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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

for the fiscal year ended June 30, 2004

for the transition period from             .

Commission File No. 0-16203

DELTA PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (303) 293-9133

Securities registered under Section 12(b) of the Exchange Act: None

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

Common Stock, $.01 par value

Check whether issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨   No

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

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)    ¨  Yes    No  x

The aggregate market value as of September 7, 2004 of voting stock held by non-affiliates of the registrant was approximately $407,611,000.

As of September 10, 2004, 39,314,949 shares of registrant’s Common Stock $.01 par value were issued and outstanding.

Documents incorporated by reference: The information required by Part III of this Form 10-K is incorporated by reference to the Company’s Definitive Proxy Statement for the Company’s 2004 Annual Meeting of Shareholders.

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The terms “Delta,” “Company,” “we,” “our,” and “us” refer to Delta Petroleum Corporation and its subsidiaries unless the context suggests otherwise.

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CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS

We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect us and to take advantage of the “safe harbor” protection for forward-looking statements afforded under federal securities laws. From time to time, our management or persons acting on our behalf make forward-looking statements to inform existing and potential security holders about us. These statements may include projections and estimates concerning the timing and success of specific projects and our future (1) income, (2) oil and gas production, (3) oil and gas reserves and reserve replacement, (4) capital spending, and (5) other matters related to our business. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. Sometimes we will specifically describe a statement as being a forward-looking statement. In addition, except for the historical information contained in this report, the matters discussed in this report are forward-looking statements. These statements by their nature are subject to certain risks, uncertainties and assumptions and will be influenced by various factors. Should any of the assumptions underlying a forward-looking statement prove incorrect, actual results could vary materially.

We believe the factors discussed below are important factors that could cause actual results to differ materially from those expressed in a forward-looking statement made herein or elsewhere by us or on our behalf. The factors listed below are not necessarily all of the important factors. Unpredictable or unknown factors not discussed herein could also have material adverse effects on actual results of matters that are the subject of forward-looking statements. We do not intend to update our description of important factors each time a potential important factor arises. We advise our shareholders that they should (1) be aware that important factors not described below could affect the accuracy of our forward-looking statements and (2) use caution and common sense when analyzing our forward-looking statements in this document or elsewhere, and all of such forward-looking statements are qualified by this cautionary statement.

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PART I

DESCRIPTION OF BUSINESS

General

Delta Petroleum Corporation (“Delta,” “we” or “us”) is a Colorado corporation organized on December 21, 1984. We maintain our principal executive offices at 475 Seventeenth Street, Suite 1400, Denver, Colorado 80202, and our telephone number is (303) 293-9133. Our common stock is listed on NASDAQ under the symbol DPTR.

We are primarily engaged in the acquisition, exploration, development and production of oil and gas properties. During fiscal 2004, we acquired a 50% interest in both a drilling and a trucking company, however these entities had limited activity. Our primary oil and gas areas of operations include the (1) Gulf Coast Region—South Texas and all Louisiana Basins, (2) Rocky Mountain Region - Denver Julesburg, Wind River, Williston and Piceance Basins, and (3) Offshore California near Santa Barbara.

The following table presents information regarding our primary oil and gas areas of operations as of June 30, 2004:

We intend to develop our primary areas of operations. For fiscal 2005, we have established an exploration and development capital budget of approximately $80 million.

We have oil and gas leases with governmental entities and other third parties who enter into oil and gas leases or assignments with us in the regular course of our business. We have no material patents, licenses, franchises or concessions that we consider significant to our oil and gas operations. The nature of our business is such that it is not seasonal, we do not engage in any research and development activities and we do not maintain or require a substantial amount of products, customer orders or inventory. Our oil and gas operations are not subject to renegotiations of profits or termination of contracts at the election of the federal government. We operate the majority of our properties and control the costs incurred. We have never been a party to any bankruptcy, receivership, reorganization or similar proceeding.

The following acquisitions have provided a significant portion of our growth:

On June 29, 2004, we acquired substantially all of the oil and gas assets owned by several entities controlled by Alpine Resources, Inc. (“Alpine”) for a total purchase price of $120.6 million, net of $1.9 million downward purchase price adjustment. Alpine was a privately held exploration and production company, active primarily in Southeast Texas and Louisiana.

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Subsequent to year-end on August 19, 2004, we completed the sale of our interests in five fields in Louisiana and South Texas previously acquired in the Alpine Acquisition, which closed on June 29, 2004, to Whiting Petroleum Corporation for $19.3 million. We paid $8.8 million toward our credit facility relating to the sale of these properties. No gain or loss was recorded on this transaction.

On September 19, 2003, we completed an acquisition of certain producing and drilling prospects in Colorado (the “South Tongue Prospect”) and Wyoming from Edward Mike Davis LLC and Edward Mike Davis, individually (collectively, “Davis”). On the date of acquisition, we estimated proved reserves to be approximately 4.7 Bcfe and we also acquired 100,000 acres of prospect leases in the South Tongue Prospect in Washington County, Colorado and 20,000 acres of prospect leases in Wyoming for total consideration of $13.1 million net of normal closing adjustments. Subsequent to September 19, 2003, we increased our South Tongue acreage position to approximately 260,000 acres.

On April 22, 2004, we amended our agreement with Davis to, among other things, add certain oil and gas leases located in Colorado known as the “North Tongue Prospect,” decrease the amount of Davis’ reversionary working interest after payout in the properties acquired under the initial agreement from 50% to 42.5%, change the definition of payout, change certain drilling obligations and modify our obligation to issue additional shares of stock to Davis upon the designation of Bonus Prospects. The initial consideration required to be paid to Davis upon execution of the Amended Agreement was 1,525,000 shares of our common stock, valued at $17.3 million. The entire amount was allocated to unproved undeveloped properties.

