Form 10KSB for CREDO PETROLEUM CORP filed on Jan 27, 2005

In 2004, total revenues rose 21% to $10,314,000 compared to $8,491,000 in 2003. As the oil and gas price/volume table on page 8 shows, total gas price realizations, which reflect hedging transactions, rose 2% to $4.60 per Mcf and oil price realizations rose 32% to $36.57 per barrel. The net effect of these price changes was to increase oil and gas sales by $963,000. Hedging losses were $717,000 in 2004 compared to $92,000 in 2003. Gas and oil production both rose 18%. The net effect of these volume changes was to increase oil and gas sales by $1,535,000. The increase in volumes resulted primarily from successful drilling in 2004 and 2003. Operating income rose 13% due to drilling supervision income and additional operated wells. Investment income and other fell 26% due primarily to market declines.

In 2004, total costs and expenses rose 24% to $5,244,000 compared to $4,244,000 in 2003. Oil and gas production expenses rose 29% due primarily to increased production taxes on higher revenues and new wells added during the year. Depreciation, depletion and amortization ("DD&A") increased 31% due primarily to increased production volume. General and administrative expenses rose 10% primarily due to increases in salaries and benefit costs. Interest expense relates to the exclusive license agreement note payment. The effective tax rate was 28% in 2004 and 2003.

In 2003, total revenues increased 58% to $8,491,000 compared to $5,358,000 in 2002. As the oil and gas price/volume table on page 8 shows, total gas price realizations, which reflect hedging transactions, increased 50% to $4.50 per Mcf and oil price realizations rose 26% to $27.68 per barrel. The net effect of these price changes was to increase oil and gas sales by $2,760,000. Hedging losses were $92,000 in 2003 compared with gains of $505,000 in 2002. Gas production rose 12% and oil production declined 5%. The net effect of these volume changes was to increase oil and gas sales by $633,000. The increase in gas volumes resulted primarily from successful drilling in 2003 and 2002. Operating income rose 10% due to drilling supervision income and additional operated wells. Investment income and other rose 168% due primarily to improved market conditions.

In 2003, total costs and expenses rose 18% to $4,244,000 compared to $3,602,000 in 2002. Oil and gas production expenses rose 25% due primarily to increased production taxes on higher revenues and new wells added during the year. Depreciation, depletion and amortization ("DD&A") increased 11% primarily due to an increase in production volume. General and administrative expenses rose 19% due to expenses related to installation of, and conversion to updated accounting software, and increased salary costs. Interest expense relates to the exclusive license agreement note payment. The effective tax rate was 28% in 2003 and 27% in 2002.

Accounting for Oil and Gas Property Costs. As more fully discussed in Note 1 to the consolidated financial statements, the company (i) follows the full cost method of accounting for the costs of its oil and gas properties, (ii) amortizes such costs using the units of production method, and (iii) applies a quarterly full cost ceiling test. Adverse changes in conditions (primarily gas price declines) could result in permanent write-downs in the carrying value of oil and gas properties as well as non-cash charges to operations, but would not affect cash flows.

Estimates of Proved Oil and Gas Reserves. An independent petroleum engineer annually estimates approximately 60% of the company's proved reserves. The company estimates the remainder. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof. In addition, subsequent physical and economic factors such as the results of drilling, testing, production and product prices may justify revision of such estimates. Therefore, actual quantities, production timing, and the value of reserves may differ substantially from estimates. A reduction in proved reserves would result in an increase in depreciation, depletion and amortization ("DD&A") expense.

Estimates of Asset Retirement Obligations. In accordance with Statement of Financial Accounting Standards ("SFAS") No 143, the company makes estimates of future costs and the timing thereof in connection with recording its future obligations to plug and abandon wells. Estimated abandonment dates will be revised in the future based on changes to related economic lives, which vary with product prices and production costs. Estimated plugging costs may also be adjusted to reflect changing industry experience. Increases in operating costs and decreases in product prices would increase the estimated amount of the obligation and increase DD&A expense. Cash flows would not be affected until costs to plug and abandon were actually incurred.

Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

This Form 10-KSB includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this Form 10-KSB, other than statements of historical facts, address matters that the company reasonably expects, believes or anticipates will or may occur in the future. Such statements are subject to various assumptions, risks and uncertainties, many of which are beyond the control of the company. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those described in the forward-looking statements.

CONSOLIDATED BALANCE SHEETS

October 31, 2004 and 2003

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Years Ended October 31, 2004

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Years Ended October 31, 2004

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended October 31, 2004

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

The consolidated financial statements include the accounts of CREDO Petroleum Corporation and its wholly owned subsidiaries (the "company"). The company engages in oil and gas acquisition, exploration, development and production activities in the United States. Certain operations are conducted through limited partnerships and limited liability companies which, as general partner or member company, the company manages and controls. The company's interests in these entities are combined on the proportionate share basis in accordance with accepted industry practice. All significant intercompany transactions have been eliminated. Certain reclassifications have been made to prior year amounts with no effect on net income. All references to years in these Notes refer to the company's fiscal October 31 year.

