil and gas that may be  economically  produced,  and  access  to
capital.  Oil and natural gas prices  have  historically  been and are likely to
continue to be volatile.  This  volatility  makes it difficult to estimate  with
precision the value of producing  properties in  acquisitions  and to budget and
project the return on exploration and development projects involving our oil and
gas properties. In addition,  unusually volatile prices often disrupt the market
for oil and gas properties,  as buyers and sellers have more difficulty agreeing
on the purchase price of properties.

     THERE  ARE  RISKS  IN  RATES  OF  OIL  AND  GAS   PRODUCTION;   DEVELOPMENT
EXPENDITURES; AND CASH FLOWS.

      Projecting the effects of commodity  prices on  production,  and timing of
development  expenditures  include many factors  beyond our control.  The future
estimates of net cash flows from our proved reserves and their present value are
based upon various assumptions about future production levels, prices, and costs
that may  prove  to be  incorrect  over  time.  Any  significant  variance  from
assumptions  could result in the actual  future net cash flows being  materially
different from the estimates.


      OIL AND GAS  OPERATIONS  INVOLVE  SUBSTANTIAL  COSTS  AND ARE  SUBJECT  TO
VARIOUS ECONOMIC RISKS.

     Our oil and gas  operations  are subject to the  economic  risks  typically
associated with exploration,  development and production  activities,  including
the  necessity  of  significant  expenditures  to locate and  acquire  producing
properties  and to  drill  exploratory  wells.  In  conducting  exploration  and
development activities, the presence of unanticipated pressure or irregularities
in  formations,   miscalculations   or  accidents  may  cause  our  exploration,
development and production activities to be unsuccessful. This could result in a
total loss of our  investment.  In  addition,  the cost and timing of  drilling,
completing and operating wells is often uncertain.

     WE HAVE  SIGNIFICANT  COSTS TO CONFORM TO GOVERNMENT  REGULATION OF THE OIL
AND GAS INDUSTRY.

     Our  exploration,   production  and  marketing   operations  are  regulated
extensively  at the  federal,  state  and  local  levels.  We have made and will
continue  to  make  large  expenditures  in  our  efforts  to  comply  with  the
requirements of environmental and other  regulations.  Further,  the oil and gas
regulatory  environment could change in ways that might  substantially  increase
these costs.  Hydrocarbon-producing  states regulate conservation  practices and
the protection of correlative  rights.  These regulations  affect our operations
and limit the quantity of hydrocarbons we may produce and sell. In addition,  at
the federal level, the Federal Energy Regulatory Commission regulates interstate
transportation of natural gas under the Natural Gas Act. Other regulated matters
include marketing, pricing, transportation and valuation of royalty payments.

     WE HAVE SIGNIFICANT COSTS RELATED TO ENVIRONMENTAL MATTERS.

     Our  operations  are subject to numerous and  frequently  changing laws and
regulations  governing  the  discharge  of  materials  into the  environment  or
otherwise relating to environmental protection. We own or lease, and have in the
past owned or leased,  properties  that have been used for the  exploration  and
production of oil and gas and these  properties and the wastes disposed on these
properties  may  be  subject  to  the  Comprehensive   Environmental   Response,
Compensation  and Liability  Act, the Oil  Pollution  Act of 1990,  the Resource
Conservation  and Recovery  Act,  the Federal  Water  Pollution  Control Act and
analogous  state  laws.  Under  such  laws,  we could be  required  to remove or
remediate previously released wastes or property contamination.

     Laws and regulations  protecting the environment have generally become more
stringent and, may in some cases,  impose "strict  liability" for  environmental
damage.  Strict  liability  means that we may be held liable for damage  without
regard to whether we were  negligent or otherwise at fault.  Environmental  laws
and  regulations  may expose us to  liability  for the conduct of or  conditions
caused by others or for acts that were in compliance with all applicable laws at
the time they were performed.  Failure to comply with these laws and regulations
may result in the imposition of administrative, civil and criminal penalties.




     Our  ability  to conduct  continued  operations  is  subject to  satisfying
applicable   regulatory  and  permitting  controls.   Our  current  permits  and
authorizations  and  ability to get future  permits  and  authorizations  may be
susceptible, on a going forward basis, to increased scrutiny, greater complexity
resulting in increased costs or delays in receiving appropriate authorizations.

     INSURANCE DOES NOT COVER ALL RISKS.

     Exploration  for and  production  of oil and natural gas can be  hazardous,
involving unforeseen occurrences such as blowouts,  cratering, fires and loss of
well  control,  which  can  result  in  damage  to or  destruction  of  wells or
production facilities, injury to persons, loss of life, or damage to property or
the environment. Insurance is not available to us against all operational risks.

     WE ARE NOT COMPETITIVE WITH RESPECT TO ACQUISITIONS OR PERSONNEL.

     The oil and gas business is highly competitive. In addition, we have a weak
financial  condition.  In  seeking  any  suitable  oil  and gas  properties  for
acquisition,  or drilling rig operators and related personnel and equipment,  we
are not able to compete with most other  companies,  including large oil and gas
companies and other  independent  operators with greater financial and technical
resources  and  longer  history  and  experience  in  property  acquisition  and
operation.

     WE DEPEND ON KEY PERSONNEL, WHOM WE MAY NOT BE ABLE TO RETAIN OR RECRUIT.

     Members  of  present   management  and  certain   company   employees  have
substantial  expertise in the areas of endeavor  presently  conducted  and to be
engaged in by us. To the extent that their services become unavailable,  we will
be required to retain other qualified personnel. We do not know whether we would
be able to recruit and hire qualified  persons upon acceptable  terms. We do not
maintain "Key Person" insurance for any of our key employees.

RISKS RELATING TO THIS RIGHTS OFFERING

     THE SUBSCRIPTION PRICE DETERMINED FOR THIS OFFERING IS NOT AN INDICATION OF
OUR VALUE OR THE VALUE OF OUR COMMON STOCK.

     The  subscription  price for this rights offering has been determined to be
$0.25 for each share  purchased.  The  subscription  price was  determined  by a
special  committee  of our Board of  Directors  formed for that  purpose,  among
others,  and recommended to our full Board of Directors and does not necessarily
bear any  relationship to the book value of our assets,  past  operations,  cash
flows, losses,  financial condition or any other established criteria for value.
The matters  considered by the special committee in its  determination  included
negotiations  with a  representative  of Dolphin as to a  subscription  price at
which  Dolphin  might  participate,  although  Dolphin has not entered  into any
agreement  with us with respect to such  participation.  You should not consider
the  subscription  price as an indication  of our value.  After the date of this
prospectus, our common stock may trade at prices below the subscription price.

     DELISTING OF OUR COMMON STOCK FROM AMEX, WHICH IS POSSIBLE, WOULD ADVERSELY
AFFECT US AND HOLDERS OF THOSE SHARES.

     Our common stock is listed on the American Stock  Exchange,  which we refer
to as AMEX. To maintain  listing of securities,  AMEX requires  satisfaction  of
certain  maintenance  criteria  that we are not sure that we will continue to be
able to satisfy.  For example,  AMEX may require prior  shareholder  approval of
this  offering,  which has not been  obtained.  If we are unable to satisfy such
maintenance  criteria  in the  future,  or if AMEX  requires  prior  shareholder
approval and we fail to comply, our common stock may be delisted from trading on
AMEX.  If our common stock is delisted from trading on AMEX,  then  trading,  if
any,  would  thereafter  be  conducted  in the  over-the-counter  market  in the
so-called  "pink sheets" or on the  "Electronic  Bulletin Board" of the National
Association  of  Securities  Dealers,  Inc.  (the  "NASD") and  consequently  an
investor  could  find it more  difficult  to dispose  of, or to obtain  accurate
quotations as to the price of, our common stock.




     OUR COMMON STOCK MAY NOT BE EXCEPTED FROM "PENNY  STOCK"  RULES,  WHICH MAY
ADVERSELY EFFECT THE MARKET LIQUIDITY FOR OUR COMMON STOCK.

     The  Securities  Enforcement  and Penny Stock  Reform Act of 1990  requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock.  Commission  regulations generally
define a penny stock to be an equity  security  that has a market  price of less
than $5.00 per share, subject to certain exception.  Such exceptions include any
equity security listed on a national securities exchange and any equity security
issued by an issuer that has (i) net tangible assets of at least $2,000,000,  if
such issuer has been in continuous  operation for three years, (ii) net tangible
assets of at least $5,000,000,  if such issuer has been in continuous  operation
for  less  than  three  years,  or  (iii)  average  annual  revenue  of at least
$6,000,000,  if such issuer has been in continuous operation for less than three
years.  Unless an exception is available,  the regulations require the delivery,
prior to any  transaction  involving a penny  stock,  of a  disclosure  schedule
explaining the penny stock market and the risks associated therewith.

     In  addition,  if our common  stock is not listed on AMEX,  or if we do not
meet the other exceptions to the penny stock regulations cited above, trading in
our common stock,  including  exercising  the rights  offered  hereby,  would be
covered by the  Commission's  Rule 15g-9 under the Exchange Act for non-national
securities  exchange  listed  securities.  Under this rule,  broker/dealers  who
recommend  such  securities  to persons  other than  established  customers  and
accredited  investors must make a special written suitability  determination for
the purchaser  and receive the  purchaser's  written  agreement to a transaction
prior to sale.  Securities also are exempt from this rule if the market price is
at least $5.00 per share.

     If the our common stock becomes  subject to the  regulations  applicable to
penny  stocks,  the market  liquidity  for our common  stock could be  adversely
affected. In such event, the regulations on penny stocks could limit the ability
of broker/dealers to sell our common stock and thus the ability of purchasers of
our common stock to sell their shares in the secondary market.

     AS A RESULT OF THIS OFFERING,  CERTAIN PERSONS MAY OBTAIN  EFFECTIVE VOTING
CONTROL OF US AND BE ABLE TO DIRECT OUR ACTIONS.

     As a result of this offering,  Dolphin would,  in the event that it were to
subscribe for and purchase the maximum number of unsubscribed shares, be able to
acquire  the  ownership  of up to 50%  of our  issued  and  outstanding  shares.
Similarly,  if no rights  holders  other than all of the members of our board of
directors  exercise  their  respective  rights  in this  offering,  our board of
directors  collectively  would, as a result of its subscription for and purchase
of all unsubscribed shares, own up to 81.9% of our issued and outstanding shares
and be deemed to  beneficially  own  approximately  84.1% of our  common  stock.
Consequently,  such control  would allow such persons to be able to elect all of
our directors  and otherwise  control our  operations,  including  being able to
direct our actions.  Further,  such control might discourage potential acquirers
from seeking to acquire  control of us through the purchase of our common stock,
which could have a limiting effect on the price of our common stock.

     IF YOU EXERCISE  YOUR  RIGHTS,  YOU MAY LOSE MONEY IF THERE IS A DECLINE IN
THE TRADING PRICE OF OUR SHARES OF COMMON STOCK.

     The trading  price of our common stock in the future may decline  below the
subscription price. We cannot assure you that the subscription price will remain
below any future trading price for the shares of our common stock. Future prices
of the shares of our common  stock may adjust  negatively  depending  on various
factors  including  our  future  revenues  and  earnings,  changes  in  earnings
estimates  by  analysts,  our  ability  to meet  analysts'  earnings  estimates,
speculation  in the trade or business  press about our  operations,  and overall
conditions affecting our businesses, economic trends and the securities markets.

     YOU MAY NOT REVOKE THE  EXERCISE  OF YOUR RIGHTS EVEN IF THERE IS A DECLINE
IN OUR COMMON  STOCK  PRICE  PRIOR TO THE  EXPIRATION  DATE OF THE  SUBSCRIPTION
PERIOD.

     Even if our common stock price  declines below the  subscription  price for
the common stock,  resulting in a loss on your  investment  upon the exercise of
rights to acquire shares of our common stock,  you may not revoke or change your
exercise of rights after you send in your subscription forms and payment.




     YOU MAY NOT REVOKE THE  EXERCISE OF YOUR RIGHTS EVEN IF WE DECIDE TO EXTEND
THE EXPIRATION DATE OF THE SUBSCRIPTION PERIOD.

     We may, in our discretion,  extend the expiration date of the  subscription
period for up to an additional 30 days. During any potential  extension of time,
our common stock price may decline below the subscription  price and result in a
loss on your  investment  upon the  exercise of rights to acquire  shares of our
common  stock.  If the  expiration  date  is  extended  after  you  send in your
subscription forms and payment, you still may not revoke or change your exercise
of rights.

     YOU WILL NOT RECEIVE INTEREST ON SUBSCRIPTION FUNDS RETURNED TO YOU.

     If we cancel the rights  offering,  neither we nor the  subscription  agent
will have any  obligation  with  respect to the  subscription  rights  except to
return, without interest, any subscription payments to you.

     WE MAY NOT RECEIVE SUFFICIENT PARTICIPATION TO GENERATE SUFFICIENT PROCEEDS
FOR ALL INTENDED PURPOSES

     We have no  agreements  or  understandings  with any  persons or  entities,
including  Dolphin,  members of our Board of Directors,  our  management and any
broker  dealers,  with respect to their exercise of any rights offered hereby or
their  participation  as an underwriter,  broker or dealer in this offering.  As
such,  we do not  know to  what  extent  stockholders  will  participate  in the
offering and  therefore  what amount of proceeds will be raised in the offering.
Assuming that stockholders  exercise all of the rights we are offering,  we will
receive gross  proceeds of  approximately  $9,075,000.  We intend to use the net
proceeds  initially to pay non-bank  indebtedness of up to $6 million,  with the
balance,  if any, to pay bank  indebtedness  to some  extent  and/or for working
capital purposes in our discretion. The net proceeds of this offering, even at a
maximum  participation level, may provide insufficient working capital to us for
any minimum  period of time.  The net  proceeds of this  offering at less than a
maximum  participation level will be used in the priorities  described above and
will be available in the amounts at the levels described below:

              Percentage
            Participation         Gross Proceeds        Net Proceeds
            -------------         --------------        ------------
                 25%                $2,268,750           $2,118,750

                 50%                $4,537,500           $4,387,500

                 75%                $6,806,250           $6,656,250

                 100%               $9,075,000           $8,925,000

     It should be noted  from the table  above  that,  unless  the  offering  is
approximately 75% participated,  there may not be sufficient  proceeds remaining
for  other  purposes  following  payment  of  non-bank  indebtedness.   See  "--
Significant Capital  Requirements and a Need for Additional  Financing" and "Use
of Proceeds."

     BECAUSE WE MAY TERMINATE THE OFFERING,  YOUR  PARTICIPATION IN THE OFFERING
IS NOT ASSURED.

     Once you exercise your subscription rights, you may not revoke the exercise
for any  reason  unless we amend the  offering.  If we decide to  terminate  the
offering,  we will not have any  obligation  with  respect  to the  subscription
rights except to return any subscription payments, without interest.

     OUR  ABILITY  TO  USE  OUR  NET  OPERATING   LOSS   CARRYFORWARDS   MAY  BE
SUBSTANTIALLY REDUCED AS A RESULT OF THIS OFFERING.

     Section 382 of the Internal  Revenue Code of 1986 imposes a limitation on a
corporation's use of net operating loss ("NOL") carryforwards if the corporation
has undergone an  "ownership  change."  Depending on a number of  circumstances,
including  the extent to which the rights  offered  hereby are  exercised out of
proportion  to existing  common  stock  ownership,  this  offering may create an
ownership  change in us for purposes of Section 382 and therefore  substantially
reduce the amount of NOL carryforwards that we may use in future years to offset
our taxable income.  At December 31, 2002, we had federal tax NOL  carryforwards



of $7,139,000. Because we previously have taken a full valuation reserve for our
deferred tax assets on our financial  statements,  an ownership change would not
have an immediate  impact on our  reported  earnings  for  financial  accounting
purposes.




                           FORWARD LOOKING STATEMENTS

     The statements  contained in this prospectus that are not purely historical
are forward-looking statements within the meaning of applicable securities laws.
Forward-looking  statements  include  statements  regarding our  "expectations,"
"anticipations,"  "intentions," "beliefs," or "strategies" regarding the future.
Forward-looking  statements also include statements regarding revenue,  margins,
expenses,  and earnings  analysis  for 2003 and  thereafter;  our going  concern
qualification;   oil  and  gas  prices;   exploration  activities;   development
expenditures;   costs   of   regulatory   compliance;   environmental   matters;
technological developments; future products or product development; our products
and distribution  development  strategies;  potential  acquisitions or strategic
alliances; liquidity and anticipated cash needs and availability;  prospects for
success of this offering;  impact of this offering on our financial condition or
prospects  or the market for or price of our common  stock;  and  control of our
company. All forward-looking statements included in this prospectus are based on
information available to us as of the date of this prospectus,  and we assume no
obligation to update any such  forward-looking  statements.  Our actual  results
could differ materially from the forward-looking  statements.  Among the factors
that could cause results to differ materially are the factors discussed in "Risk
Factors."

      Projecting the effects of commodity  prices on  production,  and timing of
development  expenditures  include many factors  beyond our control.  The future
estimates of net cash flows from our proved reserves and their present value are
based upon various assumptions about future production levels, prices, and costs
that may  prove  to be  incorrect  over  time.  Any  significant  variance  from
assumptions  could result in the actual  future net cash flows being  materially
different from the estimates.

     This prospectus is part of a registration statement filed with the SEC. You
should rely only on the information  contained in this  prospectus.  We have not
authorized anyone to provide you with different information. This prospectus may
only be used where it is legal for us to sell these securities.




                                 USE OF PROCEEDS

     Assuming  that  stockholders  exercise  subscription  rights for all of the
common  stock  that  we  are  offering,   we  will  receive  gross  proceeds  of
approximately  $9,075,000.  We will  pay  estimated  expenses  of  approximately
$150,000  in  connection  with the  rights  offering.  We  intend to use the net
proceeds  from this  offering  initially  to pay  non-bank  indebtedness  in the
aggregate amount of up to approximately  $6,000,000  (including up to $3,850,000
in principal amount plus accrued interest to Dolphin),  and to apply the balance
of such proceeds,  if any, to repay bank  indebtedness to some extent and/or for
working capital purposes,  possibly  including the drilling of additional wells.
In the event that less than all  $9,075,000 of gross proceeds is received in the
offering, we intend to apply the received gross proceeds, unless the offering is
terminated by us by reason of the insufficiency of investor participation or any
other  reason  in  our   discretion,   first  for  the   repayment  of  non-bank
indebtedness,  including to Dolphin,  with secured  non-bank  indebtedness to be
repaid before unsecured non-bank indebtedness, and next to pay bank indebtedness
to some  extent  and/or for working  capital  purposes  in our  discretion.  The
non-bank indebtedness to be discharged with the proceeds hereof includes secured
loans  from  Dolphin  from time to time  since  December  2002 in the  aggregate
principal  amount of  $3,350,000  bearing  interest at 12% per annum and matured
January 4, 2004,  unsecured  convertible  loans from  Dolphin  and others in the
aggregate  principal  amount of $1,150,000  bearing interest at 8% per annum and
matured  January 4, 2004, all of which loans were made to us to provide  working
capital and to cover certain due and payable  liabilities and accounts  payable.
See `Certain  Relationships and Related Transactions." There can be no assurance
that the net proceeds of this offering will provide  sufficient  working capital
to us for any  minimum  period  of  time.  See  "Risk  Factors  - Going  Concern
Qualification"  and "-  Significant  Capital  Requirements;  Need for Additional
Financing."

     We have no  agreements  or  understandings  with any  persons or  entities,
including  Dolphin,  members of our Board of Directors,  our  management and any
broker  dealers,  with respect to their exercise of any rights offered hereby or
their  participation  as an underwriter,  broker or dealer in this offering.  As
such,  we do not  know to  what  extent  stockholders  will  participate  in the
offering and  therefore  what amount of proceeds will be raised in the offering.
As noted above,  assuming  that  stockholders  exercise all of the rights we are
offering, we will receive gross proceeds of approximately  $9,075,000,  which we
intend to use initially to pay non-bank  indebtedness of up to $6 million,  with
the balance,  if any, to pay bank indebtedness to some extent and/or for working
capital  purposes in our  discretion.  Also as noted,  the net  proceeds of this
offering,  even at a  maximum  participation  level,  may  provide  insufficient
working  capital to us for any minimum  period of time. The net proceeds of this
offering  at  less  than a  maximum  participation  level  will  be  used in the
priorities  described  above and will be  available in the amounts at the levels
described below:

               Percentage
             Participation        Gross Proceeds         Net Proceeds
             -------------        --------------         ------------
                  25%               $2,268,750            $2,118,750

                  50%               $4,537,500            $4,387,500

                  75%               $6,806,250            $6,656,250

                  100%              $9,075,000            $8,925,000

     It should be noted  from the table  above  that,  unless  the  offering  is
approximately 75% participated,  there may not be sufficient  proceeds remaining
for other purposes following payment of non-bank indebtedness.




                           PRICE RANGE OF COMMON STOCK

     Our common stock is listed on the American  Stock Exchange under the symbol
"TGC." The following  table sets forth the high and low closing sales prices per
share of our common  stock for the periods  indicated.  The prices for the first
three  quarters of 2001 have been  retroactively  adjusted by a 5%  reduction to
take into  account  the 5% stock  dividend  declared by us payable on October 1,
2001 to all stockholders of record as of September 4, 2001.

                                                          HIGH            LOW
                                                          ----            ---
Year Ending December 31, 2004

         First Quarter (through February 9, 2004)......   $1.21          $0.71

Year Ending December 31, 2003

         First Quarter.................................    2.00           1.00

         Second Quarter................................    1.23           0.36

         Third Quarter.................................    1.28           0.65

         Fourth Quarter ...............................    0.94           0.63

Year Ended December 31, 2002

         First Quarter.................................    8.19           5.80

         Second Quarter................................    6.49           2.71

         Third Quarter.................................    3.45           2.20

         Fourth Quarter................................    2.90           1.05

Year Ended December 31, 2001

         First Quarter.................................   14.20           9.69

         Second Quarter................................   15.01          11.16

         Third Quarter.................................   13.69           7.60

         Fourth Quarter................................   10.54           7.39




                                 CAPITALIZATION

     The following table sets forth our summary  capitalization  as of September
30, 2003, and our summary capitalization as of September 30, 2003 as adjusted to
reflect the assumed sale of  36,300,000  shares of our common stock (the maximum
number of shares  offered) in this rights offering at an offering price of $0.25
per share and the  application  of the estimated net proceeds  therefrom,  after
deducting estimated offering expenses of $150,000.



                                                                                 September 30, 2003
                                                                          --------------------------------
                                                                                                  As
                                                                              Actual           Adjusted
                                                                          ------------      --------------
                                                                                      
Total Debt:
     Long-term debt, less current maturities............................. $    590,055      $      590,055
                                                                          ------------      --------------
Mandatorily Redeemable Preferred Stock:
     Cumulative convertible redeemable preferred; redemption value
     $7,072,000; 70,720 shares outstanding...............................    6,884,257           6,884,257
                                                                          ------------      --------------
Stockholders Equity:
     Common Stock, $0.001 par value, 50,000,000 shares authorized........       12,065              48,365
     Additional paid-in capital..........................................   42,855,693          51,744,393
     Treasury stock, at cost.............................................     (145,887)           (145,887)
     Accumulated other comprehensive loss................................     (115,500)           (115,500)
     Accumulated deficit................................................. (30,147,538)         (30,147,538)
                                                                          ------------      --------------
              Total stockholders' equity.................................   12,458,833          21,383,833
                                                                          ------------      --------------

Total capitalization.....................................................  $19,933,145      $   28,858,145
                                                                          ============      ==============



                      SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated  financial data should be read together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated  financial statements and notes thereto, and other
financial  information  included elsewhere in this prospectus.  Our consolidated
statement  of loss data set forth below for the years ended  December  31, 2002,
2001 and 2000 and the  consolidated  balance  sheet data as of December 31, 2002
and 2001 have been derived from our audited  consolidated  financial  statements
which are included elsewhere in this prospectus.  The consolidated  statement of
loss data set forth below for the years ended December 31, 1999 and 1998 and the
consolidated  balance  sheet data as of December 31, 2000,  1999,  and 1998 have
been derived from our audited  consolidated  financial  statements  that are not
included in this  prospectus.  The balance  sheet data and the statement of loss
data as of and for the nine months ended  September  30, 2003 and 2002 have been
derived  from our  unaudited  financial  statements  included  elsewhere in this
prospectus, which we believe have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting of normal recurring
adjustments, which we consider necessary for a fair presentation of the selected
financial data shown.



                                                                                                       Nine Months Ended
                                               Year Ended December 31,(1)                                 September 30,
                                                                                                    -------------------------
                               2002          2001            2000         1999         1998             2003         2002
                                                                                                          (unaudited)
                                                                                             
LOSS STATEMENT DATA.
Oil and Gas Revenues         $5,437,723    $6,656,758    $5,241,076    $3,017,252    $2,078,101     $4,907,216     $3,859,050
Production Costs and Taxes   $3,094,731    $2,951,746    $2,614,414    $2,564,932    $1,943,944     $2,571,898     $2,084,597
Depreciation, Depletion
and Amortization             $2,413,597    $1,849,963      $371,249      $283,907      $290,030     $1,887,333     $1,731,182
General and Administrative   $1,868,141    $2,957,871    $2,602,311    $1,961,348    $1,372,132     $1,112,289
Interest Expense               $578,039      $850,965      $415,376      $417,497      $574,906       $462,518       $448,046
Net Loss Before
  Cumulative Effect of a
  Change in Accounting
  Principle                 $(3,154,555)  $(2,262,787)  $(1,541,884)  $(2,671,923)  $(3,083,638)    $(1,897,568)  $(2,820,539)
Cumulative Effect of a
   Change in Accounting
   Principle                          -             -             -             -             -       $(351,204)           -
Net Loss Attributable to
   Common Stockholders      $(3,661,334)  $(2,653,970)  $(1,799,441)  $(2,791,270)  $(3,083,638)    $(2,248,772)  $(2,820,539)
Earnings Per Share Data:
Net Loss Before
  Cumulative Effect of a
  Change in Accounting
  Principle
  Per Share                      $(0.33)       $(0.26)       $(0.19)       $(0.33)       $(0.42)         $(0.16)      $(0.26)
Cumulative Effect of a
   Change in Accounting
   Principle Per Share                -            -              -             -            -           $(0.03)          -
Net Loss Attributable to
  Common Stockholders Per
  Share                         $(0.33)        $(0.26)       $(0.19)       $(0.33)       $(0.42)         $(0.19)      $(0.26)




                                                                                                          Nine Months
                                                    As of December 31,(2)(3)                                 Ended
                             ------------------------------------------------------------------------     September 30,
                                 2002           2001           2000           1999           1998             2003
                                                                                                          (unaudited)
                                                                                        
BALANCE SHEET DATA.
Working Capital Deficit      $(7,998,835)   $(6,326,204)    $(708,317)    $(1,406,263)   $(1,929,215)     $(9,296,959)
Oil and Gas Properties,      $13,864,321    $13,269,930    $9,790,047      $8,444,036     $7,747,655      $13,096,898
Net
Pipeline Facilities, Net     $15,372,843    $15,039,762    $11,047,038     $4,212,842     $4,019,209      $15,312,212
Total Assets                 $32,584,391    $32,128,245    $25,224,724    $15,182,712    $13,525,777      $31,662,903
Debt                          $9,867,454    $10,302,588     $9,217,085     $4,894,378     $4,693,865       $9,549,053
Asset Retirement Obligations          --             --            --              --             --         $666,421
Mandatorily Redeemable
Preferred Stock               $6,762,218     $5,459,050     $3,938,900     $1,988,900       $800,000       $6,884,257
Stockholders Equity          $14,210,623    $14,991,847    $10,864,202     $7,453,930     $7,245,090      $12,458,833


(1)  All  references  in this table to common stock and per share data have been
     retroactively  adjusted  to reflect the 5% stock  dividend  declared by the
     Company effective as of September 4, 2001.
(2)  With respect to the pipeline  facilities,  during the years ended  December
     31,  2000,  1999,  and  1998,  this  included  portions  which  were  under
     construction.
(3)  No cash dividends have been declared or paid by the Company for the periods
     presented.



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This section should be read in conjunction with our consolidated  financial
statements  included  elsewhere in this  prospectus.  Comments on the results of
operations and financial condition below refer to our continuing operations.

OVERVIEW

     We are in the business of exploring for, producing and transporting oil and
natural  gas in  Tennessee  and Kansas.  We lease  producing  and  non-producing
properties  with a view toward  exploration  and  development.  Emphasis is also
placed on pipeline and other infrastructure facilities to provide transportation
services. We utilize seismic technology to maximize the recovery of reserves.

     Our  activities in the oil and gas business  commenced in May 1995 with the
acquisition  of oil and gas leases in Hancock,  Claiborne,  Knox,  Jefferson and
Union  counties  in  Tennessee.  Our  current  lease  position in these areas in
Tennessee is  approximately  41,088  acres.  In addition,  in 1997,  we acquired
approximately 32,000 acres of leases in the vicinity of Hays, Kansas.

     To date,  we have drilled  primarily on a portion of our  Tennessee  leases
known as the Swan Creek Field in Hancock  County focused within what is known as
the Knox  formation,  one of the geologic  formations in that field.  During the
first nine months of 2003, we produced an average of  approximately  1.2 million
cubic feet of natural  gas per day and  approximately  2,171  barrels of oil per
month from 23 producing  gas wells and six producing oil wells in the Swan Creek
Field.  We also  operate  wells in the State of  Kansas.  During  the first nine
months of 2003, we produced an average of  approximately  .73 million cubic feet
of natural gas per day and 10,531 barrels of oil per month from 59 producing gas
wells and 149 producing oil wells in Kansas.

     The  availability of additional  borrowings  under our credit facility with
Bank One has been revoked by Bank One. As a result of Bank One's  revocation  of
the credit facility and the corresponding demand for payment,  combined with the
fact that we are still in the early stages of our oil and gas operating history,
during  which  time we have a history  of  losses  from  operations  and have an
accumulated   deficit  of  $(30,147,538)   and  a  working  capital  deficit  of
$(9,296,959)  as  of  September  30,  2003,  our  independent  certified  public
accountants  have  indicated  in  their  report  on our  Consolidated  Financial
Statements for the year ended December 31, 2002, that these  circumstances raise
substantial  doubt  about our  ability to  continue  as a going  concern,  which
depends upon our ability to obtain  long-term  debt or raise  capital to satisfy
our cash flow requirements. See "Risk Factors - Going Concern Qualification."

     A  reporting  issue  has  arisen   regarding  the  application  of  certain
provisions  of SFAS No.  141 and SFAS No.  142 to  companies  in the  extractive
industries,  including oil and gas companies.  The issue is whether SFAS No. 142
requires registrants to classify the costs of mineral rights held under lease or
other  contractual  arrangement  associated  with  extracting  oil  and  gas  as
intangible assets in the balance sheet, apart from other capitalized oil and gas
property costs, and provide specific footnote disclosures. Historically, we have
included the costs of such mineral rights associated with extracting oil and gas
as a component of oil and gas  properties.  If it is ultimately  determined that
SFAS No. 142 requires oil and gas companies to classify  costs of mineral rights
held under lease or other contractual arrangement associated with extracting oil
and gas as a separate intangible assets line item on the balance sheet, we would
be required to  reclassify  approximately  $453,000  at  September  30, 2003 and
$346,000 at December 31, 2002,  respectively,  out of oil and gas properties and
into a  separate  intangible  assets  line item.  Our cash flows and  results of
operations would not be affected since such intangible  assets would continue to
be depleted and assessed for impairment in accordance  with full cost accounting
rules.  Further,  we do not believe the  classification  of the costs of mineral
rights  associated with  extracting oil and gas as intangible  assets would have
any impact on compliance with covenants under our debt agreements.




RESULTS OF OPERATIONS

     NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

     KANSAS  During the first nine months of 2003,  we produced  and sold 94,782
barrels of oil and 196,373 Mcf of natural gas from our Kansas Properties,  which
are comprised of 149  producing oil wells and 59 producing gas wells.  The first
nine months  production  of 94,782  barrels of oil  compares to 106,683  barrels
produced in the first nine months of 2002.  The first nine months  production of
196,373 Mcf of gas  compares to 214,859 Mcf produced in the first nine months of
2002. In summary,  the first nine months production reflected expected continued
relatively stable production levels from the Kansas Properties,  which have been
in  production  for many years.  The  decrease in  production  reflects a normal
decline curve for the Kansas properties. The revenues from the Kansas properties
were  $2,959,430 in the first nine months of 2003 as compared to $2,438,136  for
the first nine months of 2002.  The increase in revenues is due to a significant
increase in the price of oil and gas during the period.

     TENNESSEE  During the first nine months of 2003,  we  produced  gas from 23
wells  in the  Swan  Creek  Field,  which  gas was  sold  to our two  industrial
customers in Kingsport, Tennessee, BAE SYSTEMS Ordnance Systems Inc. as operator
of the Holston Army  Ammunition  Plant,  or BAE, and Eastman  Chemical  Company.
Natural  gas  production  from the Swan Creek Field for the first nine months of
2003 was an average of 1.195  million  cubic feet per day during  that period as
compared  to 2.114  million  cubic feet per day during the first nine  months of
2002. The first nine months  production  reflected  expected  natural decline in
production from the existing Swan Creek gas wells, which were first brought into
production in mid-2001 upon completion of our pipeline. Although this decline is
normal,  the reduced  production  volume was not  replaced as we had expected by
additional  drilling.  In order for overall field production to remain steady or
grow, new wells must be brought  online.  We expect that any of the new wells we
drill would also  experience the same harmonic (i.e. a relatively  steep initial
decline  curve  followed  by  longer  periods  of  relatively   flat  or  stable
production)  decline like other natural wells in formations  similar to the Knox
formation,  so continuous drilling is vital to maintaining or increasing initial
levels of  production.  We have not drilled  any new wells to date in 2003.  The
decrease in our  pipeline  transportation  revenues  is directly  related to the
decrease in our gas production volumes.

     We recognized $5,053,454 in oil and gas revenues from our Kansas Properties
and the Swan  Creek  Field  during  the first nine  months of 2003  compared  to
$4,059,165 in the first nine months of 2002. The increase in revenues was due to
a  significant  increase  in price from oil and gas sales.  Oil prices  averaged
$28.60 per barrel in 2003 as compared to $22.98 during the comparable  period in
2002. Gas prices  averaged $5.31 per Mcf in 2003 as compared to $2.89 during the
comparable period in 2002. The Swan Creek Field produced 322,739 Mcf and 570,883
Mcf in the first nine months of 2003 and 2002,  respectively.  This decrease was
due to the declines in production,  which could not be offset due to the lack of
funds to continue drilling wells.

     We realized a net loss  attributable  to common  stockholders of $2,248,772
(($0.19)  per share of  common  stock)  during  the  first  nine  months of 2003
compared to a net loss in the first nine months of 2002  attributable  to common
stockholders  of  $2,820,539  (($0.26)  per share of common  stock).  A non-cash
charge  of  $351,204  was  recognized  as a  cumulative  effect  of a change  in
accounting   principle  during  the  first  quarter  of  2003  relating  to  the
implementation  of SFAS 143. See "--Recent  Accounting  Pronouncements"  and the
Notes to the  Consolidated  Financial  Statements  contained  elsewhere  in this
Prospectus.

     Production  costs and taxes in the first nine months of 2003 of  $2,571,898
were consistent with production  costs and taxes of $2,084,597 in the first nine
months of 2002.  The  difference  of $487,301 was due to a  reclassification  of
insurance  cost  relating  to field  activities  of  $148,098  from  general and
administrative  to production costs. Part of the increase in production costs in
2003 was due to the fact that our field  personnel  cost was  capitalized  as we
were  drilling new wells in 2002,  as compared to 2003 when all  employees  were
working to maintain production. Field salaries in Swan Creek was $209,563 in the
first nine months of 2003. The remaining  increase was due to increased property
taxes on the pipeline as a result of its higher assessed value after completion.

     Depreciation, Depletion, and Amortization expense for the first nine months
of 2003 was $1,887,333  compared to $1,731,182 in the first nine months of 2002.
The December 31, 2002, Ryder Scott Company,  L.P. reserve reports were used as a
basis for the 2003 estimate.  We review our depletion  analysis and industry oil
and gas prices on a  quarterly  basis to ensure that the  depletion  estimate is
reasonable.  The depletion taken in the first nine months of 2003 was $1,072,926



as compared to $1,019,138  in the first nine months of 2002.  We also  amortized
$153,633 of loan fees relating to the Bank One loan and convertible notes in the
first nine months of 2003 as compared to $129,540 in the same period of 2002.

     During  the  first  nine  months  of  2003,  we  reduced  our  general  and
administrative  costs  significantly  by  $415,699  from those of the first nine
months of 2002.  Management  has made an effort to control costs in every aspect
of its operations. Some of these cost reductions included the closing of our New
York office and a reduction in personnel  from 2002  levels.  Professional  fees
have  remained at a high level,  primarily  due to costs  incurred for legal and
accounting services as a result of the Bank One lawsuit.  Dividends on preferred
stock have  increased  from  $372,595  during  the first nine  months of 2002 to
$402,583 during the first nine months of 2003 as a result of the increase in the
amount of preferred  stock  outstanding  from new private  placements  occurring
during the second quarter of 2002. Our 2003 public  relations costs were reduced
by $146,967 from those of 2002 as part of our efforts to cut costs.

     FISCAL YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

     We  realized  oil and gas  revenues  of  $5,437,723  in 2002 as compared to
$6,656,758 in 2001 and $5,241,076 in 2000. The decrease in revenues in 2002 from
2001 was due to a decrease in volumes produced in 2002 from the volumes produced
in 2001.  Gas  produced  from the Swan Creek  Field was  717,701  MCF in 2002 as
compared to 966,967 MCF in 2001, resulting in approximately  $800,000 in reduced
revenues.  Oil production  from the Swan Creek Field was 20,122 barrels in 2002,
down from 30,323 barrels in 2001, resulting in approximately $200,000 in reduced
revenues.  Gas  production  from the Kansas  Properties  was 287,198 MCF in 2002
compared to 324,915 MCF in 2001, resulting in approximately  $100,000 in reduced
revenues.  Oil production from the Kansas Properties was 137,851 barrels in 2002
compared to 147,029  barrels in 2001,  resulting  in  approximately  $200,000 in
reduced  revenues.  The reason for the decrease in volumes  produced in 2002 was
our disputed  credit  reduction  by Bank One,  which  significantly  limited our
ability to drill new wells to  maintain  or  increase  production  volumes.  The
increased  revenues in 2001 of  $6,656,758  compared to  $5,241,076  in 2000 was
primarily  due to gas sales from the Swan Creek field of  $2,563,935  being made
for the first time during 2001.  However,  oil sales decreased by  approximately
$951,000  in 2001 from 2000  levels  due to price  decreases,  as the  number of
barrels produced remained constant.

     Our subsidiary,  TPC, had pipeline  transportation  revenues of $259,677 in
2002, a decrease  compared to $296,331 in 2001, the first year of transportation
revenues.

     Our  production  costs and taxes have increased each year from 2000 to 2002
as additional costs have been incurred to maintain the Kansas  Properties and to
begin  production  from the Swan Creek Field in 2001 and to maintain it in 2002.
The production  costs and taxes  increased from $2,951,746 in 2001 to $3,094,731
in 2002.  An  increase  in 2001 of  $337,332  in  production  costs and taxes as
compared to 2000 was due primarily to the  commencement  of production  from the
Swan Creek Field.

     Depletion,  depreciation,  and amortization increased significantly in 2002
to  $2,413,597   over  2001  and  2000  levels  of   $1,849,963   and  $371,249,
respectively. The primary reason for the increase from 2002 over 2001 was due to
depreciation  being  taken  for the first  time for a full year on our  pipeline
facilities in 2002,  whereas only a half year of depreciation  was taken in 2001
after the  pipeline  was  placed in  service in  mid-year.  Also,  approximately
$186,000 of loan fees were amortized in 2002. The primary  increase in 2001 from
2000  was  due  to  significant  increases  in  depletion  expense  during  2001
($1,142,000) as a result of the following: decreases in reserve estimates on oil
and gas properties arising from declining  commodity prices;  certain of our gas
wells had decreased  production  levels at year-end due to problems  encountered
with  liquids in the wells.  This  decreased  production  level at year-end  was
factored into the estimated future proved reserves  calculation  performed as of
December  31,  2001,  resulting  in a lower  future  proved  reserves  estimate.
Additionally, in 2001 we depreciated the pipeline for the first time ($220,371).