On June 20, 2003, we acquired producing oil and gas interests and related undeveloped acreage in Kansas from JAED Production Company (“JAED”). On the date of acquisition, we estimated proved reserves to be approximately 9.9 Bcfe for total consideration of $8.7 million net of normal closing adjustments.

On May 31, 2002, we acquired all of the domestic oil and gas properties of Castle Exploration Company (“Castle”). The properties acquired from Castle consisted of interests in approximately 525 producing wells located in fourteen (14) states, plus associated undeveloped acreage. On the date of acquisition, we estimated proved reserves to be approximately 62 Bcfe, of which 32 Bcfe was considered to be proved developed producing reserves for total consideration of $40.8 million net of $5.8 million in closing adjustments.

On February 19, 2002, we completed the acquisition of Piper Petroleum Company (“Piper”), a privately owned oil and gas company headquartered in Fort Worth, Texas. We issued 1,377,240 shares of our restricted common stock for 100% of the shares of Piper. The 1,377,240 shares of restricted common stock were valued at approximately $5.2 million based on the five-day average market closing price of Delta’s common stock surrounding the announcement of the merger.

We have an authorized capital of 3,000,000 shares of $.10 par value preferred stock, of which no shares were issued, and 300,000,000 shares of $.01 par value common stock, of which 38,447,369 shares were issued and outstanding as of June 30, 2004. We have outstanding warrants and options to non-employees to purchase 57,500 shares of common stock at prices ranging from $3.25 per share to $5.00 per share at June 30, 2004. Additionally, as of June 30, 2004 we had outstanding options which were granted to our officers, employees and directors under our incentive plans, to purchase up to 4,700,772 shares of common stock at prices ranging from $0.05 to $13.43 per share.

On June 29, 2004, we increased our credit facility to $100 million with a current borrowing base of $70 million with Bank of Oklahoma, N.A., US Bank National Association and Hibernia National Bank (the “Banks”). The proceeds from the increase in our credit facility were used for the Alpine acquisition.

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At June 30, 2004, we owned 4,277,977 shares of common stock of Amber Resources Company (“Amber”), representing 91.68% of the outstanding common stock of Amber. Amber is a public company (registered under the Securities Exchange Act of 1934) which owns non-operated working interests in undeveloped leases offshore California, near Santa Barbara. On July 1, 2001, we purchased all the producing properties of Amber for $107,000. The purchase price was based on an evaluation performed by an unrelated engineering firm. The effects of this transaction are eliminated in the consolidated financial statements. We entered into an agreement with Amber effective October 1, 1998 which provides, in part, for the sharing of the management between the two companies and allocation of expenses related thereto.

Operations

During the year ended June 30, 2004, we were engaged in only one industry, namely the acquisition, exploration, development, and production of oil and gas properties and related business activities. Our oil and gas operations have been comprised primarily of production of oil and gas, drilling exploratory and development wells and related operations and acquiring and selling oil and gas properties. Directly or through wholly-owned subsidiaries and through Amber, we currently own producing and non-producing oil and gas interests, undeveloped leasehold interests and related assets in fifteen (15) states, interests in a producing Federal unit offshore California and undeveloped offshore Federal leases near Santa Barbara, California. We intend to continue our emphasis on the drilling of exploratory and development wells primarily in Alabama, Colorado, Louisiana, New Mexico, Texas, Wyoming, and offshore California.

We intend to drill on some of our leases (presently owned or subsequently acquired); we may farm out or sell all or part of some of the leases to others; and/or we may participate in joint venture arrangements to develop certain other leases. Such transactions may be structured in a number of different manners that are in use in the oil and gas industry. Each such transaction is likely to be individually negotiated and no standard terms may be predicted.

During fiscal 2004 we also acquired a fifty percent interest in a small drilling company and a fifty percent interest in a small trucking company. Although we did not engage in any material drilling operations during fiscal 2004, our ownership interest in the drilling company will allow us to have priority access to at least two large drilling rigs. The initial purpose of our investment in the trucking company is to allow these drilling rigs to be moved to new drilling locations as necessary.

Markets

The principal products produced by us are crude oil and natural gas. The products are generally sold at the wellhead to purchasers in the immediate area where the product is produced. The principal markets for oil and gas are refineries and transmission companies which have facilities near our producing properties.

Distribution

Oil and natural gas produced from our wells are normally sold to various purchasers as discussed below. Oil is picked up and transported by the purchaser from the wellhead. In some instances we are charged a fee for the cost of transporting the oil, which fee is deducted from or accounted for in the price paid for the oil. Natural gas wells are connected to pipelines generally owned by the natural gas purchasers. A variety of pipeline transportation charges are usually included in the calculation of the price paid for the natural gas.

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Competition

We encounter strong competition from major oil companies and independent operators in acquiring properties and leases for the exploration for, and the development and production of, natural gas and crude oil. Competition is particularly intense with respect to the acquisition of desirable undeveloped gas and oil leases. The principal competitive factors in the acquisition of undeveloped gas and oil leases include the availability and quality of staff and data necessary to identify, investigate and purchase such leases, and the financial resources necessary to acquire and develop such leases. Many of our competitors have financial resources, staffs and facilities substantially greater than ours. In addition, the producing, processing and marketing of natural gas and crude oil are affected by a number of factors which are beyond our control, the effect of which cannot be accurately predicted. See “Risk Factors.”