Cash equivalents consist of highly liquid investments with original maturities of three months or less. At October 31, 2004, approximately 60% of short-term investments are mutual funds. Other short-term investments consist primarily of professionally managed limited partnerships which provide readily determinable market values and short-term liquidity. The partnerships are invested primarily in financial instruments. Unrealized gains on limited partnerships are not significant. Short-term investments are classified as "trading" and are stated at fair value with realized and unrealized gains and losses immediately recognized.

The company follows the full cost method of accounting for its oil and gas operations. Under this method all costs incurred in the acquisition, exploration, and development of oil and gas properties are capitalized in one cost center, including certain internal costs directly associated with such activities which totaled $200,000 in 2004, 2003 and 2002. Proceeds from sales of oil and gas properties are credited to the cost center with no gain or loss recognized unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and gas reserves.

If capitalized costs, less related accumulated DD&A and deferred income taxes, exceed the "full cost ceiling," the excess is expensed in the period such excess occurs. The full cost ceiling includes an estimated discounted value of future net revenues attributable to proved reserves using current product prices and operating costs less outflows associated with settling asset retirement obligation accrued on the balance sheet in accordance with SFAS No. 143, and an estimate of the value of unproved properties. Costs of oil and gas properties, less estimated salvage values of lease and well equipment which are included in the cost center, are amortized using the units of production method. The company's composite depreciation, depletion and amortization ("DD&A") rate per equivalent barrel produced was $5.03 in 2004, $4.41 in 2003 and $4.27 in 2002.

Unevaluated properties consist primarily of lease acquisition and maintenance costs. Evaluation normally takes three to five years. Unevaluated property costs of $742,000 and $829,000 were incurred in 2004 and 2003, respectively.

The company periodically hedges the price of its estimated natural gas production when the potential for significant downward price movement is anticipated. Hedging transactions take the form of forward, or "short," selling in the NYMEX futures market, and are closed by purchasing offsetting "long" positions. Such hedges, which are accounted for as cash flow hedges, do not exceed estimated production volumes, are expected to have reasonable correlation between price movements in the futures market and the cash markets where the company's production is located, and are authorized by the company's Board of Directors. Hedges are expected to be closed as related production occurs but may be closed earlier if the anticipated downward price movement occurs or if the company believes that the potential for such movement has abated.

Hedging gains and losses are recognized as adjustments to gas sales as the hedged product is produced. The company had after tax hedging losses of $516,000 in 2004 and $66,000 in 2003, and after tax hedging gains of $369,000 in 2002. The company has recorded in other comprehensive income net deferred losses of approximately $437,000 (after tax) related to natural gas hedging transactions of which losses of $112,000 were realized and $325,000 were unrealized. Any hedge ineffectiveness is immediately recognized in gas sales. At October 31, 2004, the company's open hedge position totaled 430,000 Mcf covering the months of December 2004 through June 2005. The hedge represented approximately 40% of the company's estimated gas production for those months. December hedges totaling 70,000 Mcf are swap contracts at an average price of $6.39. January through March hedges are collars with an average $6.12 floor and a $7.85 ceiling totaling 180,000 Mcf. April through June 2005 hedges are collars with a $5.50 floor and a $6.75 ceiling covering 180,000 Mcf.

The preparation of financial statements in conformity with generally accepted accounting principles requires 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. Actual results could differ from those estimates. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserve quantities and the related present value of estimated future net cash flows therefrom.

In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of SFAS No. 123." Among other provisions, the statement amends the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." Under current accounting rules the company elected to account for its stock-based employee compensation under the intrinsic value method established by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."

No options were granted in 2004. The average fair value of each option granted was $5.66 in 2003 and $3.75 in 2002. All options were granted with an exercise price equal to the market price on the date of grant. The fair value was estimated on the date of grant using the Black-Scholes option-pricing model with an expected average volatility of 52% in 2003 and 53% in 2002, a risk-free interest rate of 3% in 2003 and 4% in 2002, no expected dividends, and average expected terms of five years.

If compensation expense had been determined in accordance with the provisions of SFAS No. 123, the company's net income and per share amounts would have been reported as follows:

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) is effective for public companies for interim or annual periods beginning after June 15, 2005, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows.

SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro-forma disclosure is no longer an alternative. The new standard will be effective for the company, beginning August 1, 2005. The company has not yet completed their evaluation but expects the adoption to have an effect on the financial statements similar to the pro-forma effects reported above.

The company has authorized 5,000,000 shares of preferred stock which may be issued in series and with preferences as determined by the company's Board of Directors. Approximately 100,000 shares of the company's authorized but unissued preferred stock have been reserved for issuance pursuant to the provisions of the company's Shareholders' Rights Plan.