     We significantly reduced our general  administrative costs to $1,868,141 in
2002  from  $2,957,871  in 2001.  Management  has made a  significant  effort to
control costs in every aspect of its  operations.  Some of these cost reductions
include the closing of the New York office and a  reduction  in  personnel  from
2001 levels. General and administrative  expenses had increased to $2,957,871 in
2001 from $2,602,311 in 2000. The increases in 2001 from 2000 were  attributable



to an increase in insurance of approximately $400,000 in 2001 to expand coverage
including  blowout  insurance  and the  addition  of  company  provided  medical
insurance for employees.

     Interest expense for 2002 decreased  significantly  over 2001 levels due to
the reduced  interest rate on the Bank One loan over the rate  applicable  under
previous financing arrangements.  Interest expense in 2002 was $578,039 compared
to  $850,965  in  2001.   Interest  expense  for  2001  had  in  turn  increased
significantly  from  $415,376  in  2000.  This  increase  was due to  additional
interest cost  associated  with  financing for the completion of Phase II of our
65-mile  pipeline.  The  increase  in  2001  was  reduced  by  interest  cost of
approximately  $148,000 which was  capitalized in the first three months of 2001
during  construction  of the pipeline.  Interest of $128,000 was  capitalized in
2000.

     Public relations costs were significantly  reduced in 2002 to $193,229 from
$293,448 in 2001 as we applied  cost saving  methods in the  preparation  of our
annual  report to  stockholders  and in  publishing  of press  releases.  Public
relations  costs  increased  to  $293,448  in 2001 as  compared to 2000 costs of
$106,195 due to costs  associated  with producing the annual  report,  the proxy
statement and press releases.

     Professional  fees  increased to $707,296 in 2002 from $355,480 in 2001 due
to legal and accounting  services  primarily  related to the Bank One litigation
and new accounting regulations. Professional fees had decreased substantially in
2001 from 2000 fees of $719,320  which included a charge in 2000 of $242,000 for
stock options issued in 2000 to non-employees.

     Dividends on preferred stock increased to $506,789 in 2002 from $391,183 in
2001 and from  $257,557,  in 2000 as a result in the  increase  in the amount of
preferred stock outstanding.

LIQUIDITY AND CAPITAL RESOURCES

     In  November  2001,  Bank One  extended to us a line of credit of up to $35
million. The initial borrowing base under such credit agreement was $10 million.
In  April  2002,  we  received  a  notice  from  Bank  One  stating  that it had
redetermined  and  reduced  the  borrowing  base under the credit  agreement  to
approximately  $3.1  million  and  requiring  a  $6  million  reduction  of  the
outstanding  loan.  The  schedule  of  reserve  reports  required  by the Credit
Agreement  upon  which  such  redeterminations  were  to be  based  specifically
established  a procedure  involving an automatic  monthly  principal  payment of
$200,000  commencing  February 1, 2002. As of February 1, 2004, the  outstanding
principal balance under the credit agreement was approximately $4.7 million.

     As a result of Bank One's  unexpected  reduction of the borrowing  base and
the corresponding demand for payment of $6 million,  combined with the fact that
we are still in the early  stages of our oil and gas  operating  history  during
which  time  we have  had a  history  of  losses  from  operations  and  have an
accumulated   deficit  of  $(29,491,533)   and  a  working  capital  deficit  of
$(9,194,357)  as of June 30, 2003, our independent  auditors  indicated in their
report on the audit of our consolidated  financial statements for the year ended
December 31, 2002 that our ability to continue as a going  concern is uncertain.
Our ability to continue as a going  concern  depends  upon our ability to obtain
long-term debt or raise capital and satisfy cash flow requirements.

     In May 2002, we filed suit against Bank One in federal court in the Eastern
District of  Tennessee,  Northeastern  Division  at  Greeneville,  Tennessee  to
restrain  Bank One from  taking any steps  pursuant to the credit  agreement  to
enforce  its  demand  that we reduce  our loan  obligation  or else be deemed in
default and for actual and  punitive  damages  resulting  from the  demand.  See
"Legal  Proceedings"  for a  discussion  of this  action.  Although  the parties
continue to discuss settlement of all outstanding issues, no settlement has been
reached.  The Court has  adjusted  the  procedural  schedule to lead to trial on
December 7, 2004 in the event settlement is not concluded. Even if we conclude a
settlement  with Bank One, we do not  anticipate  that we will be able to either
increase the  borrowing  base under the Bank One credit  agreement or borrow any
additional  sums from Bank  One.  To fund  additional  drilling  and to  provide
additional working capital, we are required to pursue other options. Although we
intend  to  apply  the net  proceeds  from  this  offering  initially  to  repay
outstanding non-bank  indebtedness and to apply the balance of such proceeds, if
any, to repay bank  indebtedness  to some extent  and/or to fund the drilling of
additional  wells,  there can be no  assurances  that such net proceeds  will be
sufficient for such purposes or that we will be able to resolve the difficulties
currently preventing us from drilling additional wells and increasing production
volumes of natural gas from the Swan Creek Field. See "Use of Proceeds."




     If funding for drilling becomes sufficiently  available,  as to which there
can be no  assurance,  we plan to drill wells in the Swan Creek Field and in new
locations in Ellis and Rush Counties,  Kansas on existing  leases in response to
drilling activity in the area establishing new areas of oil production. Although
we drilled a well in Kansas in 2001 and  completed  the well as an oil well,  we
were not able to drill any new  wells in Kansas in or since  2002 due to lack of
funds.

     As of September 30, 2003, we had total stockholders'  equity of $12,458,833
on total  assets of  $31,662,903.  We had a net working  capital  deficiency  at
September  30,  2003  of  $(9,296,959)  as  compared  to  a  net  deficiency  of
$(7,998,835) at December 31, 2002.

     Net cash used in operating  activities  increased  from $221,176 in 2001 to
$566,017 in 2002. Net cash used in operating  activities  was $(724,084)  during
the first nine  months of 2002 as compared  to net cash  provided  by  operating
activities  during the first nine  months of 2003 of  $543,258.  Our net loss in
2002  increased to  $(3,154,555)  from  $(2,262,787)  in 2001 and decreased from
$(2,447,944)  during the first nine  months of 2002 to  $(1,494,985)  during the
first nine months of 2003.

     Net cash used in  investing  activities  amounted  to  $2,889,937  for 2002
compared to net cash used in the amount of $9,408,684  for 2001 and $386,681 for
the first  nine  months of 2003 as  compared  to  $2,549,984  for the first nine
months of 2002.  The decrease in net cash used for investing  activities  during
2002 is primarily  attributable to the  construction of Phase II of the pipeline
of  $4,213,095  in 2001 as compared to $841,750 in 2002 and additions to oil and
gas properties of $4,821,883 in 2001 as compared to $1,982,529 in 2002.

     Net cash provided by financing  activities  decreased to $3,246,633 in 2002
from  $8,419,336  in 2001.  Net cash used in  financing  activities  amounted to
$8,522  during the first nine months of 2003 as compared to net cash provided by
financing  activities  of $3,203,156  during the first nine months of 2002.  The
decrease  over the full years was due, in part,  to our  inability to enter into
new financing  arrangements  in 2002 as a result of our dispute with Bank One as
discussed above. The decrease over the nine-month periods was a result, in part,
of the private placements of common stock and preferred stock during the earlier
period in the aggregate amount of $3,980,168 as compared to only $250,000 during
the recent period.  In 2001 the primary sources of financing  included  proceeds
from  borrowings  of  $10,442,068  as  compared  to  $2,063,139  in 2002 and net
proceeds  of  issuances  of common  stock of  $3,900,000  in 2001 as compared to
$2,677,000  in 2002.  In  addition,  proceeds  from  exercise  of  options  were
$2,341,000  in 2001 as compared to zero in 2002 as the market price of our stock
fell below the exercise price of the earlier granted options. The primary use of
cash in financing activities in 2001 was the use of the funds received from Bank
One to repay  our  prior  borrowings  of  $8,833,325  as  compared  to 2002 when
$2,378,273 was used primarily to make payments to Bank One.

     We  must  make  substantial  capital   expenditures  for  the  acquisition,
exploration and development of oil and gas reserves.  We are presently unable to
fund the  resumption  of our drilling  program in the Swan Creek  Field.  At the
present time and until we are able to increase our  production  and sales of gas
and to resolve our dispute with Bank One, we must obtain the necessary  funds to
proceed with our drilling  program from other sources,  such as this offering as
well as equity investment, bank loan or a joint venture with other companies, as
to which  there  can be no  assurances.  Although  we  intend  to apply  the net
proceeds  from this offering  initially to repay  non-bank  indebtedness  and to
apply the balance of such proceeds,  if any, to repay in part bank  indebtedness
and/or other  working  capital  purposes,  including  the drilling of additional
wells,  there can be no assurances that such net proceeds will be sufficient for
such  purposes  or that we will be able to resolve  the  financial  difficulties
currently preventing us from drilling wells and increasing production volumes of
natural gas from the Swan Creek Field.  In addition,  our revenues or cash flows
could be reduced  because of a variety of reasons,  including  lower oil and gas
prices or the  inoperability  of some or all of our existing  wells, as to which
there  can be no  assurances.  We do not  know  that we  will be able to  obtain
additional funding. In addition to our operational cash requirements,  we have a
significant amount of loans and other obligations either due or maturing January
4, 2004 and April 4, 2004,  including  $1,150,000  principal amount of unsecured
convertible notes and $3,850,000  principal amount of secured  promissory notes,
plus interest to Dolphin. See "Risk Factors - Significant Capital  Requirements;
Need  for  Additional   Financing"  and  "Certain   Relationships   and  Related
Transactions."




CRITICAL ACCOUNTING POLICIES

     Our  accounting  policies  are  described  in  the  Notes  to  Consolidated
Financial Statements  contained in this prospectus.  We prepare our Consolidated
Financial Statements in conformity with accounting principles generally accepted
in the  United  States of  America,  which  requires  us to make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosures  of contingent  assets and  liabilities at the date of the financial
statements  and the reported  amounts of revenues and expenses  during the year.
Actual  results  could differ fro those  estimates.  We consider  the  following
policies  to be the  most  critical  in  understanding  the  judgments  that are
involved in preparing our financial  statements and the uncertainties that could
impact our results of operations, financial condition and cash flows.

     FULL COST METHOD OF ACCOUNTING

     We follow  the full  cost  method of  accounting  for oil and gas  property
acquisition,  exploration and  development  activities.  Under this method,  all
productive and non-productive  costs incurred in connection with the acquisition
of, exploration for and development of oil and gas reserves for each cost center
are capitalized.  Capitalized costs include lease  acquisitions,  geological and
geophysical  work,  daily  rentals  and the costs of  drilling,  completing  and
equipping oil and gas wells. We capitalized $45,312, $1,982,529,  $4,821,883 and
$1,456,996  of these  costs for the first nine  months of 2003 and for the years
ended December 31, 2002, 2001 and 2000, respectively. Costs, however, associated
with  production  and general  corporate  activities  are expensed in the period
incurred.  Interest costs related to unproved  properties  and properties  under
development are also capitalized to oil and gas properties.  Gains or losses are
recognized only upon sales or dispositions of significant amounts of oil and gas
reserves  representing  an entire cost center.  Proceeds from all other sales or
dispositions are treated as reductions to capitalized costs.

     OIL AND GAS RESERVES/DEPLETION DEPRECIATION AND AMORTIZATION OF OIL AND GAS
PROPERTIES

     The  capitalized  costs of oil and gas  properties,  plus estimated  future
development  costs relating to proved  reserves and estimated  costs of plugging
and  abandonment,   net  of  estimated  salvage  value,  are  amortized  on  the
unit-of-production  method based on total proved reserves. The costs of unproved
properties  are excluded from  amortization  until the properties are evaluated,
subject to an annual assessment of whether impairment has occurred.

      Our proved oil and gas reserves as at December 31, 2002 were  estimated by
Ryder Scott Company,  L.P., oil and gas  consultants.  Projecting the effects of
commodity prices on production,  and timing of development  expenditures include
many factors beyond our control. The future estimates of net cash flows from our
proved reserves and their present value are based upon various assumptions about
future production levels,  prices, and costs that may prove to be incorrect over
time.  Any  significant  variance  from  assumptions  could result in the actual
future net cash flows being materially different from the estimates.

     CONTINGENCIES

     We account  for  contingencies  in  accordance  with  Financial  Accounting
Standards  Board  Statement of Financial  Accounting  Standards  ("SFAS") No. 5,
"Accounting Contingencies." SFAS No. 5 requires that we record an estimated loss
from a loss contingency when information  available prior to the issuance of our
financial  statements indicate that it is probable an asset has been impaired or
a liability has been incurred at the date of the  financial  statements  and the
amount of the loss can be reasonably  estimated.  Accounting  for  contingencies
such as  environmental,  legal and income tax matters requires our management to
use its  judgment.  While our  management  believes  that our  accrual for these
matters  are  adequate,   if  the  actual  loss  from  a  loss   contingency  is
significantly  different from the estimated  loss, our results of operations may
be over or understated. The primary area in which we have to estimate contingent
liabilities  is with  respect to legal  actions  brought  against us. See "Legal
Proceedings."




RECENT ACCOUNTING PRONOUNCEMENTS

     A  reporting  issue  has  arisen   regarding  the  application  of  certain
provisions  of SAFS No.  141 and SFAS No.  142 to  companies  in the  extracting
industries  including oil and gas  companies.  The issue is whether SFAS No. 142
regulates  registrants  to classify the costs of mineral rights held under lease
or other  contractual  arrangement  associated  with  extracting  oil and gas as
intangible assets in the balance sheet, apart from other capitalized oil and gas
property owned and provide specific footnote disclosures.  Historically,  we had
included the costs of such mineral rights associated with extracting oil and gas
as a component of oil and gas  properties.  If it is ultimately  determined that
SFAS No. 142 requires oil and gas companies to classify  cost of mineral  rights
held under lease or other contractual arrangement associated with extracting oil
and gas as a separate  intangible asset line item on the balance sheet, we would
be required to  reclassify  approximately  $453,000  at  September  30, 2003 and
$346,000 at December 31, 2002,  respectively,  out of oil and gas properties and
into a  separate  intangible  asset line  item.  Our cash  flows and  results of
operations would not be affected since such intangible  assets would continue to
be depleted and amortized for impairment in accordance with full cost accounting
rules.  Further,  we do not  believe the  classification  of the cost of mineral
rights  associated with  extracting oil and gas as intangible  assets would have
any impact on compliance with covenants under our debt agreements.

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 143,  "Accounting for
Asset Retirement  Obligations "SFAS No. 143 addresses  financial  accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets  and the  associated  asset  retirement  cost.  This  statement  requires
companies  to  record  the  present  value of  obligations  associated  with the
retirement of tangible long-lived assets in the periods in which it is incurred.
The liability is capitalized as part of the related  long-lived  assets carrying
amount.  Over time,  accretion of the  liability is  recognized  as an operating
expense and the capitalized cost is depreciated over the expected useful life of
the related asset.  Our asset  retirement  obligations  relate  primarily to the
plugging, dismantlement,  removal site reclamation and similar activities of our
oil and gas properties.  Prior to adoption of this statement,  such  obligations
were  accrued  ratably  over the  productive  lives of the  assets  through  our
depreciation,  depletion and  amortization  for oil and gas  properties  without
recording a separate  liability  for such  amounts.  The impact of applying this
statement as of January 1, 2003 and September 30, 2003 is discussed in the Notes
to the Consolidated Financial Statements contained elsewhere in this Prospectus.

     In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No.
145,  "Rescission of SFAS No. 4, 44, 64, Amendment of SFAS No. 13, and Technical
Corrections"  ("SFAS 145").  SFAS 4, which was amended by SFAS 64,  required all
gains and  losses  from the  extinguishment  of debt to be  aggregated  and,  if
material, classified as an extraordinary item, net of related income tax effect.
As a result of SFAS 145, the criteria in Accounting  Principles Board opinion 30
will now be used to  classify  those  gains and  losses.  SFAS 13 was amended to
eliminate an inconsistency  between the required  accounting for  sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have  economic  effects  that are similar to  sale-leaseback  transactions.  The
adoption  of SFAS  145  will  not  have a  current  impact  on our  consolidated
financial statements.

     In July 2002, FASB issued SFAS No. 146, Accounting for Cost Associated with
Exit or Disposal  Activities.  The standard requires companies to recognize cost
associated  with exit or disposal  activities when they are incurred rather than
at the date of commitment to an exit or disposal plan.  Examples of cost covered
by the standard include lease termination  costs and certain employee  severance
costs that are associated  with  restructuring,  discontinued  operation,  plant
closing,  or other exit or disposal activity.  Previous  accounting guidance was
provided by EITF Issue No. 94-3,  "Liability  Recognition  for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs  Incurred  in  a  Restructuring)."  Statement  146  replaces  Issue  94-3.
Statement  146 is to be applied  prospectively  to exit or  disposal  activities
initiated  after  December 31, 2002. We do not currently have any plans for exit
or disposal  activities,  and  therefore  do not expect this  standard to have a
material effect on our consolidated financial statements upon adoption.

     In  November  2002,  the FASB issued  FASB  Interpretation  ("FIN") No. 45.
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect Guarantees of Indebtedness of Others",  which clarifies  disclosure and
recognition/measurement   requirements   related  to  certain  guarantees.   The
disclosure  requirements  are effective for  financial  statements  issued after
December 15, 2002 and here cognition/measurement requirements are effective on a



prospective basis for guarantees issued or modified after December 31, 2002. The
application  of the  requirements  of  FIN 45 did  not  have  an  impact  on our
financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148,  Accounting for Stock-Based
compensation  -- Transition and Disclosure -- an amendment of FASB Statement No.
123  ("Statement  148").  This  amendment  provides  two  additional  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee compensation.  Additionally, more prominent disclosures
in both annual and interim  financial  statements  are required for  stock-based
employee compensation.  The transition guidance and annual disclosure provisions
of Statement 148 are effective for fiscal years ending after  December 15, 2002.
The interim disclosure provisions are effective for financial reports containing
financial  statements for interim periods beginning after December 15, 2002. The
adoption of  Statement  148 did not have a material  impact on our  consolidated
financial statements.

     In  January  2003,  the FASB  issued  FASB  Interpretation  No.  (FIN)  46,
"Consolidation of Variable Interest Entities." This interpretation of Accounting
Research Bulletin No. 51 "Consolidated  Financial  Statements"  consolidation by
business  enterprises  of variable  interest  entities,  which  possess  certain
characteristics. The Interpretation requires that if a business enterprise has a
controlling  financial  interest  in a variable  interest  entity,  the  assets,
liabilities,  and results of the activities of the variable interest entity must
be included in the consolidated  financial statements with those of the business
enterprise.   This  Interpretation  applies  immediately  to  variable  interest
entities  created  after January 31, 2003 and to variable  interest  entities in
which an  enterprise  obtains an  interest  after that date.  We do not have any
ownership in any variable interest entities.

     In May 2003,  the FASB issued  Statement No. 150,  "Accounting  for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No.  150  requires  three  types of  freestanding  financial  instruments  to be
classified  as  liabilities  in statements  of financial  position.  One type is
mandatory  redeemable shares, which the issuing company is obligated to buy back
in exchange for cash or other assets.  A second type, which includes put options
and forward purchase contracts,  involves instruments that do or may require the
issuer to buy back some of its shares in exchange for cash or other assets.  The
third type of instrument  is  obligations  that can be settled with shares,  the
monetary  value of which is fixed,  tied solely or  predominately  to a variable
such as a market  index,  or varies  inversely  with the  value of the  issuer's
shares.  The  majority  of the  guidance  in SFAS No. 150 is  effective  for all
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period  beginning  after June
15, 2003. In  accordance  with SFAS No. 150, we adopted this standard on July 1,
2003.  Adoption  of  SFAS  No.  150  did  not  have  a  material  impact  on our
consolidated financial statements.




                          QUANTITATIVE AND QUALITATIVE
                          DISCLOSURE ABOUT MARKET RISKS

COMMODITY RISK

     Our major market risk exposure is in the pricing  applicable to our oil and
gas production. Realized pricing is primarily driven by the prevailing worldwide
price  for crude oil and spot  prices  applicable  to  natural  gas  production.
Historically,  prices received for oil and gas production have been volatile and
unpredictable  and price  volatility is expected to continue.  Monthly oil price
realizations  ranged  from a low of $18.56  per  barrel to a high of $27.49  per
barrel during 2002.  Gas price  realizations  ranged from a monthly low of $1.91
per Mcf to a monthly high of $4.01 per Mcf during 2002.

     As required by our credit  agreement  with Bank One, we entered  into hedge
agreements  on  December  28,  2001 on  notional  volumes of oil and natural gas
production  for the first six months of 2002 in order to manage some exposure to
oil and gas price  fluctuations.  Realized  gains or losses  from our price risk
management  activities were  recognized in oil and gas production  revenues when
the  associated  production  occurred.  Notional  volumes  associated  with  our
derivative contracts were 27,000 barrels and 630,000 MMBTU's for oil and natural
gas, respectively.  We do not generally hold or issue derivative instruments for
trading purposes.  These hedge agreements expired in June 2002 and have not been
renewed.  Hedging activities  resulted in a loss to the Company of approximately
$118,000 for the year ended  December  31, 2002 and had no impact on  operations
for the first nine months of 2003. We currently have no hedging arrangements.

INTEREST RATE RISK

     At  December  31,  2002,  we had debt  outstanding  of  approximately  $9.9
million.  The interest rate on the revolving  credit facility of $7.5 million at
December 31, 2002 is variable  based on the financial  institution's  prime rate
plus 0.25%.  The remaining debt of $2.4 million has fixed interest rates ranging
from 6% to 11.95%.  As a result,  our annual  interest costs in 2002  fluctuated
based on short-term  interest rates. The impact of interest expense and our cash
flows of a ten  percent  increase  in the  financial  institution's  prime  rate
(approximately  0.5  basis  points)  would be  approximately  $32,000,  assuming
borrowed  amounts under the credit facility  remain at $7.5 million.  We did not
have any open derivative  contracts  relating to interest rates at September 30,
2003.




                                    BUSINESS

OVERVIEW

     We are in the business of exploring for, producing and transporting oil and
natural  gas in  Tennessee  and Kansas.  We lease  producing  and  non-producing
properties  with a view toward  exploration  and  development.  Emphasis is also
placed on pipeline and other infrastructure facilities to provide transportation
services. We utilize seismic technology to improve the recovery of reserves.

     Our  activities in the oil and gas business  commenced in May 1995 with the
acquisition  of oil and gas leases in Hancock,  Claiborne,  Knox,  Jefferson and
Union  counties  in  Tennessee.  Our  current  lease  position in these areas in
Tennessee is approximately 41,088 acres.

     To date,  we have drilled  primarily on a portion of our  Tennessee  leases
known as the Swan Creek Field in Hancock  County focused within what is known as
the Knox  formation,  one of the geologic  formations in that field.  During the
first nine months of 2003, we produced an average of  approximately  1.2 million
cubic  feet of  natural  gas per day and 2,171  barrels of oil per month from 23
producing gas wells and six producing oil wells in the Swan Creek Field.

     In 2001, our wholly-owned  subsidiary,  Tengasco Pipeline  Corporation,  or
TPC,  completed  a 65-mile  intrastate  pipeline  from the Swan  Creek  Field to
Kingsport,  Tennessee.  Until our pipeline was completed, the gas wells that had
been drilled in the Swan Creek Field could not be placed into actual  production
and the gas  transported and sold to our industrial  customers in Kingsport.  We
initially  believed that the production of natural gas from the Swan Creek Field
would be  significantly  higher than the actually  experienced  production.  The
reasons for the lower  production  volumes include initial  production  problems
caused by  naturally  occurring  fluids  entering  the well  bore,  slower  than
anticipated production of the wells due to underground reservoir characteristics
that became apparent only when the wells were placed into actual production, and
our inability to drill additional wells due to shortage of available capital. We
have taken steps to minimize  fluid  problems  in existing  wells by  mechanical
means and to avoid them in future wells by drilling and  completion  techniques.
Management believes,  however,  that the only way to increase production volumes
of gas from this  field is to drill  additional  wells to drain the  underground
reservoirs  of the full  reserves of gas,  and our ability to do so is dependent
upon raising  additional  capital for drilling.  Although we intend to apply the
net  proceeds  from  this  offering  initially  to  repay  outstanding  non-bank
indebtedness and to apply the balance of such proceeds, if any, to repay in part
bank indebtedness and/or to fund in part the drilling of additional wells, there
can be no assurances that such net proceeds will be sufficient for such purposes
or that we will be able to resolve the difficulties currently preventing us from
drilling additional wells and increasing  production volumes of natural gas from
the Swan Creek Field.

     In 1998,  we acquired  from AFG Energy,  Inc.,  or AFG, a private  company,
approximately  32,000 acres of leases in the vicinity of Hays, Kansas.  Included
in that  acquisition  were 273 wells,  including 208 working wells, of which 149
were  producing  oil wells and 59 were  producing gas wells,  a related  50-mile
pipeline and gathering  system,  three  compressors  and 11 vehicles.  The total
purchase price of these assets was approximately $5.5 million.  During the first
six months of 2003, our Kansas  properties  produced an average of approximately
..13  MMcf of  natural  gas per day and  10,800  barrels  of oil per  month.  Net
revenues from our Kansas  properties were an average of  approximately  $342,000
per month during the first six months of 2003.

HISTORY OF THE COMPANY

     We were  initially  organized  under the laws of the State of Utah in 1916,
under the name "Gold Deposit  Mining & Milling  Company." We were formed for the
purpose of mining,  reducing and smelting  mineral ores. In 1972, we conveyed to
an  unaffiliated  entity  substantially  all of our  assets  and we  ceased  all
business  operations.  From  approximately  1983 to 1991,  our  operations  were
limited to seeking out the acquisition of assets, property or businesses.




     In 1995, we acquired certain oil and gas leases, equipment,  securities and
vehicles  owned by Industrial  Resources  Corporation,  a Kentucky  corporation,
changed our name from "Onasco Companies, Inc." to "Tengasco,  Inc.", and changed
our  domicile  from the State of Utah to the State of  Tennessee by merging into
Tengasco, Inc., a Tennessee corporation, formed by us solely for this purpose.

     During 1996, we formed TPC to manage the  construction and operation of our
pipeline, as well as other pipelines planned for the future.

GENERAL

     THE SWAN CREEK FIELD

     Amoco Production Company,  during the late 1970's and early 1980's acquired
approximately  50,500 acres of oil and gas leases in the Eastern  Overthrust  in
the  Appalachian  Basin,  including  the area now  referred to as the Swan Creek
Field. In 1982,  Amoco  successfully  drilled two natural gas discovery wells in
the Swan Creek Field to the Knox Formation at approximately  5,000 feet of total
depth.  These wells, once completed,  had a high pressure and apparent volume of
deliverability of natural gas. In the mid-1980's, however, a substantial decline
in worldwide oil and gas prices  occurred and further  exacerbated the high cost
of constructing a necessary 23-mile pipeline across three rugged mountain ranges
and crossing the  environmentally  protected Clinch River from Sneedville to the
closest market in Rogersville,  Tennessee.  In 1987, Amoco farmed out our leases
to Eastern  American  Energy  Company  which held the leases until July 1995. In
July 1995 we  commenced  a legal  action,  under  laws  passed by the  Tennessee
legislature,  as to our  right to lease  Amoco's  prior  acreage.  In July  1995
pursuant to such action, we acquired the Swan Creek leases. These leases provide
for a landowner royalty of 12.5%.

     SWAN CREEK PIPELINE  FACILITIES.  In July 1998, we completed Phase I of our
pipeline  from  the  Swan  Creek  Field,  a  30-mile  pipeline  made of six- and
eight-inch  steel pipe running from the Swan Creek Field into the main city gate
of  Rogersville,   Tennessee.  With  the  assistance  of  the  Tennessee  Valley
Authority,  or TVA, we were successful in utilizing TVA's right-of-way along its
main power line grid from the Swan Creek Field to the Hawkins County Gas Utility
District  located  in  Rogersville.  The  cost  of  constructing  Phase I of the
pipeline was approximately $4,200,000.

     In April 2000, construction commenced on Phase II of our pipeline. This was
an  additional  35  miles  of  eight-  and  12-inch  pipe  laid  at  a  cost  of
approximately  $11.1  million  extending  our  pipeline  from a point  near  the
terminus of Phase I and connecting to an existing  pipeline and meter station at
Eastman Chemical  Company's chemical plant. The pipeline system was completed in
March 2001 at an overall  cost of  approximately  $15.3  million  and extends 65
miles from our Swan Creek Field to Kingsport, Tennessee.

     SWAN CREEK CONTRACTUAL  ARRANGEMENTS.  In November 1999, we entered into an
agreement  with Eastman  Chemical  Company  that  provides  that  Eastman  would
purchase  daily from the Swan Creek  Field at  Eastman's  plant in  Kingsport  a
minimum of the lesser of (i) 5,000  MMBtu's  (MMBtu  means one  million  British
thermal units,  which is the equivalent of approximately one thousand cubic feet
of gas) or (ii) forty percent (40%) of the natural gas requirements of Eastman's
plant and a maximum of 15,000 MMBtu's per day. Under the terms of the agreement,
we had the option to install  facilities  to treat the delivered gas so that the
total  non-hydrocarbon  content of the  delivered  gas is not  greater  than two
percent (2%). This would have allowed the gas to be used in certain processes in
the Eastman  plant  requiring low levels of  non-hydrocarbons.  If we elected to
perform  this option by  installing  additional  facilities,  the minimum  daily
amount of gas to be purchased by Eastman from us would increase to the lesser of
(i)10,000  MMBtu's or (ii) eighty percent (80%) of the natural gas  requirements
of Eastman's chemical plant.

     In March  2000,  we signed  an  amendment  to the  agreement  with  Eastman
permitting  us  a  further  option  with  respect  to  the  allowable  level  of
non-hydrocarbons  in the delivered gas from the Swan Creek Field. This amendment
gives us the further option to tender gas without treatment, at a minimum volume
of 10,000 MMBtu's per day, in consideration of which we agreed to accept a price
reduction  of five cents per MMBtu for the  volumes  per day  between  5,000 and
10,000  MMBtu's per day under the pricing  structure in place under the original
agreement.  To date,  to our  knowledge,  none of the gas sold by us to  Eastman
exceeds the allowable  level of  non-hydrocarbons  permitted under the agreement
and no such gas requires treatment.




     Under the agreement as amended in March 2000,  Eastman agreed to pay us the
index  price plus  $0.10 for all  natural  gas  quantities  up to 5,000  MMBtu's
delivered  per day, the index price plus $0.05 for all  quantities  in excess of
5,000 MMBtu's per day and the index price for all quantities in excess of 15,000
MMBtu's  per day.  The index  price  means the  price  per  MMBtu  published  in
McGraw-Hill's  INSIDE  F.E.R.C  Gas Market  Report  equal to the Henry Hub price
index as shown in the table labeled Market Center Spot Gas Prices. The agreement
with Eastman is for an initial  term of twenty  years and will be  automatically
extended,  if the parties agree,  for successive  terms of one year. The initial
term of the agreement commenced in March 2001.

     In January 2000, TPC,  signed a franchise  agreement to install and operate
new natural gas utility  services for  residential,  commercial  and  industrial
users in Hancock County, Tennessee for the Powell Valley Utility District, which
we refer to as the District. The District had no existing natural gas facilities
and the  system  to be  installed  by TPC was  initially  intended  to extend to
schools and small customers and gradually be expanded over time to serve as many
of the 6,900 residents of the County as is economically  feasible. TPC purchases
gas from us on behalf of the  District,  which gas is to be resold at an average
retail price of about $8.00 Mcf.  Under the  franchise  agreement,  which has an
initial term of ten years and may be renewed by us for an additional  ten years,
TPC will  receive 95% of the gross  proceeds of the sale of gas for our services
under the  agreement.  In June 2000,  TPC began  installation  of the  necessary
facilities to begin to serve residential and industrial consumers in the City of
Sneedville,  county seat of Hancock  County.  Our existing  eight-inch main line
from our Swan  Creek  Field  passes  through  the city  limit of  Sneedville.  A
one-half  mile of  interconnecting  pipeline  from  our  existing  pipeline  was
installed,  as well as an additional four miles of pipeline as the initial phase
of the  distribution  system.  The  construction  was  completed and delivery of
initial  volumes of gas into the system  from the Swan Creek  field  occurred in
December 2000. The cost of  construction of these  facilities was  approximately
$300,000.  Upon  enactment of initial rate  schedules by the  District,  initial
sales  began  in  January  2001 to a  small  number  of  residential  and  small
commercial customers.

     In March 2002, we began  delivering gas to our first  commercial  customer,
Kiefer  Built,  Inc, an  Iowa-based  manufacturer  of livestock  and  industrial
trailers,  in a new  industrial  park in  Sneedville.  Although  there can be no
assurance,  we hope to be able to supply gas to other District customers who may
move into that industrial park. At this time,  however,  no gas sales agreements
for large  volume  or base  load  sales  have  been  signed  and there can be no
assurances that such agreements will be signed and if signed, we are not able to
predict when such sales may begin, if at all, or what the overall volumes of gas
sold may be. Due to the small number of existing  customers and relatively  high
operating costs, we experienced a loss of approximately  $35,000 attributable to
the operation of this system in 2002.  Although  there can be no  assurance,  we
intend to either expand the operation of this system so as to increase  revenues
or to sell these assets to neighboring  utilities or the City of Sneedville.  In
the event of such a sale, we could still sell gas to the District.

     In March 2001,  we signed a contract  to supply  natural gas to BAE Systems
Ordnance Systems Inc., or BAE,  operator of the Holston Army Ammunition Plant in
Kingsport,  Tennessee for a period of twenty  years.  Natural gas is used at the
Holston  Army  ammunition  facility  to fire  boilers  and  furnaces  for  steam
production and process  operations  utilized in the manufacture of explosives by
BAE for the United States military.  Under the agreement,  BAE's daily purchases
of natural  gas may be between  1.8 million  and five  million  cubic feet,  and
volume could, although there can be no assurance,  increase over the life of the
agreement as BAE conducts  additional  operations at the Holston  facility.  The
contract calls for a price based on the monthly  published  index price for spot
sales of gas at the Henry Hub plus  five  cents per MMBtu in the same  manner as
the price is calculated in the contract between us and Eastman.

     We have the only gas  pipeline  located on the  grounds  of the  6,000-acre
Holston facility. A portion of the Holston facility is being developed by BAE as
the new Holston  Business and Technology  Park,  which is expected to serve as a
location for additional commercial and industrial customers.  Although there can
be no assurance,  our presence at the Holston  Business and  Technology  Park is
expected  to  position  us to  provide  gas  service to those  customers  and we
understand  that our presence is considered  by BAE to be a favorable  factor in
the development of the Park.

     SWAN CREEK PRODUCTION AND DEVELOPMENT.  We began delivering gas through our
pipeline to BAE in April 2001 and to Eastman in May 2001.  Daily  production  in
June 2001  averaged  4,936.2  Mcf and in July  2001  daily  production  averages
increased to 5,497 Mcf per day.  Although our gas  production in mid-2001 was at



anticipated  levels,  we were unable to maintain those production levels for the
remainder of 2001 and since then. This was due primarily to three problems:

        o   initial fluid problems in some wells;

        o   natural and expected  production declines from the type of reservoir
            that exists in the Swan Creek field; and

        o   our inability to offset expected  natural  declines in production by
            drilling new wells because of inadequate capital.

     As  to  the  first  of  these  problems,  we  experienced  the  in-flow  of
substantially more fluids in the existing wells than had been expected when they
were first brought into continuous  production in 2001. These fluids entered the
wells from the boreholes.  The fluids obstructed and  significantly  reduced the
flow of gas  from  the  existing  wells in the Swan  Creek  Field  and  required
substantial additional work and repairs to increase the production from existing
wells.  First,  we installed a drip tank system to  eliminate  the fluids in the
pipeline. Next, we installed mechanical devices in many of the existing wells to
reduce the fluid problems.  Many of the existing wells had to be shut down while
the repairs were made. Gas lifts have been installed in 15 of our existing wells
and act as mechanisms to remove the fluids and stabilize erratic behavior,  such
as large swings in  individual  well  production.  These  measures have had only
limited  success in increasing  production  from existing  wells. We expect that
techniques used in addressing these fluid problems will be applied in our future
wells in the Swan  Creek  Field  and we  anticipate,  although  there  can be no
assurance, that this will minimize or prevent these problems.

     As to the second problem,  we experienced an expected and we believe normal
decline in initial  production from existing wells in the  newly-producing  Swan
Creek  Field.  We believe  that all types of gas wells  experience  some type of
decline as in the course of initial production. These declines were expected and
do not diminish  either the shut-in  pressure or our actual reserves in the Swan
Creek Field.  The declines,  however,  suggest the production rates from some of
our smaller  wells will  continue  to be slower,  which may result in such wells
lasting longer than we originally expected.

     As to the third problem, the declines in production have not been addressed
and replaced by additional  drilling as we had planned. We believe that in order
for overall  field  production  to remain  steady or grow in a field such as the
Swan  Creek  Field,  new wells  must be  brought  online to  offset  the  normal
production  declines in wells as described above. We anticipate,  although there
can be no  assurances,  that any new  wells  drilled  by us would  experience  a
similar  harmonic  (i.e. a relatively  steep initial  decline curve  followed by
longer  periods of  relatively  flat or stable  production)  decline as a normal
function.  Consequently,  continuous  drilling is  important to  maintaining  or
increasing initial levels of production.  Only two gas wells were added by us in
2002. We anticipate  that the natural  decline of production from existing wells
is now  predictable  in the Swan  Creek  Field,  that the  total  volume  of our
reserves  remains  largely  intact,  and that these  reserves  can be  extracted
through both existing wells and by additional well drilled by us, subject to the
availability of requisite funding.  Although we intend to apply the net proceeds
from this offering initially to repay outstanding  non-bank  indebtedness and to
apply the balance of such proceeds,  if any, to repay in part bank  indebtedness
and/or to fund such net proceeds  will be  sufficient  for such purposes or that
the  drilling  of  additional  wells,  there can be no  assurance  that such net
proceeds will be sufficient for such purposes or that we will have or be able to
further  raise  sufficient  capital  to fund our  proposed  drilling  program to
successfully increase production from the Swan Creek Field.

     Due to natural  and  expected  declines  that  continue to occur in ongoing
production from any oil and gas well,  some additional  declines are expected to
occur in production  from our existing  wells in the Swan Creek Field.  Although
there can be no assurance,  we expect these natural declines to be less than the
decline  experienced  to date, and that ongoing  production  from existing wells
will tend to level off. This expectation is based on two factors:

        o   first,  repairs have been  performed on many of the existing  wells,
            and

        o   second,  the natural  production  decline  from any well is normally
            greatest during the initial producing periods, which initial periods
            have largely elapsed.




     Natural gas production from the Swan Creek Field during 2002 averaged 2.567
million  cubic feet per day in the first  quarter;  2.553 million cubic feet per
day in the  second  quarter;  2.224  million  cubic  feet  per day in the  third
quarter;  and, 1.467 million cubic feet per day in the fourth  quarter.  Natural
gas  production  from the Swan  Creek  Field for the first  nine  months of 2003
averaged 1.195 million cubic feet per day. This  production  history  reflects a
combination  of natural  and  expected  decline  from  initial  production  from
existing  wells,  partially  offset  in the  second  and third  quarters  by the
addition of production from two new gas wells. During the fourth quarter of 2002
and the first nine months of 2003, no wells were added to offset the natural and
expected declines in production from existing wells.

     We also  experienced  reductions  or declines in our sales  volumes  during
certain times in 2002 for reasons unrelated to the production  capability of our
wells or fields.  These  declines were caused by  reductions  in our  customers'
usage  requirements  and/or by delivery  restrictions.  During a period in 2002,
Eastman  temporarily ceased purchases from us because we were delivering most of
our then available volumes to supply BAE's newly-increased requirements.  During
that  period,  we were unable to sell to Eastman  all  volumes of gas  exceeding
BAE's  increased  requirements,  although we were able to produce these volumes,
because Eastman requires a minimum volume for its meters that available  volumes
did not meet and a uniform rate of delivery that taking short-term volumes would
interrupt. During the time Eastman was not purchasing gas from us, BAE purchased
additional volumes until BAE experienced a partial equipment outage in July 2002
and reduced our purchased volumes. As a result of these occurrences,  which were
not  within  our  control,  our  sales  volume to BAE and  Eastman  in July 2002
declined  to 42,382 Mcf or an average of 1,367 Mcf per day. In order to increase
the  volumes  of gas for  delivery  from the Swan  Creek  Field,  we must  drill
additional wells.  However,  even if additional wells are drilled, we anticipate
based on all information  acquired to date,  although there can be no assurance,
that deliverability  from the Swan Creek Field, once stabilized,  may not exceed
approximately  three  million cubic feet per day, and there can be no assurances
as to any minimum productivity.