Raw Materials

The principal raw materials and resources necessary for the exploration and development of natural gas and crude oil and leasehold prospects under which gas and oil reserves may be discovered, drilling rigs and related equipment to drill for and produce such reserves and knowledgeable personnel to conduct all phases of gas and oil operations. Although equipment and supplies used in our business are usually available from multiple sources, there is currently a general shortage of drilling equipment and supplies. We believe that these shortages are likely to intensify. The costs and delivery times of equipment and supplies are substantially greater now than in prior periods and are currently escalating. In partial response to this trend, we recently acquired a fifty percent interest in a small drilling company and a fifty percent interest in a small trucking company. We believe that our ownership interest in the drilling company will provide us with at least two large drilling rigs. The initial purpose of our investment in the trucking company is to allow these drilling rigs to be moved to new drilling locations as necessary. We are also attempting to establish arrangements with others to assure adequate availability of certain other necessary drilling equipment and supplies on satisfactory terms, but there can be no assurance that we will be able to do so. Accordingly, there can be no assurance that we will not experience shortages of, or material price increases in, drilling equipment and supplies, including drill pipe, in the future. Any such shortages could delay and adversely affect our ability to meet our drilling commitments.

Major Customers

During our fiscal year ended June 30, 2004, we sold a significant portion of our oil and gas production to the following companies: Seminole, Texla, Gulfmark, and Plains Marketing. We do not depend upon one or a few major customers for the sale of oil and gas as of the date of this report. The loss of any one or several customers would not have a material adverse effect on our business.

Government Regulation of the Oil and Gas Industry

General

Our business is affected by numerous governmental laws and regulations, including energy, environmental, conservation, tax and other laws and regulations relating to the energy industry. Changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to us, we cannot predict the overall effect of such laws and regulations on our future operations.

We believe that our operations comply in all material respects with all applicable laws and regulations and that the existence and enforcement of such laws and regulations have no more restrictive effect on our method of operations than on other similar companies in the energy industry.

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The following discussion contains summaries of certain laws and regulations and is qualified in its entirety by the foregoing.

Environmental Regulation

Together with other companies in the industries in which we operate, our operations are subject to numerous federal, state, and local environmental laws and regulations concerning our oil and gas operations, products and other activities. In particular, these laws and regulations require the acquisition of permits, restrict the type, quantities, and concentration of various substances that can be released into the environment, limit or prohibit activities on certain lands lying within wilderness, wetlands and other protected areas, regulate the generation, handling, storage, transportation, disposal and treatment of waste materials and impose criminal or civil liabilities for pollution resulting from oil, natural gas and petrochemical operations.

Governmental approvals and permits are currently, and may in the future be, required in connection with our operations. The duration and success of obtaining such approvals are contingent upon a significant number of variables, many of which are not within our control. To the extent such approvals are required and not obtained, operations may be delayed or curtailed, or we may be prohibited from proceeding with planned exploration or operation of facilities.

Environmental laws and regulations are expected to have an increasing impact on our operations, although it is impossible to predict accurately the effect of future developments in such laws and regulations on our future earnings and operations. Some risk of environmental costs and liabilities is inherent in our operations and products, as it is with other companies engaged in similar businesses, and there can be no assurance that material costs and liabilities will not be incurred. However, we do not currently expect any material adverse effect upon our results of operations or financial position as a result of compliance with such laws and regulations.

Although future environmental obligations are not expected to have a material adverse effect on our results of operations or financial condition, there can be no assurance that future developments, such as increasingly stringent environmental laws or enforcement thereof, will not cause us to incur substantial environmental liabilities or costs.

Hazardous Substances and Waste Disposal

We currently own or lease interests in numerous properties that have been used for many years for natural gas and crude oil production. Although the operator of such properties may have utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by us. In addition, some of these properties have been operated by third parties over whom we had no control. The U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and comparable state statutes impose strict, joint and several liabilities on owners and operators of sites and on persons who disposed of or arranged for the disposal of “hazardous substances” found at such sites. The Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes govern the management and disposal of wastes. Although CERCLA currently excludes petroleum from cleanup liability, many state laws affecting our operations impose clean-up liability regarding petroleum and petroleum related products.

In addition, although RCRA currently classifies certain exploration and production wastes as “non-hazardous,” such wastes could be reclassified as hazardous wastes, thereby making such wastes subject to more stringent handling and disposal requirements. If such a change in legislation were to be enacted, it could have a significant impact on our operating costs, as well as the gas and oil industry in general.

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Oil Spills

Under the Federal Oil Pollution Act of 1990, as amended (“OPA”), (i) owners and operators of onshore facilities and pipelines, (ii) lessees or permittees of an area in which an offshore facility is located and (iii) owners and operators of tank vessels (“Responsible Parties”) are strictly liable on a joint and several basis for removal costs and damages that result from a discharge of oil into the navigable waters of the United States. These damages include, for example, natural resource damages, real and personal property damages and economic losses. OPA limits the strict liability of Responsible Parties for removal costs and damages that result from a discharge of oil to $350 million in the case of onshore facilities, $75 million plus removal costs in the case of offshore facilities, and in the case of tank vessels, an amount based on gross tonnage of the vessel. However, these limits do not apply if the discharge was caused by gross negligence or willful misconduct, or by the violation of an applicable Federal safety, construction or operating regulation by the Responsible Party, its agent or subcontractor or in certain other circumstances.

In addition, with respect to certain offshore facilities, OPA requires evidence of financial responsibility in an amount of up to $150 million. Tank vessels must provide such evidence in an amount based on the gross tonnage of the vessel. Failure to comply with these requirements or failure to cooperate during a spill event may subject a Responsible Party to civil or criminal enforcement actions and penalties.

Under our various agreements, we have primary liability for oil spills that occur on properties for which we act as operator. With respect to properties for which we do not act as operator, we are generally liable for oil spills as a non-operating working interest owner. We do not act as operator for any of our offshore California properties. The operators of our offshore California properties are primarily liable for oil spills and are required by the Minerals Management Service of the United States Department of the Interior (“MMS”) to carry certain types of insurance and to post bonds in that regard. In addition, we also carry insurance as a non-operator in the amount of $5 million onshore and $10 million offshore. There is no assurance that our insurance coverage is adequate to protect us.

Offshore Production

Offshore oil and gas operations in U.S. waters are subject to regulations of the United States Department of the Interior which currently impose strict liability upon the lessee under a Federal lease for the cost of clean-up of pollution resulting from the lessee’s operations, and such lessee could be subject to possible liability for pollution damages. In the event of a serious incident of pollution, the Department of the Interior may require a lessee under Federal leases to suspend or cease operations in the affected areas.

Because we are engaged in acquiring, operating, exploring for and developing natural resources, we are subject to various state and local provisions regarding environmental and ecological matters. Therefore, compliance with environmental laws may necessitate significant capital outlays, may materially affect our earnings potential, and could cause material changes in our proposed business. At the present time, however, these laws do not materially hinder nor adversely affect our business. Capital expenditures relating to environmental control facilities have not been material to our operation since our inception. In addition, we do not anticipate that such expenditures will be material during the fiscal year ending June 30, 2005.

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We are responsible for costs associated with the plugging of wells, the removal of facilities and equipment and site restoration on our oil and natural gas properties, pro rata to our working interest. As of January 1, 2003 we adopted SFAS No. 143 “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires entities to record the fair value of liabilities for retirement obligations of acquired assets. We recorded an asset retirement obligation of approximately $2.6 million at June 30, 2004. Estimates of abandonment costs and their timing may change due to many factors, including actual drilling and production results, inflation rates, and changes to environmental laws and regulations. Estimated asset retirement obligations are added to net unamortized historical oil and gas property costs for purposes of computing depreciation, depletion and amortization expense charges.

Employees

We have approximately 50 full time employees. Additionally, certain operators, engineers, geologists, geophysicists, landmen, pumpers, draftsmen, title attorneys and others necessary for our operations are retained on a contract or fee basis as their services are required.

Certain Risks

Owners of common stock are subject to a variety of risks, including, without limitation, the following:

Risks Related to Our Stock

1. We may issue shares of preferred stock with greater rights than our common stock.

Although we have no current plans, arrangements, understandings or agreements to issue any preferred stock, our articles of incorporation authorize our board of directors to issue one or more series of preferred stock and set the terms of the preferred stock without seeking any further approval from our shareholders. Any preferred stock that is issued may rank ahead of our common stock, in terms of dividends, liquidation rights and voting rights.

2. There may be future dilution of our common stock.

To the extent options to purchase common stock under our employee and director stock option plans are exercised, holders of our common stock will incur dilution. Further, if we sell additional equity or convertible debt securities, such sales could result in increased dilution to our shareholders.

3. Our management controls a significant percentage of our outstanding common stock and their interests may conflict with those of our shareholders.

As of June 30, 2004, our directors and executive officers and their respective affiliates collectively and beneficially owned approximately 29% of our outstanding common stock. In addition, one of our affiliates, Castle Energy Corporation, has agreed to vote in favor of all of management’s nominees for director and in favor of other matters recommended by our Board of Directors at annual shareholder meetings. This concentration of voting control gives our directors and executive officers and their respective affiliates substantial influence over any matters that require a shareholder vote, including, without limitation, the election of directors, even if their interests may conflict with those of other shareholders. It could also have the effect of delaying or preventing a change in control of or otherwise discouraging a potential acquirer from attempting to obtain control of us. This could have a material adverse effect on the market price of our common stock or prevent our shareholders from realizing a premium over the then prevailing market prices for their shares of common stock.

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4. Sales of substantial amounts of our common stock may adversely affect our stock price and make future offerings to raise capital difficult.

Sales of a large number of shares of our common stock in the market or the perception that sales may occur could adversely affect the trading price of our common stock. As of June 30, 2004, 38,447,369 shares of our common stock were outstanding, almost all of which currently are freely tradable, subject to certain volume limitations and other requirements applicable to affiliates. We recently issued 6,000,000 restricted shares to investors in a private placement of our shares and issued an additional 2,525,000 restricted shares to Edward Mike Davis and entities controlled by him. We have registered all 2,525,000 shares for resale. As of June 30, 2004, options to purchase up to a total of approximately 4,758,272 shares of our common stock were outstanding.

We may issue additional restricted securities or register additional shares of common stock under the Securities Act in the future for our use in connection with future acquisitions. Pursuant to Securities Act Rule 145, the volume limitations and certain other requirements of Rule 144 would apply to resales of these shares by affiliates of the businesses that we acquire for a period of one year from the date of their acquisition, but otherwise these shares would be freely tradable by persons not affiliated with us unless we contractually restrict their resale.

The availability for sale, or sale, of the shares of common stock eligible for future sale could adversely affect the market price of our common stock.

5. Provisions in some of our employment agreements with key employees could delay or prevent a change in control of our Company, even if that change would be beneficial to our shareholders.