     During 2002, we had 30 producing gas wells and seven producing oil wells in
the Swan Creek Field.  Miller  Petroleum,  Inc.  and others had a  participating
interest in twelve of these wells.  In total,  we have completed 45 wells in the
Swan Creek  Field.  The  majority of these gas wells were  drilled  prior to the
completion of the pipeline  system so only test data was available prior to full
production.  Of the  completed  wells,  twelve  are  shut-in  or  currently  not
producing  because  these wells are either not  presently  producing  commercial
quantities of hydrocarbons,  or are awaiting workover or tie-in to our pipeline.
However,  certain of these  wells may not be tied in to our  pipeline  since the
expense of  connection  over rough  terrain may not be  justified in view of the
expected  volumes  to be  produced.  During the first  nine  months of 2003,  we
produced gas from 23 gas wells in the Swan Creek Field.

     We were not able to drill a  substantial  number of  additional  gas or oil
wells at Swan Creek in 2002 because we did not have  sufficient  funds to do so.
Although we had expected to commence and continue our drilling  program in 2002,
we were  forced to postpone  any further  drilling  until  additional  funds are
available and our dispute with Bank One is resolved, as to which there can be no
assurance.  Because the Knox formation has been defined by the  accumulation  of
data from previously drilled wells and seismic data, new locations and new wells
when drilled are expected, although there can be no assurances, to contribute to
achieving  increases in production totals. We believe,  although there can be no
assurance,  that new wells can be  strategically  based on  information  we have
developed from our existing wells as to the shape and key producing  horizons of
the Knox  formation.  We have obtained  approval  from the Tennessee  regulatory
authorities with jurisdiction over spacing of wells to drill additional wells on
smaller spacing in the field,  effectively allowing more wells to be drilled and
the  reservoir  to produce  more  quickly  but with no decrease in the long term
efficiency of production of the maximum  amount of reserves from the  reservoir.
We are  hopeful  that  production  from these new wells will be in line with our
more  productive  existing  wells  in the  Swan  Creek  Field  and  will  have a
noticeable  effect on increasing the total  production from the Field.  Although
there can be no assurance,  our strategy is that once this work is completed and
the new wells are drilled  production  from the Swan Creek Field will  increase.

      We anticipate that even if new wells were drilled in the Swan Creek field,
the  deliverability  of  natural  gas  from  the Swan  Creek  field  will not be
sufficient to satisfy the volumes  deliverable  under our contracts with Eastman
Chemical and BAE in Kingsport,  Tennessee.  The Eastman  Contract  provides that
Eastman  Chemical  will buy a minimum  of the  lesser of eighty  percent of that
customer's  daily usage or 10,000 MMBtu per day,  and the BAE contract  provides



that BAE will buy a minimum of all of that  customer's  usage or 5,000 MMbtu per
day after Eastman's volumes have been provided.  Our current production from the
Swan Creek field is approximately  1,000 MMBtu per day. Our contracts with these
customers are only for gas produced  from the Swan Creek field.  So long as that
field is not  capable  of  supplying  these  volumes,  we are not in  breach  or
violation of these contracts. No penalty is associated with the inability of the
field to produce the volumes that we could deliver and buyers would be obligated
to buy under these industrial contracts if the volumes were physically available
from the field.  However, in the event that we were found to be in breach of our
obligations for failure to deliver any volumes of gass that is produced from the
Swan Creek field to either of these  customers,  the agreements  limit potential
exposure to damages.  Damages are limited to no more than $.40 per MMBtu for any
replacement  volumes  that are  proved  in a court  proceeding  as  having  been
obtained to replace volumes required to be furnished but not furnished by us.

     Our strategy also includes  commencing  drilling in other formations in our
Swan Creek  Field.  To date,  drilling  in the Swan Creek  Field has  focused on
production of gas primarily  from the Knox  formation.  Immediately  adjacent to
this  formation,  however,  and  shallower  over  these  formations,  are  other
formations that we believe, although there can be no assurance, have a potential
for gas  production.  These other  formations  hold the possibility for yielding
both oil and gas and have  produced some gas to date and have not been a primary
target for gas  production.  The  shallower  depths needed for drilling in these
other  formations  and the  moderate  gas  production  from  them  may  make the
production of additional gas feasible.  As noted above,  we can not proceed with
such drilling until such time as funding is available,  as to which there can be
no assurance.

THE KANSAS PROPERTIES

     In 1997, we acquired the Kansas  Properties,  which  presently  include 134
producing oil wells and 51 producing  gas wells in the vicinity of Hays,  Kansas
and a gathering system including 50 miles of pipeline. We also acquired 37 other
wells,  which now serve as  saltwater  disposal  wells in the  vicinity of Hays,
Kansas.  Saltwater wells are used to store saltwater encountered in the drilling
process  that would  otherwise  have to be  transported  out of the area.  These
saltwater  disposal wells reduce  operating  costs by  eliminating  the need for
transport.  The  aggregate  production  for the Kansas  Properties at present is
approximately  800 Mcf and 336  barrels of oil per day.  Revenue  for the Kansas
Properties was approximately $275,000 per month in 2002.

     We employ a full time  geologist  in Kansas to  oversee  operations  of the
Kansas  Properties.  We have identified five new locations for drilling wells in
Ellis and Rush Counties,  Kansas on our existing  leases in response to drilling
activity in the area indicating new areas of production. In 2001 we successfully
drilled the Dick No. 7 well in Kansas and  completed the well as an oil well. We
did not drill any new wells in Kansas in 2002 or the first  nine  months of 2003
due to lack of  funds  available  for such  drilling.  We are  also  engaged  in
gathering  for a fee the gas  produced  from  wells  owned by others  located in
Kansas  adjacent to our wells and near our  gathering  lines.  Our plans for our
Kansas properties  include  maintaining the current  productive  capacity of our
existing wells through normal workovers and maintenance of the wells, performing
gathering or sales  services  for  adjacent  producers,  and  expanding  our own
production  through drilling these additional  wells.  Such plans are subject to
the availability of funds, in addition to the funds raised by this offering,  to
finance the work.

     In addition,  there are several capital  development  projects that we have
considered  with respect to the Kansas  Properties,  including  recompletion  of
wells and major workovers to increase current production.  Although there can be
no  assurances,  these  projects when  completed  might  increase  production in
Kansas. Management, however, has made the decision not to undertake any of these
projects,  as we do not presently have the necessary  funds.  We will,  however,
reconsider our decision if such funds become available.

OTHER AREAS OF DEVELOPMENT

     We  are  presently  exploring  other  geological  structures  in  the  East
Tennessee  area that are  similar to the Swan Creek  Field and which we believe,
although  there  can  be no  assurance,  have a high  probability  of  producing
hydrocarbons.  We have either  acquired  seismic data on these  structures  from
third-party  sources or are  conducting  our own  seismic  studies  with our own
trucks and equipment.  The seismic  analysis is continuing  and related  leasing
activities have begun based on initial analysis of seismic  results.  We plan to
conduct exploration  activities in these areas. The first of these locations was
in Cocke County, Tennessee which is approximately 40 miles southeast of the Swan
Creek Field.  In 2002,  we, in  conjunction  with  Southeast  Gas & Oil Corp. of



Newport, Tennessee,  drilled an approximately 6,000-foot exploratory well to the
Knox  formation.  This  well did not  result  in any  commercial  quantities  of
hydrocarbons. Although these and other exploratory efforts have commenced or are
under  consideration,  there can be no assurances  that any such efforts will be
completed or will be commercially successful.

GOVERNMENTAL REGULATIONS

     We are subject to numerous state and federal regulations, environmental and
otherwise, that may have a substantial negative effect on our ability to operate
at a  profit.  For a  discussion  of the  risks  involved  as a  result  of such
regulations,  see, "Effect of Existing or Probable  Governmental  Regulations on
Business" below.

PRINCIPAL PRODUCTS OR SERVICES AND MARKETS

     The principal markets for our crude oil are local refining companies, local
utilities and private industry end- users. The principal markets for our natural
gas are local utilities,  private  industry  end-users and natural gas marketing
companies.

     Gas production from the Swan Creek Field can presently be delivered through
our completed  pipeline to the Powell Valley Utility District in Hancock County,
Eastman and BAE in Sullivan County, as well as other industrial customers in the
Kingsport  area. We believe,  although  there can be no assurance,  that we have
acquired all necessary  regulatory  approvals and necessary  property rights for
the pipeline system. Our pipeline would not only provide  transportation service
for gas produced  from our wells,  but would provide  transportation  of gas for
small independent  producers in the local area as well. We also could,  although
there can be no assurance,  sell our products to certain local towns, industries
and utility districts.

     Natural gas from the Kansas  Properties  is  delivered  to  Kansas-Nebraska
Energy, Inc. in Bushton,  Kansas. At present,  crude oil is sold to the National
Cooperative  Refining  Association  in McPherson,  Kansas,  120 miles from Hays.
National  Cooperative is solely  responsible  for  transportation  of the oil it
purchases whether by truck or pipeline.

DRILLING EQUIPMENT

     On November 1, 2000,  we purchased an Ingersoll  Rand RD20 drilling rig and
related equipment from Ratliff Farms,  Inc., an affiliate of Malcolm E. Ratliff,
who at that time was our Chief  Executive  Officer and  Chairman of the Board of
Directors.  We also receive contract  drilling  services from Miller  Petroleum,
Inc.  and Union  Drilling in the Swan Creek Field.  The  purchase  price for the
drilling rig and related equipment was $995,000, which was paid by delivery of a
convertible  note to  Ratliff  Farms,  Inc.  The note was paid in full  from the
proceeds of the loan to us from Bank One in November 2001. In 2001, the drilling
rig was used to drill and complete four wells in the Swan Creek field.  In 2002,
the  drilling  rig was used to drill two of the four wells we drilled that year.
The  drilling rig has not been used on a contract  drilling  basis for any other
operators  since it was  purchased and was not used in 2003 due to lack of funds
to cover drilling costs,  including casing,  logging, bits and cementing and due
to the  insufficiency  of the  number  of our  remaining  employees  to  conduct
drilling   operations.   We  estimate   that  the  drilling  rig  was  used  for
approximately one-third of our drilling activities since the rig was purchased.

DISTRIBUTION METHODS OF PRODUCTS OR SERVICES

     Crude oil is normally  delivered to  refineries  in Tennessee and Kansas by
tank truck and natural gas is distributed and transported via pipeline.

COMPETITIVE  BUSINESS  CONDITIONS,  COMPETITIVE  POSITION  IN THE  INDUSTRY  AND
METHODS OF COMPETITION

     Our  contemplated  oil and gas  exploration  activities  in the  States  of
Tennessee and Kansas will be undertaken in a highly  competitive and speculative
business  atmosphere.  In seeking any other  suitable oil and gas properties for
acquisition,  we will be competing with a number of other  companies,  including
large  oil and gas  companies  and  other  independent  operators  with  greater
financial  resources.  Management does not believe that our initial  competitive
position in the oil and gas industry will be significant.

     Our principal  competitors  in the State of Tennessee  are Nami  Resources,
LLC,  Miller  Petroleum,   Inc.,  Knox  Energy  Development  and  Penn  Virginia
Corporation. We believe that we are in a favorable position in the area in which
our pipeline is located. Within that area, we own leases on approximately 41,088
acres.



     There are numerous producers in the area of the Kansas Properties. Some are
larger with greater technological and financial resources.

     Although we do not now foresee any difficulties in procuring  drilling rigs
or the  manpower  to run them in the  area of our  operation,  several  factors,
including  increased  competition  in the area,  may limit the  availability  of
drilling  rigs,  rig operators  and related  personnel  and/or  equipment in the
future. Such limitations would have a natural adverse effect on our operations.

     The prices of our products are  controlled  by the world oil market and the
United  States  natural gas market.  Thus,  competitive  pricing  behaviors  are
considered  unlikely;  however,  competition  in the  oil  and  gas  exploration
industry exists in the form of competition to acquire the most promising acreage
blocks and obtaining the most favorable prices for transporting the product.  We
believe that we are  well-positioned  in these areas because of the transmission
lines that run through and adjacent to the  properties  leased by us and because
we hold relatively large acreage blocks in our areas of current operation.

SOURCES AND AVAILABILITY OF RAW MATERIALS

     Excluding the development of oil and gas reserves and the production of oil
and  gas,  our  operations  are  not  dependent  on the  acquisition  of any raw
materials .

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

     We presently are dependent upon a small number of customers for the sale of
gas from the Swan Creek Field, principally Eastman and BAE, and other industrial
customers  in the  Kingsport  area  with  which  we may  enter  into  gas  sales
contracts.

     Natural gas from the Kansas  Properties  is  delivered  to  Kansas-Nebraska
Energy,  Inc.  in  Bushton,  Kansas.  At  present,  crude  oil from  the  Kansas
Properties is being trucked and  transported  through  pipelines to the National
Cooperative  Refining  Association  in McPherson,  Kansas,  120 miles from Hays,
Kansas.  National  Cooperative  is  solely  responsible  for  transportation  of
products whether by truck or pipeline.

PATENTS, TRADEMARKS,  LICENSES, FRANCHISES,  CONCESSIONS,  ROYALTY AGREEMENTS OR
LABOR CONTRACTS, INCLUDING DURATION

     Royalty  agreements  relating to oil and gas production are standard in the
industry. The amounts of our royalty payments vary from lease to lease.

NEED FOR GOVERNMENTAL APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

     Although none of the principal products offered by us require  governmental
approval, permits are required for drilling oil or gas wells.

     The  transportation  service offered by TPC is subject to regulation by the
Tennessee  Regulatory Authority to the extent of certain  construction,  safety,
tariff rates and charges,  and  nondiscrimination  requirements under state law.
These requirements are typical of those imposed on regulated utilities.  TPC has
been granted a certificate of public  convenience  and necessity to operate as a
pipeline utility in Hancock,  Hawkins,  and Claiborne  counties,  Tennessee.  In
addition, TPC was authorized to construct and operate the portion of Phase II of
the pipeline to Eastman by  resolution  of the City of  Kingsport in May,  2000.
This resolution was approved by the Tennessee  Regulatory  Authority as required
by state law. All approvals for our pipeline have been granted.

     The City of Kingsport,  Tennessee has also enacted an ordinance granting to
TPC a franchise for twenty years to construct, maintain and operate a gas system
to  import,  transport,  and  sell  natural  gas to the  City of  Kingsport  and
inhabitants,  institutions and businesses for domestic,  commercial,  industrial
and institutional uses. This ordinance and the franchise agreement it authorizes
also require approval of the Tennessee  Regulatory Authority under state law. We
will not initiate the required  approval process for the ordinance and franchise
agreement  until  such time  that we can  supply  gas to the City of  Kingsport.



Although we anticipate that regulatory approval will be granted, there can be no
assurance  that it will be granted,  or that such  approval  may be granted in a
timely  manner,  or that such  approval may not be limited in some manner by the
Tennessee Regulatory Authority.

EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON BUSINESS

     Exploration  and production  activities  relating to oil and gas leases are
subject to numerous environmental laws, rules and regulations. The Federal Clean
Water Act requires us to construct a fresh water containment barrier between the
surface of each drilling site and the underlying water table.  This involves the
insertion of a seven-inch  diameter steel casing into each well,  with cement on
the outside of the casing. We have complied with this environmental  regulation,
the cost of which is approximately $10,000 per well.

     The State of Tennessee  also  requires the posting of a bond to ensure that
our wells are  properly  plugged  when  abandoned.  A  separate  $2,000  bond is
required for each well drilled.  We currently have the requisite amount of bonds
on deposit with the State of Tennessee.

     As part of our  purchase of the Kansas  Properties  we acquired a statewide
permit to drill in Kansas.  Applications  under such  permit are applied for and
issued within one to two weeks prior to drilling. At the present time, the State
of Kansas does not require  the  posting of a bond either for  permitting  or to
insure that our wells are properly  plugged when abandoned.  All of the wells in
the Kansas  Properties  have all permits  required and we believe that we are in
substantial compliance with the laws of the State of Kansas.

     Our  exploration,   production  and  marketing   operations  are  regulated
extensively  at the  federal,  state  and  local  levels.  We have made and will
continue to make  expenditures in our efforts to comply with the requirements of
environmental  and  other  regulations.  Further,  the oil  and  gas  regulatory
environment could change in ways that might substantially  increase these costs.
Hydrocarbon-producing  states regulate conservation practices and the protection
of correlative  rights.  These  regulations  affect our operations and limit the
quantity of  hydrocarbons  we may produce and sell. In addition,  at the federal
level,   the  Federal  Energy   Regulatory   Commission   regulates   interstate
transportation of natural gas under the Natural Gas Act. Other regulated matters
include marketing, pricing, transportation and valuation of royalty payments.

     Our  operations  are subject to numerous and  frequently  changing laws and
regulations  governing  the  discharge  of  materials  into the  environment  or
otherwise relating to environmental protection. We own or lease, and have in the
past owned or leased,  properties  that have been used for the  exploration  and
production of oil and gas and these  properties and the wastes disposed on these
properties  may  be  subject  to  the  Comprehensive   Environmental   Response,
Compensation  and Liability  Act, the Oil  Pollution  Act of 1990,  the Resource
Conservation  and Recovery  Act,  the Federal  Water  Pollution  Control Act and
analogous  state  laws.  Under  such  laws,  we could be  required  to remove or
remediate previously released wastes or property contamination.

     Laws and regulations  protecting the environment have generally become more
stringent and, may in some cases,  impose "strict  liability" for  environmental
damage.  Strict  liability  means that we may be held liable for damage  without
regard to whether we were  negligent or otherwise at fault.  Environmental  laws
and  regulations  may expose us to  liability  for the conduct of or  conditions
caused by others or for acts that were in compliance with all applicable laws at
the time they were performed.  Failure to comply with these laws and regulations
may result in the imposition of administrative, civil and criminal penalties.

     While we believe that our  operations are in  substantial  compliance  with
existing  requirements of governmental  bodies, our ability to conduct continued
operations  is  subject  to  satisfying  applicable  regulatory  and  permitting
controls.  Our  current  permits  and  authorizations  and ability to get future
permits and  authorizations  may be  susceptible,  on a going forward basis,  to
increased scrutiny, greater complexity resulting in increased costs or delays in
receiving appropriate authorizations.

     The foregoing is only a brief summary of some of the existing environmental
laws,  rules and regulations to which our business  operations are subject,  and
there are many others,  the effects of which could have an adverse impact on us.
Future  legislation  in this area will no doubt be enacted and revisions will be



made in current  laws. No assurance can be given as to what effect these present
and future  laws,  rules and  regulations  will have on our  current  and future
operations.

RESEARCH AND DEVELOPMENT

     We have not  expended  any  material  amount in  research  and  development
activities  during the last two fiscal years.  Research done in conjunction with
our exploration activities would consist primarily of conducting seismic surveys
on the lease blocks. This work would be performed by our geology and engineering
personnel and other  employees and would not be expected to have a material cost
of above their standard salaries.

NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES

     We presently have 25 full time employees and no part-time employees.

PROPERTY LOCATION, FACILITIES, SIZE AND NATURE OF OWNERSHIP

     SWAN CREEK FIELD. Our Swan Creek leases are on  approximately  41,088 acres
in Hancock,  Claiborne, Knox, Jefferson, Morgan and Union Counties in Tennessee.
The initial terms of these leases vary from one to five years. Some of them will
terminate  unless we have  commenced  drilling.  In 2002, we reduced the acreage
comprising the Swan Creek Field from  approximately  50,500 acres to the present
41,088  acres.   This  reduction  in  acreage  was  a  result  of  our  improved
understanding of the geological and geophysical  makeup of the Swan Creek Field.
We  believe  that  the  acreage  eliminated  from  the  field  does not have the
potential to produce commercial  quantities of oil or gas and that the reduction
of this acreage  does not affect the reserves of the Swan Creek Field.  Further,
the  elimination  of the leases for this  acreage is  expected to result in cost
savings to us.

     Morita Properties, Inc., an affiliate of Shigemi Morita, a former Director,
currently has a 25% overriding  royalty in nine of our existing wells, and a 50%
overriding royalty and 6% overriding royalty,  respectively, in two of our other
existing  wells.  All of these wells are located in the Swan Creek Field and all
but two are presently producing wells. In addition,  to those interests,  Morita
Properties,  Inc.  previously owned a 25% working interest in three of our other
existing  wells and 12.5% working  interest in another of our wells all of which
subsequently have been sold.

     An individual who is not an affiliate of us purchased 25% working interests
in two other wells located in the Swan Creek Field that are presently  producing
wells.

     Another  individual has a 29% revenue  interest in a producing well located
in the Swan Creek Field by virtue of having  contributed her unleased acreage to
the drilling unit and paying her  proportionate  share of the drilling  costs of
the well.  We were  obligated to allow that  individual to  participate  on that
basis in accordance with both customary  industry  practice and the requirements
of the  procedures of the Tennessee Oil and Gas Board in a forced pooling action
brought by us to require the acreage to be included in the unit so that the well
could be drilled. The forced pooling procedure was concluded by her contribution
of acreage and agreement to pay proportionate share of drilling costs.

     We also entered into a farmout  agreement with Miller  Petroleum,  Inc. for
ten wells to be drilled  in the Swan Creek  Field and we have an option to award
up to an additional ten future wells.  All locations were to be mutually  agreed
upon. Net revenues,  as defined,  are to be 81.25% to Miller. Our subsidiary TPC
will transport  Miller's gas. We reserved all offset  locations to wells drilled
under the farmout  agreement.  All ten wells have been drilled under the farmout
agreement.  We acquired back from Miller a 50% working interest in nine of those
ten wells in addition to our rights under the farmout agreement. In addition, we
along with Miller have drilled two additional  wells on a 50-50 basis,  although
we  declined  to  exercise  our option for a ten-well  extension  of the farmout
agreement.  Of the wells in which  Miller owns an  interest,  six are  presently
producing.

     Other than the working interests  described or referred to above, we retain
all other working  interests in wells drilled or to be drilled in the Swan Creek
Field.



     Other working interest owners in oil and gas wells in which we have working
interests  are  entitled to market  their  respective  shares of  production  to
purchasers  other than  purchasers  with whom we have  contracted.  Absent  such
contractual  arrangements  being made by the  working  interest  owners,  we are
authorized but are not required to provide a market for oil or gas  attributable
to working  interest  owners'  production.  At this time,  we have not agreed to
market gas for any working interest owner to customers other than our customers.
If we agree to market gas for working interest owners to our customers,  we will
have to agree, at that time, to the terms of such marketing  arrangements and it
is  possible  that as a result  of such  arrangements,  our  revenues  from such
customers may be  correspondingly  reduced.  If the working interest owners make
their own  arrangements to market their natural gas to other end users along the
pipeline  which have been served by East  Tennessee  Natural Gas, an  interstate
pipeline,  such gas would be transported by TPC at published  tariff rates.  The
current  published tariff rate is for firm  transportation at a demand charge of
five cents per MMBtu per day plus a commodity  charge of $0.80 per MMBtu. If the
working interest owners do not market their production,  either independently or
through us, then their  interest will be treated as not yet produced and will be
balanced either when marketing  arrangements  are made by such working  interest
owners or when the well ceases to produce in accordance with customary  industry
practice.

     KANSAS PROPERTIES. The Kansas Properties contain 138 leases totaling 32,158
acres in the vicinity of Hays,  Kansas.  The original terms on these leases were
from one to ten years and in most  cases  have  expired.  Most of these  leases,
however,  are still in effect  because  they are being  held by  production.  We
maintain  a 100%  working  interest  in most  wells.  The leases  provide  for a
landowner  royalty of 12.5%.  Some wells are  subject to an  overriding  royalty
interest from 0.5% to 9%.

     Although  we do not pay any  taxes  on our  Swan  Creek  Leases,  we pay ad
valorem taxes on our Kansas Properties.  We have general liability insurance for
the Kansas Properties and the Swan Creek Field.

     We lease our principal executive offices, consisting of approximately 5,647
square feet located at 603 Main  Avenue,  Suite 500,  Knoxville,  Tennessee at a
rental of $4,705.83 per month and an office in Hays,  Kansas at a rental of $500
per  month.  During  2002 and the first nine  months of 2003,  we closed a field
office in Sneedville, Tennessee and an office in New York City we had previously
leased at an aggregate rental of $3,100 per month.

RESERVE ANALYSES

     Ryder Scott Company, L.P. of Houston,  Texas has performed reserve analyses
of all our productive  leases.  Ryder Scott Company,  L.P. and its employees and
its registered petroleum engineers have no interest in the Company and performed
these  services at their standard  rates.  The net reserve values used hereafter
were obtained from a reserve report dated  February 10, 2004,  which we refer to
as the Report, prepared by Ryder Scott Company, L.P. as of December 31, 2003.

      The Report  indicates  our  "TOTAL  PROVEN ALL  CATEGORIES"  reserves  for
Tengasco Inc. to be as follows:  net production volumes of 1,371,512 bbls of oil
and 14,363.21 MMCF of Gas. The present value  discounted at 10% (PV10) is stated
to be  $26,330,111.00.  The Report  indicates the "proven  developed  producing"
reserves for Tengasco Inc. to be as follows: net production volumes of 1,059,038
bbls of oil and  5,205.709  MMCF of Gas.  The present  value  discounted  at 10%
(PV10) is stated to be $12,224,620.

     In substance,  the Report used estimates of oil and gas reserves based upon
standard  petroleum  engineering  methods which include production data, decline
curve analysis,  volumetric  calculations,  pressure history,  analogy,  various
correlations  and technical  factors.  Information for this purpose was obtained
from owners of  interests  in the areas  involved,  state  regulatory  agencies,
commercial  services,  outside operators and files of Ryder Scott Company,  L.P.
The net  reserve  values in the Report were  adjusted  to take into  account the
working  interests  that have been sold by us in various wells in the Swan Creek
Field.

      We believe  that the  reserve  analysis  reports  prepared  by Ryder Scott
Company,  L.P. for us for the Swan Creek Field and Kansas Properties  provide an
essential basis for review and consideration of our producing  properties by all
potential industry partners and all financial  institutions  across the country.
We believe that it standard in the industry for reserve  analyses of only proved
developed  producing  reserves to be used as a basis for  financing  of drilling
costs.




     We have not filed the  reserve  analysis  reports  prepared  by Ryder Scott
Company,  L.P. or any other reserve reports with any Federal authority or agency
other than the earlier reports with the Securities and Exchange Commission.  We,
however,  have  filed the  information  in the Report of our  reserves  with the
Energy  Information  Service of the Department of Energy in compliance with that
agency's statutory function of surveying oil and gas reserves nationwide.

      The term "Proved Oil and Gas  Reserves" is defined in Rule  4-10(a)(2)  of
Regulation S-X as follows:

      2.  Proved  oil and gas  reserves.  Proved  oil and gas  reserves  are the
estimated  quantities  of crude oil,  natural gas, and natural gas liquids which
geological and engineering  data  demonstrate  with  reasonable  certainty to be
recoverable in future years from known  reservoirs  under existing  economic and
operating  conditions,  i.e.,  prices and costs as of the date the  estimate  is
made.  Prices include  consideration of changes in existing prices provided only
by  contractual   arrangements,   but  not  on  escalations  based  upon  future
conditions.

      i. Reservoirs are considered proved if economic producibility is supported
      by either actual  production or conclusive  formation  test. The area of a
      reservoir  considered  proved  includes  (A) that  portion  delineated  by
      drilling and defined by gas-oil and/or oil-water contacts, if any, and (B)
      the  immediately  adjoining  portions  not yet  drilled,  but which can be
      reasonably  judged as  economically  productive  on the basis of available
      geological  and  engineering  data. In the absence of information on fluid
      contacts,  the lowest known structural occurrence of hydrocarbons controls
      the lower proved limit of the reservoir.

      ii.  Reserves which can be produced  economically  through  application of
      improved recovery techniques (such as fluid injection) are included in the
      proved  classification  when successful testing by a pilot project, or the
      operation of an installed  program in the reservoir,  provides support for
      the engineering analysis on which the project or program was based.

      iii.  Estimates of proved  reserves do not include the following:  (A) Oil
      that  may  become  available  from  known  reservoirs  but  is  classified
      separately as indicated additional  reserves;  (B) crude oil, natural gas,
      and natural gas liquids,  the  recovery of which is subject to  reasonable
      doubt because of uncertainty as to geology, reservoir characteristics,  or
      economic  factors;  (C) crude oil,  natural  gas, and natural gas liquids,
      that may occur in undrilled prospects; and (D) crude oil, natural gas, and
      natural  gas  liquids,  that  may be  recovered  from  oil  shales,  coal,
      gilsonite and other such sources.





PRODUCTION

     The following  tables summarize for the past three fiscal years the volumes
of oil and gas produced to our  interests,  our operating  costs and our average
sales  prices for our oil and gas.  The  information  does not  include  volumes
produced to royalty interests or other working interests.

                                    Tennessee



                                                    COST OF
   YEAR ENDED                                      PRODUCTION             AVERAGE
   DECEMBER 31              PRODUCTION            (PER BOE)(2)          SALES PRICE
   -----------              ----------            ------------          -----------
                        OIL           GAS                             OIL       GAS
                       (BBL)         (MCF)                           (BBL)   (PER MCF)
                   ----------------------------                   -----------------------

                                                                  
   2002............  15,111.54    521,834.35        $ 4.10(2)        $21.85      $3.22


   2001............  22,776.21    703,073.56        $ 0.31           $16.05      $2.55


   2000............  37,210.67      2,411.00        $ 0.69           $20.32      $2.86


Gas  volumes and prices for 2000  reflect  only the  nominal  purchases  made by
Hawkins  County Gas  Utility  District  upon  completion  of Phase I of Tengasco
Pipeline Company's pipeline system.

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

(1)  A  "BOE"  is  a  barrel  of  oil  equivalent.  A  barrel  of  oil  contains
approximately  6 Mcf of  natural  gas by  heating  content.  The  volumes of gas
produced have been converted into "barrels of oil  equivalent"  for the purposes
of calculating costs of production.

(2) The  increase in cost of  production  in 2002 was a result of this being the
first full year of production in the Swan Creek Field.

                                     Kansas



                                                     COST OF
        YEAR ENDED                                  PRODUCTION           AVERAGE
       DECEMBER 31           PRODUCTION            (PER BOE)(2)        SALES PRICE
       -----------           ----------            ------------        -----------
                         OIL           GAS                           OIL       GAS
                        (BBL)         (MCF)                         (BBL)   (PER MCF)
                    ----------------------------                  -----------------------


                                                                  
   2002.............   105,473.54    246,510.98      $  8.71        $23.89       $2.96


   2001.............   112,495.88    278,884.66       $10.72        $23.50       $4.12


   2000.............   111,734.81    291,096.22      $  9.68        $28.06       $3.75


OIL AND GAS DRILLING ACTIVITIES

     Our oil and gas developmental  drilling for the past three fiscal years are
as set forth in the following  tables.  During the fiscal years ending  December
31, 2000 and 2001 we did not drill any  exploratory  wells.  In 2002, we drilled
one exploratory well in Cocke County,  Tennessee which did not result in finding
commercial quantities of hydrocarbons.  The information should not be considered
indicative  of future  performance,  nor  should  it be  assumed  that  there is
necessarily any correlation  between the number of wells drilled,  quantities of
reserves found or economic value.




GROSS AND NET WELLS

     The  following  tables set forth for the fiscal years  ending  December 31,
2000,  2001, and 2002 the number of gross and net  development  wells drilled by
us. The dry hole set forth in the table below is the Cocke County well  referred
to above.  The term gross wells means the total  number of wells in which we own
an interest,  while the term net wells means the sum of the  fractional  working
interests we own in gross wells.



                                               Year ended December 31,
                        ----------------------------------------------------------------------
                               2002                     2001                       2000
                        --------------------    ---------------------    ---------------------
                         Gross         Net       Gross         Net        Gross          Net
                        -------      -------    -------      --------    -------       -------
                                                                      
TENNESSEE
Productive Wells.......   3           2.625        19          11.42        9           4.0515
Dry Holes..............   1            .50          0           0           0           0

KANSAS
Productive Wells.......   0           0             3           2.594       0           0
Dry Holes..............   0           0             0           0           0           0


PRODUCTIVE WELLS

     The  following  table sets  information  regarding the number of productive
wells in which we held a working  interest as of December 31,  2002.  Productive
wells are  either  producing  wells or wells  capable of  commercial  production
although  currently  shut-in.  One or more completions in the same bore hole are
counted as one well.

                                Gas                               Oil
                      ------------------------       ------------------------
                         Gross          Net            Gross           Net
                      ----------     ---------       ----------     ---------
Tennessee.............     31           18.9             12           6.18

Kansas................     52          43.45            128           110.5

DEVELOPED AND UNDEVELOPED OIL AND GAS ACREAGE

     As of December  31,  2002,  we owned  working  interests  in the  following
developed and undeveloped  oil and gas acreage.  Net acres refer to our interest
less the interest of royalty and other working interest owners.

                                Developed                      Undeveloped
                       --------------------------     --------------------------
                       Gross Acres      Net Acres     Gross Acres      Net Acres
                       -----------     ----------     -----------     ----------
Tennessee...........     1,840.00       1,065.38         41,088         35,952

Kansas..............     9,666.00       8,080.44         22,711        18,995.48





                                LEGAL PROCEEDINGS

     In  November  2001,  we signed a credit  facility  with Bank One,  N.A.  in
Houston,  Texas whereby Bank One extended to us a revolving line of credit of up
to $35 million.  The initial  borrowing base under the facility was $10 million.
In  April  2002,  we  received  a  notice  from  Bank  One  stating  that it had
redetermined  and  reduced  the  then-existing  borrowing  base under the credit
agreement by $6 million to approximately $3.1 million. Bank One demanded that we
pay the $6 million  within  thirty days.  In May 2002,  we filed suit in federal
court in the Eastern District of Tennessee, Northeastern Division at Greeneville
to restrain  Bank One from taking any steps to enforce its demand that we reduce
our loan obligation or else be deemed in default and for damages  resulting from
the  demand.  We sought a jury trial and  actual  damages  sustained  by it as a
result of the wrongful demand in the amount of $51 million plus punitive damages
in the amount of $100 million.

     In July 2002, Bank One filed its answer and counterclaim, alleging that its
actions  were  proper  under the terms of the credit  agreement  and  seeking to
recover all amounts it alleges to be owed under the credit agreement,  including
principal,  accrued  interest,  expenses and attorney's  fees in the approximate
amount of $9 million.  Discovery has begun and a hearing have been  scheduled on
certain disputed  discovery  issues. We have continued to pay $200,000 per month
of  principal  due  under  the  original  terms of the  credit  agreement,  plus
interest,  and have reduced the principal now outstanding to approximately  $4.7
million.  Although the parties continue to discuss settlement of all outstanding
issues, no settlement has been concluded.  The Court has adjusted the procedural
schedule to lead to a trial date on December 7, 2004 in the event  settlement is
not reached.

     In  November  2002,  we and our then Chief  Executive  Officer,  Malcolm E.
Ratliff,  were served with a complaint filed in the United States District Court
for the Eastern District of Tennessee,  Knoxville, entitled PAUL MILLER V. M. E.
RATLIFF AND TENGASCO,  INC.,  DOCKET  NUMBER  3:02-CV-644.  The complaint  seeks
certification of a class action to recover on behalf of the class of all persons
who purchased  shares of our common stock  between  August 1, 2001 and April 23,
2002,  damages  in an  amount  not  specified  that  were  allegedly  caused  by
violations of the federal  securities  laws,  specifically  Rule 10b-5 under the
Securities  Exchange Act of 1934 as to us and Mr. Ratliff,  and Section 20(a) of
that Act as to Mr. Ratliff.  The complaint alleges that documents and statements
made to the investing public by us and Mr. Ratliff misrepresented material facts
regarding  our business and  finances.  We believe that the  allegations  in the
complaint are without merit.  We intend to vigorously  defend against all of the
allegations.  A full settlement of this case has been reached,  subject to court
approval.   As  of  January  30,  2004,  a  written  stipulation  of  settlement
documenting the settlement terms has been signed by counsel for all parties. The
stipulation  of  settlement  will be presented to the court on February 27, 2004
for a  determination  of initial  fairness and  initiation  of other  procedures
leading to a final  hearing  following  a  settlement  administration  period of
approximately 120 days. Any settlement would be subject to court approval before
becoming  effective.  Under  the  proposed  settlement,  we  would  pay  into  a
settlement fund the amount of $37,500 including all costs of administration, and
would  contribute  150,000  shares of stock of Miller  Petroleum,  Inc.  that is
currently  owned by us and that had been  accepted  in payment of an  obligation
owed to the us by Miller  Petroleum.  We would also contribute to the settlement
fund our  agreement to issue  300,000  warrants to purchase  company stock for a
period of three years from date of issue at $1 per share. The number or price of
the  warrants  is to be  adjusted  to account  for the  additional  shares  sold
pursuant to a rights  offering or other stated  events.  All expenses  including
attorneys'  fees as are awarded by the court on final hearing are to be paid out
of the  settlement  funds.  The parties  stipulate  the existence of a class for
settlement  purposes only and the existing  lawsuit would be dismissed  when the
settlement  becomes final, and the class members fully release their claims when
the settlement becomes final.

     We, our former Chief Executive Officer,  Malcolm E. Ratliff, and one of our
attorneys,  Morton S. Robson, were named as defendants in an action commenced on
June 18,  1998 in the  Supreme  Court of the State of New York,  New York County
entitled MAUREEN COLEMAN, JOHN O. KOHLER, CHARLES MASSOUD,  JONATHAN SARLIN, VON
GRAFFENRIED A.G. AND VPM VERWATUNGS A.G.,  PLAINTIFFS V. TENGASCO,  INC., MORTON
S. ROBSON AND  MALCOLM E.  RATLIFF,  DEFENDANTS,  INDEX NO.  603009/98.  In that
action,  the  plaintiffs,  stockholders  of the  Company,  allege that they were
entitled to sell their shares of our common stock in the open market pursuant to
Rule 144  promulgated  under the Securities Act of 1933, but they were precluded
from  doing so by the  defendants'  purported  wrongful  refusal  to remove  the
restrictive  legends from their  shares.  The  plaintiffs  own in the  aggregate
35,000  shares of our common stock.  The  plaintiffs  are seeking  damages in an
amount equal to the difference between the amount for which they would have been



able to sell their shares if the defendants had acted to remove the  restrictive
legends  when  requested  and the amount they will  receive on the sale of their
shares. The plaintiffs are also seeking punitive damages in an amount they claim
to be in excess of $500,000,  together with interest, costs and disbursements of
bringing the action, including reasonable attorneys fees. We do not believe that
we wrongfully withheld our approval of the removal of the restrictive legends at
the times such removal was requested by the  stockholders.  The plaintiffs  have
not taken any action in this matter for several years.





                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth certain information  regarding our executive
officers and directors.

NAME                         AGE   POSITION
----                         ---   --------
Richard T. Williams(3)(4)    52    Chairman of the Board and Chief Executive
                                   Officer
Jeffrey R. Bailey(3)(4)      46    President and Director
Mark A. Ruth                 45    Chief Financial Officer
Robert M. Carter             66    President - Tengasco Pipeline Corporation
Cary V. Sorensen             55    General Counsel, Vice President and Secretary
Stephen W. Akos(1)(2)        49    Director
Joseph Earl Armstrong(3)     46    Director
John A. Clendening(1)(2)(4)  70    Director
Robert L. Devereux(1) (2)    43    Director
Bill W. Harbert              80    Director
Peter E. Salas               49    Director
Charles M. Stivers(1)        41    Director

(1) Audit Committee, Compensation Committee and Special Committee Member
(2) Stock Option Committee Member
(3) Field Safety Committee Member
(4) Frontier Exploration Committee Member

     DR.  RICHARD T. WILLIAMS has been a member of the faculty of the Department
of Geological  Sciences at The University of Tennessee in Knoxville,  Tennessee,
since 1987, after holding faculty positions at West Virginia  University and the
University  of South  Carolina  since 1979.  He has been  engaged in  reflection
seismology and geophysical studies in the Appalachian  Overthrust since 1980. He
earned his Ph.D. in Geophysics  from  Virginia  Tech in 1979.  Dr.  Williams was
elected as a director  effective June 28, 2002. He was appointed Chief Operating
Officer on January 10, 2003,  and on February 3, 2003,  he was elected our Chief
Executive Officer.