Certain provisions in employment agreements with certain of our key employees provide that in the event of a change of control of our Company we will immediately cause all of such employees’ then outstanding unexercised options to be exercised by us on behalf of such employees and that we will pay all related federal, state and local taxes applicable to such exercise. Such provisions could delay, discourage, prevent or render more difficult an attempt to obtain control of our Company, whether through a tender offer, business combination, proxy contest or otherwise. These employment agreements terminate November 1, 2004.

6. We do not expect to pay dividends on our common stock.

We do not expect to pay any dividends, in cash or otherwise, with respect to our common stock in the foreseeable future. We intend to retain any earnings for use in our business. In addition, the credit agreement relating to our $100 million credit facility with the Bank of Oklahoma, U.S. Bank and Hibernia Bank prohibits us from paying any dividends until the loan is retired.

7. The common stock is an unsecured equity interest in our Company.

As an equity interest, the common stock will not be secured by any of our assets. Therefore, in the event we are liquidated, the holders of the common stock will receive a distribution only after all of our secured and unsecured creditors have been paid in full. There can be no assurance that we will have sufficient assets after paying our secured and unsecured creditors to make any distribution to the holders of the common stock.

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8. Our shareholders do not have cumulative voting rights.

Holders of our common stock are not entitled to accumulate their votes for the election of directors or otherwise. Accordingly, the holders of more than 50% of our outstanding common stock will be able to elect all of our directors. As of June 30, 2004, our directors and executive officers and their respective affiliates collectively and beneficially owned approximately 29% of our outstanding common stock.

9. Our Articles of Incorporation have provisions that discourage corporate takeovers and could prevent shareholders from realizing a premium on their investment.

Certain provisions of our Articles of Incorporation and the provisions of the Colorado Business Corporation Act may discourage persons from considering unsolicited tender offers or other unilateral takeover proposals. Such persons might choose to negotiate with our Board of Directors rather than pursue non-negotiated takeover attempts. As a result, these provisions could have the effect of preventing shareholders from realizing a premium on their investment.

Our Articles of Incorporation authorize our Board of Directors to issue preferred stock without shareholder approval and to set the rights, preferences and other designations, including voting rights of those shares, as the Board may determine. Additional provisions include restrictions on business combinations and the availability of authorized but unissued common stock. These provisions may discourage transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a premium over prevailing market prices to shareholders for their common stock.

Risks Related to Our Company

1. We have substantial debt obligations, and shortages of funding could hurt our future operations.

As the result of debt obligations that we have incurred in connection with purchases of oil and gas properties, we are at times obligated to make substantial monthly payments to our lenders on loans that encumber our oil and gas properties and our production revenue. As of June 30, 2004, we owed Bank of Oklahoma, U.S. Bank and Hibernia Bank, collectively, $69.4 million, which was all that we were permitted to borrow under our existing credit facility. In the event that oil and gas prices and/or production rates drop to a level such that we are unable to pay the minimum principal and interest payments that are required by our debt agreements, we would be in default under our credit facility. In addition, our level of oil and gas activities, including exploration and development of existing properties, and additional property acquisitions, will be significantly dependent on our ability to successfully complete funding transactions.

2. A default under our credit agreement could cause us to lose our properties.

Our credit facility with Bank of Oklahoma, U.S. Bank and Hibernia Bank allows us to borrow, repay and re-borrow amounts, up to a maximum amount of $100 million. In order to obtain this facility, we granted a first and prior lien to the lending banks on most of our oil and gas properties, certain related equipment, oil and gas inventory, and certain bank accounts and proceeds. Under the terms of our credit agreement, the oil and gas properties mortgaged must represent not less than 80% of the engineered value of our oil and gas properties as determined by the Bank of Oklahoma using its own pricing parameters.

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Our borrowing base, which determines the amounts that we are allowed to borrow or have outstanding under our credit facility, was $69.4 million as of June 30, 2004. Subsequent determinations of our borrowing base will be made by the lending banks at least semi-annually on October 1 and April 1 of each year or as unscheduled redeterminations. In connection with each determination of our borrowing base, the banks will also redetermine the amount of our monthly commitment reduction. We do not currently have any monthly commitment reduction obligation as a result of our most recent redetermination, and we will not have any monthly commitment reduction obligation until it is redetermined by our banks. Our borrowing base and the revolving commitment of the banks to lend money under the credit agreement must be reduced as of the first day of each month by an amount determined by the banks under our credit agreement. The amount of the borrowing base must also be reduced from time to time by the amount of any prepayment that results from our sale of oil and gas properties. If, as a result of any such monthly commitment reduction or reduction in the amount of our borrowing base, the total amount of our outstanding debt were to exceed the amount of the revolving commitment then in effect, then, within 30 days after we are notified by the Bank of Oklahoma, we would be required to make a mandatory prepayment of principal to reduce our outstanding indebtedness so that it would not exceed our borrowing base. If for any reason we were unable to pay the full amount of the mandatory prepayment within the requisite 30-day period, we would be in default of our obligations under our credit agreement.

For so long as the revolving commitment is in existence or any amount is owed under any of the loan documents, we will also be required to comply with loan covenants that will limit our flexibility in conducting our business and which could cause us significant problems in the event of a downturn in the oil and gas market. If an event of default occurs and continues after the expiration of any cure period that is provided for in our credit agreement, the entire principal amount due under the loan documents, all accrued interest and any other liabilities that we might have to the lending banks under the loan documents will all become immediately due and payable, all without notice of default of any kind. The foregoing information is provided to alert readers that there is risk associated with our existing debt obligations. It is not intended to provide a summary of the terms of our agreements with our lenders.

3. The substantial cost to develop certain of our offshore California properties could result in a reduction of our interest in these properties or cause us to incur penalties.