     JEFFREY R. BAILEY graduated in 1980 from New Mexico Institute of Mining and
Technology  with a B.S.  degree in Geological  Engineering.  Upon  graduation he
joined  Gearhart  Industries as a field engineer  working in Texas,  New Mexico,
Kansas, Oklahoma and Arkansas. Gearhart Industries later merged with Halliburton
Company.  In 1993  after  13 years  working  in  various  field  operations  and
management roles primarily focused on reservoir evaluation, log analysis and log
data  acquisition  he assumed a global role with  Halliburton  as a Petrophysics
instructor in Fort Worth, Texas. His duties were to teach Halliburton  personnel
and customers  around the world log analysis and  competition  technology and to
review  analytical  reservoir  problems.   In  this  role  Mr.  Bailey  had  the
opportunity to review reservoirs in Europe, Latin America,  Asia Pacific and the
Middle East developing a special expertise in carbonate  reservoirs.  In 1997 he
became  technical   manager  for  Halliburton  in  Mexico  focusing  on  finding
engineering solutions to the production challenges of large carbonate reservoirs
in Mexico.  Mr. Bailey left  Halliburton  and joined us as our Chief  Geological
Engineer on March 1, 2002.  He was elected our President on July 17, 2002 and as
a director on February 28, 2003.

     MARK A. RUTH is a  certified  public  accountant  with 22 years  accounting
experience.  He  received  a B.S.  degree in  accounting  with  honors  from the
University  of  Tennessee  at  Knoxville.  He has  served as a project  controls
engineer for Bechtel Jacobs Company,  LLC;  business manager and finance officer
for  Lockheed  Martin  Energy  Systems;  settlement  department  head and senior
accountant  for the Federal  Deposit  Insurance  Corporation;  senior  financial
analyst/internal auditor for Phillips Consumer Electronics Corporation;  and, as
an auditor for Arthur Andersen and Company. From December 14, 1998 to August 31,
1999 he served as the Company's Chief Financial  Officer.  On August 31, 1999 he
was  elected as a  Vice-President  of the Company and on November 8, 1999 he was
again  appointed as the Company's Chief  Financial  Office,  which office he has
occupied since then.




     ROBERT M. CARTER attended  Tennessee  Wesleyan College and Middle Tennessee
State  College  between  1954 and  1957.  For 35 years he was an owner of Carter
Lumber &  Building  Supply  Company  and  Carter  Warehouse  in  Loudon  County,
Tennessee. He has been with us since 1995 and during that time has been involved
in many  phases  of our  business,  including  pipeline  construction,  leasing,
financing  and  the  negotiation  of   acquisitions.   Mr.  Carter  was  elected
Vice-President  in  March,  1996,  Executive  Vice-President  in April  1997 and
President on March 13, 1998 until he resigned  from that position on October 19,
1999.  On August 8, 2000 he again was  elected as  President  and served in that
capacity  until July 31, 2001.  He has served as President of Tengasco  Pipeline
Corporation, our wholly-owned subsidiary, from June 1, 1998 to the present.

     CARY V.  SORENSEN is a 1976  graduate of the  University of Texas School of
Law and has undergraduate and graduate degrees from North Texas State University
and Catholic University in Washington, D.C. Prior to joining us in July 1999, he
had been continuously engaged in the practice of law in Houston,  Texas relating
to the energy industry since 1977, both in private law firms and a corporate law
department,  most  recently  serving for seven years as senior  counsel with the
litigation  department of a major Houston  energy  corporation  before  entering
private  practice in June 1996 and continuing a general civil law practice until
June 1999. He has represented  many of the major oil companies  headquartered in
Houston,  as well as local  distribution  companies and electric  utilities in a
variety of litigation and  administrative  cases before state and federal courts
and agencies in numerous  states.  These  matters  involved gas  contracts,  gas
marketing,  exploration and production disputes involving royalties or operating
interests,  land titles,  oil pipelines and gas pipeline  tariff  matters at the
state and federal levels, and general operation and regulation of interstate and
intrastate gas pipelines.  He has served as General Counsel of the Company since
July 9, 1999.

     STEPHEN W. AKOS has over twenty years experience in the financial  services
industry with an expertise in fixed income securities.  Since August of 2000, he
has been First Vice President, Institutional Fixed Income Sales, Robert W. Baird
& Co., St. Louis,  Missouri.  Between  February 2000 and June 2000, Mr. Akos was
employed at J.C.  Bradford & Co., an investment  bank,  as a Vice  President and
Investment  Limited  Partner.  Prior  thereto  commencing in 1993, he was a Vice
President  with  Mercantile  Bank of St. Louis and its  predecessor,  Mark Twain
Bank.  Before 1993 he was a broker,  among other things, at brokerage firms Dean
Witter,  Shearson Lehman Hutton,  Drexel Burnham Lambert, and Kidder Peabody. He
received an MBA in Finance from  Washington  University  in 1979,  and a B.S. in
Business Administration,  Accounting, from Washington University in 1976. He was
elected as a director on February 28, 2003.

     JOSEPH  EARL  ARMSTRONG  is a resident  of  Knoxville,  Tennessee.  He is a
graduate of the University of Tennessee and Morristown College where he received
a  Bachelor  of  Science  Degree in  Business  Administration.  From 1988 to the
present, he has been an elected State Representative for Legislative District 15
in Tennessee. He has served as director since 1997.

     DR. JOHN A. CLENDENING  received B.S (1958),  M.S. (1960) and Ph. D. (1970)
degrees  in  geology  from  West  Virginia  University.  He  was  employed  as a
Palynologist-Coal  Geologist at the West  Virginia  Geological  Survey from 1960
until  1968.  He  joined  Amoco  in 1968  and  remained  with  Amoco as a senior
geological  associate  until 1992.  Dr.  Clendening  has served as President and
other offices of the American Association of Stratigraphic Palynologists and the
Society of Organic Petrologists.  From 1992 - 1998 he was engaged in association
with Laird Exploration Co., Inc. of Houston,  Texas,  directing  exploration and
production  in south  central  Kentucky.  In 1999 he purchased all the assets of
Laird  Exploration in south central Kentucky and operates  independently.  While
with Amoco Dr.  Clendening was instrumental in Amoco's  acquisition in the early
1970's of large land  acreage  holdings in Northeast  Tennessee,  based upon his
geological studies and  recommendations.  His work led directly to the discovery
of what is now our Paul Reed # 1 well.  He further  recognized  the area to have
significant  oil and gas potential  and is credited with  discovery of the field
which is now known as our Swan Creek Field. Dr. Clendening  previously served as
a  director  from  September  1998 to August  2000.  He was again  elected  as a
director on February 28, 2003.

     ROBERT L.  DEVEREUX  graduated  in 1982 from St.  Louis  University  with a
Bachelor's  Degree  in  Business  Administration  with a major  in  finance.  He
received his law degree from St. Louis University in 1985. For the past eighteen
years,  Mr.  Devereux  has  been  actively  engaged  in  the  practice  of  law,
specializing  in commercial  litigation.  Since 1994, he has been a principal in
the law firm of Devereux Murphy LLC located in St. Louis, Missouri. For the past



eight  years Mr.  Devereux  has also been a  principal  of and has served as the
Chief  Executive  Officer of Gateway  Title  Company,  Inc.  He was elected as a
director on February 28, 2003.

     BILL L.  HARBERT  earned a B.S.  degree in civil  engineering  from  Auburn
University in 1948.  In 1949 he was one of the founders of Harbert  Construction
Company. He managed that company's  construction  operations,  both domestic and
foreign, and served as our Executive  Vice-President until 1979. From 1979 until
July, 1990 he served as President and Chief Operating Officer and from July 1990
through  December  1991 he  served  as Vice  Chairman  of the  Board of  Harbert
International, Inc. He then purchased a majority of the international operations
of  Harbert   International,   Inc.  and  formed  Bill   Harbert   International
Construction,  Inc. He served as Chairman  and Chief  Executive  Officer of that
corporation  until  retiring  from us in 2000.  Mr.  Harbert's  companies  built
pipeline projects in the United States and throughout the world. They also built
many  other  projects  including  bridges,  commercial  buildings,  waste  water
treatment plants, airports, including an air base in Negev, Israel and embassies
for the United States  government in, among other places,  Tel Aviv,  Hong Kong,
and Baku. Mr. Harbert has also served as president (1979) and Director (1980) of
the Pipe Line  Contractors  Association,  USA and for seven  years as  Director,
Second Vice-President and First Vice-President  (2001-2002) of the International
Pipe Line Contractors  Association.  Mr. Harbert has been active in service to a
variety of business associations,  charities and the arts in the Birmingham area
for many years. He was elected as a director on April 2, 2002.

     PETER E. SALAS has been  President of Dolphin Asset  Management  Corp.  and
associated companies since 1988. Prior to establishing Dolphin, he was with J.P.
Morgan Investment  Management,  Inc. for ten years,  becoming Co-manager,  Small
Company Fund and  Director-Small  Cap  Research.  He received an A.B.  degree in
Economics  from Harvard in 1978.  Mr. Salas was elected as a director on October
8, 2002.

     CHARLES  M.  STIVERS  is  a  Certified  Public  Accountant  with  18  years
accounting  experience.  In 1984 he received a B.S.  degree in  accounting  from
Eastern Kentucky University.  From 1983 through July 1986 he served as Treasurer
and CEO for Clay  Resource  Company.  From  August 1986  through  August 1989 he
served as a senior tax and audit  specialist  for  Gallaher  and  Company.  From
September 1989 to date he has owned and operated  Charles M. Stivers,  C.P.A., a
regional  accounting  firm.  Mr.  Stiver's firm  specializes  in the oil and gas
industry and has clients in eight states.  The oil and gas work performed by his
firm  includes all forms of SEC audit work,  SEC quarterly  financial  statement
filings, oil and gas consulting work and income tax services.  Mr. Stiver's firm
has also  represented  oil and gas  companies  with respect to Federal and State
income tax disputes in 15 states over the past 12 years.  In September  2001, he
was elected as a director and is the chairman of our audit committee.

Executive Compensation

     The following sets forth certain information regarding compensation awarded
to, earned by or paid to, and options  granted to, repriced or exercised by, the
Company's Chief Executive  Officers during fiscal years ended December 31, 2002,
December  31,  2001 and  December  31,  2000.  During that  period,  none of the
Company's other executive officers earned compensation in excess of $100,000 per
annum for services rendered to us in any capacity.

Summary Compensation Table



                                                                                Securities
                                                                    Restricted  Underlying
        Name and                                     Other Annual     Stock      Options/               All Other
  Principal Position(1)    Year    Salary    Bonus   Compensation     Awards     SARS(#)     Payouts   Compensation
-------------------------  ----   ---------  -----   ------------   ----------  -----------  -------   ------------
                                                                                    
Malcolm E.  Ratliff        2002    $80,000    $0            $0        -0-        59,062        -0-          -0-
Chief Executive Officer    2001    $80,000    $0        $1,000        -0-        52,500        -0-          -0-
                           2000    $70,000    $0          $500        -0-        52,500        -0-          -0-

--------------
(1)    Malcolm E. Ratliff served as our Chief Executive Officer throughout 2002.
       Richard T. Williams,  our current Chief  Executive  Officer  replaced Mr.
       Ratliff on February 3, 2003.



OPTION GRANTS FOR FISCAL 2002

     The following table sets forth information  concerning  options to purchase
shares of our common stock granted to the named executive officer in 2002.




                               INDIVIDUAL GRANTS
                               -----------------
                        Number of     Percent of Total                           Potential Realizable
                        Securities      Options/SARs                             Value At Assumed
                        Underlying       Granted to    Exercise or               Annual Rates of Stock
                       Options/SARs     Employees in    Base Price   Expiration  PRICE APPRECIATION(1)
NAME                   Granted (#)      Fiscal 2002       ($/Sh)        Date       5%($)    10%($)
-----                  -----------      -----------       ------        ----     -------    -------
                                                                           
Malcolm E.  Ratliff       6,562              4%           $2.86        8/4/05     $2,952     $6,233


------------
     (1) These options  expired by their terms 90 days following the resignation
on March 10, 2003 of Mr. Ratliff from our Board of Directors.

AGGREGATE OPTION EXERCISES FOR FISCAL 2002 AND YEAR END OPTION VALUES

     The following  table sets forth the number of shares received upon exercise
of stock options by the names executive officer during the last completed fiscal
year and the  aggregate  options to purchase  shares of our common stock held by
the named executive officer at December 31, 2002.



                                                     Number of Securities (1)
                                                      Underlying Unexercised       Value (2) of Unexercised
                                                         Options/SARs at           In-the-Money Options/SARs
                          Shares                         December 31, 2002            at December 31,2002
                         Acquired     Value ($)
Name                    On Exercise   Realized (3)   Exercisable/unexercisable   Exercisable/unexercisable(4)
----                    -----------   ------------   -------------------------   ----------------------------
                                                                               
Malcolm E.  Ratliff         -0-            -0-              59,062/-0-                     $-0-/-0-


------------
(1) Number of shares underlying the unexercised  options has been  retroactively
adjusted for a 5% stock dividend declared by us as of September 4, 2001.

(2)  Unexercised  options  are  in-the-money  if the  fair  market  value of the
underlying  securities exceeds the exercise price of the option. The fair market
value of the Common Stock was $1.10 per share on December 31, 2002,  as reported
by The American Stock Exchange.  The exercise price of the  unexercised  options
granted to Malcolm E. Ratliff, the Chief Executive Officer of the Company,  were
$8.69 and $2.86 per share. As a result, the unexercised options are for purposes
of this table deemed to have no value.

(3) Value  realized  in dollars is based upon the  difference  between  the fair
market  value of the  underlying  securities  on the date of  exercise,  and the
exercise price of the option.

(4) These options  expired by their terms 90 days  following the  resignation on
March 10, 2003 of Mr. Ratliff from our Board of Directors.

LONG TERM INCENTIVE PLANS

     We do not have any  long-term  incentive  programs or plans.  We adopted an
employee  health  insurance  plan in August  2001.  We do not  presently  have a
pension or similar  plan for our  directors,  executive  officers or  employees.
Management is considering  adopting a 401(k) plan and full  liability  insurance
for directors and executive officers.  However,  there are no immediate plans to
do so at this time.




COMPENSATION OF DIRECTORS

     The Board of Directors has resolved to  compensate  members of the Board of
Directors for attendance at meetings at the rate of $250 per day,  together with
direct out-of-pocket expenses incurred in attendance at the meetings,  including
travel.  The  Directors,  however,  have waived such fees due to them as of this
date for prior meetings.

     Members  of the  Board  of  Directors  may  also be  requested  to  perform
consulting or other professional services for us from time to time. The Board of
Directors has reserved to itself the right to review all directors'  entitlement
to compensation on an ad hoc basis.

     Directors who are on our Audit,  Compensation  and Stock Option  Committees
are  independent  and  therefore,  do not  receive any  consulting,  advisory or
compensatory fees from us. However,  such board members may receive fees from us
for their services on those committees.  The Company intends to implement a plan
for the  payment of those  committee  members  for their  services  on an annual
basis.

EMPLOYMENT CONTRACTS

     We have  entered  into an  employment  contract  with our  Chief  Executive
Officer,  Richard T.  Williams,  for a period of two years through  December 31,
2004 at an annual  salary of $80,000.  There are  presently no other  employment
contracts  relating to any member of  management.  However,  depending  upon our
operations  and  requirements,  we may offer long term  contracts to  directors,
executive officers or key employees in the future.




                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     From time to time, we have entered into  transactions with related parties.
Certain of those  transactions  are described  below. Our Board of Directors has
not adopted any general policy with respect to these transactions, many of which
were effected on our behalf by senior  management  prior to consideration by our
Board of  Directors  in light of senior  management's  perceived  urgency of the
funding  requirements,  the availability of alternative sources and the terms of
such transactions, which senior management viewed as at least as favorable to us
as could have been obtained through  arms-length  negotiations with unaffiliated
third parties.  In each of the loans to us by Dolphin as described below,  Peter
Salas, a member of our Board,  negotiated  with our senior  management as to the
terms thereof and did not participate in any Board action with respect thereto.

     In 2002, Dolphin Offshore Partners,  L.P., which we refer to as Dolphin and
which  owns  more than 10% of our  outstanding  common  stock and whose  general
partner, Peter E. Salas, is a director,  loaned $750,000 to us to fund operating
cash flow needs and to finance  continued  development  of the Swan Creek field.
Also in 2002, Michael E. Ratliff,  then a director,  chief executive officer and
more than 10%  stockholder of us, loaned us $110,000 on a  non-interest  bearing
basis,  which loan was repaid in July 2002.  In  2000-2002,  Mr.  Ratliff,  Nick
Nishiwaki,  then a stockholder of us, and Ed Gray, then a director of us, loaned
the Company various amounts,  which amounts were repaid by us using the proceeds
from our line of credit with Bank One. In 2000,  we paid  $270,000 of consulting
fees and  commissions  to Morita  Properties,  Inc.,  a  principal  of which was
Shigemi Morita, who then was a director of us.

     On each of January 21, 2002 and April 9, 2002,  Bill L.  Harbert,  who owns
more than ten percent of our outstanding common stock and is now, but was not at
those  dates,  a director,  purchased  from us in a private  placement,  100,000
shares  of  our  common  stock,   at  prices  of  $6.32  and  $4.80  per  share,
respectively.  The proceeds from those private  placements  were used as working
capital. The market prices of our common stock as measured by the closing prices
on the  American  Stock  Exchange on January 21 and April 9, 2002 were $7.74 and
$5.80 per share, respectively. We believe that these sales were made on terms at
least as  favorable  to us as could  have been  obtained  through  arm's  length
negotiations with unaffiliated third parties.

     On July 5, 2002 and July 23, 2002,  Dolphin  purchased from us in a private
placement,  400,000 and 250,000 shares of our common stock,  respectively,  at a
price of $2.50 per share.  The proceeds from those private  placements were used
as working  capital.  The market  prices of our common  stock as measured by the
closing  prices on the American Stock Exchange on July 5 and 23, 2002 were $2.80
and $2.50 per  share,  respectively.  We believe  that these  sales were made on
terms at least as  favorable  to us as could have been  obtained  through  arm's
length negotiations with unaffiliated third parties.

     On August 8, 2002,  Dolphin purchased 718,820 shares of our common stock in
an open market  transaction.  In connection with that purchase,  Dolphin entered
into an  agreement,  which was later amended in October  2002,  with  Industrial
Resources  Corporation,  which we  refer to as IRC,  which  owns  more  than ten
percent  of  our  outstanding  common  stock  and  whose  sole  stockholder  and
president,  Malcolm E. Ratliff,  was at the time of this  transaction  our Chief
Executive  Officer and a director.  Pursuant to that agreement,  Dolphin granted
IRC an option  commencing  on April 11,  2003 and  expiring  on May 12,  2003 to
purchase up to 373,900  shares of our common  stock that had been  purchased  by
Dolphin at a price of $2.386 per share.  The agreement  further provided that if
the option were not exercised  during the option period,  then IRC could then be
required  by Dolphin to purchase  from  Dolphin at price of $2.495 per share the
same number of shares  that had been the  subject of the  option.  We were not a
party to this  agreement.  As a result of IRC's default on this  obligation,  in
June 2003,  Dolphin  received  400,000 shares of our common stock from an escrow
account established by IRC with IRC's shares of our common stock as security for
IRC's obligations to Dolphin.

     In October  2002,  Dolphin in  consideration  of a loan to us was issued an
unsecured  convertible  promissory  note  from  us in the  principal  amount  of
$500,000 bearing 8% interest, with interest only payable quarterly and principal
due on January 4, 2004. The principal amount of the note is convertible into our
common stock at the rate of $2.88 per share.  The  proceeds  from this loan were
used to provide  working  capital for our  operations.  The market  price of our
common stock as measured by the closing  prices on the American  Stock  Exchange



during  October 2002 ranged from $2.20 to $2.90 per share.  We believe that this
sale was made on terms at least as favorable  to us as could have been  obtained
through arm's length negotiations with unaffiliated third parties.

     In December 2002,  Dolphin loaned us the sum of $250,000,  which funds were
used to pay the principal and interest due that month from us to Bank One and to
provide working capital. We issued a promissory note to Dolphin bearing interest
at the rate of 12% per annum,  with  interest  only  payable  quarterly  and the
principal  balance due on January 4, 2004.  The  obligations  under the loan are
secured by an undivided 10% interest in our Tennessee and Kansas pipelines.

     In January 2003, Bill L. Harbert,  a director,  purchased 227,275 shares of
our common  stock from us in a private  placement at a price of $1.10 per share.
The proceeds  from this sale were used by us to pay the  principal  and interest
due that month from us to Bank One and to provide  working  capital.  The market
price of our common stock as measured by the closing price on the American Stock
Exchange on January 7, 2003, the date of the  transaction,  was $1.20 per share.
We believe that this sale was made on terms at least as favorable to us as could
have been obtained through arm's length  negotiations  with  unaffiliated  third
parties.

     On each of February 3, 2003 and February 28,  2003,  Dolphin  loaned us the
sum of $250,000,  which we used to pay the principal and interest due from us to
Bank One for February  and March 2003,  respectively,  and for working  capital.
Each of these loans is evidenced by a separate  promissory note bearing interest
at the rate of 12% per annum,  with payments of interest only payable  quarterly
and the  principal  balance due on January 4, 2004.  The  obligations  under the
loans are  secured by an  undivided  10%  interest in our  Tennessee  and Kansas
pipelines.

     On May 20,  2003,  Dolphin  loaned us the sum of  $750,000  and  Jeffrey R.
Bailey, our President and a director,  loaned us $84,000, which aggregate amount
of $834,000 we used to pay the  principal  and  interest due from us to Bank One
for June 2003 and for working  capital.  These loans are  evidenced  by separate
promissory notes bearing interest at the rate of 12% per annum, with payments of
interest  only payable  quarterly  and the  principal  balance due on January 4,
2004. The obligations  under the loans are secured by an undivided 30% and 3.36%
interest, respectively, in our Tennessee and Kansas pipelines.

     On August 6, 2003, Dolphin loaned us the sum of $150,000, which we used for
working  capital.  This loan is evidenced by a separate  promissory note bearing
interest at the rate of 12% per annum,  with  payments of interest  only payable
quarterly  and the  principal  balance due on January 4, 2004.  The  obligations
under the loan are secured by an  undivided  6% interest  in our  Tennessee  and
Kansas pipelines

     From December 2002 through  December 9, 2003,  Dolphin  acquired a total of
85% undivided interest in our Tennessee and Kansas pipelines as collateral for a
series of seven loans. In the first five of these transactions,  Peter E. Salas,
a member of our board and the general partner and controlling person of Dolphin,
negotiated the terms of the loans directly with our management, which terms were
approved by our management in view of our immediate needs,  financial  condition
and prospective  alternatives  and under  circumstances in which Dolphin was not
generally  engaged in the  business of lending  money.  These loans were made on
terms that we believe were at least as favorable to us as we could have obtained
through arm's length  negotiations  with unaffiliated  third parties.  Our board
approved the sixth and seventh  loans on December 3 and 9, 2003,  in the amounts
of $225,000 and $250,000,  respectively,  with no  participation by Mr. Salas in
the  meeting  or the vote,  which was  unanimous  by the seven  other  directors
present at the meeting. In addition,  we have entered into a continuing security
agreement, which was approved by our board with no participation by Mr. Salas in
the meeting or vote, which was unanimous by the seven other directors present at
the meeting,  providing the terms of Dolphin's security interest collateralizing
all of its loans.

     On December 24, 2003, Dolphin loaned us the sum of $1,000,000 which we used
for working  capital and to pay all interest  and  principal in full of the 1998
convertible loan to the Company refereed to as the Lutheran note then being held
by several persons. This loan is evidenced by a separate promissory note bearing
interest at the rate of 12% per annum,  with  payments of interest  only payable
quarterly and the principal  balance  payable on April 4, 2004. The  obligations
under the loan are secured by an undivided  interest in our Tennessee and Kansas
pipelines and the security agreement referred to above.




     On February 2, 2004,  Dolphin  loaned us the sum of $225,000  which we used
for making  payment of principal  and interest to Bank One for  February,  2004.
This loan is evidenced  by a separate  promissory  note bearing  interest at the
rate of 12% per annum,  with payments of interest only payable quarterly and the
principal  balance payable on April 4, 2004. The obligations  under the loan are
secured by an undivided  interest in our Tennessee and Kansas  pipelines and the
security agreement referred to above.



     From April 1 through June 30, 2003,  we issued  10,363 shares of our common
stock to holders of our Series A 8% Cumulative  Convertible  Preferred  Stock in
lieu of cash quarterly interest payments due to those holders,  with such shares
valued at the market price thereof. Also during that period,  certain members of
our  board of  directors  exercised  options  granted  to them  pursuant  to the
Tengasco, Inc. Stock Incentive Plan and purchased the following number of shares
of our  common  stock at the  exercise  price of $0.50  per  share.  Richard  T.
Williams - 10,000 shares, Bill L. Harbert - 24,000 shares and John A. Clendening
- 24,000 shares.

     In this offering  Dolphin,  as well as our  directors  (certain of whom are
also  officers),  will have the right to  purchase  additional  shares of common
stock at the offering. Dolphin and these officers and directors will receive the
same terms as the other  stockholders in this rights  offering.  See "The Rights
Offering - Effects of Rights Offering on Dolphin's Securities and Ownership."



                             PRINCIPAL STOCKHOLDERS

     The  following  table  sets  forth  information,  as of  February  9, 2004,
concerning  the  beneficial  ownership of our common stock by (a) each director,
(b) each executive  officer named in our summary  compensation  table above, (c)
all directors and executive officers as a group, and (d) each person known by us
to beneficially own more than five percent of our common stock. Unless otherwise
indicated,  each of the  persons  named  below  has sole  voting  power and sole
investment  power with respect to the shares set forth  opposite his or her name
and has an address at c/o Tengasco, Inc. 603 Main Avenue,  Knoxville,  Tennessee
37902.

Name of                                         Amount Beneficially   Percent of
BENEFICIAL OWNER                                   OWNED(1)(2)         CLASS (%)
----------------                                   ------------        ---------

Stephen W. Akos.................................       47,439(1)          *

Joseph Earl Armstrong...........................       39,450(2)          *

Jeffrey R. Bailey...............................       83,125(3)          *

John A. Clendening..............................       24,000             *

Robert L. Devereux..............................       80,882(4)          *

Dolphin Offshore Partners, L.P..................    2,441,019(5)          19.8

Bill L. Harbert.................................    1,513,496(6)          12.5

Malcolm E. Ratliff..............................    2,250,487(7)          18.7

Peter E. Salas..................................    2,465,019(8)          19.9

Charles M. Stivers..............................       13,125(9)          *

Richard T. Williams.............................       73,125(10)         *

All Officers and Directors as a group...........    4,339,661             34.5

------------
* Indicates holdings of less than 1%.

(1)  Consists of 14,081 shares held directly (certain of which are jointly owned
     with spouse); options to purchase 24,000 shares and 9,358 shares underlying
     convertible promissory notes owned jointly with his spouse and by a limited
     partnership. The shares underlying the note held by the limited partnership
     have been adjusted to reflect Mr. Akos'  ownership  interest in the limited
     partnership.

(2)  Consists of 4,950  shares  held  directly  and  options to purchase  34,500
     shares.

(3)  Consists of 10,000  shares  held  directly  and options to purchase  73,125
     shares.

(4)  Consists  of 34,562  shares  held  directly  and  jointly  with his spouse;
     options to purchase 24,000 shares;  12,448 shares  underlying a convertible
     note  held  jointly  with his  spouse;  6,753  shares  owned  by a  limited
     liability  company;  and 3,119 shares  underlying a convertible  promissory
     note held by a limited liability  company.  The shares owned by the limited
     liability  company and  underlying  the note held by the limited  liability
     company have been adjusted to reflect Mr. Devereux's  ownership interest in
     the limited liability company.

(5)  Mr. Salas, a director,  is the general  partner and  controlling  person of
     Dolphin.  The share amount  indicated  consists of 2,139,720 shares held by
     Dolphin; 10,500 shares underlying a warrant held by Dolphin; 173,611 shares
     underlying  a  convertible  promissory  note held by  Dolphin;  and 117,188
     shares  underlying  9,000 shares of our series B 8% cumulative  convertible
     preferred  stock held  directly by Dolphin  that are  convertible  into our
     common stock. The indicated  amount includes 400,000 shares  transferred in



     May 2003 to Dolphin from Industrial  Resources  Corporation,  a corporation
     that we believe is affiliated with M.E.  Ratliff,  pursuant to the terms of
     an agreement  between that  corporation and Dolphin.  The Company was not a
     party to that agreement.

(6)  Consists of 1,428,942 shares held directly,  71,429 shares underlying 5,000
     shares of our  series A 8%  cumulative  convertible  preferred  stock  held
     directly, which shares are convertible into our common stock, and an option
     to purchase 13,125 shares.

(7)  Includes  80,171 shares owned  directly by Mr.  Ratliff and 849,744  shares
     owned by  Industrial  Resources  Corporation,  which is  controlled  by Mr.
     Ratliff, 1,289,072 shares owned by Ratliff Farms, Inc., which is controlled
     by Mr.  Ratliff,  and 31,500 shares owned  directly by a trust of which Mr.
     Ratliff's  wife  is a  trustee  and the  children  of Mr.  Ratliff  are the
     beneficiaries.  The  information  regarding  these  shares  was  previously
     provided  to us by Mr.  Ratliff  when he was our  Chairman of the Board and
     Chief  Executive  Officer.   We  are  not  aware  of  any  changes  in  the
     information,  except for the  transfer of 400,000  shares  from  Industrial
     Resources Corporation to Dolphin described in footnote 5 above.

(8)  Mr. Salas, a director,  is the general  partner and  controlling  person of
     Dolphin.  Consists of 2,139,720 shares held by Dolphin;  24,000 shares held
     by Mr. Salas; a warrant held by Dolphin to purchase  10,500 shares at $7.68
     per share; 173,611 shares underlying a convertible  promissory note held by
     Dolphin;  and 117,188  shares  underlying  9,000  shares of our series B 8%
     cumulative  convertible  preferred stock held by Dolphin,  which shares are
     convertible into our common stock at the rate of $7.68 per share.

(9)  Consists of options to purchase 13,125 shares.

(10) Consists of 10,000 shares and options to purchase 63,125 shares.




                               THE RIGHTS OFFERING

BACKGROUND OF THE RIGHTS OFFERING

     Our Board of Directors  proposed  that we attempt to raise  equity  capital
through a rights offering to all of our stockholders. The primary reason for the
rights offering is to pay non-bank  indebtedness in the approximate amount of up
to six million  dollars  (including up to  $3,850,000  in principal  amount plus
accrued interest to Dolphin with the balance of the net proceeds,  if any, to be
used to pay  bank  indebtedness  to  some  extent  and/or  for  working  capital
purposes,  possibly including the drilling of wells. See "Certain  Relationships
and Related  Transactions."  The board's  proposal was based upon our financial,
operating and other  circumstances and the limited prospects of  capital-raising
alternatives.

     In originally proposing and on December 23, 2003 approving the terms of the
rights  offering,  our  Board  of  Directors  considered  a number  of  factors,
including  the  following:

        o   the need to pay our outstanding indebtedness,  including to Dolphin,
            and  repaying  certain  other  outstanding  indebtedness,  including
            perhaps a  portion  of our  credit  facility  with  Bank One  and/or
            providing certain, albeit not necessarily sufficient, capital usable
            toward resuming our drilling program;

        o   the historic and then-current price of our common stock;

        o   the difficulty of refinancing our outstanding indebtedness;

        o   our recent and anticipated operating results;

        o   general conditions in the securities markets;

        o   alternatives available to us for raising capital;

        o   the amount of proceeds desired;

        o   the pricing of similar transactions;

        o   the liquidity of our stock;

        o   our business prospects;

        o   the  possible  need to  refinance  all or a  portion  of the  credit
            facility in light of the impediment to other capital-raising created
            by the dispute with Bank One;

        o   the commercial and other risks and  uncertainties  associated with a
            restructuring   or   recapitalization   and  the   impact  of  those
            alternatives on our shareholders and our creditors; and

        o   the belief that the transaction was the best alternative  reasonably
            available to us from the perspective of our public shareholders.

     The preceding  discussion of the  information  and factors  considered  and
given  weight  by our  Board of  Directors  includes  all the  material  factors
considered by the Board of Directors in its  determination to propose,  and then
in its determination to approve,  the rights offering.  In reaching its decision
to propose the rights offering and its subsequent decision to approve the rights
offering, our Board of Directors did not assign any relative or specific weights
to the factors they  considered.  Individual  directors may have given different
weights to different factors.




     Following its proposal of a rights offering,  our Board of Directors formed
a special committee consisting of Stephen W. Akos, John A. Clendening, Robert L.
Devereux and Charles M.  Stivers.  None of these  directors is an employee of us
nor has any personal interest in the rights offering.  The special committee was
charged  by the  Board  with  determining  the  financial  and  other  terms and
feasibility  of the rights  offering and making  recommendations  regarding such
matters  to the Board of  Directors.  Although  Mr.  Salas  participated  in our
Board's preliminary  discussions  regarding the proposed rights offering, he did
not  participate in any Board  discussions in connection with the receipt of the
special  committee's  determinations  and  recommendations  regarding  the terms
hereof and did not  participate in any Board  discussions in connection with the
receipt on December 23, 2003 of the special committee's final determinations and
recommendations regarding the terms hereof.

     The  subscription  price  per  share  was  recommended  to our Board by the
special  committee.   The  special  committee  considered  all  of  the  factors
enumerated above in making its determination. In addition, the special committee
also considered its negotiations with a representative of Dolphin,  of which Mr.
Salas is the controlling person, regarding a subscription price at which Dolphin
might participate in the offering,  although Dolphin has not proposed or entered
into any  agreement  or  understanding  with the  special  committee  or us with
respect to such participation.

     In  connection  with all of the  foregoing  considerations  by the  special
committee,  it received the advice of a financial  advisor and counsel,  each of
which was engaged specifically by the special committee for these purposes.  The
financial  advisor has not yet  rendered a final  written  report to the special
committee but did participate in the pricing negotiations or discussions between
the special  committee  and  Dolphin.  However,  following  notification  to the
financial  advisor of all such  negotiations  and  discussions  and the  special
committee's  proposed terms of the offering,  the financial  advisor advised the
special  committee  that  those  terms  were  fair  to our  stockholders  from a
financial  point of view.  The  special  committee's  recommendations  regarding
subscription  price per share and the other terms of the  offering  were finally
presented  to, and  approved  by,  our Board of  Directors  (with Mr.  Salas not
participating with respect to these matters) on December 23, 2003.

     An  investment  in our  common  stock  must be made  according  to your own
evaluation of your best interests.  Accordingly, our Board of Directors does not
make any recommendation to you about whether you should exercise your rights. In
addition, we have not retained a financial advisor to make any recommendation to
you about whether you should exercise your rights.

FINANCIAL ADVISOR

     The special committee retained Mercer Capital  Management,  Inc. ("Mercer")
to serve as its  independent  financial  advisor in connection with the proposed
rights  offering.  Mercer is a business  valuation and  financial  advisory firm
located in Memphis,  Tennessee. Mercer is regularly engaged to provide valuation
services in connection  with mergers and  acquisitions,  corporate  transaction,
share repurchases,  tax compliance, ESOPs and employee benefit plans and related
purposes. As part of its advisory business,  Mercer has experience reviewing the
fairness of  transactions  to  shareholders  from a financial point of view. The
special committee was introduced to Mercer by way of  recommendations  solicited
in the Tennessee  investment  banking community and selected Mercer following an
interview  by committee  members and their  consideration  of other  prospective
candidates.  Factors  considered  by the  special  committee  in  its  selection
included  experience  (particularly with similar  transactions),  reputation and
cost.

     In connection with this engagement,  the special  committee  requested that
Mercer  evaluate  the  fairness  of  the  rights  offering  from  the  financial
perspective  of our  stockholders.  Following  the  negotiation  by the  special
committee  of the  terms of the  offering,  Mercer  gave an oral  report  to the
special  committee,  which report was  supported by delivery of the  preliminary
written  report to the effect that,  based on and subject to the  considerations
described in its report,  the rights offering is fair to our stockholders from a
financial  point of view.  Mercer was not engaged to and did not  participate in
the  negotiations  and  determinations  as to the terms of the rights  offering,
including  pricing,  except that Mercer was  present  during one  teleconference
during which special committee members negotiated certain terms of the offering.
Otherwise,  the special  committee itself  conducted such  negotiations and made
such  determinations as to terms as described above,  which terms were submitted
to Mercer for their review and report.



     In arriving at its conclusion, Mercer:

         o  reviewed our capital structure

         o  performed market analysis of our common stock

         o  reviewed our key business issues

         o  performed  a  liquidation  analysis,  noting  that our equity is not
            sufficient to redeem is common stock shareholders; and

         o  reviewed our financial data.

     In addition, Mercer noted the following considerations:

         o  A successful  offering  moves  Tengasco  forward with a  significant
            restructuring  that  improves  potential  for  future  success.  The
            proceeds  from a successful  rights  offering will be used to retire
            non-bank debt, to reduce  indebtedness  to Bank One, and for working
            capital purposes.

         o  Tengasco does not have another plan to obtain  long-term  debt or to
            raise capital.  Without other options,  the rights offering provides
            the  only  plan  for  Tengasco  to  obtain  the  necessary  funds to
            strengthen its ability to continue to operate as a going concern.

         o  Each  shareholder  has the right to fully  participate in the rights
            offering and avoid dilution.

         o  Based on Tengasco's estimated  liquidation  analysis,  proceeds from
            liquidation  are not  sufficient  to redeem the common or  preferred
            shareholders.  The rights offering improves the potential to provide
            value to the shareholders.

         o  By requiring approval,  the Board is given certain authority to turn
            down  oversubscription  requests  which could  result in a change of
            control.

         o  The fairness of the price from a financial point of view.

         o  Shareholders  either  accept  the  rights  offering  which  requires
            injecting  additional  money into Tengasco or their position becomes
            diluted in ownership and in market capitalization.

         o  The price per share  under the  rights  offering  is lower  than the
            current trading price of the shares.

         o  The rights will have no value.

     The following are valuation analyses performed by Mercer in connection with
preparing its preliminary  report. The Asset-Based  Approach and Discounted Cash
Flows  Analysis  were each  considered  by Mercer  and found  inappropriate  for
Tengasco's case.

     MARKET APPROACH - TRANSACTIONS IN TENGASCO'S SHARES

     From the  perspective  that the rights  offering  occurs at $0.25 per share
($0.50 less than the then-current market price of $0.75), Mercer considered that
the market price of Tengasco's shares may decline.  Mercer further felt that the
market is currently  pricing the stock at a premium and that the current  market
price is not supported by the earnings expectations of Tengasco.



     MARKET APPROACH - GUIDELINE COMPANY METHOD

     The guideline company method derives common stock valuation  multiples from
publicly  traded  companies  in the same  general  line of business as Tengasco.
Mercer's  initial  search  for  comparable  companies  yielded  a  group  of 124
companies   (including   Tengasco).   These  companies  were  divided  into  two
categories: the 25 selected guideline companies which are comparable to Tengasco
and 99 less similar companies noted as "also considered."

     The 25 selected  companies were then subdivided  into two groups.  Group A,
which was made up of seven  comparable  companies  which have  similar  earnings
patterns to Tengasco (i.e.,  they are losing money at the valuation  date),  and
Group B, three companies  which  Tengasco's  management  indicated were directly
comparable to Tengasco.

     For the group of 25 and subgroups A and B, Mercer  derived  indications  of
value  for  Tengasco  based on the  ratios of total  capital/revenues  and total
capital/EBITDA  (only  subgroups  A and B).  The base  guideline  capitalization
factor for each of the multiples is the average of the median multiples for each
of the  subgroups.  Based  upon  its  analysis,  Mercer  found  that  a  minimum
fundamental  adjustment  to the  public  multiples  in the range of 10% - 20% is
appropriate for Tengasco.

     TOTAL CAPITAL / REVENUE

     Multiplying the Tengasco's  most recent  revenues by the guideline  company
capitalization  factor and then  subtracting debt provides an indicated value of
total equity Such method taking into account  fundamental  adjustments  of up to
20%  implies  a total  common  equity  value of  $0.10  per  share to $0.50  per
share.

     TOTAL CAPITAL / EBITDA

     Mercer applied the same methodology in determining the total capital/EBITDA
indication of value as the total  capital/revenue  method.  EBITDA is defined as
earnings before interest expenses, taxes, depreciation and amortization.  Mercer
found that the total  capital/EBITDA  indication  of value  does not  indicate a
positive  equity value.  In the derivation of the value,  the reported EBITDA is
from the trailing  twelve month period ended  September 30, 2003,  which was the
highest reported EBITDA over the period analyzed.  The current EBITDA measure is
due to the favorable  pricing  environment  for oil and gas sales.  Based on the
capitalized  EBITDA  indication,  the available equity is sufficient to pay down
the debt but not to redeem all of the preferred  stock.  Thus,  this method does
not  provide  value  to  all  of  preferred   shareholders   or  to  the  common
shareholders.

     Under the terms of its  engagement,  the  special  committee  agreed to pay
Mercer an  estimated  professional  fee of  $25,000.  In  addition,  the special
committee  agreed to reimburse  certain  out-of-pocket  expenses,  including the
report preparation,  research, travel and communication.  Aside from the current
engagement,  no material relationship has ever existed between us (including the
special committee) and either Mercer or any of its affiliates,  nor has any such
relationship understood to be contemplated.

THE RIGHTS

     We will  distribute  to each holder of record of our common stock on _____,
2004, at no charge, one nontransferable subscription right for each share of our
common stock they own. The rights will be evidenced by rights certificates. Each
right will allow such holder to purchase three  additional  shares of our common
stock at a price of $0.25 per such purchased share.

LIMITATION ON EXERCISE OF THE RIGHTS

     In no event may any subscriber  purchase  shares of our common stock in the
offering  that,  when  aggregated  with all of the  shares of our  common  stock
otherwise  owned  by the  subscriber  and  his,  her or  its  affiliates,  would
immediately  following  the  closing  represent  more than 50% of our issued and
outstanding shares.



EXPIRATION OF THE RIGHTS OFFERING

     You may exercise your subscription  privilege at any time before 5:00 p.m.,
New York City time, on ______,  2004 [not later than 30 days  following the date
hereof],  the expiration  date for the rights  offering.  If you do not exercise
your rights before the expiration date, your unexercised rights will be null and
void.  We will  not be  obligated  to  honor  your  exercise  of  rights  if the
subscription  agent  receives the documents  relating to your exercise after the
rights  offering  expires,  regardless of when you  transmitted  the  documents,
except when you have  timely  transmitted  the  documents  under the  guaranteed
delivery procedures  described below. We may extend the expiration date by up to
30 days by giving oral or written notice to the subscription  agent on or before
the  scheduled  expiration  date.  If we elect to extend the  expiration  of the
rights offering, we will issue a press release announcing the extension no later
than 9:00 a.m.,  New York City  time,  on the next  business  day after the most
recently announced expiration date.

NO INTEREST ON SUBSCRIPTION AMOUNTS

     Once you send in your  subscription  certificate  and  payment,  you cannot
revoke the exercise of your rights, even if you later learn information about us
that you consider to be  unfavorable  and even if the market price of our common
stock is below  the  $0.25 per  share  subscription  price,  unless we amend the
offering.  During this period of no revocation,  subscription  amounts  received
will  be  held  by  the  subscription  agent  until  completion,  expiration  or
termination of the rights offering,  during which period the rights holders will
not earn interest on those subscription  amounts.  Further, we may terminate the
offering at any time, for any reason at our sole discretion. Circumstances under
which  we  may  terminate  the  rights  offering   include  without   limitation
insufficient subscription levels.

SUBSCRIPTION PRIVILEGES

     BASIC SUBSCRIPTION PRIVILEGE.  With your basic subscription privilege,  you
may purchase  three shares of our common stock per right,  upon  delivery of the
required  documents  and  payment  of the  subscription  price  of  $0.75 in the
aggregate,  or $0.25 per share. You must purchase all three shares  underlying a
right if you want to exercise that right.  Fractional  rights will be rounded up
to the next  higher  whole  right.  The  number of rights  subject to the rights
offering has been arbitrarily increased to 12,100,000,  which number exceeds the
number  of  outstanding  shares  of our  common  stock  on the  record  date  of
12,049,977,  to cover increases resulting from rounding up. You are not required
to exercise all of your rights. We will deliver to you certificates representing
the shares that you purchased with your basic subscription  privilege as soon as
practicable after the rights offering has expired.

     OVER-SUBSCRIPTION  PRIVILEGE.  If  you  exercise  your  basic  subscription
privilege  in full,  you may also  subscribe  for  additional  shares that other
shareholders have not purchased under their basic  subscription  privilege.  You
may purchase a percentage of the unsubscribed  shares equal to the percentage of
shares purchased by you under the basic subscription  privilege,  as compared to
the total number of shares purchased by all shareholders, including you, who are
exercising  their  oversubscription  privilege.  If there are not enough  shares
available to fill all  subscriptions for additional  shares,  then the available
shares will be allocated pro rata, in successive rounds,  based on the number of
shares each subscriber for additional shares has purchased under his, her or its
basic subscription privilege.

     For   example,   if  there  are   900,000   available   shares   under  the
oversubscription  privilege and the only oversubscribing  shareholders are a 10%
shareholder  subscribing  for  500,000  additional  shares and a 5%  shareholder
subscribing  for  500,000  additional  shares,  then the 10%  shareholder  would
receive  500,000  shares and the 5%  shareholder  would  receive  the  remaining
400,000  shares,  as follows:  the  subscription  agent will initially  allocate
500,000  shares  to the  10%  shareholder  and  250,000  to  the 5%  shareholder
according to their  relative 2:1 ownership  percentages  and,  thereafter,  will
allocate the remaining shares to the 5% shareholder  since he, she or it was the
only shareholder to subscribe for these shares. We will not allocate to you more
than the number of shares you have actually  subscribed and paid for. As soon as
practicable  after  the  expiration  date,  Mellon  Bank,  N.A.,  acting  as our
subscription  agent,  will  determine the number of shares that you may purchase
pursuant to the oversubscription privilege.

     You are not entitled to exercise the oversubscription  privilege unless you
have fully exercised your basic subscription  privilege.  For this purpose,  you
would only count the shares you own in your own name,  and not other shares that



might,  for example,  be jointly held by you with a spouse,  held as a custodian
for someone else, or held in an individual retirement account.

     You can elect to exercise the  oversubscription  privilege only at the same
time you exercise your basic subscription privilege in full.

     In  exercising  the  oversubscription  privilege,  you  must  pay the  full
subscription price for all of the shares you are electing to purchase.  If we do
not  allocate  to you all of the  shares  you  have  subscribed  for  under  the
oversubscription privilege, we will refund to you, by mail, any payment you have
made for  shares  which are not being  made  available  to you,  promptly  after
completion of this offering. Interest will not be payable on amounts refunded.

     Banks,  brokers  and  other  nominees  who  exercise  the  oversubscription
privilege  on  behalf  of  beneficial  owners  of  shares  must  report  certain
information  to us and the  subscription  agent,  Mellon Bank,  N.A., and report
certain other information received from each beneficial owner exercising shares.
Generally, banks, brokers and other nominees must report:

        o   the  number  of  shares  held on the  record  date on behalf of each
            beneficial owner;

        o   the  number of shares as to which the basic  subscription  privilege
            has been exercised on behalf of each beneficial owner;

        o   that each beneficial owner's basic subscription  privilege,  held in
            the same capacity, has been exercised in full; and

        o   the   number   of   shares   subscribed   for,   pursuant   to   the
            oversubscription privilege, by each beneficial owner, if any.

     If you complete the portion of the  subscription  certificate  required for
you to exercise the  oversubscription  privilege,  you will be representing  and
certifying  that you have fully exercised your basic  subscription  privilege as
described above. You must exercise your  oversubscription  privilege at the same
time you exercise your basic subscription privilege.

     In some circumstances,  in order to comply with applicable state securities
laws, we may not be able to honor your basic and/or oversubscription privileges,
even if we have shares available and the above conditions are met.

NON-TRANSFERABILITY OF THE RIGHTS

     Except in the limited circumstances  described below, only you may exercise
the basic subscription  privilege and the over-subscription  privilege.  You may
not sell, give away or otherwise  transfer the basic  subscription  privilege or
the over-subscription privilege.

     Notwithstanding  the  foregoing,  you  may  transfer  your  rights  to  any
affiliate of yours and your rights also may be  transferred by operation of law;
for example a transfer of rights to the estate of the  recipient  upon the death
of the recipient would be permitted. If the rights are transferred as permitted,
evidence  satisfactory to us that the transfer was proper must be received by us
prior to the expiration date of the rights offering.

METHOD OF SUBSCRIPTION--EXERCISE OF RIGHTS

     You  may  exercise  your  rights  by   delivering   the  following  to  the
subscription  agent,  at or prior to 5:00 p.m., New York City time, on ________,
2004  [not  later  than 30 days  after the date  hereof],  the date on which the
rights expire:

        o   your properly  completed and executed  rights  certificate  with any
            required signature  guarantees or other supplemental  documentation;
            and



        o   your full  subscription  price payment for each share subscribed for
            under your basic subscription  privilege and your  over-subscription
            privilege.

MAILING OF SUBSCRIPTION CERTIFICATES AND RECORD HOLDERS

     We are sending a subscription  certificate to each record holder,  together
with this prospectus and related  instructions to exercise the rights.  In order
to exercise rights, you must fill out and sign the subscription  certificate and
timely deliver it to the subscription agent,  together with full payment for the
shares to be purchased. Only the holders of record of our common stock as of the
close of business as of the record date may exercise rights.

     A depository bank, trust company or securities  broker or dealer which is a
record  holder  for more  than one  beneficial  owner of  shares  may  divide or
consolidate subscription  certificates to represent shares held as of the record
date by their  beneficial  owners,  upon providing the  subscription  agent with
certain required information.

     If you own shares held in a brokerage,  bank or other  custodial or nominee
account,  in order to  exercise  your rights you must  promptly  send the proper
instruction  form to the  person  holding  your  shares.  Your  broker,  dealer,
depository or custodian  bank or other person  holding your shares is the record
holder of your  shares  and will have to act on your  behalf in order for you to
exercise your rights. We have asked your broker,  dealer or other nominee holder
of our common stock to contact the beneficial  owner(s) thereof and provide them
with  instructions  concerning the rights the beneficial  owner(s) it represents
are entitled to exercise.

PROCEDURES TO EXERCISE RIGHTS

     Please do not send subscription certificates or related forms to us. Please
send the properly  completed and executed form of subscription  certificate with
full payment to the subscription agent for this offering,  Mellon Bank, N.A., or
to the  record  holder of your  shares  (such as your  broker,  nominee or other
custodial holder, if applicable).

     You  should  read  carefully  the  subscription   certificate  and  related
instructions  and forms which  accompany  this  prospectus.  You should  contact
Mellon Investor  Services LLC, the information  agent for this offering,  at the
address and telephone number listed below under the caption "The Rights Offering
- Questions and Assistance  Concerning the Rights,"  promptly with any questions
you may have.

     You may exercise your rights by delivering to the subscription agent (or to
the record holder of your shares, if applicable), at the address specified below
and in  the  instructions  accompanying  this  prospectus,  on or  prior  to the
expiration date, the following:

        o   Properly completed and executed  subscription  certificate(s)  which
            evidence  your  rights.  See "The  Rights  Offering  -  Delivery  of
            Subscription  Certificates" below, for instructions on where to send
            these;

        o   Any required signature guarantees; and

        o   Payment in full of the subscription price for each share you wish to
            purchase   under  your  basic   subscription   privilege   and  your
            oversubscription  privilege.  See "The  Rights  Offering  - Required
            Forms  of  Payment  of  Subscription   Price"  below,   for  payment
            instructions.

REQUIRED FORMS OF PAYMENT OF SUBSCRIPTION PRICE

     The subscription  price is $0.25 per share subscribed for, payable in cash.
All payments must be cleared on or before the expiration date.

     If you exercise any rights,  you must deliver to the subscription agent (or
the record holder of your shares,  if applicable)  full payment in the form of a
personal  check,  certified or  cashier's  check or bank draft drawn upon a U.S.
bank,  or a U.S.  postal money order,  payable to Mellon  Investor  Services LLC
(acting on behalf of Mellon Bank, N.A. as subscription agent).



     In order for you to timely  exercise your rights,  the  subscription  agent
must actually receive good funds, in payment of the subscription  price,  before
the expiration date.

     Funds paid by  uncertified  personal  check may take at least five business
days to  clear.  Accordingly,  if you pay the  subscription  price  by  means of
uncertified  personal check, you should make payment  sufficiently in advance of
the expiration date to ensure that your check actually clears and the payment is
received  before such date. We are not  responsible  for any delay in payment by
you and suggest  that you  consider  payment by means of  certified or cashier's
check or bank draft drawn upon a U.S. bank, or a U.S. postal money order.

DELIVERY OF SUBSCRIPTION CERTIFICATES

     All  subscription  certificates,  payments  of the  subscription  price and
nominee  holder   certifications   and  Depository  Trust  Company   participant
oversubscription  exercise forms,  to the extent  applicable to your exercise of
rights,  must be delivered to the  subscription  agent,  Mellon Bank,  N.A.,  as
follows:

BY MAIL:                                   BY HAND:

Mellon Bank, N.A.                          Mellon Bank, N.A.
c/o Mellon Investor Services LLC           c/o Mellon Investor Services LLC
P.O. Box 3301                              120 Broadway, 13th Floor
South Hackensack, NJ 07606                 New York, New York 10271
Attention: Reorganization Dept.            Attention: Reorganization Dept





BY OVERNIGHT COURIER:
Mellon Bank, N.A.
c/o Mellon Investor Services LLC
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Attention: Reorganization Dept.

PROHIBITION ON FRACTIONAL SHARES

     Each right entitles you to purchase three shares at the subscription price.
We will accept any inadvertent  subscription indicating a purchase of fractional
shares,  by rounding  down to the nearest  whole share and  promptly  refunding,
without interest, any payment received for a fractional share.

INSTRUCTIONS TO NOMINEE HOLDERS

     If you are a broker,  trustee,  depository  for securities or other nominee
holder for beneficial  owners of our common stock,  we are  requesting  that you
contact such beneficial  owners as soon as possible to obtain  instructions  and
related  certifications  concerning their rights.  Our request to you is further
explained in the suggested form of letter of  instructions  from nominee holders
to beneficial owners accompanying this prospectus.

     To the extent so instructed,  nominee holders should  complete  appropriate
subscription certificates on behalf of beneficial owners and, in the case of any
exercise of the oversubscription  privilege, the related form of "Nominee Holder
Certification",  and submit them on a timely  basis to the  subscription  agent,
Mellon Bank, N.A., with the proper payment.

RISK OF LOSS ON DELIVERY OF SUBSCRIPTION CERTIFICATE FORMS AND PAYMENTS

     Each  holder of rights  bears all risks of the method of  delivery,  to the
subscription   agent,   of  subscription   certificates   and  payments  of  the
subscription price. If subscription  certificates and payments are sent by mail,
you are urged to send these by registered mail,  properly  insured,  with return
receipt requested,  and to allow a sufficient number of days to ensure delivery,
to the  subscription  agent,  and clearance of payment  prior to the  expiration
date.

     Because uncertified personal checks may take at least five business days to
clear,  you are  strongly  urged to pay,  or arrange  for  payment,  by means of
certified or  cashier's  check or bank draft drawn upon a U.S.  bank,  or a U.S.
postal money order.

HOW PROCEDURAL AND OTHER QUESTIONS ARE RESOLVED

     We are  entitled  to  resolve  all  questions  concerning  the  timeliness,
validity,  form and eligibility of any exercise of rights.  Our determination of
such questions will be final and binding. We, in our reasonable discretion,  may
waive any  defect or  irregularity,  or  permit a defect or  irregularity  to be
corrected within such time as we may determine, or reject the purported exercise
of any right because of any defect or irregularity.

     Subscription certificates will not be considered received or accepted until
all  irregularities  have been waived or cured within such time as we determine,
in our reasonable  discretion.  Neither we nor the  subscription  agent have any
duty to give you  notification of any state required  pre-clearance or approval,
nor any defect or irregularity in connection with the submission of subscription
certificates or any other required document or payment, although we may elect to
do so.  Neither  we nor the  subscription  agent will  incur any  liability  for
failure to give such notification.

     We reserve the right to reject any exercise of rights if the exercise  does
not comply with the terms of this  offering,  is not in proper  form,  or if the
exercise of rights would be unlawful or materially burdensome to us.




ISSUANCE OF SHARES OF OUR COMMON STOCK

     Shares of our common  stock  purchased in this  offering  will be issued as
soon as practicable  after the  expiration  date.  The  subscription  agent will
deliver subscription payments to us only after consummation of this offering and
the issuance of certificates to our shareholders that exercised rights.

FEES AND EXPENSES

     We will pay all fees  charged  by the  subscription  agent and  information
agent.  You are responsible  for paying any other  commissions,  fees,  taxes or
other  expenses  incurred in connection  with the exercise of your  subscription
rights.  None of the subscription  agent,  the information  agent or us will pay
these expenses.

SUBSCRIPTION AGENT

     We have  appointed  Mellon  Bank,  N.A.  as  subscription  agent  for  this
offering.  The subscription agent's addresses for packages sent by hand, mail or
overnight courier are:


BY MAIL:                                   BY HAND:

Mellon Bank, N.A.                          Mellon Bank, N.A.
c/o Mellon Investor Services LLC           c/o Mellon Investor Services LLC
P.O. Box 3301                              120 Broadway, 13th Floor
South Hackensack, NJ 07606                 New York, New York 10271
Attention: Reorganization Dept.            Attention: Reorganization Dept.

BY OVERNIGHT COURIER:

Mellon Bank, N.A.
c/o Mellon Investor Services LLC
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Attention: Reorganization Dept.

     The  subscription  agent's  telephone  number is  800-932-6798.  You should
deliver your subscription certificate and payment of the subscription price only
to the subscription agent, except if your shares are held on record by a broker,
dealer,  nominee or other  custodial.  We will pay the fees and  expenses of the
subscription agent,  information agent and printer, which we estimate will total
$15,000.  We have also  agreed to  indemnify  the  subscription  agent  from any
liability which it may incur in connection with the offering.


                                    IMPORTANT

     Please  carefully  read  the  instructions  accompanying  the  subscription
certificate and follow those  instructions in detail.  Do not send  subscription
certificates  directly to us. You are  responsible  for choosing the payment and
delivery  method  for your  subscription  certificate,  and you  bear the  risks
associated  with such  delivery.  If you  choose to  deliver  your  subscription
certificate  and payment by mail,  we recommend  that you use  registered  mail,
properly insured, with return receipt requested. We also recommend that you mail
your  subscription  certificate and payment a sufficient number of days prior to
the record  date.  Because  uncertified  personal  checks may take at least five
business days to clear, we strongly urge you to pay, or arrange for payment,  by
means of certified or cashier's check or bank draft drawn upon a U.S. bank, or a
U.S. postal money order.




QUESTIONS AND ASSISTANCE CONCERNING THE RIGHTS

     If you have any questions or need assistance  concerning the procedures for
exercising your  subscription  rights, or if you would like additional copies of
this  prospectus or the  instructions,  you should contact us or the information
agent, as follows:
 -----------------------------------------------------------------------------
|                                    |                                        |
|           TENGASCO, INC.           |      MELLON INVESTOR SERVICES LLC      |
|           603 Main Avenue          |           85 Challenger Road           |
|              Suite 500             |            Overpeck Centre             |
|         Knoxville, TN 37902        |       Ridgefield Park, NJ 07660        |
|            865-523-1124            |              800-932-6798              |
|                                    |                                        |
 -----------------------------------------------------------------------------

Calculation Of Rights Exercised

     If you do not  indicate  the number of rights  being  exercised,  or do not
forward  full payment of the total  subscription  price for the number of rights
that you indicate are being exercised, then you will be deemed to have exercised
your basic  subscription  privilege with respect to the maximum number of rights
that  may be  exercised  with  the  aggregate  subscription  price  payment  you
delivered to the subscription  agent. If we do not apply your full  subscription
price payment to your purchase of shares of our common stock, we will return the
excess  amount  to  you by  mail  without  interest  or  deduction  as  soon  as
practicable after the expiration date of the rights offering.

DETERMINATIONS REGARDING THE EXERCISE OF YOUR RIGHTS

     We will decide all questions concerning the timeliness,  validity, form and
eligibility of your exercise of your rights and our determinations will be final
and binding.  We, in our sole discretion,  may waive any defect or irregularity,
or permit a defect or  irregularity  to be corrected  within such time as we may
determine.  We may  reject the  exercise  of any of your  rights  because of any
defect or irregularity. We will not receive or accept any subscription until all
irregularities  have been  waived by us or cured by you  within  such time as we
decide, in our sole discretion.

     Neither we nor the subscription  agent will be under any duty to notify you
of any defect or  irregularity  in  connection  with your  submission  of rights
certificates  and we will not be liable for  failure to notify you of any defect
or irregularity.  We reserve the right to reject your exercise of rights if your
exercise is not in accordance with the terms of the rights offering or in proper
form.  We will also not accept your exercise of rights if our issuance of shares
of our common stock to you could be deemed  unlawful under  applicable law or is
materially burdensome to us.

REGULATORY LIMITATION

     We will not be required to issue to you shares of common stock  pursuant to
the rights  offering if, in our  opinion,  you would be required to obtain prior
clearance or approval from any state or federal  regulatory  authority to own or
control such shares if, at the time the subscription rights expire, you have not
obtained such clearance or approval.

EXPIRATION DATE, EXTENSIONS AND TERMINATION

     We may extend the rights offering and the period for exercising your rights
for up to 30 days, in our sole discretion.  The rights will expire at 5:00 p.m.,
New York City  time,  on  _________  2004 [not later than 30 days after the date
hereof],  unless we decide to extend the rights offering. If the commencement of
the rights offering is delayed,  the expiration date will be similarly extended.
If you do not exercise  your basic  subscription  privilege  prior to that time,
your  rights will be null and void.  We will not be required to issue  shares of
common  stock  to you if  the  subscription  agent  receives  your  subscription
certificate  or your payment  after that time,  regardless  of when you sent the
subscription   certificate  and  payment,  unless  you  send  the  documents  in
compliance with the guaranteed delivery procedures described above.




SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING

     Approximately  48.2  million  shares of our common stock will be issued and
outstanding after the rights offering,  assuming exercise in full of all rights.
Approximately 12.1 million shares of our common stock are issued and outstanding
as of the date hereof.

EFFECTS OF RIGHTS OFFERING ON OUR STOCK OPTION PLANS AND OTHER PLANS

     As of  February  1,  2004,  there  were  outstanding  options  to  purchase
approximately  453,000  shares of our common  stock  issued or  committed  to be
issued  pursuant to stock options  granted by the Company and its  predecessors.
None of the  outstanding  options  has  antidilution  or  other  provisions  for
adjustment  to exercise  price or number of shares  which will be  automatically
triggered by the rights offering.  Each outstanding and unexercised  option will
remain unchanged and will be exercisable for the same number of shares of common
stock and at the same exercise price as before the rights offering.

EFFECTS OF RIGHTS OFFERING ON OUR PREFERRED STOCK

     As of February 1, 2004,  there were issued and  outstanding an aggregate of
70,720 shares of our preferred stock as follows:

        o   28,679  shares  of our  Series A  Cumulative  Convertible  Preferred
            Stock,  with each share having a liquidation  preference of $100 and
            convertible into shares of our common stock at an initial conversion
            rate of $7.00 of  liquidation  preference  per one  share of  common
            stock.  As a result  of  adjustments  made to date  pursuant  to the
            anti-dilution  provisions  of  such  preferred  stock,  the  current
            conversion rate is $5.13 of liquidation  preference per one share of
            common  stock.  Assuming  that the rights  offering is  exercised in
            full, as a result of such  anti-dilution  provisions  the conversion
            rate will be further reduced to $1.49 of liquidation  preference per
            one share of common stock.

        o   27,550  shares  of our  Series B  Cumulative  Convertible  Preferred
            Stock,  with each share having a liquidation  preference of $100 and
            convertible into shares of our common stock at an initial conversion
            rate of $9.00 of  liquidation  preference  per one  share of  common
            stock.  As a result  of  adjustments  made to date  pursuant  to the
            anti-dilution  provisions  of  such  preferred  stock,  the  current
            conversion rate is $7.68 or $11.04 of liquidation preference per one
            share of common stock,  depending upon when such preferred stock was
            issued. Assuming that the rights offering is exercised in full, as a
            result of such anti-dilution  provisions the conversion rate will be
            further reduced to $3.01 or $2.11 of liquidation  preference per one
            share of common stock,  depending on when such  preferred  stock was
            issued.

        o   14,491  shares  of our  Series C  Cumulative  Convertible  Preferred
            Stock,  with each share having a liquidation  preference of $100 and
            convertible into shares of our common stock at an initial conversion
            rate of $5.00 of  liquidation  preference  per one  share of  common
            stock.  As a result  of  adjustments  made to date  pursuant  to the
            anti-dilution  provisions  of  such  preferred  stock,  the  current
            conversion rate is $4.69 of liquidation  preference per one share of
            common  stock.  Assuming  that the rights  offering is  exercised in
            full, as a result of such  anti-dilution  provisions  the conversion
            rate will be further reduced to $1.38 of liquidation  preference per
            one share of common stock.

     See "Description of Capital Stock."

EFFECTS OF RIGHTS  OFFERING  ON  DOLPHIN'S  AND/OR OUR  BOARD'S  SECURITIES  AND
OWNERSHIP.

     Discussed  below,  for  illustrative  purposes  only,  are scenarios  which
indicate the effect the rights offering and related share issuance could have on
Dolphin's  and/or our entire  Board's  relative  voting and  economic  interest.
Dolphin,  which is controlled by Peter E. Salas,  is discussed  here in light of
his the  status  as one of our  Board  members  and the  controlling  person  of



Dolphin,  which is our largest  stockholder and a creditor to which we owe loans
in an aggregate principal amount of $3,850,000, plus accrued interest. As of the
date hereof,  Dolphin owns  approximately  17.8% of our outstanding common stock
and is deemed to beneficially own approximately 19.8% of our common stock. As of
the date hereof, our entire Board of Directors as a group,  including Mr. Salas,
controls  approximately  30.6% of our outstanding  common stock and is deemed to
beneficially own approximately 34.5% of our common stock.

     In the event that all shares of common stock offered in the rights offering
are fully  subscribed,  then  Dolphin  would  purchase  6,419,160  shares in the
offering and would, immediately following closing, continue to own approximately
17.8% of our outstanding  common stock and continue to be deemed to beneficially
own 19.8% of our common  stock.  In the event that  Dolphin were the only rights
holder to acquire  shares in the  offering,  then its  ownership of  outstanding
shares  would be limited by the terms of this  offering  to not more than 50% of
all outstanding shares immediately following the closing. In the absence of this
limitation,  Dolphin  might  have  been  able  to  obtain  ownership  of  up  to
approximately  79% of our outstanding  shares in the event that it were the only
rights holder to exercise its rights.

     In the event that all shares of common stock offered in the rights offering
are fully  subscribed,  then our entire  board of directors  collectively  would
purchase  17,468,184  shares in the  offering and would,  immediately  following
closing, continue to own approximately 30.6% of our outstanding common stock and
continue  to be deemed to  beneficially  own  approximately  34.5% of our common
stock.  In the event  that the  entire  board  were the only  rights  holders to
acquire  shares in the  offering,  then its aggregate  ownership of  outstanding
shares would be approximately 81.9%.

OTHER MATTERS

     We are not making this rights  offering in any state or other  jurisdiction
in which it is unlawful to do so, nor are we selling or accepting  any offers to
purchase any shares of our common stock from rights holders who are residents of
those states or other jurisdictions. We may delay the commencement of the rights
offering  in those  states or other  jurisdictions,  or change  the terms of the
rights  offering,  in order to comply with the  securities law  requirements  of
those states or other jurisdictions. We may decline to make modifications to the
terms of the rights offering  requested by those states or other  jurisdictions,
in which case, if you are a resident in those states or jurisdictions,  you will
not be eligible to participate in the rights offering.




                          DESCRIPTION OF CAPITAL STOCK

     As  of  February  1,  2004,  our  authorized  capital  stock  consisted  of
50,000,000  shares of common stock,  par value $0.001 per share,  and 25,000,000
shares of preferred  stock,  par value $0.001 per share. As of that date, we had
12,049,977  shares of common stock outstanding and an aggregate of 70,720 shares
of preferred stock outstanding. The following is a summary of the material terms
of our capital stock. This summary does not purport to be complete or to contain
all the  information  that may be  important  to you,  and is  qualified  in our
entirety by reference to our articles of incorporation,  as amended, and bylaws,
as amended.  We encourage you to read the  provisions of these  documents to the
extent they relate to your individual investment strategy.

PREFERRED STOCK

     Our articles of incorporation  authorize us to issue preferred stock in one
or more series having designations, rights, and preferences determined from time
to time by our Board of  Directors.  Accordingly,  subject to  applicable  stock
exchange rules and the terms of existing preferred stock, our Board of Directors
is  empowered,  without the  approval of the holders of common  stock,  to issue
shares of preferred stock with dividend,  liquidation,  conversion,  voting,  or
other rights that could adversely affect the voting power or other rights of the
holders of common stock.  In some cases,  the issuance of preferred  stock could
delay  a  change  of  control  of us or  make  it  harder  to  remove  incumbent
management.  Preferred stock could also restrict dividend payments to holders of
our common stock. To date, we have issued shares of preferred stock as described
below.

     SERIES A 8% CUMULATIVE  CONVERTIBLE  PREFERRED  STOCK. We have  outstanding
28,679  shares  of our  Series A  Preferred  Stock,  with  each  share  having a
liquidation  preference  of $100.  The  Series A  Preferred  Stock has no voting
rights prior to the  conversion  of such shares into shares of our common stock.
Each $100  liquidation  preference of Series A Preferred Stock is convertible at
the election of the holder into shares of our common stock at an initial rate of
$7.00 of liquidation preference of the Series A Preferred Stock per one share of
our common stock. The conversion  price will be adjusted  downwards in the event
of the issuance of any new shares of our common stock,  or options or securities
exercisable, convertible or exchangeable into new shares of our common stock, at
a price  per  share  of  common  stock  less  than  $7.00,  subject  to  further
adjustment.  As a result  of  adjustments  already  made to date to the  initial
conversion rate, the current conversion rate is $5.13 of liquidation  preference
of the Series A Preferred Stock per one share of our common stock. Assuming that
the rights  offering is exercised in full,  as a result  thereof the  conversion
rate of the  Series  A  Preferred  Stock  will be  further  reduced  to $1.49 of
liquidation preference per one share of our common stock.

     The holders of the Series A Preferred  Stock are  entitled to a  cumulative
dividend  at a rate of 8% of the  liquidation  preference  per share per  annum,
payable  quarterly on each March 31, June 30,  September 30 and December 31, but
only when,  as and if declared by the Board of  Directors  out of funds  legally
available  therefor.  All accrued but unpaid dividends accrue interest after the
respective  payment date at a rate of 8% per annum. In the event that we fail to
make any two of six  consecutive  quarterly  dividend  payments  on the Series A
Preferred  Stock,  the holders of the Series A Preferred Stock have the right to
appoint  directors  that will  constitute a majority of our board of  directors.
That appointed majority of our board of directors would remain until all accrued
and unpaid  dividends  on the Series A  Preferred  Stock have been paid.  During
2002, we failed to pay the third and fourth quarterly  dividend  payments on the
Series A  Preferred  Stock.  In  February  2003,  the  holders  of the  Series A
Preferred  Stock  designated  four members of the board of  directors,  who were
elected to vacancies on the board and who currently serve.

     We may redeem  all,  but not less than all,  of the  outstanding  shares of
Series  A  Preferred  Stock  upon  the  payment  of the  per  share  liquidation
preference, plus accrued and unpaid dividends, subject to certain circumstances,
including  that our common stock has a closing  sale price  greater than 150% of
the then conversion rate for the Series A Preferred Stock for sixty  consecutive
trading days prior to the date of  redemption.  In addition,  we are required to
redeem one-twentieth of the maximum number of shares of Series A Preferred Stock
outstanding  commencing on October 1, 2003 and each  quarterly  date  thereafter
that such shares are outstanding.




     If we  adopt  a plan  of  liquidation  or of  dissolution,  or  commence  a
voluntary  case under the federal  bankruptcy  laws or similar  laws or upon the
occurrence of specified  similar events,  then the holders of Series A Preferred
Stock shall have a liquidation  preference over all other outstanding  shares of
our preferred stock.

     SERIES B 8% CUMULATIVE  CONVERTIBLE  PREFERRED  STOCK. We have  outstanding
27,550  shares  of our  Series B  Preferred  Stock,  with  each  share  having a
liquidation  preference  of $100.  The  Series B  Preferred  Stock has no voting
rights prior to the  conversion  of such shares into shares of our common stock.
Each $100  liquidation  preference of Series B Preferred Stock is convertible at
the election of the holder into shares of our common stock at an initial rate of
$9.00 of liquidation preference of the Series B Preferred Stock per one share of
our common stock. In addition,  such conversion may be required by us as to all,
but not less than all, of the outstanding  Series B Preferred Stock in the event
that our common  stock has a closing  sale price  greater  than 150% of the then
conversion rate for the Series B Preferred Stock for twenty consecutive  trading
days prior to such  forced  conversion.  The  conversion  price will be adjusted
downwards  in the event of the  issuance of any new shares of common  stock,  or
options or securities  exercisable,  convertible or exchangeable into new shares
of our  common  stock,  at a price per share of common  stock  less than  $9.00,
subject to further  adjustment.  As a result of adjustments already made to date
to the initial  conversion price, the current conversion rate is either $7.68 or
$11.04  per one share of our  common  stock,  depending  upon when the  Series B
Preferred  Stock was issued.  Assuming that the rights  offering is exercised in
full, as a result  thereof the conversion  rate of the Series B Preferred  Stock
will be further  reduced to either $3.01 or $2.11 of liquidation  preference per
one share of our common  stock,  depending on when the Series B Preferred  Stock
was issued.

     The holders of the Series B Preferred  Stock are  entitled to a  cumulative
dividend  at a rate of 8% of the  liquidation  preference  per share per  annum,
payable  quarterly on each March 31, June 30,  September 30 and December 31, but
only when,  as and if declared by the Board of  Directors  out of funds  legally
available  therefor.  All accrued but unpaid dividends accrue interest after the
respective payment date at a rate of 8% per annum.

     We may redeem  all,  but not less than all,  of the  outstanding  shares of
Series  B  Preferred  Stock  upon  the  payment  of the  per  share  liquidation
preference, plus accrued and unpaid dividends, subject to certain circumstances,
including  that our common stock has a closing  sale price  greater than 150% of
the then conversion rate for the Series B Preferred Stock for sixty  consecutive
trading days prior to the date of  redemption.  In addition,  we are required to
redeem  all of the  outstanding  Series B  Preferred  Stock at a price per share
equal  to the  liquidation  preference,  plus  any and all  accrued  and  unpaid
dividends,  on the fifth  anniversary  of the  first  issuance  of the  Series B
Preferred Stock, which anniversary will be in March 2005.

     If we  adopt  a plan  of  liquidation  or of  dissolution,  or  commence  a
voluntary  case under the federal  bankruptcy  laws or similar  laws or upon the
occurrence of specified  similar events,  then the holders of Series B Preferred
Stock shall have a liquidation preference equal to the liquidation preference of
all other  outstanding  shares of our preferred  stock,  other than the Series A
Preferred  Stock,  which  is  senior  to the  Series B  Preferred  Stock in this
respect.

     SERIES C 6% CUMULATIVE  CONVERTIBLE  PREFERRED  STOCK. We have  outstanding
14,491  shares  of our  Series C  Preferred  Stock,  with  each  share  having a
liquidation  preference  of $100.  The  Series C  Preferred  Stock has no voting
rights prior to the  conversion  of such shares into shares of our common stock.
Each $100  liquidation  preference of Series C Preferred Stock is convertible at
the election of the holder into shares of our common stock at an initial rate of
$5.00 of liquidation preference of the Series C Preferred Stock per one share of
our common stock. In addition,  such conversion may be required by us as to all,
but not less than all, of the outstanding  Series C Preferred Stock in the event
that our common  stock has a closing  sale price  greater  than 150% of the then
conversion rate for the Series C Preferred Stock for twenty consecutive  trading
days prior to such  forced  conversion.  The  conversion  price will be adjusted
downwards  in the event of the  issuance of any new shares of common  stock,  or
options or securities  exercisable,  convertible or exchangeable into new shares
of our  common  stock,  at a price per share of common  stock  less than  $5.00,
subject to further  adjustment.  As a result of adjustments already made to date
to the initial  conversion  price, the current  conversion rate is $4.69 per one
share of our common  stock.  Assuming  that the rights  offering is exercised in
full, as a result  thereof the conversion  rate of the Series C Preferred  Stock
will be further reduced to $1.38 of liquidation  preference per one share of our
common stock.

       The holders of the Series C Preferred  Stock are entitled to a cumulative
dividend  at a rate of 6% of the  liquidation  preference  per share per  annum,
payable  quarterly on each March 31, June 30,  September 30 and December 31, but



only when,  as and if declared by the Board of  Directors  out of funds  legally
available  therefor.  All accrued but unpaid dividends accrue interest after the
respective payment date at a rate of 6% per annum.

     We may redeem  all,  but not less than all,  of the  outstanding  shares of
Series  C  Preferred  Stock  upon  the  payment  of the  per  share  liquidation
preference, plus accrued and unpaid dividends, subject to certain circumstances,
including  that our common stock has a closing  sale price  greater than 150% of
the then conversion rate for the Series C Preferred Stock for sixty  consecutive
trading days prior to the date of  redemption.  In addition,  we are required to
redeem  all of the  outstanding  Series C  Preferred  Stock at a price per share
equal  to the  liquidation  preference,  plus  any and all  accrued  and  unpaid
dividends,  on the fifth  anniversary  of the  first  issuance  of the  Series C
Preferred Stock, which anniversary will be in July 2006.

     If we  adopt  a plan  of  liquidation  or of  dissolution,  or  commence  a
voluntary  case under the federal  bankruptcy  laws or similar  laws or upon the
occurrence of specified  similar events,  then the holders of Series B Preferred
Stock shall have a liquidation preference equal to the liquidation preference of
all other  outstanding  shares of our preferred  stock,  other than the Series A
Preferred  Stock,  which  is  senior  to the  Series C  Preferred  Stock in this
respect.

COMMON STOCK

     VOTING  RIGHTS.  Each share of our common  stock is entitled to one vote in
the election of Directors and other matters.  A majority of shares of our voting
stock  constitute a quorum at any meeting of stockholders.  Common  stockholders
are not entitled to cumulative voting rights.

     DIVIDENDS.  Subject to the preferential rights of any outstanding shares of
preferred  stock  and the  restrictive  terms  of our  credit  agreement,  which
prohibit the payment of  dividends,  dividends  may be paid to holders of common
stock  as may be  declared  by our  Board  of  Directors  out of  funds  legally
available  for that  purpose.  We do not intend to pay  dividends at the present
time or in the foreseeable future.

     LIQUIDATION.  If we  liquidate,  dissolve or wind-up our  business,  either
voluntarily  or not,  common  stockholders  will  receive  pro rata  all  assets
remaining  after we pay our creditors and the holders of our preferred  stock as
described above.




                  UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

     The following  discussion is a summary of the material  federal  income tax
consequences  of the rights  offering to holders of common  stock that hold such
stock as a capital  asset for federal  income tax purposes.  This  discussion is
based on laws, regulations,  rulings and decisions in effect on the date hereof,
all of which are subject to change  (possibly  with  retroactive  effect) and to
differing interpretations. This discussion applies only to holders that are U.S.
persons,  which is defined  as a citizen or  resident  of the United  States,  a
domestic partnership, a domestic corporation,  any estate the income of which is
subject to U.S. federal income taxation  regardless of its source, and any trust
so long  as a court  within  the  United  States  is  able to  exercise  primary
supervision  over the  administration  of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust.

     This  discussion  does not address all aspects of federal  income  taxation
that may be relevant to holders in light of their particular circumstances or to
holders who may be subject to special tax treatment  under the Internal  Revenue
Code of 1986,  as amended,  including  holders who are dealers in  securities or
foreign  currency,  foreign  persons  (defined  as all  persons  other than U.S.
persons),  insurance  companies,  tax-exempt  organizations,   banks,  financial
institutions,  broker-dealers, holders who hold common stock as part of a hedge,
straddle,  conversion  or other risk  reduction  transaction,  or  holders  that
acquired common stock pursuant to the exercise of compensatory  stock options or
warrants or otherwise as compensation.

     We have not  sought,  and will not seek,  an opinion of counsel or a ruling
from the Internal Revenue Service  regarding the federal income tax consequences
of the rights offering or the related share issuance. The following summary does
not address the tax  consequences  of the rights  offering or the related  share
issuance under foreign,  state, or local tax laws.  ACCORDINGLY,  EACH HOLDER OF
COMMON STOCK SHOULD  CONSULT ITS TAX ADVISOR WITH RESPECT TO THE  PARTICULAR TAX
CONSEQUENCES  OF THE RIGHTS  OFFERING  OR THE  RELATED  SHARE  ISSUANCE  TO SUCH
HOLDER.

     The  federal  income  tax  consequences  for a holder of common  stock on a
receipt of subscription rights under the rights offering are as follows:

     A holder will not recognize  taxable income for federal income tax purposes
in connection with the receipt of subscription rights in the rights offering.