Certain of our offshore California undeveloped properties, in which we have ownership interests ranging from 2.49% to 75%, are attributable to our interests in four of our five federal units (plus one additional lease) located offshore of California near Santa Barbara. These properties have a cost basis of $10.8 million. The cost to develop these properties will be very substantial. The cost to develop all of these offshore California properties in which we own an interest, including delineation wells, environmental mitigation, development wells, fixed platforms, fixed platform facilities, pipelines and power cables, onshore facilities and platform removal over the life of the properties (assumed to be 38 years), is estimated to be in excess of $3 billion. Our share of such costs, based on our current ownership interest, is estimated to be over $200 million. Operating expenses for the same properties over the same period of time, including platform operating costs, well maintenance and repair costs, oil, gas and water treating costs, lifting costs and pipeline transportation costs, are estimated to be approximately $3.5 billion, with our share, based on our current ownership interest, estimated to be approximately $300 million. There will be additional costs of a currently undetermined amount to develop the Rocky Point Unit. Each working interest owner will be required to pay its proportionate share of these costs based upon the amount of the interest that it owns. If we are unable to fund our share of these costs or otherwise cover them through farmouts or other arrangements, then we could either forfeit our interest in certain wells or properties or suffer other penalties in the form of delayed or reduced revenues under our various unit operating agreements. The estimates discussed above may differ significantly from actual results.

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4. If we fail to drill in accordance with the terms of our existing agreements, we could lose some of our properties in Washington County, Colorado.

We have entered into agreements, which require us to fulfill certain drilling obligations. In particular, we have entered into an agreement with Edward Mike Davis and entities controlled by him (“Davis”) which requires us to drill wells on not less than ten prospects during every twelve month period in our area of mutual interest in Washington County, Colorado, and as to each successful prospect well, to continuously drill additional wells to fully develop each prospect as a result of such drilling with the goal of establishing ten-acre spacing for each such oil discovery. Our agreement with Davis provides that if at any time we fail, but for reasons of acts of God or lack of availability of a drilling rig, to honor the drilling program, we are to reassign to Davis all lease acreage in our area of mutual interest not held by production, but we are to have no other liability to Davis or any other party for our failure to drill. We have agreed to drill all wells to the base of the J-Sand Formation or the top of the Skull Creek Formation. Our past J-Sand results have initially caused us to believe that the eastern half of our acreage position in our area of mutual interest will be productive in the shallow Niobrara formation, but may not be productive in the deeper J-Sand. Although we currently intend to continue to drill to the J-Sand in that area because in many locations the formation may be economically viable and continued drilling to that depth will provide us with additional information which may prove to be beneficial to us in the future, if we ultimately determine that it is not worthwhile to drill to the depth of the J-Sand or otherwise fail to drill to that depth in accordance with the terms of our agreement, we may be required to assign acreage to Davis. Davis has notified us that he does not believe that we are fulfilling all of our obligations under this and other agreements with him, but he has not declared us to be in default. We intend to fully comply with all of our obligations under these agreements.

5. There is currently a shortage of available drilling rigs and equipment which could cause us to experience higher costs and delays that could adversely affect our operations.

Although equipment and supplies used in our business are usually available from multiple sources, there is currently a general shortage of drilling equipment and supplies. We believe that these shortages are likely to intensify. The costs and delivery times of equipment and supplies are substantially greater now than in prior periods and are currently escalating. In partial response to this trend, we recently acquired a fifty percent interest in a small drilling company and a fifty percent interest in a small trucking company that are both currently managed by Edward Mike Davis. Although Mr. Davis and his affiliated entities are not currently deemed to be affiliates of Delta, we have recently acquired several properties from Mr. Davis and entities that are controlled by him. We also currently have areas of mutual interest and joint ventures with Mr. Davis and his related entities, and we have substantial drilling commitments that are related to those ventures. We believe that our ownership interest in the drilling company will allow us to have priority access to at least two large drilling rigs. The initial purpose of our investment in the trucking company is to allow these drilling rigs to be moved to new drilling locations as necessary. We are also attempting to establish arrangements with others to assure adequate availability of certain other necessary drilling equipment and supplies on satisfactory terms, but there can be no assurance that we will be able to do so. Accordingly, there can be no assurance that we will not experience shortages of, or material price increases in, drilling equipment and supplies, including drill pipe, in the future. Any such shortages could delay and adversely affect our ability to meet our drilling commitments.

6. We have no long-term contracts to sell oil and gas.

We do not have any long-term supply or similar agreements with governments or other authorities for which we act as a producer. We are therefore dependent upon our ability to sell oil and gas at the prevailing wellhead market price. There can be no assurance that purchasers will be available or that the prices they are willing to pay will remain stable.

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7. Our business is not diversified.

Since all of our resources are devoted to one industry, owners of our common stock are risking essentially their entire investment in a company that is focused only on oil and gas activities.

8. We depend on key personnel.

We currently have only four employees that serve in management roles, and the loss of any one of them could severely harm our business. In particular, Roger A. Parker and John R. Wallace are responsible for the operation of our oil and gas business, Aleron H. Larson, Jr. is responsible for other business and corporate matters, and Kevin K. Nanke is our chief financial officer. We do not have key man insurance on the lives of any of these individuals.

Risks Related to Our Business

1. Oil and natural gas prices are volatile and a decrease could adversely affect our revenues, cash flows and profitability.