     Except  as  provided  in the  following  sentence,  the  tax  basis  of the
subscription rights received by a holder in the rights offering will be zero. If
either (i) the fair  market  value of the  subscription  rights on the date such
subscription  rights are distributed is equal to at least 15% of the fair market
value on such date of the common  stock with  respect to which the  subscription
rights are received or (ii) the holder  elects,  by attaching a statement to its
federal income tax return for the taxable year in which the subscription  rights
are  received,  to allocate  part of the tax basis of such  common  stock to the
subscription  rights, then upon exercise or transfer of the subscription rights,
the holder's tax basis in the common stock will be allocated  between the common
stock and the subscription  rights in proportion to their respective fair market
values on the date the subscription  rights are distributed.  A holder's holding
period for the subscription  rights received in the rights offering will include
the  holder's  holding  period  for the common  stock with  respect to which the
subscription rights were received. We do not expect that the value of the rights
will exceed 15% of the fair  market  value of the common  stock with  respect to
which the subscription rights are received.

     A holder  that  allows  the  subscription  rights  received  in the  rights
offering to expire will not recognize any gain or loss, and the tax basis of the
common stock owned by such holder with respect to which such subscription rights
were distributed will be equal to the tax basis of such common stock immediately
before the receipt of the subscription rights in the rights offering.

     A holder  will not  recognize  any gain or loss  upon the  exercise  of the
subscription rights received in the rights offering.

     The  tax  basis  of the  common  stock  acquired  through  exercise  of the
subscription  rights will equal the sum of the subscription price for the common
stock and the holder's tax basis, if any, in the rights as described above.




     The holding  period for the common stock acquired  through  exercise of the
subscription  rights  will  begin  on  the  date  the  subscription  rights  are
exercised.

                              PLAN OF DISTRIBUTION

     On or about _________,  2004, we will distribute the  subscription  rights,
subscription  certificates,  and copies of this prospectus to persons that owned
shares  of  common  stock  on  _______,  2004.  If you  wish  to  exercise  your
subscription rights and purchase shares of common stock, you should complete the
subscription  certificate  and return it with  payment  for the  shares,  to the
subscription  agent, Mellon Investor Services LLC, at the address on page 53. If
you have any questions, you should contact.

     We have agreed to pay the subscription  agent a fee plus certain  expenses,
which we estimate will total  approximately  $15,000. We estimate that our total
expenses in connection with the rights offering will be approximately $150,000.

                           TENNESSEE ANTI-TAKEOVER LAW

     The Tennessee Control Share Acquisition Act strips a purchaser's  shares of
voting  rights  any time an  acquisition  of shares in a  Tennessee  corporation
brings the purchaser's voting power to one-fifth, one-third or a majority of all
voting power.  The  purchaser's  voting  rights can be  reinstated  only after a
majority  vote of the other  stockholders.  The  purchaser  may demand a special
meeting of  stockholders  to conduct such a vote. A  corporation  may or may not
redeem the purchaser's  shares if the purchaser's  shares are not granted voting
rights.  The Tennessee Control Share Acquisition Act applies only to a Tennessee
corporation  that has  adopted a provision  in its  charter or bylaws  expressly
declaring that the Tennessee  Control Share  Acquisition  Act applies to it. The
Tennessee  Control Share Acquisition Act currently does not apply to the Company
..

     The Tennessee Investor  Protection Act applies to tender offers directed at
corporations  that have  substantial  assets in  Tennessee  and that are  either
incorporated  in or have a principal  office in  Tennessee.  The Act requires an
offeror  making a tender  offer for such a  corporation  to file a  registration
statement  with the  Commissioner  of  Commerce  and  Insurance.  If the offeror
intends to gain control of the  corporation,  the  registration  statement  must
indicate any plans the offeror has for the  corporation.  The  Commissioner  may
require additional  information  material to the takeover offer and may call for
hearings. The Act does not apply to an offeror if the target corporation's board
of directors  recommends the offer to its  stockholders.  We do not believe that
the Act  applies  to us and that in any  event  this  offering  is  exempt.  The
Tennessee Investor  Protection Act also requires the offeror and the corporation
to deliver to the  Commissioner  all  solicitation  materials used in connection
with the  tender  offer.  This  act  also  prohibits  fraudulent,  deceptive  or
manipulative  acts or  practices by the offeror or the target  corporation.  The
Tennessee   Business   Combination  Act  requires  a  five-year   moratorium  on
transactions   between  certain   Tennessee   corporations  and  an  "interested
stockholder" (generally, a 10% or greater stockholder) unless the transaction or
the  stockholder's  becoming  an  "interested  stockholder"  is  approved by the
directors before the stockholder attains the status of "interested stockholder."
A corporation that would otherwise be covered by this Act may exempt itself from
the Act by adopting a charter provision  specifically  stating the corporation's
option to be exempt.

                      LIMITATION OF LIABILITY OF DIRECTORS

     [All  directors are  indemnified by us, both by operation of Tennessee Code
Annotated  Sections  48-18-501  through 509 and since 1995 by  resolution of our
board of directors,  against  liability and expenses  including  attorney's fees
incurred by them as a result of serving on our board of directors. The statutory
provisions  require a finding that the conduct of the director was in good faith
and in the best  interest  of the  company  and does not extend to cases where a
director is found to be liable to the company itself. Such a finding may be made
by uninvolved directors, a committee of the board or independent counsel.

     Tennessee Code Annotated Section 48-15-503 provides for the indemnification
of  directors  and of  corporate  officers  where the  director  or  officer  is
successful in defense of any proceeding he or she became involved in as a result



of being or having been in such position,  unless the corporate  charter forbids
such indemnification.  Our corporate charter contains no such bar or prohibition
of indemnification of our directors or officers.

     Tennessee  statutes further provide that the rights to indemnification of a
director do not  preclude  other bases of  indemnification,  whether such rights
arise by charter, bylaws, shareholder resolution, agreement or board resolution,
provided  there is no breach  of duty of  loyalty  to the  company,  bad  faith,
intentional  misconduct or knowing violation of law.  Accordingly,  our board of
directors on August 17, 1995,  unanimously  resolved to indemnify  directors and
executive  officers  on a  mandatory  basis to the  fullest  extent  of the laws
referenced  above for the entire period a party is subject to any possible legal
action or claim by reason of having so served.

     Tennessee  law permits,  but does not require,  insurance to be obtained to
fund indemnity obligations. We do not have any such insurance.

     Holders of common stock have no preemptive,  subscription,  redemption,  or
conversion rights.

     The transfer  agent and registrar  for the common stock is Mellon  Investor
Services LLC.




                                  LEGAL MATTERS

     Certain  legal  matters with respect to the validity of the issuance of the
shares of common stock offered by this  Prospectus will be passed upon for us by
Cary V. Sorensen, Esq.

                                     EXPERTS

     Our consolidated  financial statements as of December 31, 2002 and 2001 and
for each of the three years in the period ended  December  31, 2002  included in
this  Prospectus  and in the  Registration  Statement  on Form S-1 have  been so
included in reliance upon the reports of BDO Seidman LLP, independent  certified
public  accountants to the extent and for the periods set forth in their reports
(which  contain an  explanatory  paragraph  regarding the  Company's  ability to
continue as a going  concern),  given upon the authority of said firm as experts
in accounting and auditing.

     Reserve analyses and information as of December 31, 2002 and 2003, included
in this  Prospectus  and the  Registration  Statement  on Form S-1 have  been so
included in reliance on the reserve  reports dated February 10, 2003,  March 28,
2002, February 10, 2003 and February 10, 2004,  respectively,  prepared by Ryder
Scott Company, L.P. of Houston, Texas.

     Information regarding Mercer Capital of Memphis, Tennessee, and said firm's
engagement by and service as financial  advisor to the Special  Committee of our
Board of Directors has been included in this Prospectus and in the  Registration
Statement on Form S-1 in reliance  upon the  information  provided to us by said
firm.

                       WHERE YOU CAN FIND MORE INFORMATION

     We are subject to the informational requirements of the Securities Exchange
Act  of  1934.  Accordingly,   we  file  reports,  proxy  statements  and  other
information  with the SEC. You may read and copy any materials that we file with
the  SEC  at  the  SEC's  Public  Reference  Room  at 450  Fifth  Street,  N.W.,
Washington,  D.C.  20549 upon  payment of the  prescribed  fees.  You may obtain
information on the operation of the Public  Reference Room by calling the SEC at
1-800-SEC-0330.  The SEC also maintains an Internet site that contains  reports,
proxy  information  statements  and other  materials  that are filed through the
SEC's Electronic Data Gathering,  Analysis, and Retrieval, or EDGAR, system. You
can access this web site at http://www.sec.gov.

     We have  filed a  registration  statement  on Form  S-1  with  the SEC with
respect to this rights  offering.  This prospectus is a part of the registration
statement,  but  does  not  contain  all  of  the  information  included  in the
registration  statement.  You may wish to inspect the registration statement and
the exhibit to that registration  statement for further information with respect
to us and the securities offered in this prospectus.  Copies of the registration
statement  and the  exhibit to such  registration  statement  are on file at the
offices of the SEC and may be obtained upon payment of the prescribed fee or may
be  examined  without  charge  at the  public  reference  facilities  of the SEC
described  above.   Statements  contained  in  this  prospectus  concerning  the
provisions of documents are necessarily  summaries of the material provisions of
such documents,  and each statement is qualified in our entirety by reference to
the copy of the applicable document filed with the SEC.





                          INDEX TO FINANCIAL STATEMENTS


   Independent Auditors' Report..............................  F-2

   Consolidated Financial Statements

       Consolidated Balance Sheets...........................  F-3 and F-4

       Consolidated Statements of Loss.......................  F-5

       Consolidated Statements of Stockholders' Equity.......  F-6 and F-7

       Consolidated Statements of Cash Flows.................  F-8 through F-10

       Notes to Consolidated Financial Statements............  F-11 through F-34




Independent Auditors' Report



Board of Directors
Tengasco, Inc. and Subsidiaries
Knoxville, Tennessee

We have audited the accompanying  consolidated balance sheets of Tengasco,  Inc.
and Subsidiaries as of December 31, 2002 and 2001, and the related  consolidated
statements  of loss,  stockholders'  equity and cash flows for each of the three
years in the period ended December 31, 2002. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain  reasonable  assurance  about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  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 Tengasco,  Inc. and
Subsidiaries  as of  December  31,  2002  and  2001,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has an accumulated  deficit of $27,776,726.  Additionally,  during 2002, the
Company's  primary lender has  classified the remaining  amount of $7,501,777 as
immediately  due  and  payable,  resulting  in  a  significant  working  capital
deficiency.  Such matters raise substantial doubt about the Company's ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  Note  1.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.



/s/ BDO Seidman, LLP


Atlanta, Georgia
February 27, 2003




                           CONSOLIDATED BALANCE SHEETS



DECEMBER 31,                                            2002             2001           SEPTEMBER 30, 2003
-------------------------------------------------------------------------------------------------------------
                                                                                            (unaudited)
                                                                              
Assets (Note 1)

Current
Cash and cash equivalents                          $    184,130    $     393,451       $     332,185
   Investments                                           34,500          150,000              34,500
   Accounts receivable                                  730,667          661,475             795,916
   Participant receivables                               70,605           84,097              63,297
   Inventory                                            262,748          159,364             262,748
   Current portion of loan fees, net                    323,856                -             210,380
   Other                                                      -                -              67,352
--------------------------------------------------------------------------------------------------------

Total current assets                                  1,606,506        1,448,387           1,766,378

Oil and gas properties, net (on the basis
   Of full cost accounting) (Note 4)                 13,864,321       13,269,930          13,096,898


Completed pipeline facilities, net (Note 5)          15,372,843        15,039,762         15,312,212

Other property and equipment, net (Note 6)            1,685,950         1,680,104          1,482,202

Restricted cash                                               0           120,872                  0

Loan fees, net of accumulated amortization
    of $13,384 and $21,590, respectively                 40,158           496,577                  0

Other assets                                             14,613            72,613              5,213
--------------------------------------------------------------------------------------------------------

                                                    $32,584,391      $ 32,128,245      $  31,662,903
--------------------------------------------------------------------------------------------------------
                                            SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.






DECEMBER 31,                                                2002            2001      SEPTEMBER 30, 2003
----------------------------------------------------------------------------------------------------------
                                                                                          (unaudited)
                                                                              
Liabilities and Stockholders' Equity

Current liabilities
   Current maturities of long-term debt
     (Note 1)                                          $  7,861,245     $  6,399,831      $ 6,724,998
   Accounts payable - trade                               1,396,761        1,208,164          839,553
   Accrued interest payable                                  61,141           54,138          167,227
   Accrued dividends payable (Note 9)                       254,389          112,458          470,543
   Current maturities of long term debt to related
     parties                                                      -                -        2,234,000
   Other accrued liabilities                                  31,805               -          627,016
----------------------------------------------------------------------------------------------------------
Total current liabilities                                  9,605,341       7,774,591       11,063,337

Long term debt to related parties (Note 7)                   750,000               -                -

Asset retirement obligations (Note 16)                             -               -          666,421

Long term debt, less current maturities (Note 7)           1,256,209       3,902,757          590,055
----------------------------------------------------------------------------------------------------------
Total liabilities                                         11,611,550      11,677,348       12,319,813
----------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 1 and 8)

Mandatorily  redeemable preferred stock, $.001 par
value;  authorized 25,000,000 shares (Note 9):
   Series A 8% cumulative, convertible,
     mandatorily redeemable; 28,679 and shares
     outstanding; redemption value $2,867,900              2,867,900       2,867,900        2,867,900
   Series B 8% cumulative, convertible,
     mandatorily redeemable; 27,550 shares
     outstanding; redemption value $2,755,000,
     net of related commissions                            2,591,150       2,591,150        2,591,150
   Series C 6% cumulative, convertible,
     mandatorily redeemable; 14,491 shares
     outstanding; redemption value $1,449,100,
     net of related commissions                            1,303,168               -        1,425,207
----------------------------------------------------------------------------------------------------------
Total mandatorily redeemable preferred stock               6,762,218       5,459,050        6,884,257
----------------------------------------------------------------------------------------------------------
Stockholders' equity (Notes 10 and 11)
   Common stock, $.001 par value; authorized
     50,000,000 shares; 11,459,279, 10,560,605
     And 12,018,477 shares issued, respectively               11,460          10,561           12,065
   Additional paid-in capital                             42,237,276      39,242,555       42,855,693
   Accumulated deficit                                   (27,776,726)    (24,115,382)     (30,147,538)
   Accumulated other comprehensive loss                     (115,500)              -         (115,500)
   Treasury Stock, at cost, 14,500 shares                   (145,887)       (145,887)        (145,887)
----------------------------------------------------------------------------------------------------------
Total stockholders' equity                                14,210,623      14,991,847       12,458,833
----------------------------------------------------------------------------------------------------------
                                                        $ 32,584,391    $ 32,128,245      $31,662,903
----------------------------------------------------------------------------------------------------------
                                              SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.





                        CONSOLIDATED STATEMENTS OF LOSS


                                                                                     NINE MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31,             2002             2001             2000             2003              2002
------------------------------------------------------------------------------------------------------------------
                                                                                            (unaudited)
                                                                                      
Revenues and other income
   Oil and gas revenues          $5,437,723        $6,656,758       $5,241,076      $4,907,216       $3,859,050
   Pipeline transportation
     revenues                       259,677           296,331           -              145,472          197,333
   Interest Income                    3,078            43,597           45,905             766            2,782
------------------------------------------------------------------------------------------------------------------
Total revenues and other
   income                         5,700,478         6,996,686        5,286,981       5,053,454        4,059,165
------------------------------------------------------------------------------------------------------------------
Costs and expenses
   Production costs and
     taxes                        3,094,731         2,951,746        2,614,414       2,571,898        2,084,597
   Depreciation, depletion
     and amortization
     (Notes 4, 5 and 6)           2,413,597         1,849,963          371,249       1,887,333        1,731,182
   General and
     administrative costs         1,868,141         2,957,871        2,602,311       1,112,289        1,527,988
   Interest expense                 578,039           850,965          415,376         462,518          448,046
   Public relations                 193,229           293,448          106,195          29,131          176,098
   Professional fees                707,296           355,480          719,320         485,270          539,198
------------------------------------------------------------------------------------------------------------------
Total costs and expenses          8,855,033         9,259,473        6,828,865       6,548,439        6,507,109
------------------------------------------------------------------------------------------------------------------
Net loss before cumulative
     effect of a change in
     accounting principle        (3,154,555)       (2,262,787)      (1,541,884)     (1,494,985)      (2,447,944)
 Cumulative effect of a
     change in accounting
     principle (Note 16)            -                       -                -        (351,204)               -
------------------------------------------------------------------------------------------------------------------
Net loss                         (3,154,555)       (2,262,787)      (1,541,884)     (1,846,189)      (2,447,944)
Dividends on preferred
     Stock                         (506,789)         (391,183)      (257,557)          402,583          372,595
------------------------------------------------------------------------------------------------------------------
Net loss attributable to
     common stockholders        $(3,661,344)     $ (2,653,970)    $(1,799,441)     $(2,248,772)     $(2,820,539)
------------------------------------------------------------------------------------------------------------------
Earnings per share data:
Net loss before cumulative
     effect of a change in
     accounting principle         $  (0.29)        $    (0.22)      $   (0.17)        $  (0.13)       $   (0.22)

Cumulative effect of change
     in accounting principle              -                 -                -        $  (0.03)             -

Net loss                         $   (0.29)         $   (0.22)      $   (0.17)        $  (0.16)       $   (0.22)

Dividends on preferred stock     $   (0.04)         $   (0.04)      $   (0.02)        $  (0.03)       $   (0.04)

Net loss attributable to
     common stockholder          $   (0.33)         $   (0.26)      $   (0.19)        $  (0.19)       $   (0.26)

Weighted average shares
     Outstanding                11,062,436         10,235,253       9,253,622       11,919,477       10,933,588
------------------------------------------------------------------------------------------------------------------
                                                      SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.




                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                                           COMMON STOCK          ADDITIONAL
                                                                      -----------------------      PAID-IN
                                                                         SHARE       AMOUNT        CAPITAL
                                                                         -----       ------        -------
                                                                                        
Balance, January 1, 2000                                               8,532,882     $  8,533    $20,732,759
   Net loss                                                                    -            -              -
   Common stock issued on conversion of debt                              73,669           74        449,920
   Common stock issued for exercised options                              20,715           21        179,992
   Common stock issued on conversion of preferred stock                    8,818            9         49,991
   Stock option awards for professional services                               -            -        242,000
   Common stock issued in private placements, net of related expense     654,098          654      4,245,054
   Stock issued for services                                               5,376            5         41,993
   Dividends on convertible redeemable preferred stock                         -            -              -
------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                                             9,295,558        9,296     25,941,709
   Net loss                                                                    -            -              -
   Common stock issued with 5% stock dividend (Note 10)                  498,016          498      6,374,111
   Common stock issued on conversion of debt                              93,069           93        523,157
   Common stock issued for exercised options                             274,932          275      2,340,725
   Common stock issued on conversion of preferred stock                   12,347           13         70,988
   Common stock issued for services                                       10,000           10         69,990
   Common stock issued in private placements, net of
     related expense                                                     374,733          374      3,899,624
   Common stock issued as a charitable donation                            1,950            2         22,251
   Treasury stock purchased                                                    -            -              -
   Dividends on convertible redeemable preferred stock                         -            -              -
------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                                            10,560,605       10,561     39,242,555
   Net loss                                                                    -            -              -
   Comprehensive loss
     Net loss                                                                  -            -              -
     Other comprehensive loss                                                  -            -              -
     Comprehensive loss                                                        -            -              -
   Common stock issued in private placements, net of
     related expenses                                                    850,000          850      2,676,150
   Common stock issued on conversion of debt                              20,592           20        119,980
   Common stock issued in purchase of equipment                           19,582           20        149,980
   Common stock issued for services                                        8,500            9         48,611
   Dividends on convertible redeemable preferred stock                         -            -              -
------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002                                            11,459,279      $11,460    $42,237,276
   Net loss (unaudited)                                                        -            -              -
   Common stock issued in private placement net of
     related expenses (unaudited)                                        227,275          227        249,773
   Common stock issued for exercised options (unaudited)                  94,000           94         46,906
   Common stock issued in conversion of debt (unaudited)                  60,528           61         69,538
   Common stock issued for preferred dividend in arrears (unaudited)     154,824          154        170,155
   Common stock issued for charity (unaudited)                             3,571            4          5,710
   Accretion of issue cost on preferred stock (unaudited)               -                          -
   Common stock issued for services (unaudited)                           55,000           55         69,945
   Common stock issued for litigation settlement (unaudited)              10,000           10          6,390
   Dividends on convertible redeemable preferred stock (unaudited)             -            -              -
   Cumulative effect of a change in accounting principle (unaudited)           -            -              -
------------------------------------------------------------------------------------------------------------
   Balance, September 30, 2003 (unaudited)                            12,064,477       12,065     42,855,693
------------------------------------------------------------------------------------------------------------






   ACCUMULATED
      OTHER                                                     TREASURY STOCK
  COMPREHENSIVE       ACCUMULATED      COMPREHENSIVE   -------------------------------
  INCOME (LOSS)         DEFICIT            LOSS            SHARES           AMOUNT           TOTAL
  -------------       -----------      -------------   -------------- ----------------
                                                                          
   $          -      $(13,287,362)                              -        $               $ 7,453,930
                                                                                 -
              -        (1,541,884)                              -                -        (1,541,884)
              -                 -                               -                -           449,994
              -                 -                               -                -           180,013
              -                 -                               -                -            50,000
              -                 -                               -                -           242,000
              -                 -                               -                -         4,245,708
              -                 -                               -                -            41,998
              -          (257,557)                              -                -          (257,557)
-------------------------------------------------------------------------------------------------------
              -       (15,086,803)                              -                -        10,864,202
                       (2,262,787)                              -                -        (2,262,787)
              -        (6,374,609)                              -                -                 -
              -                 -                               -                -           523,250
              -                 -                               -                -         2,341,000
              -                 -                               -                -            71,001
                                -                               -                -            70,000

              -                 -                               -                -         3,899,998
              -                 -                               -                -            22,253
              -                 -                          14,500         (145,887)         (145,887)
              -          (391,183)                              -                -          (391,183)
-------------------------------------------------------------------------------------------------------
              -       (24,115,382)                         14,500         (145,887)       14,991,847
              -        (3,154,555)                              -                -        (3,154,555)

              -                 -         (3,154,555)           -                -                 -
       (115,500)                -           (115,500)           -                -          (115,500)
                                     ----------------
              -                 -         (3,270,055)           -                -                 -

                                -                               -                -         2,677,000
                                -                               -                -           120,000
                                -                               -                -           150,000
                                -                               -                -            48,620
              -          (506,789)                              -                -          (506,789)
-------------------------------------------------------------------------------------------------------
       (115,500)     $(27,776,726)                         14,500        $(145,887)      $14,210,623
              -        (1,494,985)                              -                -        (1,494,985)
              -                 -                               -                -           250,000
              -                 -                               -                -            47,000
              -                 -                               -                -            69,599
              -                 -                               -                -           170,309
              -                 -                               -                -             5,714

              -          (122,040)                              -                -          (122,040)
              -                 -                               -                -            70,000
              -                 -                               -                -             6,400
              -          (402,583)                              -                -          (402,583)
              -          (351,204)                              -                -          (351,204)
-------------------------------------------------------------------------------------------------------
      $(115,500)     $(30,147,538)                         14,500        $(145,887)      $12,458,833
-------------------------------------------------------------------------------------------------------
                                           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.




                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                         NINE MONTHS ENDED
                                                                                           SEPTEMBER 30,
YEARS ENDED DECEMBER 31,               2002            2001             2000            2003             2002
-------------------------------------------------------------------------------------------------------------------
                                                                                            (unaudited)
                                                                                      
Operating activities:
   Net loss                        $(3,154,555)    $(2,262,787)      $(1,541,884)   $(1,494,985)     $(2,447,944)
   Adjustments to reconcile net
    loss to net cash used in
   operating activities:
       Cumulative effect of
         change in accounting
         principle                           -               -                 -              -                -
       Depreciation, depletion
         and amortization            2,413,597       1,849,963           371,249      1,887,333        1,731,182
       Charitable donation and
         services paid in stock or
         stock options                       -               -                 -        122,714           48,620
       Compensation and
         services paid in stock
         options, stock warrants
         and common stock               48,620          92,253           284,000              -                -
       Gain on sale of equipment             -        (132,943)                -              -                -
       Changes in assets and
           liabilities:
         Accounts receivable           (69,192)          3,814          (301,421)       (65,249)         (41,340)
         Participant receivables        13,492               -                 -          7,308                -
         Inventory                    (103,384)         91,981             8,408              -                -
         Other assets                   58,000               -                 -              -                -
         Accounts payable -
           Trade                       188,597         191,702           364,553       (557,208)          (5,021)
         Accrued interest
           Payable                       7,003          (2,519)          135,435        106,086           (9,581)
         Other accrued liabilities      31,805         (52,640)         (140,955)       595,211                -
         Other                               -               -                 -        (57,952)               -
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities                  (566,017)       (221,176)         (820,615)       543,258         (724,084)
-------------------------------------------------------------------------------------------------------------------
Investing activities:
   Additions to other property
     and equipment                    (214,897)       (285,722)       (1,276,783)             -         (154,526)
   Net additions to oil and gas
     Properties                     (1,982,529)     (4,821,883)       (1,456,996)       (45,312)      (1,796,600)
   Additions to pipeline              (841,750)     (4,213,095)       (6,834,196)      (341,369)        (739,162)
facilities
   Decrease (increase) in
     restricted cash                   120,872        (120,872)          625,000              -          120,872
   Other                                28,367          32,888             6,112              -           19,432
-------------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities                          (2,889,937)     (9,408,684)       (8,936,863)      (386,681)      (2,549,984)
-------------------------------------------------------------------------------------------------------------------







                                                                                          NINE MONTHS ENDED
                                                                                            SEPTEMBER 30,
YEARS ENDED DECEMBER 31,               2002            2001             2000            2003             2002
-------------------------------------------------------------------------------------------------------------------
                                                                                              (unaudited)
                                                                                      
Financing activities:
   Proceeds from exercise of
     Options                       $         -      $ 2,341,000    $     180,013                -             -
   Proceeds from borrowings          2,063,139       10,442,068        6,493,563        1,484,000     1,703,103
   Repayments of borrowings         (2,378,273)      (8,833,325)      (1,720,856)      (1,742,522)   (2,129,259)
   Net proceeds from issuance of
     common stock                    2,677,000        3,900,000        4,245,700          250,000     2,677,000
   Proceeds from private
     placements of convertible
     redeemable preferred stock,
     net                             1,303,168        1,591,150        2,000,000                -     1,303,168
   Dividends on convertible
redeemable preferred stock            (364,858)        (357,503)        (257,557)               -      (350,859)
   Purchase of treasury stock                -         (145,887)               -                -             -
   Payment of loan fees                (53,543)        (518,167)               -                -             -
-------------------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities                           3,246,633        8,419,336       10,940,863           (8,522)    3,203,156
-------------------------------------------------------------------------------------------------------------------
Net change in cash and cash
equivalents                           (209,321)      (1,210,524)       1,183,385          148,055       (70,912)

Cash and cash equivalents,
beginning of year                      393,451        1,603,975          420,590          184,130       393,451
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end
of period                          $    184,130    $    393,451     $  1,603,975         $332,185      $322,539
-------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of non-
     cash investing and financing
     activities:
     During 2001, the Company
       issued a 5% stock
       dividend of 498,016
       shares                      $         -      $ 6,374,609     $           -      $        -   $         -
     During 2001 and 2000, the
       Company converted
       preferred stock to
       common stock                $         -      $    71,000     $      50,000      $        -   $         -
     During 2002, 2001 and
       2000, respectively,
       the Company issued
       common stock on
       conversion of debt          $   120,000      $   523,250     $      450,000     $    69,599  $    120,000
     During 2002, 2001 and
       2000, respectively,
       the Company issued
       common stock and
       stock options for
       services received and
       charitable contributions
       made                        $     48,620    $     92,253     $      284,000     $   122,714  $     48,620
     During 2001, the Company
       sold equipment
       for equity investments      $         -     $    150,000     $           -      $         -  $    150,000
     During 2002, the Company
       purchased equipment
       by issuing common stock     $    150,000    $          -     $           -      $   150,000  $          -






                                                                                          NINE MONTHS ENDED
                                                                                            SEPTEMBER 30,
YEARS ENDED DECEMBER 31,               2002            2001             2000            2003             2002
-------------------------------------------------------------------------------------------------------------------
                                                                                              (unaudited)
                                                                                        
     During 2003, the Company
       issued stock for preferred
       dividends in arrears        $         -     $          -     $           -       $  170,309     $        -
     During 2003, the Company
       incurred accretion of issue
       cost on preferred stock     $         -     $          -     $           -       $ (122,040)    $        -
     During 2003, the Company
       declared dividends on
       preferred stock             $         -     $          -     $           -       $ (402,583)    $        -
--------------------------------------------------------------------------------------------------------------------
                                                        SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)

1.  GOING CONCERN             The accompanying consolidated financial statements
    UNCERTAINTY               have been prepared in conformity  with  accounting
                              principles generally accepted in the United States
                              of America, which contemplate  continuation of the
                              Company as a going concern and assume  realization
                              of assets and the  satisfaction  of liabilities in
                              the  normal   course  of  business.   The  Company
                              continues to be in the early stages of its oil and
                              gas related  operating  history as it endeavors to
                              expand its operations  through the continuation of
                              its drilling  program in the Tennessee  Swan Creek
                              Field.  Accordingly,   the  Company  has  incurred
                              continuous  losses through these operating  stages
                              and had an accumulated  deficit of $27,776,726 and
                              a working  capital  deficit of  $7,998,835,  as of
                              December 31, 2002, and an  accumulated  deficit of
                              $30,147,538  and  a  working  capital  deficit  of
                              $9,296,959, as of September 30, 2003. During 2002,
                              the  Company was  informed  by its primary  lender
                              that the entire amount of its  outstanding  credit
                              facility  was  immediately  due  and  payable,  as
                              provided for in the Credit Agreement (see Note 7).
                              These  circumstances raise substantial doubt about
                              the  Company's  ability  to  continue  as a  going
                              concern.

                              The Company has  disputed its  obligation  to make
                              this  payment  and is  attempting  to resolve  the
                              dispute  or  to  obtain  alternative   refinancing
                              arrangements  to repay  this  current  obligation.
                              There can be no assurance that the Company will be
                              successful  in its plans to obtain  the  financing
                              necessary to satisfy their current obligations.


2.   SUMMARY OF               ORGANIZATION
     SIGNIFICANT ACCOUNTING
     POLICIES                 Tengasco,  Inc. (the  "Company"),  a publicly held
                              corporation,  was organized  under the laws of the
                              State of Utah on April 18,  1916,  as Gold Deposit
                              Mining   and   Milling   Company.    The   Company
                              subsequently changed its name to Onasco Companies,
                              Inc.

                              Effective  May  2,  1995,   Industrial   Resources
                              Corporation,   a  Kentucky   corporation  ("IRC"),
                              acquired voting control of the Company in exchange
                              for  approximately  60%  of  the  assets  of  IRC.
                              Accordingly,  the assets acquired,  which included
                              certain oil and gas leases, equipment,  marketable
                              securities  and  vehicles,  were recorded at IRC's
                              historical  cost. The transaction was accomplished
                              through the Company's issuance of 4,000,000 shares
                              of its common stock and a $450,000,  8% promissory
                              note  payable  to IRC.  The  promissory  note  was
                              converted  into 83,799  shares of  Tengasco,  Inc.
                              common stock in December 1995.

                              The Company changed its domicile from the State of
                              Utah to the State of  Tennessee on May 5, 1995 and


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)

                              its name was changed from "Onasco Companies, Inc."
                              to "Tengasco, Inc."

                              The Company's  principal  business consists of oil
                              and  gas   exploration,   production  and  related
                              property  management in the Appalachian  region of
                              eastern Tennessee and in the state of Kansas.  The
                              Company's  corporate  offices  are  in  Knoxville,
                              Tennessee.  The Company operates as one reportable
                              business  segment,  based  on  the  similarity  of
                              activities.

                              During 1996, the Company formed Tengasco  Pipeline
                              Corporation ("TPC"), a wholly-owned subsidiary, to
                              manage the construction and operation of a 65-mile
                              gas  pipeline as well as other  pipelines  planned
                              for   the   future.   During   2001,   TPC   began
                              transmission  of natural gas through its  pipeline
                              to customers of Tengasco.

                              BASIS OF PRESENTATION

                              The consolidated  financial statements include the
                              accounts  of  the   Company,   Tengasco   Pipeline
                              Corporation  and Tennessee Land and Mineral,  Inc.
                              All   significant    intercompany   balances   and
                              transactions have been eliminated.

                              USE OF ESTIMATES

                              The accompanying financial statements are prepared
                              in conformity with accounting principles generally
                              accepted  in the United  States of  America  which
                              require   management   to   make   estimates   and
                              assumptions  that affect the  reported  amounts of
                              assets   and   liabilities   and   disclosure   of
                              contingent  assets and  liabilities at the date of
                              the financial  statements and the reported amounts
                              of  revenues  and  expenses  during the  reporting
                              period. The actual results could differ from those
                              estimates.

                              REVENUE RECOGNITION

                              The  Company  recognizes  revenues  at the time of
                              exchange of goods and services.

                              CASH AND CASH EQUIVALENTS

                              The  Company  considers  all  investments  with  a
                              maturity of three months or less when purchased to
                              be cash equivalents.

                              INVESTMENT SECURITIES

                              Investment   securities  available  for  sale  are
                              reported at fair value,  with unrealized gains and
                              losses,  when  material,  reported  as a  separate
                              component  of  stockholders'  equity,  net  of the
                              related tax effect.  Other comprehensive losses of


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              $115,500  were  recorded  during  the  year  ended
                              December 31, 2002 resulting from a decrease in the
                              fair value of the securities.

                              INVENTORY

                              Inventory consists primarily of crude oil in tanks
                              and is carried at market value.

                              OIL AND GAS PROPERTIES

                              The  Company  follows  the  full  cost  method  of
                              accounting  for oil and gas property  acquisition,
                              exploration and development activities. Under this
                              method,  all  productive and  nonproductive  costs
                              incurred in connection  with the  acquisition  of,
                              exploration  for  and  development  of oil and gas
                              reserves  for each cost  center  are  capitalized.
                              Capitalized  costs  include  lease   acquisitions,
                              geological and geophysical work, delay rentals and
                              the costs of drilling,  completing  and  equipping
                              oil and gas wells.  Gains or losses are recognized
                              only upon  sales or  dispositions  of  significant
                              amounts of oil and gas  reserves  representing  an
                              entire cost center.  Proceeds from all other sales
                              or  dispositions  are  treated  as  reductions  to
                              capitalized costs.

                              The  capitalized  costs of oil and gas properties,
                              plus estimated future  development  costs relating
                              to proved reserves and estimated costs of plugging
                              and abandonment,  net of estimated  salvage value,
                              are  amortized  on the  unit-of-production  method
                              based  on  total  proved  reserves.  The  costs of
                              unproved properties are excluded from amortization
                              until the properties are evaluated,  subject to an
                              annual   assessment  of  whether   impairment  has
                              occurred.  These  reserves were estimated by Ryder
                              Scott Company, Petroleum Consultants in 2000, 2001
                              and 2002.

                              The  capitalized   oil  and  gas  property,   less
                              accumulated     depreciation,     depletion    and
                              amortization and related deferred income taxes, if
                              any,  are  generally  limited  to an  amount  (the
                              ceiling  limitation)  equal to the sum of: (a) the
                              present  value of  estimated  future net  revenues
                              computed by applying  current  prices in effect as
                              of the balance sheet date (with  consideration  of
                              price  changes  only  to the  extent  provided  by
                              contractual   arrangements)  to  estimated  future
                              production  of proved oil and gas  reserves,  less
                              estimated  future  expenditures  (based on current
                              costs) to be incurred in developing  and producing
                              the  reserves  using a discount  factor of 10% and
                              assuming   continuation   of   existing   economic
                              conditions;  and (b) the  cost of  investments  in
                              unevaluated  properties  excluded  from the  costs
                              being amortized. No ceiling writedown was recorded
                              in 2002, 2001 or 2000.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              PIPELINE FACILITIES

                              Phase I of the pipeline was completed during 1999.
                              Phase II of the pipeline was completed on March 8,
                              2001. Both phases of the pipeline were placed into
                              service upon  completion of Phase II. The pipeline
                              is being  depreciated  over its  estimated  useful
                              life of 30  years,  beginning  at the  time it was
                              placed in service.

                              OTHER PROPERTY AND EQUIPMENT

                              Other  property and equipment are carried at cost.
                              The Company  provides  for  depreciation  of other
                              property  and  equipment  using the  straight-line
                              method  over  the  estimated  useful  lives of the
                              assets which range from five to ten years.

                              IMPAIRMENT  OF  LONG-LIVED  ASSETS AND  LONG-LIVED
                              ASSETS TO BE DISPOSED OF

                              Management  believes that carrying  amounts of all
                              of the Company's  long-lived  assets will be fully
                              recovered over the course of the Company's  normal
                              future operations.  Accordingly,  the accompanying
                              financial   statements   reflect   no  charges  or
                              allowances for impairment.

                              STOCK-BASED COMPENSATION

                              Statement of Financial  Accounting  Standards  No.
                              123,  ("SFAS 123"),  "Accounting  for  Stock-Based
                              Compensation"  was implemented in January 1996. As
                              permitted by SFAS 123,  the Company has  continued
                              to account for stock  compensation to employees by
                              applying the  provisions of Accounting  Principles
                              Board Opinion No. 25. If the accounting provisions
                              of SFAS  123 had been  adopted,  net loss and loss
                              per share would have been as follows:




            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)



                                                                          Nine Months Ended   Nine Months Ended
                            2002            2001              2000        September 30, 2003  September 30, 2002
---------------------------------------------------------------------------------------------------------------
                                                                             (unaudited)         (unaudited)
                                                                                
 Net loss attributable
     to common
     shareholders
     as reported             $(3,661,344)   $(2,653,970)    $(1,799,441)        $(2,248,772)   $(2,820,539)
 Stock based
     compensation                (77,821)      (257,328)      2,253,011             (47,209)      (202,846)
 Pro forma                   $(3,739,165)    (2,911,298)     (4,052,452)        $(2,295,981)   $(3,023,335)
---------------------------------------------------------------------------------------------------------------
 Basic and diluted loss
     per share
 As reported                 $     (0.33)       $ (0.26)    $     (0.19)           $(0.19)          $(0.26)
 Pro forma                         (0.34)         (0.28)          (0.44)           $(0.19)          $(0.28)
---------------------------------------------------------------------------------------------------------------


                              ACCOUNTS RECEIVABLE

                              Senior management reviews accounts receivable on a
                              monthly basis to determine if any receivables will
                              potentially  be  uncollectible.   We  include  any
                              accounts  receivable  balances that are determined
                              to be uncollectible, along with a general reserve,
                              in our overall  allowance  for doubtful  accounts.
                              After all  attempts to collect a  receivable  have
                              failed,  the receivable is written off against the
                              allowance.  Based on the information  available to
                              us, we believe no allowance for doubtful  accounts
                              as of  December  31, 2002 is  necessary.  However,
                              actual write-offs may occur.

                              INCOME TAXES

                              The Company  accounts  for income  taxes using the
                              "asset   and   liability   method."   Accordingly,
                              deferred tax liabilities and assets are determined
                              based on the  temporary  differences  between  the
                              financial  reporting  and tax bases of assets  and
                              liabilities, using enacted tax rates in effect for
                              the year in which the  differences are expected to
                              reverse.  Deferred tax assets arise primarily from
                              net  operating  loss   carryforwards.   Management
                              evaluates the  likelihood of  realization  of such
                              assets at year end  reserving any such amounts not
                              likely to be recovered in future periods.

                              CONCENTRATION OF CREDIT RISK

                              Financial  instruments,  which potentially subject
                              the  Company  to  concentrations  of credit  risk,
                              consist   principally   of   cash   and   accounts
                              receivable.  At  times,  such  cash in banks is in
                              excess of the FDIC insurance limit.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              The Company's primary business  activities include
                              oil and gas  sales  to  several  customers  in the
                              states of Tennessee and Kansas.  The related trade
                              receivables subject the Company to a concentration
                              of credit risk within the oil and gas industry.

                              The Company has entered  into  contracts to supply
                              two  manufacturers  with natural gas from the Swan
                              Creek field through the Company's pipeline.  These
                              customers are the Company's  primary  customers of
                              natural gas sales. Additionally, the Company sells
                              a  majority  of its  crude  oil  primarily  to two
                              customers,  one  each  in  Tennessee  and  Kansas.
                              Although  management believes that customers could
                              be replaced in the ordinary course of business, if
                              the present customers were to discontinue business
                              with  the  Company,  it could  have a  significant
                              adverse effect on the Company's  projected results
                              of operations.

                              LOSS PER COMMON SHARE

                              Basic loss per share is computed by dividing  loss
                              available to common  shareholders  by the weighted
                              average number of shares  outstanding  during each
                              year.  Shares  issued during the year are weighted
                              for  the  portion  of  the  year  that  they  were
                              outstanding.  Diluted  loss  per  share  does  not
                              differ  from basic loss per share since the effect
                              of all common stock  equivalents is anti-dilutive.
                              Basic and  diluted  loss per share are based  upon
                              11,062,436  shares for the year ended December 31,
                              2002,   10,235,253   shares  for  the  year  ended
                              December 31, 2001,  and  9,253,622  shares for the
                              year ended December 31, 2000.

                              Basic and  diluted  loss per share are based  upon
                              11,919,477 and 10,933,588  weighted average shares
                              outstanding  for the nine months  ended  September
                              30, 2003 and 2002, respectively.  Diluted loss per
                              share does not consider  approximately  1,473,000,
                              1,473,000,   943,000   and   1,001,000   potential
                              weighted average common shares for the nine months
                              ended  September  30,  2003  and the  years  ended
                              December  31, 2002,  2001 and 2000,  respectively,
                              related  primarily  to common  stock  options  and
                              convertible preferred stock and debt. These shares
                              were  not  included  in  the  computation  of  the
                              diluted loss per share amount  because the Company
                              was  in  a  net  loss  position  and,   thus,  any
                              potential  common shares were  anti-dilutive.  All
                              share and per share  amounts have been adjusted to
                              reflect the 5% stock dividend.

                              FAIR VALUES OF FINANCIAL INSTRUMENTS

                              Fair   values   of  cash  and  cash   equivalents,
                              investments and short-term debt approximate  their
                              carrying values due to the short period of time to
                              maturity.  Fair values of long-term debt are based


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              on quoted  market  prices or pricing  models using
                              current market rates,  which approximate  carrying
                              values.

                              RECENT ACCOUNTING PRONOUNCEMENTS

                              A  reporting   issue  has  arisen   regarding  the
                              application of certain  provisions of SAFS No. 141
                              and SFAS No. 142 to  companies  in the  extracting
                              industries  including oil and gas  companies.  The
                              issue   is   whether   SFAS  No.   142   regulates
                              registrants  to  classify  the  costs  of  mineral
                              rights  held  under  lease  or  other  contractual
                              arrangement associated with extracting oil and gas
                              as intangible  assets in the balance sheet,  apart
                              from other  capitalized oil and gas property owned
                              and   provide   specific   footnote   disclosures.
                              Historically,  the Company had  included the costs
                              of such mineral rights  associated with extracting
                              oil  and  gas  as  a  component  of  oil  and  gas
                              properties.  If it is ultimately  determined  that
                              SFAS No. 142  requires  oil and gas  companies  to
                              classify  cost of mineral  rights held under lease
                              or other contractual  arrangement  associated with
                              extracting  oil and gas as a  separate  intangible
                              asset line item on the balance sheet,  the Company
                              would  be  required  to  reclassify  approximately
                              $453,000 at  September  30,  2003 and  $346,000 at
                              December  31, 2002,  respectively,  out of oil and
                              gas  properties  and  into a  separate  intangible
                              asset  line  item.  The  Company's  cash flows and
                              results of operations  would not be affected since
                              such  intangible   assets  would  continue  to  be
                              depleted   and   amortized   for   impairment   in
                              accordance  with  full  cost   accounting   rules.
                              Further,   the   Company   does  not  believe  the
                              classification  of  the  cost  of  mineral  rights
                              associated   with   extracting   oil  and  gas  as
                              intangible   assets   would  have  any  impact  on
                              compliance   with   covenants   under   its   debt
                              agreements.

                              In June 2001, the Financial  Accounting  Standards
                              Board  ("FASB")  issued   Statement  of  Financial
                              Accounting Standards ("SFAS") No. 143, "Accounting
                              for Asset  Retirement  Obligations  "SFAS No.  143
                              addresses  financial  accounting and reporting for
                              obligations  associated  with  the  retirement  of
                              tangible  long-lived  assets  and  the  associated
                              asset  retirement  cost.  This statement  requires
                              companies   to  record   the   present   value  of
                              obligations  associated  with  the  retirement  of
                              tangible long-lived assets in the periods in which
                              it is incurred.  The liability is  capitalized  as
                              part of the  related  long-lived  assets  carrying
                              amount.  Over time,  accretion of the liability is
                              recognized   as  an  operating   expense  and  the
                              capitalized  cost is depreciated over the expected
                              useful life of the related  asset.  The  Company's
                              asset retirement  obligations  relate primarily to
                              the   plugging,   dismantlement,    removal   site
                              reclamation and similar  activities of its oil and
                              gas   properties.   Prior  to   adoption  of  this
                              statement,  such  obligations were accrued ratably
                              over the  productive  lives of the assets  through
                              its  depreciation,  depletion and amortization for
                              oil  and  gas  properties   without   recording  a
                              separate liability for such amounts. The impact of


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              applying this  statement as of January 1, 2003 and
                              September 30, 2003 is discussed in footnote 10.

                              In April 2002, the Financial  Accounting Standards
                              Board issued SFAS No. 145, "Rescission of SFAS No.
                              4, 44, 64, Amendment of SFAS No. 13, and Technical
                              Corrections"  ("SFAS  145").  SFAS  4,  which  was
                              amended by SFAS 64,  required all gains and losses
                              from the  extinguishment  of debt to be aggregated
                              and, if material,  classified as an  extraordinary
                              item,  net of  related  income  tax  effect.  As a
                              result of SFAS 145,  the  criteria  in  Accounting
                              Principles  Board  opinion  30 will now be used to
                              classify  those  gains  and  losses.  SFAS  13 was
                              amended to eliminate an inconsistency  between the
                              required     accounting     for     sale-leaseback
                              transactions  and  the  required   accounting  for
                              certain  lease  modifications  that have  economic
                              effects   that  are   similar  to   sale-leaseback
                              transactions.  The  adoption  of SFAS 145 will not
                              have   a   current   impact   on   the   Company's
                              consolidated financial statements.

                              In July 2002, FASB issued SFAS No. 146, Accounting
                              for  Cost   Associated   with  Exit  or   Disposal
                              Activities.  The  standard  requires  companies to
                              recognize  cost  associated  with exit or disposal
                              activities  when they are incurred  rather than at
                              the  date of  commitment  to an  exit or  disposal
                              plan.  Examples  of cost  covered by the  standard
                              include  lease   termination   costs  and  certain
                              employee  severance costs that are associated with
                              restructuring,   discontinued   operation,   plant
                              closing,  or  other  exit  or  disposal  activity.
                              Previous  accounting guidance was provided by EITF
                              Issue No. 94-3, "Liability Recognition for Certain
                              Employee  Termination  Benefits and Other Costs to
                              Exit an Activity (including Certain Costs Incurred
                              in a Restructuring)." Statement 146 replaces Issue
                              94-3. Statement 146 is to be applied prospectively
                              to exit or  disposal  activities  initiated  after
                              December 31, 2002.  The Company does not currently
                              have any  plans for exit or  disposal  activities,
                              and  therefore  does not expect  this  standard to
                              have  a   material   effect   on   the   Company's
                              consolidated financial statements upon adoption.

                              In   November   2002,   the   FASB   issued   FASB
                              Interpretation   ("FIN")   No.  45.   "Guarantor's
                              Accounting   and   Disclosure   Requirements   for
                              Guarantees,   Including  Indirect   Guarantees  of
                              Indebtedness    of   Others",    which   clarifies
                              disclosure       and       recognition/measurement
                              requirements  related to certain  guarantees.  The
                              disclosure    requirements   are   effective   for
                              financial  statements  issued  after  December 15,
                              2002 and here  cognition/measurement  requirements
                              are   effective   on  a   prospective   basis  for
                              guarantees  issued or modified  after December 31,
                              2002. The  application of the  requirements of FIN
                              45  did  not  have  an  impact  on  the  Company's
                              financial position or results of operations.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              In  December  2002,  the FASB issued SFAS No. 148,
                              Accounting   for   Stock-Based   compensation   --
                              Transition  and Disclosure -- an amendment of FASB
                              Statement   No.  123   ("Statement   148").   This
                              amendment   provides  two  additional  methods  of
                              transition  for a  voluntary  change  to the  fair
                              value based method of accounting  for  stock-based
                              employee    compensation.    Additionally,    more
                              prominent  disclosures  in both annual and interim
                              financial  statements are required for stock-based
                              employee compensation. The transition guidance and
                              annual disclosure  provisions of Statement 148 are
                              effective  for fiscal years ending after  December
                              15, 2002.  The interim  disclosure  provisions are
                              effective   for   financial   reports   containing
                              financial statements for interim periods beginning
                              after December 15, 2002. The adoption of Statement
                              148  did  not  have  a  material   impact  on  the
                              Company's consolidated financial statements.

                              In   January   2003,    the   FASB   issued   FASB
                              Interpretation  No.  (FIN) 46,  "Consolidation  of
                              Variable Interest  Entities." This  interpretation
                              of   Accounting    Research    Bulletin   No.   51
                              "Consolidated Financial Statements"  consolidation
                              by  business   enterprises  of  variable  interest
                              entities,  which possess certain  characteristics.
                              The  Interpretation  requires  that if a  business
                              enterprise has a controlling financial interest in
                              a   variable   interest   entity,    the   assets,
                              liabilities,  and results of the activities of the
                              variable  interest  entity must be included in the
                              consolidated  financial  statements  with those of
                              the  business   enterprise.   This  Interpretation
                              applies  immediately to variable interest entities
                              created  after  January  31,  2003 and to variable
                              interest  entities in which an enterprise  obtains
                              an interest  after that date. The Company does not
                              have  any  ownership  in  any  variable   interest
                              entities.

                              In May 2003,  the FASB issued  Statement  No. 150,
                              "Accounting for Certain Financial Instruments with
                              Characteristics  of both  Liabilities and Equity".
                              SFAS No. 150 requires three types of  freestanding
                              financial   instruments   to  be   classified   as
                              liabilities  in statements of financial  position.
                              One type is mandatory redeemable shares, which the
                              issuing  company  is  obligated  to  buy  back  in
                              exchange for cash or other assets.  A second type,
                              which  includes  put options and forward  purchase
                              contracts,  involves  instruments  that  do or may
                              require  the issuer to buy back some of its shares
                              in exchange  for cash or other  assets.  The third
                              type of  instrument  is  obligations  that  can be
                              settled with shares,  the monetary  value of which
                              is  fixed,  tied  solely  or  predominately  to  a
                              variable  such  as  a  market  index,   or  varies
                              inversely  with the value of the issuer's  shares.
                              The  majority  of the  guidance in SFAS No. 150 is
                              effective  for all financial  instruments  entered
                              into or modified after May 31, 2003, and otherwise
                              is effective at the beginning of the first interim
                              period   beginning   after  June  15,   2003.   In
                              accordance  with SFAS No. 150, the Company adopted
                              this  standard  on July 1, 2003.  Adoption of SFAS



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              No.  150 did not  have a  material  impact  on the
                              Company's   consolidated  financial  position  and
                              results of operations.

                              RECLASSIFICATIONS

                              Certain prior year amounts have been  reclassified
                              to conform with current year presentation.

3.  RELATED  PARTY            During 2002 the Company  received  debt  financing
    TRANSACTIONS              from  a  director   totaling   $750,000   to  fund
                              operating cash flow needs and to finance continued
                              development  of the  Swan  Creek  field.  Interest
                              incurred  on this debt was  approximately  $15,000
                              for the year ended December 31, 2002. See Note 7.

                              During 2002, the Company borrowed  $110,000 from a
                              former  director.  The  advance  was  non-interest
                              bearing and was repaid in July 2002.

                              During 2001,  the Company repaid all principal and
                              interest  due  to  related   parties,   using  the
                              proceeds  from the line of  credit  with Bank One.
                              Interest   incurred   to   related   parties   was
                              approximately  $15,000,  $546,000 and $135,000 for
                              the years ended December 31, 2002,  2001 and 2000,
                              respectively.

                              During  2001,   the  Company   converted  debt  of
                              $200,000  payable to a director into 42,017 shares
                              of common stock.

                              During  2000,   the  Company  paid   approximately
                              $270,000 in  consulting  fees and  commissions  on
                              equity  transactions  to a member  of the Board of
                              Directors.

                              On February 3, 2003 and February 28, 2003, Dolphin
                              Offshore Partners,  LP which owns more than 10% of
                              the Company's  outstanding  common stock and whose
                              general partner,  Peter E. Salas, is a Director of
                              the  Company,   loaned  the  Company  the  sum  of
                              $250,000   on  each   such   date   (cumulatively,
                              $500,000)  which  the  Company  used  to  pay  the
                              principal   and  interest  due  to  Bank  One  for
                              February  and March 2003 and for  working  capital
                              needs.  On May  20,  2003  an  additional  loan of
                              $834,000  was loaned by a  combination  of Dolphin
                              ($750,000) and Jeffrey R. Bailey who is a Director
                              and President  ($84,000) of the Company. On August
                              6, 2003 an additional  loan of $150,000 was loaned
                              by Dolphin.  Each of these loans is evidenced by a
                              separate  promissory note each bearing interest at
                              the  rate  of 12%  per  annum,  with  payments  of
                              interest only payable  quarterly and the principal
                              balance  payable on  January 4, 2004.  Each of the
                              February  and  March  2003  promissory   notes  is
                              secured  by  an  undivided  10%  interest  in  the
                              Company's  pipelines.   The  May  20,  2003  loans
                              provides  Dolphin  with a 30%  interest and Bailey
                              with a 3.36% interest in the Company's  pipelines.
                              The  August  note  provides   Dolphin  with  a  6%



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)

                              interest in the Company's pipelines.

4.  OIL AND GAS               The   following   table  sets  forth   information
    PROPERTIES                concerning the Company's oil and gas properties:

                  DECEMBER 31,                           2002          2001
                 --------------------------------------------------------------
                  Oil and gas properties, at cost     $17,099,753   $15,117,224
                  Accumulation depreciation,
                      depletion and amortization       (3,235,432)   (1,847,294)
                  --------------------------------------------------------------
                  Oil and gas properties, net         $13,864,321   $13,269,930
                  --------------------------------------------------------------

                              During the years ended December 31, 2002, 2001 and
                              2000, the Company  recorded  depletion  expense of
                              approximately $1,388,000, $1,342,000 and $197,000,
                              respectively.

5.  PIPELINE FACILITIES       In  1996,  the  Company  began  construction  of a
                              65-mile gas pipeline (1) connecting the Swan Creek
                              development  project  to a gas  purchaser  and (2)
                              enabling  the Company to develop gas  distribution
                              business  opportunities in the future.  Phase I, a
                              30-mile portion of the pipeline,  was completed in
                              1998.  Phase II of the pipeline,  the remaining 35
                              miles,  was completed in March 2001. The estimated
                              useful  life  of  the  pipeline  for  depreciation
                              purposes  is  30  years.   The  Company   recorded
                              approximately $220,000 and $509,000,  respectively
                              in  depreciation  expense  related to the pipeline
                              for the years ended December 31, 2002 and 2001. No
                              depreciation  expense was  recorded in 2000 as the
                              pipeline was not yet complete.

                              In  January  1997,  the  Company  entered  into an
                              agreement  with  the  Tennessee  Valley  Authority
                              ("TVA") whereby the TVA allows the Company to bury
                              the pipeline  within the TVA's  transmission  line
                              rights-of-way.  In  return  for  this  right,  the
                              Company paid $35,000 and agreed to annual payments
                              of  approximately   $6,200  for  20  years.   This
                              agreement  expires  in  2017  at  which  time  the
                              parties  may renew the  agreement  for  another 20
                              year   term   in    consideration    of    similar
                              inflation-adjusted payment terms.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


6.  OTHER PROPERTY            Other  property  and  equipment  consisted  of the
    AND EQUIPMENT             following:

                DECEMBER 31,                               2002         2001
                ----------------------------------------------------------------
                Machinery and equipment                $1,887,190   $1,737,189
                Vehicles                                  675,411      610,510
                Other                                      63,734       63,739
                ----------------------------------------------------------------
                                                        2,626,335    2,411,438

                Less accumulated depreciation            (940,385)    (731,334)
                ----------------------------------------------------------------
                Other property and equipment - net     $1,685,950   $1,680,104
                ----------------------------------------------------------------


7.  LONG TERM DEBT            Long-term debt to unrelated  entities consisted of
                              the following:

                                                                      September
                DECEMBER 31,                     2002        2001     30, 2003
                ----------------------------------------------------------------
                                                                     (unaudited)
                Revolving  line of  credit
                with a bank,  due November
                2004.  The loan  agreement
                provides for  increases or
                decreases to the borrowing
                base as  changes in proved
                oil  and gas  reserves  or
                other  production   levels
                arise.   Borrowings   bear
                interest   at  the  bank's
                prime   rate  plus   0.25%
                (4.5%  at   December   31,
                2002).  Collateralized  by
                the oil and gas properties
                and the related operations
                and revenues.                $7,501,777  $9,101,777  $5,701,777

                Unsecured  note payable to
                an    institution,    with
                $65,000 principal payments
                due  quarterly   beginning
                January 1, 2000; remaining
                balance due October  2004;
                with   interest    payable
                monthly  at 8% per  annum.
                Note is  convertible  into
                common    stock   of   the
                Company at a rate of $6.25
                per share of common stock.      480,000     720,000     300,000

                Convertible  notes payable
                to five  individuals;  due
                January     2004,     with
                interest payable quarterly
                at 8% per annum. Notes are
                convertible   into  common
                stock of the  Company at a
                rate of $3.00 per share of
                common stock.                   650,000           -     650,000

                Unsecured  note payable to
                an institution  due May 1,
                2004,     with    interest
                payable  annually at 4.75%
                per annum.                            -           -     297,171



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                Note    payable    to    a
                financial     institution,
                with   $1,773    principal
                payments    due    monthly
                beginning  January 7, 2002
                through  December 7, 2006.
                Interest     is    payable
                monthly    commencing   on
                January  7,  2002  at 7.5%
                per    annum.    Note   is
                guaranteed   by  a   major
                shareholder     and     is
                collateralized  by certain
                assets of the Company.           73,335      87,500      61,202

                Installment  notes bearing
                interest  at the  rate  of
                3.9% to  11.95%  per annum
                collateralized by vehicles
                and equipment with monthly
                payments         including
                interest of  approximately
                $10,000     due    various
                periods through 2006.           412,342     393,311     304,904
                ----------------------------------------------------------------

                Total long term debt          9,117,454  10,302,588   7,315,054

                Less current maturities      (7,861,245) (6,399,831) (6,724,999)
                ----------------------------------------------------------------

                Long   term   debt,   less
                current maturities          $ 1,256,209  $3,902,757     590,055
                ----------------------------------------------------------------

                              The  Company  is  subject  to  certain   financial
                              (ratio)     covenants    and    restrictions    on
                              indebtedness,    dividend   payments,    financial
                              guarantees,   business   combinations,   reporting
                              requirements   and  other  related  items  on  the
                              revolving  line  of  credit  with  a  bank.  As of
                              December   31,   2002,   the  Company  is  not  in
                              compliance  with all covenants.  During 2002, as a
                              result of ongoing  negotiations  to  refinance  or
                              repay  the debt,  the bank  declared  all  amounts
                              immediately  due  and  payable.   The  Company  is
                              presently  paying  $200,000 per month. As a result
                              of ongoing  negotiations with Bank One, management
                              has  reclassified  the loan fees  associated  with
                              this note to a current  asset as it is likely that
                              these fees will be fully amortized in 2003.

                              Long-term debt to related parties consisted of the
                              following:

                                                                      September
                DECEMBER 31,                     2002        2001     30, 2003
                ----------------------------------------------------------------
                                                                     (unaudited)
                Unsecured  note payable to
                a  director   due  January
                2004,     with    interest
                payable  quarterly  at  8%
                per    annum.    Note   is
                convertible   into  common
                stock of the  Company at a
                rate of $2.88 per share of
                common stock.                 $500,000   $        -  $  500,000



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                Notes    payable    to   a
                director due January 2004,
                with   interest    payable
                quarterly   at   12%   per
                annum.  Note is secured by
                10% of the pipeline.           250,000           -    1,734,000
                ----------------------------------------------------------------
                Total  long  term  debt to
                related Parties                750,000           -    2,234,000

                Less current maturities              -           -   (2,234,000)
                ----------------------------------------------------------------
                Long term debt to  related
                parties,    less   current
                maturities                    $750,000   $       -   $       -
                ----------------------------------------------------------------

                              The aggregate  maturities of long term debt due to
                              related  parties  and  others as of  December  31,
                              2002, are as follow:

                                 Year                           Amount
                              -------------------------------------------------

                                 2003                        $7,861,245
                                 2004                         1,720,463
                                 2005                           101,468
                                 2006                           101,803
                                 Thereafter                      82,470
                              -------------------------------------------------
                                                             $9,867,454
                              -------------------------------------------------


8.  COMMITMENTS AND           The Company is a party to lawsuits in the ordinary
    CONTINGENCIES             course of its business.  While the damages  sought
                              in some of these actions are material, the Company
                              does  not  believe  that it is  probable  that the
                              outcome  of  any  individual  action  will  have a
                              material adverse effect, or that it is likely that
                              adverse  outcomes  of  individually  insignificant
                              actions will be significant  enough,  in number or
                              magnitude,  to have a material  adverse  effect in
                              the aggregate on its financial statements.

                              In the ordinary course of business the Company has
                              entered into various  equipment  and office leases
                              which have  remaining  terms  ranging  from one to
                              four  years.   Approximate  future  minimum  lease
                              payments to be made under noncancellable operating
                              leases are as follows:

                                  Year                          Amount
                              -------------------------------------------------
                                  2003                        $  60,158
                                  2004                           59,210
                                  2005                           56,970
                                  2006                              500
                              -------------------------------------------------
                                                               $176,838
                              -------------------------------------------------


                              Office  rent  expense was  approximately  $84,000,



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              $91,000  and  $86,000  for each of the three years
                              ended   December   31,   2002,   2001  and   2000,
                              respectively.

9.  CUMULATIVE CONVERTIBLE    Shares of both Series A and B Preferred  Stock are
    REDEEMABLE PREFERRED      or will be immediately  convertible into shares of
    STOCK                     Common  Stock.  Each $100  liquidation  preference
                              share of preferred  stock is convertible at a rate
                              of  $7.00  for the  Series A per  share of  common
                              stock.  For the Series B, the  conversion  rate is
                              the average  market price of the Company's  common
                              stock for 30 days  before the sale of the Series B
                              preferred stock with a minimum conversion price of
                              $9.00 per share. The conversion rate is subject to
                              downward  adjustment  if the Company  subsequently
                              issues  shares of common  stock for  consideration
                              less than  $7.00  and  $9.00 for the  Series A and
                              Preferred  Stock,  respectively,  per  share.  The
                              conversion  prices will be adjusted  prospectively
                              for stock dividends and splits.

                              The  holders  of both the  Series  A and  Series B
                              Preferred  Stock  are  entitled  to  a  cumulative
                              dividend of 8% per quarter.  However,  the payment
                              of the  dividends on the Series B Preferred  Stock
                              is  subordinate  to that of the Series A Preferred
                              Stock. In the event that the Company does not make
                              any  two of  six  consecutive  quarterly  dividend
                              payments,  the  holders of the Series A  Preferred
                              Stock may  appoint  those  directors  which  would
                              constitute  of majority of the Board of Directors.
                              In such a scenario,  the holders of the  Preferred
                              Shares  would be  entitled  to elect a majority of
                              the  Board of  Directors  until  all  accrued  and
                              unpaid dividends have been paid.

                              The  Company   failed  to  pay  the  3rd  and  4th
                              quarterly   dividend  payments  of  the  Series  A
                              preferred  stock  during  2002.  As a  result,  in
                              February 2003, the Series A shareholders exercised
                              their  rights  to place  four new  members  on the
                              Board of  Directors.  As of  September  30,  2003,
                              cumulative  accrued  and unpaid  dividends  on the
                              Series  A  and  B  Preferred   Stock  amounted  to
                              $405,334.

                              The  Company may redeem both of the Series A and B
                              Preferred  Stock  upon  payment  of $100 per share
                              plus any  accrued and unpaid  dividends.  Further,
                              with  respect  to the  Series A  Preferred  Stock,
                              commencing   on   October  1,  2003  and  at  each
                              quarterly  date  thereafter  while  the  Series  A
                              Preferred  Stock is  outstanding,  the  Company is
                              required  to redeem  one-twentieth  of the maximum
                              number of Series A  Preferred  Stock  outstanding.
                              With respect to the Series B Preferred  Stock,  on
                              the fifth anniversary after issuance (March 2005),
                              the Company is required to redeem all  outstanding
                              Series B Preferred Stock.

                              During 2002, the Board of Directors authorized the
                              sale of up to 50,000  shares of Series C Preferred
                              Stock at $100 per share. The Company issued 14,491
                              shares,    resulting   in   net   proceeds   after
                              commissions of $1,303,168.  The Series C Preferred



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              Stock  accrues  a 6%  cumulative  dividend  on the
                              outstanding  balance,  payable  quarterly.  As  of
                              September 30, 2003,  cumulative accrued and unpaid
                              dividends on the Series C Preferred Stock amounted
                              to $65,209. These dividends are subordinate to the
                              dividends  payable  to the  Series A and  Series B
                              Preferred Stock holders. This stock is convertible
                              into the  Company's  common  stock at the  average
                              stock  trading  price 30 days prior to the closing
                              of the sales of all the Series C  Preferred  Stock
                              being  offered  or $5.00 per share,  whichever  is
                              greater.  The  Company is  required  to redeem any
                              remaining Series C Preferred Stock and any accrued
                              and unpaid dividends in July 2006.

10.  STOCK DIVIDEND           On August 1,  2001,  the  Company  paid a 5% stock
                              dividend  distributable  on  October  1,  2001  to
                              shareholders  of  record of the  Company's  common
                              stock on September 4, 2001. Based on the number of
                              common shares  outstanding on the record date, the
                              Company issued 498,016 new shares.  All references
                              in the  accompanying  financial  statements to the
                              number of common  shares and per share amounts are
                              based on the  increased  number of  shares  giving
                              retroactive effect to the stock dividend.

11.  STOCK OPTIONS            In  October  2000,  the  Company  approved a Stock
                              Incentive  Plan.  The  Plan  is  effective  for  a
                              ten-year period commencing on October 25, 2000 and
                              ending on October 24, 2010.  The aggregate  number
                              of shares of Common Stock as to which  options and
                              Stock  Appreciation   Rights  may  be  granted  to
                              Employees   under  the  plan   shall  not   exceed
                              1,000,000.  Options  are not  transferable,  fully
                              vest  after  two  years  of  employment  with  the
                              Company,  are  exercisable  for three months after
                              voluntary   resignation  from  the  Company,   and
                              terminate immediately upon involuntary termination
                              from the  Company.  The  purchase  price of shares
                              subject to this  Nonqualified  Stock  Option  Plan
                              shall be  determined  at the time the  options are
                              granted, but are not permitted to be less than 85%
                              of the Fair  Market  Value of such  shares  on the
                              date of grant.  Furthermore,  an  employee  in the
                              plan may not, immediately prior to the grant of an
                              Incentive Stock Option hereunder, own stock in the
                              Company  representing more than ten percent of the
                              total  voting power of all classes of stock of the
                              Company   unless  the  per  share   option   price
                              specified  by the  Board for the  Incentive  Stock
                              Options granted such and Employee is at least 110%
                              of the Fair Market Value of the Company's stock on
                              the date of grant and such  option,  by its terms,
                              is not  exercisable  after the  expiration of five
                              years from the date such stock option is granted.




            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              Stock  option  activity in 2002,  2001 and 2000 is
                              summarized below:



                               2002                            2001                         2000
                     --------------------------     --------------------------    -------------------------
                                    WEIGHTED                      WEIGHTED                      WEIGHTED
                                    AVERAGE                       AVERAGE                       AVERAGE
                                    EXERCISE                      EXERCISE                      EXERCISE
                        SHARES       PRICE             SHARES      PRICE            SHARES       PRICE
-----------------------------------------------------------------------------------------------------------

                                                                                
Outstanding,
  beginning
  of year                516,028      $9.23           1,017,450    $  8.54           530,250      $6.91
 Granted                 160,742       2.86              78,750      12.39           855,451       8.69
 Exercised                     -       -               (256,772)      8.69           (21,751)      8.69
 Expired/canceled              -       -               (323,400)      7.85          (346,500)      6.91
                     -------------                  -------------                -------------
Outstanding,
  end of year            676,770       7.71             516,028       9.23         1,017,450       8.54
-----------------------------------------------------------------------------------------------------------
Exercisable,
  end of year            676,770      $7.71             474,889    $  9.21           930,258      $8.49
-----------------------------------------------------------------------------------------------------------


                              The  share  information  disclosed  above has been
                              adjusted to reflect the 5% stock dividend declared
                              during 2001. See note 10 above.

                              The following table summarizes  information  about
                              stock options outstanding at December 31, 2002:

               ------------------------------------------------   --------------
                                    OPTIONS                          OPTIONS
                                  OUTSTANDING                      EXERCISABLE
               ------------------------------------------------   --------------
                                                    WEIGHTED
                                                    AVERAGE
                   WEIGHTED                        REMAINING
                   AVERAGE                        CONTRACTUAL
                EXERCISE PRICE        SHARES      LIFE (YEARS)        SHARES
               ------------------------------------------------   --------------

                  $    2.86          160,742           2.67            160,742
                  $    8.69          437,278           0.85            437,278
                  $   14.44           21,000           1.13             21,000
                  $   11.05           47,250           1.30             47,250
                  $   12.70           10,500           1.71             10,500
                                ----------------
        Total     $    7.71          676,770                           676,770
        ------------------------------------------------------------------------

                              The  weighted  average  fair  value  per  share of
                              options  granted  during  2002,  2001  and 2000 is
                              $1.45, $3.62, and $3.41  respectively,  calculated
                              using the Black-Scholes Option-Pricing model.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              No  compensation  expense related to stock options
                              were incurred in 2002,  2001 or 2000.  The Company
                              issued  70,715   options  to   non-employees   and
                              non-directors in 2000. The expense of $242,000 for
                              these  options has been  included in  professional
                              fees  expense  because the options  were issued to
                              providers  of  such  services.   The  expense  was
                              calculated  using  a  fair  market  value  of  the
                              options based on the Black-Scholes  option-pricing
                              model assumptions discussed below.

                              For  employees,  the fair  value of stock  options
                              used to  compute  pro  forma net loss and loss per
                              share  disclosures is the estimated  present value
                              at   grant    date    using   the    Black-Scholes
                              option-pricing  model with the following  weighted
                              average  assumptions  for  2002,  2001  and  2000;
                              Expected  volatility  of 74.2% for  2002,  50% for
                              2001 and 50% for 2000; a risk free  interest  rate
                              of 3.67% in 2002, 3.67% in 2001 and 5.86% in 2000;
                              and an  expected  option life of 3 years for 2002,
                              2001 and 2000.

12.  INCOME TAXES             The Company had no taxable income during the three
                              year period ended December 31, 2002.

                              A  reconciliation  of the statutory  U.S.  Federal
                              income tax and the income tax  provision  included
                              in the  accompanying  consolidated  statements  of
                              loss is as follows:

DECEMBER 31,                         2002               2001           2000
--------------------------------------------------------------------------------
Statutory rate                             34%              34%             34%
Tax benefit at statutory rate     $(1,073,000)     $  (769,000)    $  (452,500)
State income tax benefit             (189,000)        (136,000)        (75,500)
Other                                       -                -          24,000
Increase in deferred tax asset
  Valuation allowance               1,262,000          905,000         504,000
--------------------------------------------------------------------------------
Total income tax provision        $         -      $         -     $         -
--------------------------------------------------------------------------------

DECEMBER 31,                         2002               2001           2000
--------------------------------------------------------------------------------
Net operating loss carryforward   $ 7,139,000      $ 5,877,000     $ 4,972,000
Capital loss carryforward             263,000          263,000         263,000
--------------------------------------------------------------------------------
                                    7,402,000        6,140,000       5,235,000

Valuation allowance                (7,402,000)      (6,140,000)     (5,235,000)
--------------------------------------------------------------------------------
Net deferred taxes                $         -      $         -     $         -
--------------------------------------------------------------------------------

                              The  Company  recorded a  valuation  allowance  at
                              December  31,  2002,  2001 and  2000  equal to the
                              excess of deferred  tax assets over  deferred  tax
                              liabilities  as  management is unable to determine



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              that these tax  benefits  are more likely than not
                              to be realized.  Potential  future reversal of the
                              portion of the  valuation  allowance  relative  to
                              deferred tax asset  resulting from the exercise of
                              stock options will be recorded as additional  paid
                              in capital  realized As of December 31, 2002,  the
                              Company had net operating  loss  carryforwards  of
                              approximately   $18,217,000,   which  will  expire
                              between 2010 and 2022, if not utilized.

13.  SUPPLEMENTAL CASH        The Company paid approximately $571,000,  $853,500
     FLOW INFORMATION         and $544,000 for interest in 2002,  2001 and 2000,
                              respectively.      The     Company     capitalized
                              approximately $148,000 and $128,000 of this amount
                              in 2001 and 2000,  respectively.  No interest  was
                              capitalized  during  2002.  The  Company  paid  no
                              income taxes in 2002, 2001 and 2000.

14.  QUARTERLY DATA AND       The  following  table sets  forth,  for the fiscal
     SHARE INFORMATION        periods indicated, selected consolidated financial
     (UNAUDITED)              data.



                                                                      FISCAL YEAR ENDING DECEMBER 31, 2003
----------------------------------------------------------------------------------------------------------
                                           First           Second           Third            Fourth
                                          Quarter          Quarter         Quarter           Quarter
----------------------------------------------------------------------------------------------------------

                                                                
Revenues                                 $1,971,603       $1,482,390     $ 1,599,461         -
Net Income (loss)                          (659,350)        (678,592)       (508,247)        -
Net Income (loss) attributable to
   common Stockholders                     (793,545)        (812,786)       (642,441)        -
Earnings (loss) per common share

   Basic and diluted                     $    (0.07)     $     (0.07)    $     (0.05)        -
----------------------------------------------------------------------------------------------------------




                                                                      FISCAL YEAR ENDED DECEMBER 31, 2002
----------------------------------------------------------------------------------------------------------
                                           First            Second            Third           Fourth
                                          Quarter           Quarter          Quarter          Quarter
----------------------------------------------------------------------------------------------------------

                                                                                 
Revenues                                $ 1,176,482      $  1,297,668       $1,507,308       $1,719,020
Net loss                                   (818,341)         (858,197)        (721,879)        (756,138)
Net loss attributable to common
   Stockholders                            (930,799)         (984,139)        (856,074)        (890,332)
----------------------------------------------------------------------------------------------------------
Loss per common share
   Basic and diluted                    $     (0.09)     $      (0.09)      $    (0.08)      $    (0.07)
----------------------------------------------------------------------------------------------------------





            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)




                                                                       FISCAL YEAR ENDED DECEMBER 31, 2001
----------------------------------------------------------------------------------------------------------
                                           First            Second            Third           Fourth
                                          Quarter           Quarter          Quarter          Quarter
----------------------------------------------------------------------------------------------------------

                                                                                 
Revenues                                 $1,448,318       $1,863,068          $2,583,758     $1,101,542
Net loss                                   (368,768)        (336,034)           (378,597)    (1,179,388)
Net loss attributable to common
   Stockholders                            (447,546)        (423,523)           (491,055)    (1,291,846)
----------------------------------------------------------------------------------------------------------
Loss per common share
   Basic and diluted                     $    (0.05)      $    (0.04)         $    (0.05)    $    (0.12)
----------------------------------------------------------------------------------------------------------


                              Third  quarter 2001 results  reflect the effect on
                              depletion expense that resulted from a decrease in
                              reserve estimates provided in a study performed by
                              Ryder Scott  Company,  L.P. and issued  August 10,
                              2001. The amount  recorded during this quarter was
                              $562,000 higher than the quarterly  estimates made
                              by management during the first three quarters as a
                              result of a change in  estimate  arising  from new
                              information  provided in the Ryder Scott  Company,
                              L.P. Report.  Amounts  disclosed above differ from
                              those filed with the SEC during the third  quarter
                              of 2001 as a result of an error in recording  this
                              change in estimate to depletion at the time of the
                              filing.  Management amended the September 30, 2001
                              SEC Form 10-Q filing during 2002.

15.  SUPPLEMENTAL OIL AND     Information  with respect to the Company's oil and
     GAS INFORMATION          gas  producing  activities  is  presented  in  the
                              following tables. Estimates of reserve quantities,
                              as well as future  production and discounted  cash
                              flows before  income  taxes,  were  determined  by
                              Ryder Scott Company, L.P. as of December 31, 2002,
                              2001 and 2000.

                              OIL AND GAS RELATED COSTS

                              The   following   table  sets  forth   information
                              concerning  costs related to the Company's oil and
                              gas   property   acquisition,    exploration   and
                              development activities in the United States during
                              the years ended December 31, 2002, 2001 and 2000:

                                        2002            2001            2000
          ----------------------------------------------------------------------

          Property acquisition
            Proved                 $         -     $         -      $         -
            Unproved                         -               -            5,702
          Less - proceeds from
            sales of properties       (100,000)       (750,000)      (1,176,411)
          Development costs          2,082,529       5,571,883        2,627,705
          ----------------------------------------------------------------------
                                   $ 1,982,529     $ 4,821,883      $ 1,456,996
          ----------------------------------------------------------------------




            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              RESULTS OF  OPERATIONS  FROM OIL AND GAS PRODUCING
                              ACTIVITIES

                              The  following  table  sets  forth  the  Company's
                              results of  operations  from oil and gas producing
                              activities for the years ended:

          December 31,                     2002          2001            2000
          ----------------------------------------------------------------------

          Revenues                     $ 5,437,723    $ 6,656,758   $ 5,241,076
          Production costs and taxes    (3,094,731)    (2,951,746)   (2,614,414)
          Depreciation, depletion
              and amortization          (1,388,138)    (1,342,000)     (197,000)
          ----------------------------------------------------------------------
          Income from oil and gas
               producing activities    $   954,854    $ 2,363,012   $ 2,429,662
          ----------------------------------------------------------------------

                              In the  presentation  above, no deduction has been
                              made for indirect costs such as corporate overhead
                              or interest expense. No income taxes are reflected
                              above due to the Company's tax loss carryforwards.

                              OIL AND GAS RESERVES (UNAUDITED)

                              The  following  table sets forth the Company's net
                              proved oil and gas  reserves at December 31, 2002,
                              2001 and 2000 and the  changes  in net  proved oil
                              and gas reserves for the years then ended.  Proved
                              reserves  represent  the  estimated  quantities of
                              crude oil and  natural  gas which  geological  and
                              engineering   data   demonstrate  with  reasonable
                              certainty  to be  recoverable  in the future years
                              from known reservoirs under existing  economic and
                              operating  conditions.   The  reserve  information
                              indicated below requires  substantial  judgment on
                              the part of the reserve  engineers,  resulting  in
                              estimates   which  are  not   subject  to  precise
                              determination.  Accordingly,  it is expected  that
                              the  estimates  of reserves  will change as future
                              production  and  development  information  becomes
                              available  and that  revisions in these  estimates
                              could be  significant.  Reserves  are  measured in
                              barrels  (bbls)  in the case of oil,  and units of
                              one thousand cubic feet (Mcf) in the case of gas.