Our revenues, profitability and future rate of growth depend substantially upon the market prices of oil and natural gas, which fluctuate widely. Sustained declines in oil and gas prices may adversely affect our financial condition, liquidity and results of operations. Factors that can cause market prices of oil and natural gas to fluctuate include: relatively minor changes in the supply of and demand for oil and natural gas; market uncertainty; the level of consumer product demands; weather conditions; U.S. and foreign governmental regulations; the price and availability of alternative fuels; political and economic conditions in oil producing countries, particularly those in the Middle East; the foreign supply of oil and natural gas; the price of oil and gas imports; and overall U.S. and foreign economic conditions.

We are not able to predict future natural gas or oil prices. At various times, excess domestic and imported supplies have depressed oil and gas prices. Lower prices may reduce the amount of oil and natural gas that we can produce economically and may also require us to write down the carrying value of our oil and gas properties. Substantially all of our oil and natural gas sales are made in the spot market or pursuant to contracts based on spot market prices, not long-term fixed price contracts.

In an attempt to reduce price risk, we periodically enter into hedging transactions with respect to a portion of our expected future production. Such transactions may not reduce the risk or minimize the effect of any decline in natural gas or oil prices. Any substantial or extended decline in the prices of or demand for oil or natural gas would have a material adverse effect on our financial condition and results of operations.

2. If oil or natural gas prices decrease or exploration and development efforts are unsuccessful, we may be required to take write downs.

There is a risk that we will be required to write down the carrying value of our oil and gas properties, which would reduce our earnings and stockholders’ equity. A write down could occur when oil and gas prices are low or if we have substantial downward adjustments to our estimated proved reserves, increases in our estimates of development costs or deterioration in our exploration and development results.

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We account for our natural gas and crude oil exploration and development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The capitalized costs of our oil and gas properties may not exceed the estimated future net cash flows from our properties. If capitalized costs exceed future net revenues, we must write down the costs of the properties to our estimate of fair market value. Any such charge will not affect our cash flow from operating activities, but it will reduce our earnings and stockholders’ equity.

The application of the successful efforts method of accounting requires managerial judgment to determine the proper classification of wells designated as developmental or exploratory, which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze, and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells may be completed that are assumed to be productive and actually deliver oil and gas in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. Wells are drilled that have targeted geologic structures that are developmental in nature and an allocation of costs is required to properly account for the results. The evaluation of oil and gas leasehold acquisition costs requires judgment to estimate the fair value of these costs with reference to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.

We review our oil and gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. Once incurred, a write down of oil and gas properties is not reversible at a later date even if gas or oil prices increase. Given the complexities associated with oil and gas reserve estimates and the history of price volatility in the oil and gas markets, events may arise that would require us to record an impairment of the recorded book values associated with our oil and gas properties.

3. The marketability of our production depends mostly upon the availability, proximity and capacity of gas gathering systems, pipelines and processing facilities.

The marketability of our production depends upon the availability, operation and capacity of gas gathering systems, pipelines and processing facilities. The unavailability or lack of capacity of these systems and facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans for properties. United States federal, state and foreign regulation of oil and gas production and transportation, general economic conditions and changes in supply and demand could adversely affect our ability to produce and market oil and natural gas. If market factors changed dramatically, the financial impact on us could be substantial. The availability of markets and the volatility of product prices are beyond our control and represent a significant risk.

4. We may not receive payment for a portion of our future production.

Our revenues are derived principally from uncollateralized sales to customers in the oil and gas industry. The concentration of credit risk in a single industry affects our overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions. We generally do not attempt to obtain credit protections such as letters of credit, guarantees or prepayments from our purchasers. We are unable to predict, however, what impact the financial difficulties of any of our purchasers may have on our future results of operations and liquidity.

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5. We may not be able to obtain adequate financing to execute our operating strategy.

We have historically addressed our short and long-term liquidity needs through the use of cash flow provided by operating activities, the use of bank credit facilities and the issuance of equity securities. Without adequate financing, we may not be able to successfully execute our operating strategy, particularly with respect to our offshore California properties. We continue to examine the following alternative sources of capital:

The availability of these sources of capital will depend upon a number of factors, some of which are beyond our control. These factors include general economic and financial market conditions, oil and natural gas prices and our market value and operating performance. We may be unable to execute our operating strategy if we cannot obtain adequate capital.

6. We may not be able to fund our planned capital expenditures.

We spend and will continue to spend a substantial amount of capital for the acquisition, exploration, exploitation, development and production of oil and gas reserves. Our exploration and development capital budget ranges from $60 to $80 million for fiscal 2005. If low oil and natural gas prices, operating difficulties or other factors, many of which are beyond our control, cause our revenues and cash flows from operating activities to decrease, we may be limited in our ability to spend the capital necessary to complete our capital expenditures program. In addition, if our borrowing base under our credit facility is re-determined to a lower amount, this could adversely affect our ability to fund our planned capital expenditures. After utilizing our available sources of financing, we may be forced to raise additional equity or debt proceeds to fund such expenditures. Additional equity or debt financing or cash flow provided by operations may not be available to meet our capital expenditures requirements.

7. We may not be able to replace production with new reserves.

Our reserves will decline as they are produced unless we acquire properties with proved reserves or conduct successful development and exploration drilling activities. Our future oil and natural gas production is highly dependent upon our level of success in finding or acquiring additional reserves and developing existing proved reserves, which we may not be successful in doing.