                                                    OIL (BBLS)         GAS (MCF)
          ----------------------------------------------------------------------
          Proved reserves:

          Balance, January 1, 2000                   3,227,203       74,795,287
            Discoveries and extensions                  56,103        1,059,147
            Revisions of previous estimates         (1,309,366)     (27,998,986)
            Production                                (159,035)        (315,577)
          ----------------------------------------------------------------------
          Balance, December 31, 2000                 1,814,905       47,539,871
            Discoveries and extensions                  62,254        4,915,431
            Revisions of previous estimates           (672,443)     (25,263,634)
            Production                                (148,041)      (1,311,466)
          ----------------------------------------------------------------------
          Balance, December 31, 2001                 1,056,675       25,880,202
            Discoveries and extensions                  34,968          937,000
            Revisions of previous estimates            542,229          786,430
            Production                                (157,973)      (1,004,899)
          ----------------------------------------------------------------------
          Proved reserves at, December 31, 2002      1,475,899       26,598,733
          ----------------------------------------------------------------------




            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


          Proved developed producing
            reserves at, December 31, 2002           1,108,293        6,592,711
          ----------------------------------------------------------------------
          Proved developed producing
            reserves at, December 31, 2001             767,126        7,157,183
          ----------------------------------------------------------------------
          Proved developed producing
            reserves at, December 31, 2000           1,553,759        2,888,769
          ----------------------------------------------------------------------

                              Of  the  Company's  total  proved  reserves  as of
                              December 31, 2002 and 2001 and 2000, approximately
                              37%, 36% and 21%, respectively, were classified as
                              proved  developed  producing,  19%,  26% and  34%,
                              respectively,  were classified as proved developed
                              non-producing and 44%, 37% and 45%,  respectively,
                              were classified as proved undeveloped.  All of the
                              Company's  reserves are located in the continental
                              United States.

                              STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
                              FLOWS (UNAUDITED)

                              The standardized  measure of discounted future net
                              cash flows from the  Company's  proved oil and gas
                              reserves is presented in the following table:

                                                  AMOUNTS IN THOUSANDS
                                       -----------------------------------------
          December 31,                     2002           2001         2000
          ----------------------------------------------------------------------

          Future cash inflows             $152,180     $  78,296     $ 505,733
          Future production
              costs and taxes              (41,870)      (26,083)      (41,689)
          Future development costs         (11,348)       (6,384)       (8,225)
          Future income tax expenses             -             -      (122,881)
          ----------------------------------------------------------------------
          Net future cash flows             98,962        45,829       332,938

          Discount at 10% for
              timing of cash flows         (52,314)      (24,095)      (97,195)
          ----------------------------------------------------------------------
          Discounted future net
              cash flows from
              proved reserves            $  46,648     $  21,734     $ 235,743
          ----------------------------------------------------------------------




            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              The  following  unaudited  table  sets  forth  the
                              changes in the standardized  measure of discounted
                              future net cash flows from proved  reserves during
                              2002, 2001 and 2000:

                                                     AMOUNTS IN THOUSANDS
                                          --------------------------------------
                                              2002         2001         2000
          ----------------------------------------------------------------------

          Balance, beginning of year       $   21,734    $ 235,743    $ 100,882
          Sales, net of production costs
            and taxes                          (2,343)      (3,705)      (2,627)
          Discoveries and extensions            1,686        4,167        1,778
          Changes in prices and
            production costs                   20,586     (299,527)     360,082
          Revisions of quantity                 6,120      (33,449)    (186,289)
            estimates
          Development costs incurred                             -        1,236
          Interest factor - accretion
            of discount                         2,173       32,198       13,355
          Net change in income taxes                -       86,237      (53,572)
          Changes in future
            development costs                  (4,860)       2,666       (3,237)
          Changes in production rates
            and other                           1,552       (2,596)       4,135
          ----------------------------------------------------------------------
          Balance, end of year              $  46,648   $   21,734    $ 235,743
          ----------------------------------------------------------------------

                              Estimated  future  net  cash  flows  represent  an
                              estimate   of  future   net   revenues   from  the
                              production of proved  reserves using current sales
                              prices,  along  with  estimates  of the  operating
                              costs, production taxes and future development and
                              abandonment  costs (less salvage value)  necessary
                              to produce such reserves.  The average prices used
                              at December 31,  2002,  2001 and 2000 were $27.25,
                              $17.03  and  $25.62  per  barrel of oil and $4.01,
                              $2.33 and $9.66 per MCF of gas,  respectively.  No
                              deduction   has  been   made   for   depreciation,
                              depletion  or any  indirect  costs such as general
                              corporate overhead or interest expense.

                              Operating costs and production taxes are estimated
                              based on current  costs with  respect to producing
                              gas properties. Future development costs are based
                              on  the  best  estimate  of  such  costs  assuming
                              current  economic and  operating  conditions.  The
                              estimates  of  reserve  values  include  estimated
                              future development costs that the company does not
                              currently have the ability to fund. If the company
                              is unable to obtain  additional  funds, it may not
                              be  able  to  develop  its  oil  and  natural  gas
                              properties  as  estimated in its December 31, 2002
                              reserve report.

                              Income tax expense is  computed  based on applying
                              the  appropriate  statutory tax rate to the excess
                              of future cash inflows less future  production and
                              development  costs over the  current  tax basis of
                              the   properties    involved,    less   applicable
                              carryforwards,  for both  regular and  alternative
                              minimum tax.




            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
            (Amounts presented relating to September 30, 2003 and the
          nine months ended September 30, 2003 and 2002 are unaudited)


                              The  future  net  revenue  information  assumes no
                              escalation  of costs  or  prices,  except  for gas
                              sales made under terms of contracts  which include
                              fixed and  determinable  escalation.  Future costs
                              and prices could  significantly  vary from current
                              amounts and, accordingly,  revisions in the future
                              could be significant.

16.  CUMULATIVE EFFECT OF A   Effective January 1, 2003, the Company implemented
     CHANGE IN ACCOUNTING     the   requirements   of   Statement  of  Financial
     PRINCIPLE                Accounting   Standards   No.   143   (SFAS   143),
                              "Accounting  for  Asset  Retirement  Obligations".
                              Among other things,  SFAS 143 requires entities to
                              record a liability and  corresponding  increase in
                              long-lived   assets  for  the  present   value  of
                              material    obligations    associated   with   the
                              retirement of tangible long-lived assets. Over the
                              passage of time,  accretion  of the  liability  is
                              recognized   as  an  operating   expense  and  the
                              capitalized  cost is depleted  over the  estimated
                              useful  life of the related  asset.  Additionally,
                              SFAS 143 requires that upon initial application of
                              these  standards,  the  Company  must  recognize a
                              cumulative   effect  of  a  change  in  accounting
                              principle   corresponding   to   the   accumulated
                              accretion  and  depletion  expense that would have
                              been  recognized had this standard been applied at
                              the time the  long-lived  assets were  acquired or
                              constructed.   The  Company's   asset   retirement
                              obligations  relate  primarily  to  the  plugging,
                              dismantling and removal of wells drilled to date.

                              Using a credit-adjusted  risk free rate of 12%, an
                              estimated  useful life of wells ranging from 30-40
                              years,  and  estimated  plugging  and  abandonment
                              costs  ranging from $5,000 per well to $10,000 per
                              well,  the Company has recorded a non-cash  charge
                              related  to the  cumulative  effect of a change in
                              accounting  principle of $351,204 in its statement
                              of loss. Oil and gas properties  were increased by
                              $260,191,  which  represents  the present value of
                              all  future  obligations  to  retire  the wells at
                              January 1, 2003, net of  accumulated  depletion on
                              this  cost  through  that  date.  A  corresponding
                              obligation   totaling   $611,395   has  also  been
                              recorded as of January 1, 2003.

                              For the nine  month  period  ended  September  30,
                              2003, the Company recorded accretion and depletion
                              expenses of $77,952 associated with this liability
                              and its  corresponding  asset.  These expenses are
                              included   in   depletion,    depreciation,    and
                              amortization  in the  consolidated  statements  of
                              loss.  Had the  provisions of this  statement been
                              reflected in the financial statements for the year
                              ended  December  31,  2002,  an  asset  retirement
                              obligation of $476,536 would have been recorded as
                              of January 1, 2002.

                              The  following  is  a  roll-forward   of  activity
                              impacting the asset retirement  obligation for the
                              nine months ended September 30, 2003:

                                Balance, January 1, 2003:           $611,395

                                Accretion expense through
                                  September 30, 2003                  55,026
                                                                    --------
                                Balance, September 30, 2003         $666,421
                                                                    ========




                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The  following  is an  itemization  of  all  expenses  (subject  to  future
contingencies)  incurred or to be incurred by us in connection with the issuance
and distribution of the securities being offered.  All items below are estimates
other than the American Stock Exchange  listing fee. The registrant will pay all
of such expenses.


Securities and Exchange Commission registration fee.......        $     2,500

AMEX listing fee..........................................        $    22,500

Accounting fees and expenses..............................        $    50,000

Legal fees and expenses...................................        $    60,000

Subscription Agent fees and expenses......................        $    15,000
                                                                -------------
                   Total..................................        $   150,000


ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Tennessee Code Annotated  Sections  48-18-502  through 509 grant  Tennessee
corporations  broad powers to indemnify  their present and former  directors and
officers  and  those of  affiliated  corporations  against  expenses  (including
attorneys' fees),  judgments,  fines and amounts paid in settlement actually and
reasonably incurred in connection with threatened, pending or completed actions,
suits or  proceedings  to which they are  parties or are  threatened  to be made
parties by reason of being or having been such directors or officers, subject to
specified conditions and exclusions; give a director or officer who successfully
defends an action the right to be so  indemnified;  and permit a corporation  to
buy directors' and officers' liability  insurance.  Such  indemnification is not
exclusive of any other rights to which those  indemnified  may be entitled under
any by-laws, agreement, vote of stockholders or otherwise.

     Tennessee  Code  Annotated   Section   48-18-102(b)   permits  a  Tennessee
corporation  to  include  in  its  certificate  of   incorporation  a  provision
eliminating the potential monetary liability of a director to the corporation or
its stockholders for breach of fiduciary duty as a director,  provided that such
provision  may not  eliminate  the  liability  of a  director  (i)  for  acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (ii) for any transaction  from which the director  receives an
improper  personal  benefit or (iii) in connection  with any proceeding in which
the  director  was  adjudged  liable  to  the   corporation.   The  registrant's
certificate of  incorporation  does not provide that its directors  shall not be
liable to it or its  stockholders  for a breach of their  duties to the  fullest
extent in which  elimination  or  limitation  of the  liability  of directors is
permitted by the foregoing Section, which does not apply to the registrant.

     All  directors  are  indemnified  by the  registrant,  both by operation of
Tennessee  Code  Annotated  Sections  48-18-501  through  509 and since  1995 by
resolution  of the  registrant's  board  of  directors,  against  liability  and
expenses  including  attorney's  fees incurred by them as a result of serving on
the registrant's board of directors.  The statutory provisions require a finding
that the conduct of the director  was in good faith and in the best  interest of
the  company and does not extend to cases where a director is found to be liable
to the company  itself.  Such a finding may be made by uninvolved  directors,  a
committee of the board or independent counsel.




     Tennessee Code Annotated Section 48-15-503 provides for the indemnification
of  directors  and of  corporate  officers  where the  director  or  officer  is
successful in defense of any proceeding he or she became involved in as a result
of being or having been in such position,  unless the corporate  charter forbids
such indemnification. The registrant's corporate charter contains no such bar or
prohibition of indemnification of the registrant's directors or officers.

     Tennessee  statutes further provide that the rights to indemnification of a
director do not  preclude  other bases of  indemnification,  whether such rights
arise by charter, bylaws, shareholder resolution, agreement or board resolution,
provided  there is no breach of duty of loyalty to the  corporation,  bad faith,
intentional   misconduct  or  knowing   violation  of  law.   Accordingly,   the
registrant's  board of  directors on August 17,  1995,  unanimously  resolved to
indemnify  directors and executive  officers on a mandatory basis to the fullest
extent of the laws referenced  above for the entire period a party is subject to
any possible legal action or claim by reason of having so served.

     Tennessee  law permits,  but does not require,  insurance to be obtained to
fund indemnity obligations. The registrant does not have any such insurance.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

     Each of the  following  recent sales of  unregistered  securities  was made
pursuant to an exemption  from the provisions of Section 5 of the Securities Act
of 1933 under Section 4(2) of such Act.

     In  approximately  October 1998, the  registrant  sold 28,679 shares of its
Series A 8% Cumulative  Convertible  Preferred Stock to private investors for an
aggregate purchase price of $2,733,000,  net of commissions to a placement agent
in the aggregate amount of approximately $135,000.

     In  approximately  August 2000 and June 2001,  the  registrant  sold 27,550
shares of its  Series B 8%  Cumulative  Convertible  Preferred  Stock to private
investors for an aggregate purchase price of $2,614,600, net of commissions to a
placement agent in the aggregate amount of approximately 140,000.

     In  approximately  May and June 2002, the registrant  sold 14,491 shares of
its Series C 6% Cumulative  Convertible Preferred Stock to private investors for
an aggregate  purchase  price of  $1,303,168,  net of commissions to a placement
agent in the aggregate amount of approximately $116,000.

     On each of January 21, 2002 and April 9, 2002,  Bill L.  Harbert,  who owns
more than ten percent of the registrant's  outstanding  common stock and is now,
but was not at those dates,  a director of the  registrant,  purchased  from the
registrant in a private  placement,  100,000 shares of the  registrant's  common
stock, at prices of $6.32 and $4.80 per share, respectively.

     On July 5,  2002  and  July  23,  2002,  Dolphin  Offshore  Partners,  L.P.
("Dolphin"),  which owns more than ten percent of the  registrant's  outstanding
common stock,  and whose general  partner,  Peter E. Salas, is a director of the
registrant,  purchased from the registrant in a private  placement,  400,000 and
250,000 shares of the  registrant's  common stock,  respectively,  at a price of
$2.50 per share.

     In October 2002,  Dolphin loaned to the registrant  $500,000 and was issued
an unsecured  convertible  promissory  note by the  registrant  in the principal
amount of $500,000 bearing 8% interest, with interest only payable quarterly and
principal payable January 4, 2004.

     In December 2002, Dolphin loaned to the registrant  $250,000 and was issued
a secured  promissory note bearing  interest at the rate of 12% per annum,  with
interest only payable  quarterly and the principal balance payable on January 4,
2004.

     In January 2003, Bill L. Harbert,  a director of the registrant,  purchased
227,275  shares of the  registrant's  common  stock in a private  placement at a
price of $1.10 per share.




     On each of February 3, 2003 and February 28,  2003,  Dolphin  loaned to the
registrant  $250,000  and for each of these loans was issued a separate  secured
promissory note bearing interest at the rate of 12% per annum,  with payments of
interest only payable  quarterly and the principal balance payable on January 4,
2004

     On May 20, 2003,  Dolphin loaned to the registrant  $750,000 and Jeffrey R.
Bailey,  President and a director of the  registrant,  loaned to the  registrant
$84,000 and each was issued a separate secured  promissory note bearing interest
at the rate of 12% per annum,  with payments of interest only payable  quarterly
and the principal balance payable on January 4, 2004.

     During the three  months  ended March 31, 2003,  the  registrant  converted
$60,000 of  indebtedness  and $9,600 of accrued  interest owed to the holders of
convertible notes into 60,528 shares of the registrant's common stock and issued
55,000 shares of its common stock for payment of consulting  services  valued at
$70,000.

     During  the nine  months  ended June 30,  2003,  the  registrant  converted
$70,309 of accrued dividends payable on its outstanding  preferred stock into an
aggregate of 154,824 shares of the registrant's common stock.

     On August 6, 2003, Dolphin loaned to the registrant $150,000 and was issued
a secured  promissory note bearing  interest at the rate of 12% per annum,  with
payments of interest only payable quarterly and the principal balance payable on
January 4, 2004.

     On December 3, 2003,  Dolphin  loaned to the  registrant  $225,000  and was
issued a secured  promissory note bearing interest at the rate of 12% per annum,
with  payments of interest  only payable  quarterly  and the  principal  balance
payable on January 4, 2004.

     On December 9, 2003,  Dolphin  loaned to the  registrant  $250,000  and was
issued a secured  promissory note bearing interest at the rate of 12% per annum,
with  payments of interest  only payable  quarterly  and the  principal  balance
payable on January 4, 2004.

     On December 24, 2003,  Dolphin  loaned the registrant the sum of $1,000,000
and was issued a secured promissory note bearing interest at the rate of 12% per
annum with payments of interest only payable quarterly and the principal balance
payable on April 4, 2004.

      On February 2, 2004, Dolphin loaned the registrant the sum of $225,000 and
was issued a secured  promissory  note  bearing  interest at the rate of 12% per
annum with payments of interest only payable quarterly and the principal balance
payable on April 4, 2004.

ITEM 16.  EXHIBITS.

EXHIBIT NUMBER                        DESCRIPTION
--------------                        -----------
3.1             Charter (Incorporated by reference to Exhibit 3.7 to the
                registrant's registration statement on Form 10-SB filed August
                7, 1997 (the "Form 10-SB"))
3.2             Articles of Merger and Plan of Merger (taking into account the
                formation of the Tennessee wholly-owned subsidiary for the
                purpose of changing the Company's domicile and effecting reverse
                split) (Incorporated by reference to Exhibit 3.8 to the Form
                10-SB)
3.3             Articles of Amendment to the Charter dated June 24, 1998
                (Incorporated by reference to Exhibit 3.9 to the registrant's
                annual report on Form 10-KSB filed April 15, 1999 (the "1998
                Form 10-KSB"))
3.4             Articles of Amendment to the Charter dated October 30, 1998
                (Incorporated by reference to Exhibit 3.10 to the 1998 Form
                10-KSB)
3.5             Articles of Amendment to the Charter filed March 17, 2000
                (Incorporated by reference to Exhibit 3.11 to the registrant's
                annual report on Form 10-KSB filed April 14, 2000 (the "1999
                Form 10-KSB"))
3.6             By-laws (Incorporated by reference to Exhibit 3.2 to the Form
                10-SB)
4.1**           Form of Rights Certificate
5.1**           Opinion of Cary V. Sorensen, Esq.
10.1            Purchase Agreement with IRC (Incorporated by reference to
                Exhibit 10.1(a) to the Form 10-SB)



10.2            Amendment to Purchase Agreement with IRC (Incorporated by
                reference to Exhibit 10.1(b) to the Form 10-SB)
10.3            General Bill of Sale and Promissory Note (Incorporated by
                reference to Exhibit 10.1(c) to the Form 10-SB)
10.4            Compensation Agreement - M.E. Ratliff (Incorporated by reference
                to Exhibit 10.2(a) to the Form 10-SB)
10.5            Compensation Agreement - Jeffrey D. Jenson (Incorporated by
                reference to Exhibit 10.2(b) to the Form 10-SB)
10.6            Compensation Agreement - Leonard W. Burningham (Incorporated by
                reference to Exhibit 10.2(c) to the Form 10-SB)
10.7            Agreement with the Natural Gas Utility District of Hawkins
                County, Tennessee (Incorporated by reference to Exhibit 10.3 to
                the Form 10-SB)
10.8            Agreement with Powell Valley Electric Cooperative, Inc.
                (Incorporated by reference to Exhibit 10.4 to the Form 10-SB)
10.9            Agreement with Enserch Energy Services, Inc. (Incorporated by
                reference to Exhibit 10.5 to the Form 10-SB)
10.10           Amendment Agreement dated October 19, 1999 between Tengasco,
                Inc. and the Natural Gas Utility District of Hawkins County,
                Tennessee (Incorporated by reference to Exhibit 10.9 to the
                registrant's current report on Form 8-K filed October 25, 1999)
10.11           Natural Gas Sales Agreement dated November 18, 1999 between
                Tengasco, Inc. and Eastman Chemical Company (Incorporated by
                reference to Exhibit 10.10 to the registrant's current report on
                Form 8-K filed November 23, 1999)
10.12           Agreement between A.M. Partners LLC and Tengasco, Inc. dated
                October 6, 1999 (Incorporated by reference to Exhibit 10.11 to
                the registrant's 1999 Form 10-KSB)
10.13           Agreement between Southcoast Capital LLC and Tengasco, Inc.
                dated February 25, 2000 (Incorporated by reference to Exhibit
                10.12 to the registrant's 1999 Form 10-KSB)
10.14           Franchise Agreement between Powell Valley Utility District and
                Tengasco, Inc. dated January 25, 2000 (Incorporated by reference
                to Exhibit 10.13 to the registrant's 1999 Form 10-KSB)
10.15           Amendment Agreement between Eastman Chemical Company and
                Tengasco, Inc. dated March 27, 2000 (Incorporated by reference
                to Exhibit 10.14 to the registrant's 1999 Form 10-KSB)
10.16           Loan Agreement between Tengasco Pipeline Corporation and Morita
                Properties, Inc. dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.15 to the registrant's current report on
                Form 8-K dated August 22, 2000 (the "2000 8-K"))
10.17           Promissory note made by Tengasco Pipeline Corporation and Morita
                Properties, dated August 16, 2000 (Incorporated by reference to
                Exhibit 10.15(a) to the 2000 8-K)
10.18           Throughput Agreement between Tengasco Pipeline Corporation and
                Morita Properties, dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.15(b) to the 2000 8-K)
10.19           Loan Agreement between Tengasco Pipeline Corporation and Edward
                W.T. Gray III dated August 16, 2000 (Incorporated by reference
                to Exhibit 10.16 to the 2000 8-K)
10.20           Promissory note made by Tengasco Pipeline Corporation and Edward
                W.T. Gray III dated August 16, 2000 (Incorporated by reference
                to Exhibit 10.16(a) to the 2000 8-K)
10.21           Throughput Agreement between Tengasco Pipeline Corporation and
                Edward W.T. Gray III dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.16(b) to the 2000 8-K)
10.22           Loan Agreement between Tengasco Pipeline Corporation and Malcolm
                E. Ratliff dated August 16, 2000 (Incorporated by reference to
                Exhibit 10.17 to the 2000 8-K)
10.23           Promissory note made by Tengasco Pipeline Corporation and
                Malcolm E. Ratliff dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.17(a) to the 2000 8-K)
10.24           Throughput Agreement between Tengasco Pipeline Corporation and
                Malcolm E. Ratliff dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.17(b) to the 2000 8-K)
10.25           Loan Agreement between Tengasco Pipeline Corporation and Charles
                F. Smithers, Jr. dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.18 to the 2000 8-K)
10.26           Promissory note made by Tengasco Pipeline Corporation and
                Charles F. Smithers, Jr. dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.18(a) to the 2000 8-K)
10.27           Throughput Agreement between Tengasco Pipeline Corporation and
                Charles F. Smithers, Jr. dated August 16, 2000 (Incorporated by



                reference to Exhibit 10.18(b) to the 2000 8-K)
10.28           Loan Agreement between Tengasco Pipeline Corporation and Nick
                Nishiwaki dated August 16, 2000 (Incorporated by reference to
                Exhibit 10.19 to the 2000 8-K)
10.29           Promissory note made by Tengasco Pipeline Corporation and Nick
                Nishiwaki dated August 16, 2000 (Incorporated by reference to
                Exhibit 10.19(a) to the 2000 8-K)
10.30           Throughput Agreement between Tengasco Pipeline Corporation and
                Nick Nishiwaki dated August 16, 2000 (Incorporated by reference
                to Exhibit 10.19(b) to the 2000 8-K)
10.31           Memorandum Agreement between Tengasco, Inc. and the University
                of Tennessee dated February 13, 2001 (Incorporated by reference
                to Exhibit 10.19 to the registrant's annual report on Form
                10-KSB filed April 10, 2001 (the "2000 Form 10-KSB"))
10.32           Natural Gas Sales Agreement between Tengasco, Inc. and BAE
                SYSTEMS Ordnance Systems Inc. dated March 30, 2001 (Incorporated
                by reference to Exhibit 10.20 to the 2000 Form 10-KSB)
10.33           Reducing and Revolving Line of Credit Up to $35,000,000 from
                Bank One, N.A. to Tengasco, Inc. Tennessee Land & Mineral
                Corporation and Tengasco Pipeline Corporation dated November 8,
                2001 (Incorporated by reference to Exhibit 10.21 to the
                registrant's quarterly report on Form 10-Q filed November 14,
                2001)
10.34           Tengasco, Inc. Incentive Stock Plan (Incorporated by reference
                to Exhibit 4.1 to the registrant's registration statement on
                Form S-8 filed October 26, 2000)
10.35**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated October 7,
                2002 in the principal amount of $500,000
10.36**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated December 4,
                2002 in the principal amount of $250,000
10.37**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated February 3,
                2003 in the principal amount of $250,000
10.38**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated February 28,
                2003 in the principal amount of $250,000
10.39**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated May 20, 2003
                in the principal amount of $750,000
10.40**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated August 6,
                2003 in the principal amount of $150,000
10.41**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Jeffrey R. Bailey dated May 20, 2003 in the
                principal amount of $84,000
10.42           Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated December 3,
                2003 in the principal amount of $225,000 (Incorporated by
                reference to Exhibit 10.42 to the registrant's current report on
                Form 8-K dated December 3, 2003 (the "2003 Form 8-K")
10.43           Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated December 9,
                2003 in the principal amount of $250,000 (Incorporated by
                reference to Exhibit 10.43 to the 2003 Form 8-K)
10.44           Continuing Security Agreement dated December 3, 2003 by the
                Company and Tengasco Pipeline Corporation as Obligors and
                Dolphin Offshore Partners, LP as Secured Party (Incorporated by
                reference to Exhibit 10.44 to the 2003 Form 8-K)
10.45**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated December 24,
                2003 in the principal amount of $1,000,000
10.46**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Jeffrey R. Bailey dated February 2, 2004 in the
                principal amount of $225,000
21              List of subsidiaries (Incorporated by reference to Exhibit 21 to
                the registrant's annual report on Form 10-KSB filed March 31,
                2003 (the "2002 Form 10-KSB"))
23.1**          Consent of Cary V. Sorensen, Esq. (contained in Exhibit 5.1
                hereto)
23.2**          Consent of BDO Seidman
23.3**          Consent of Ryder Scott Company, L.P.
23.4*           Consent of Mercer Capital
24.1**          Power of Attorney
99.1            Ryder Scott Company, L.P. Report dated March 28, 2002
                (Incorporated by reference to Exhibit 99.15 to the registrant's
                annual report on Form 10-KSB filed April 10, 2002)



99.2            Ryder Scott Company, L.P. Report dated February 10, 2003
                (Incorporated by reference to Exhibit 99.17 to the 2002 Form
                10-KSB)
99.3**          Form of Instructions for Use of Rights Certificates
99.4**          Form of Letter to be sent by Company to Holders of Record of the
                Rights
99.5**          Form of Letter to be Sent to Beneficial Owners

---------------
   *   Filed herewith
   **  Previously filed

ITEM 17.  UNDERTAKINGS.

     (a) Regulation S-K, Item 512 Undertakings

     (1) The undersigned registrant hereby undertakes:

     (i) To file,  during any period in which  offers or sales are being made, a
post-effective amendment to this registration statement:

     (a)  To  include  any  prospectus  required  by  section  10(a)(3)  of  the
Securities Act of 1933;

     (b) To  reflect in the  prospectus  any facts or events  arising  after the
effective date of the registration  statement (or the most recent post-effective
amendment  thereof)  which,  individually  or  in  the  aggregate,  represent  a
fundamental  change in the information set forth in the registration  statement.
Notwithstanding the foregoing,  any increase or decrease in volume of securities
offered (if the total dollar value of  securities  offered would not exceed that
which  was  registered)  and any  deviation  from  the  low or  high  end of the
estimated  maximum  offering  range may be reflected  in the form of  prospectus
filed with the  Commission  pursuant  to Rule 424(b) if, in the  aggregate,  the
changes in volume  and price  represent  no more than 20% change in the  maximum
aggregate  offering price set forth in the  "Calculation  of  Registration  Fee"
table in the effective registration statement; and

     (c) To  include  any  material  information  with  respect  to the  plan of
distribution  not  previously  disclosed  in the  registration  statement or any
material change to such information in the registration statement;

     (ii)  That,  for  the  purpose  of  determining  any  liability  under  the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (iii) To remove from  registration by means of a  post-effective  amendment
any of the securities being registered which remain unsold at the termination of
the offering.

     (2) The undersigned registrant hereby undertakes that:

     (i) For purposes of determining  any liability  under the Securities Act of
1933, the information  omitted from the form of prospectus filed as part of this
registration  statement  in reliance  upon Rule 430A and  contained in a form of
prospectus  filed by the registrant  pursuant to Rule 424(b)(1) or (4) or 497(h)
under  the  Securities  Act  shall  be  deemed  to be part of this  registration
statement as of the time it was declared effective.

     (ii) For the purpose of determining  any liability under the Securities Act
of 1933, each post-effective  amendment that contains a form of prospectus shall
be deemed to be a new registration  statement relating to the securities offered
therein,  and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

     (3)  The  undersigned   registrant  hereby  undertakes  to  supplement  the
prospectus,  after the expiration of the subscription  period,  to set forth the
results of the subscription  offer, the transactions by the underwriters  during
the subscription  period, the amount of unsubscribed  securities to be purchased
by the underwriters,  and the terms of any subsequent reoffering thereof. If any



public offering by the  underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus,  a post-effective  amendment will
be filed to set forth the terms of such offering.

     (4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors,  officers and controlling  persons of
the  registrant  pursuant  to  the  foregoing  provisions,   or  otherwise,  the
registrant  has been advised that in the opinion of the  Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore,  unenforceable. In the event that a claim for indemnification
against such  liabilities  (other than the payment by the registrant of expenses
incurred or paid by a director,  officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director,  officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of our counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification by us are against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.





                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the Company has
duly  caused  this  registration  statement  to be signed  on our  behalf by the
undersigned, thereunto duly authorized, in the city of Knoxville, Tennessee.


                                  TENGASCO INC.


                                  By:  /s/ RICHARD T.  WILLIAMS
                                       ---------------------------------------
                                       Richard T.  Williams
                                       Chief Executive Officer


         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
registration  statement  has  been  signed  by  the  following  persons  in  the
capacities and on the dates indicated.

SIGNATURE                          TITLE                              DATE

/s/ RICHARD T. WILLIAMS            Chairman of the Board;      February 12, 2004
------------------------------     Chief Executive
Richard T. Williams                Officer (principal
                                   executive officer)

*                                  Director; President         February 12, 2004
------------------------------
Jeffrey R. Bailey

*                                  Chief Financial Officer     February 12, 2004
------------------------------     (principal financial and
Mark A. Ruth                       accounting officer)

*                                  Director                    February 12, 2004
------------------------------
Stephen W. Akos
*                                  Director                    February 12, 2004
------------------------------
Joseph Earl Armstrong
*                                  Director                    February 12, 2004
------------------------------
John A. Clendening
*                                  Director                    February 12, 2004
------------------------------
Robert L. Devereux
*                                  Director                    February 12, 2004
------------------------------
Bill L. Harbert
*                                  Director                    February 12, 2004
------------------------------
Peter E. Salas
*                                  Director                    February 12, 2004
------------------------------
Charles M. Stivers

*/s/ RICHARD T. WILLIAMS                                       February 12, 2004
------------------------------
Richard T. Williams,
as attorney-in-fact





                                  EXHIBIT INDEX

EXHIBIT NUMBER                        DESCRIPTION
--------------                        -----------

3.1             Charter (Incorporated by reference to Exhibit 3.7 to the
                registrant's registration statement on Form 10-SB filed August
                7, 1997 (the "Form 10-SB"))
3.2             Articles of Merger and Plan of Merger (taking into account the
                formation of the Tennessee wholly-owned subsidiary for the
                purpose of changing the Company's domicile and effecting reverse
                split) (Incorporated by reference to Exhibit 3.8 to the Form
                10-SB)
3.3             Articles of Amendment to the Charter dated June 24, 1998
                (Incorporated by reference to Exhibit 3.9 to the registrant's
                annual report on Form 10-KSB filed April 15, 1999 (the "1998
                Form 10-KSB"))
3.4             Articles of Amendment to the Charter dated October 30, 1998
                (Incorporated by reference to Exhibit 3.10 to the 1998 Form
                10-KSB)
3.5             Articles of Amendment to the Charter filed March 17, 2000
                (Incorporated by reference to Exhibit 3.11 to the registrant's
                annual report on Form 10-KSB filed April 14, 2000 (the "1999
                Form 10-KSB"))
3.6             By-laws (Incorporated by reference to Exhibit 3.2 to the Form
                10-SB)
4.1**           Form of Rights Certificate
5.1**           Opinion of Cary V. Sorensen, Esq.
10.1            Purchase Agreement with IRC (Incorporated by reference to
                Exhibit 10.1(a) to the Form 10-SB)
10.2            Amendment to Purchase Agreement with IRC (Incorporated by
                reference to Exhibit 10.1(b) to the Form 10-SB)

10.3            General Bill of Sale and Promissory Note (Incorporated by
                reference to Exhibit 10.1(c) to the Form 10-SB)
10.4            Compensation Agreement - M.E. Ratliff (Incorporated by reference
                to Exhibit 10.2(a) to the Form 10-SB)
10.5            Compensation Agreement - Jeffrey D. Jenson (Incorporated by
                reference to Exhibit 10.2(b) to the Form 10-SB)
10.6            Compensation Agreement - Leonard W. Burningham (Incorporated by
                reference to Exhibit 10.2(c) to the Form 10-SB)
10.7            Agreement with the Natural Gas Utility District of Hawkins
                County, Tennessee (Incorporated by reference to Exhibit 10.3 to
                the Form 10-SB)
10.8            Agreement with Powell Valley Electric Cooperative, Inc.
                (Incorporated by reference to Exhibit 10.4 to the Form 10-SB)
10.9            Agreement with Enserch Energy Services, Inc. (Incorporated by
                reference to Exhibit 10.5 to the Form 10-SB)
10.10           Amendment Agreement dated October 19, 1999 between Tengasco,
                Inc. and the Natural Gas Utility District of Hawkins County,
                Tennessee (Incorporated by reference to Exhibit 10.9 to the
                registrant's current report on Form 8-K filed October 25, 1999)
10.11           Natural Gas Sales Agreement dated November 18, 1999 between
                Tengasco, Inc. and Eastman Chemical Company (Incorporated by
                reference to Exhibit 10.10 to the registrant's current report on
                Form 8-K filed November 23, 1999)
10.12           Agreement between A.M. Partners LLC and Tengasco, Inc. dated
                October 6, 1999 (Incorporated by reference to Exhibit 10.11 to
                the registrant's 1999 Form 10-KSB)
10.13           Agreement between Southcoast Capital LLC and Tengasco, Inc.
                dated February 25, 2000 (Incorporated by reference to Exhibit
                10.12 to the registrant's 1999 Form 10-KSB)
10.14           Franchise Agreement between Powell Valley Utility District and
                Tengasco, Inc. dated January 25, 2000 (Incorporated by reference
                to Exhibit 10.13 to the registrant's 1999 Form 10-KSB)
10.15           Amendment Agreement between Eastman Chemical Company and
                Tengasco, Inc. dated March 27, 2000 (Incorporated by reference
                to Exhibit 10.14 to the registrant's 1999 Form 10-KSB)



10.16           Loan Agreement between Tengasco Pipeline Corporation and Morita
                Properties, Inc. dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.15 to the registrant's current report on
                Form 8-K dated August 22, 2000 (the "2000 8-K"))
10.17           Promissory note made by Tengasco Pipeline Corporation and Morita
                Properties, dated August 16, 2000 (Incorporated by reference to
                Exhibit 10.15(a) to the 2000 8-K)
10.18           Throughput Agreement between Tengasco Pipeline Corporation and
                Morita Properties, dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.15(b) to the 2000 8-K)
10.19           Loan Agreement between Tengasco Pipeline Corporation and Edward
                W.T. Gray III dated August 16, 2000 (Incorporated by reference
                to Exhibit 10.16 to the 2000 8-K)
10.20           Promissory note made by Tengasco Pipeline Corporation and Edward
                W.T. Gray III dated August 16, 2000 (Incorporated by reference
                to Exhibit 10.16(a) to the 2000 8-K)
10.21           Throughput Agreement between Tengasco Pipeline Corporation and
                Edward W.T. Gray III dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.16(b) to the 2000 8-K)
10.22           Loan Agreement between Tengasco Pipeline Corporation and Malcolm
                E. Ratliff dated August 16, 2000 (Incorporated by reference to
                Exhibit 10.17 to the 2000 8-K)
10.23           Promissory note made by Tengasco Pipeline Corporation and
                Malcolm E. Ratliff dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.17(a) to the 2000 8-K)
10.24           Throughput Agreement between Tengasco Pipeline Corporation and
                Malcolm E. Ratliff dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.17(b) to the 2000 8-K)
10.25           Loan Agreement between Tengasco Pipeline Corporation and Charles
                F. Smithers, Jr. dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.18 to the 2000 8-K)
10.26           Promissory note made by Tengasco Pipeline Corporation and
                Charles F. Smithers, Jr. dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.18(a) to the 2000 8-K)
10.27           Throughput Agreement between Tengasco Pipeline Corporation and
                Charles F. Smithers, Jr. dated August 16, 2000 (Incorporated by
                reference to Exhibit 10.18(b) to the 2000 8-K)
10.28           Loan Agreement between Tengasco Pipeline Corporation and Nick
                Nishiwaki dated August 16, 2000 (Incorporated by reference to
                Exhibit 10.19 to the 2000 8-K)
10.29           Promissory note made by Tengasco Pipeline Corporation and Nick
                Nishiwaki dated August 16, 2000 (Incorporated by reference to
                Exhibit 10.19(a) to the 2000 8-K)
10.30           Throughput Agreement between Tengasco Pipeline Corporation and
                Nick Nishiwaki dated August 16, 2000 (Incorporated by reference
                to Exhibit 10.19(b) to the 2000 8-K)
10.31           Memorandum Agreement between Tengasco, Inc. and the University
                of Tennessee dated February 13, 2001 (Incorporated by reference
                to Exhibit 10.19 to the registrant's annual report on Form
                10-KSB filed April 10, 2001 (the "2000 Form 10-KSB"))
10.32           Natural Gas Sales Agreement between Tengasco, Inc. and BAE
                SYSTEMS Ordnance Systems Inc. dated March 30, 2001 (Incorporated
                by reference to Exhibit 10.20 to the 2000 Form 10-KSB)
10.33           Reducing and Revolving Line of Credit Up to $35,000,000 from
                Bank One, N.A. to Tengasco, Inc. Tennessee Land & Mineral
                Corporation and Tengasco Pipeline Corporation dated November 8,
                2001 (Incorporated by reference to Exhibit 10.21 to the
                registrant's quarterly report on Form 10-Q filed November 14,
                2001)
10.34           Tengasco, Inc. Incentive Stock Plan (Incorporated by reference
                to Exhibit 4.1 to the registrant's registration statement on
                Form S-8 filed October 26, 2000)
10.35**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated October 7,
                2002 in the principal amount of $500,000
10.36**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated December 4,
                2002 in the principal amount of $250,000
10.37**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated February 3,
                2003 in the principal amount of $250,000
10.38**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated February 28,
                2003 in the principal amount of $250,000
10.39**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated May 20, 2003
                in the principal amount of $750,000
10.40**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated August 6,
                2003 in the principal amount of $150,000



10.41**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Jeffrey R. Bailey dated May 20, 2003 in the
                principal amount of $84,000
10.42           Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated December 3,
                2003 in the principal amount of $225,000 (Incorporated by
                reference to Exhibit 10.42 to the registrant's current report on
                Form 8-K dated December 3, 2003 (the "2003 Form 8-K")
10.43           Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated December 9,
                2003 in the principal amount of $250,000 (Incorporated by
                reference to Exhibit 10.43 to the 2003 Form 8-K)
10.44           Continuing Security Agreement dated December 3, 2003 by the
                Company and Tengasco Pipeline Corporation as Obligors and
                Dolphin Offshore Partners, LP as Secured Party (Incorporated by
                reference to Exhibit 10.44 to the 2003 Form 8-K)
10.45**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Dolphin Offshore Partners, LP dated December 24,
                2003 in the principal amount of $1,000,000
10.46**         Promissory Note made by Tengasco, Inc. and Tengasco Pipeline
                Corporation to Jeffrey R. Bailey dated February 2, 2004 in the
                principal amount of $225,000
21              List of subsidiaries (Incorporated by reference to Exhibit 21 to
                the registrant's annual report on Form 10-KSB filed March 31,
                2003 (the "2002 Form 10-KSB"))
23.1**          Consent of Cary V. Sorensen, Esq. (contained in Exhibit 5.1
                hereto)
23.2**          Consent of BDO Seidman
23.3**          Consent of Ryder Scott Company, L.P.
23.4*           Consent of Mercer Capital
24.1**          Power of Attorney
99.1            Ryder Scott Company, L.P. Report dated March 28, 2002
                (Incorporated by reference to Exhibit 99.15 to the registrant's
                annual report on Form 10-KSB filed April 10, 2002)
99.2            Ryder Scott Company, L.P. Report dated February 10, 2003
                (Incorporated by reference to Exhibit 99.17 to the 2002 Form
                10-KSB)
99.3**          Form of Instructions for Use of Rights Certificates
99.4**          Form of Letter to be Sent by Company to Holders of Records of
                the Rights
99.5**          Form of Letter to be Sent to Beneficial Owners

---------------
   *   Filed herewith
   **  Previously filed