The successful acquisition of producing properties requires an assessment of a number of factors, many of which are beyond our control. These factors include recoverable reserves, future oil and gas prices, operating costs and potential environmental and other liabilities, title issues and other factors. Such assessments are inexact and their accuracy is inherently uncertain. In connection with such assessments, we perform a review of the subject properties, which we believe is generally consistent with industry practices. However, such a review will not reveal all existing or potential problems. In addition, the review will not permit a buyer to become sufficiently familiar with the properties to fully assess their deficiencies and capabilities. We may not be able to acquire properties at acceptable prices because the competition for producing oil and gas properties is intense and many of our competitors have financial and other resources that are substantially greater than those available to us.

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8. The exploration, development and operation of oil and gas properties involve substantial risks that may result in a total loss of investment.

The business of exploring for and, to a lesser extent, developing and operating oil and gas properties involves a high degree of business and financial risk, and thus a substantial risk of investment loss that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Currently, 42% of our proved reserves are undeveloped and have a book value of $86.7 million. The cost to develop these reserves is estimated to be approximately $67 million. In addition, we have $49 million of capitalized costs on properties with no proved reserves. We may drill wells that are unproductive or, although productive, do not produce oil and/or gas in economic quantities. Acquisition and completion decisions generally are based on subjective judgments and assumptions that are speculative. It is impossible to predict with certainty the production potential of a particular property or well. Furthermore, a successful completion of a well does not ensure a profitable return on the investment. A variety of geological, operational, or market-related factors, including, but not limited to, unusual or unexpected geological formations, pressures, equipment failures or accidents, fires, explosions, blowouts, cratering, pollution and other environmental risks, shortages or delays in the availability of drilling rigs and the delivery of equipment, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well or otherwise prevent a property or well from being profitable. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is contaminated with water or other deleterious substances.

9. You should not place undue reliance on reserve information because it is only an estimate.

Certain of our Exchange Act reports filed with the Commission contain estimates of oil and gas reserves, and the future net cash flows attributable to those reserves, prepared by Ralph E. Davis Associates, Inc. and Mannon & Associates (together, the “Engineers”), our independent petroleum and geological engineers. There are numerous uncertainties inherent in estimating quantities of proved reserves and cash flows from such reserves, including factors beyond our control and the Engineers’ control. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact manner. The accuracy of an estimate of quantities of oil and gas reserves, or of cash flows attributable to such reserves, is a function of the available data, assumptions regarding future oil and gas prices, expenditures for future development and exploitation activities, and engineering and geological interpretation and judgment. Reserves and future cash flows may also be subject to material downward or upward revisions based upon production history, development and exploitation activities and oil and gas prices. Actual future production, revenue, taxes, development expenditures, operating expenses, quantities of recoverable reserves and value of cash flows from those reserves may vary significantly from the assumptions and estimates in our Exchange Act reports filed with the Commission, certain of which are incorporated by reference into this report. In addition, reserve engineers may make different estimates of reserves and cash flows based on the same available data. The estimated quantities of proved reserves and the discounted present value of future net cash flows attributable to those reserves included in certain of the Exchange Act reports were prepared by the Engineers in accordance with the rules of the Commission, and are not intended to represent the fair market value of such reserves.

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10. Our operations are subject to numerous risks of oil and gas drilling and production activities.

Oil and gas drilling and production activities are subject to numerous risks, including the risk that no commercially productive natural gas or oil reservoirs will be found. Oil and gas drilling and production activities may be shortened, delayed or canceled as a result of a variety of factors, many of which are beyond our control. These factors include:

The prevailing prices of oil and natural gas also affect the cost of and the demand for drilling rigs, production equipment and related services.

New wells that we drill may not be productive and we may not recover all or any portion of our investment. The cost of drilling and completing wells is often uncertain. Drilling for oil and natural gas may be unprofitable. Drilling activities can result in dry wells and wells that are productive but do not produce sufficient net revenues after operating and other costs to recoup drilling costs.

11. Our industry experiences numerous operating risks.

The exploration, development and operation of oil and gas properties also involve a variety of operating risks including the risk of fire, explosions, blowouts, pipe failure, abnormally pressured formations and environmental hazards, including oil spills, gas leaks, pipeline ruptures or discharges of toxic gases. If any of these industry-operating risks occur, we could have substantial losses. Substantial losses may be caused by injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties, and suspension of operations.

We maintain insurance against some, but not all, of the risks described above. Such insurance may not be adequate to cover losses or liabilities. Also, we cannot predict the continued availability of insurance at premium levels that justify its purchase. The terrorist attacks on September 11, 2001 and the changes in the insurance markets attributable to those attacks may make some types of insurance more difficult to obtain. We may be unable to secure the level and types of insurance we would otherwise have secured prior to the terrorist attacks. We may not be able to maintain insurance in the future at rates we consider reasonable. The occurrence of a significant event, not fully insured or indemnified against, could materially and adversely affect our financial condition and operations.

12. Terrorist attacks aimed at our facilities could adversely affect our business.

The United States has been the target of terrorist attacks of unprecedented scale. The U.S. government has issued warnings that U.S. energy assets may be the future targets of terrorist organizations. These developments have subjected our operations to increased risks. Any future terrorist attack at our facilities, or those of our purchasers, could have a material adverse effect on our business.

13. We may suffer losses or incur liability for events that we or the operator of a property has chosen not to obtain insurance.

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Our operations are subject to hazards and risks inherent in producing and transporting oil and natural gas, such as fires, natural disasters, explosions, pipeline ruptures, spills, and acts of terrorism, all of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other damage to our properties and others. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. In addition, we believe any operators of properties in which we have or may acquire an interest will maintain similar insurance coverage. The occurrence of an event that is not covered, or not fully covered, by insurance could have a material adverse effect on our business, financial condition and results of operation.

14. Hedging transactions may limit our potential gains.

In order to manage our exposure to