On March 24, 2004, the company declared a three-for-two stock split to shareholders of record on April 5, 2004. Accordingly, 2,006,000 additional shares were issued on April 20, 2004. Common stock has been increased by the par value of the shares issued with a corresponding decrease in capital in excess of par value.

On March 19, 2003, the company declared a 20% stock dividend to shareholders of record on April 2, 2003. On April 23, 2003, the company issued 656,000 shares of common stock in conjunction with this dividend. Accordingly, the fair value based on the quoted market price of the additional shares issued of $6,277,000 was charged to retained earnings and credited to common stock and capital in excess of par value. Cash payments were made to shareholders in lieu of fractional shares. The basic and diluted weighted average number of shares outstanding and net income per share information for all prior reporting periods have been adjusted to reflect the effects of the 2004 stock split and the 2003 stock dividend.

The company's 1997 Stock Option Plan (the "Plan"), as amended and restated effective October 25, 2001, authorizes the granting of incentive and nonqualified options to purchase shares of the company's common stock. The Plan is administered by the Board of Directors which determines the terms pursuant to which any option is granted. The Plan provides that upon a change in control of the company, options then outstanding will immediately vest and the company will take such actions as are necessary to make all shares subject to options immediately salable and transferable. Plan activity is set forth below and has been adjusted for the 3-for-2 stock split in 2004 and 20% stock dividend in 2003.

Options are exercisable at weighted average exercise prices as follows: 178,032 in 2004 at $8.33; 108,657 in 2005 at $8.44; 52,030 in 2006 at $7.94; and 38,531 in 2007 at $8.93. Options expire with weighted average exercise prices as follows: 27,000 in 2007 at $4.64, 27,000 in 2008 at $5.58,and 323,250 in 2013 at $8.91. The weighted average remaining contractual life of options outstanding at October 31, 2004 is 7.8 years.

The company leases office facilities under an operating lease agreement which expires May 1, 2006. The lease agreement requires payments of $43,000 in 2005 and $22,000 in 2006. Total rental expense was $77,000 in 2004, $73,000 in 2003, and $73,000 in 2002. The company has no capital leases and no other operating lease commitments.

The company follows the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities. At October 31, 2004, the company had $1,576,000 of statutory depletion carry forward for tax return purposes and $831,000 for financial statement purposes.

The income tax expense recorded in the Consolidated Statements of Operations consists of the following:

The principal sources of temporary differences resulting in deferred tax assets and tax liabilities at October 31, 2004 and 2003 are as follows:

The standardized measure of discounted future net cash flows from reserves is set forth below as of October 31 of the indicated year.

The principal sources of change in the standardized measure of discounted future cash flows from reserves are set forth below for the indicated year.

To the Board of Directors and Stockholders
CREDO Petroleum Corporation
Denver, Colorado

We have audited the consolidated balance sheets of CREDO Petroleum Corporation and subsidiaries as of October 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the period ended October 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 CREDO Petroleum Corporation and subsidiaries as of October 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2004, in conformity with U.S. generally accepted accounting principles.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Within 90 days prior to the filing date of this report, the company carried out an evaluation, under the supervision and with the participation of the company's Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14(c). "Disclosure controls and procedures" are controls and procedures that are designed to ensure that information required to be disclosed by the company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based upon that evaluation, the company's Chief Executive Officer and Chief Accounting Officer concluded that the company's disclosure controls and procedures are effective for these purposes as of the date of the evaluation.

There have been no significant changes in the company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Incorporated by reference to the company's Proxy Statement to be filed with the Commission pursuant to Regulation 14A within 120 days of the end of the company's year 2004.

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Exhibit 14.1

CREDO PETROLEUM CORPORATION

CODE OF BUSINESS CONDUCT AND ETHICS

Adopted by the Board of Directors on March 11, 2004

TABLE OF CONTENTS

		Page
Introduction		1
Overview		1
Your Responsibility Regarding this Code		1
Amendment and Waiver		2
Appearances and Impressions		2
Business Entertainment and Gifts		2
Company Records		2
Competition and Fair Dealing		2
Compliance with Laws, Rules and Regulations		2
Confidential and Proprietary Information		3
Intellectual Property		3
Protection and Proper Use of Company Assets		4
Conflicts of Interest and Corporate Opportunities		4
Employee Relations		5
Financial Integrity and Disclosures		5
Insider Trading or Stock Tipping		6
Prohibited Payments		7
Prohibited Substances		7
Reporting of Code Violations		7
Discipline for Noncompliance with this Code		8
Policies and Procedures of the Company		8

Introduction

This Code of Business Conduct and Ethics has been prepared by the Company in response to new laws and regulations that resulted because of abuses of fundamental principals of honesty and integrity within certain high profile public companies. The Company has always strived to create a strong "culture" of honesty, integrity, loyalty, fairness, forthrightness, and ethical behavior. To that end, the Company has had a formal written policy for many years that details and explains its values and ethics and its related expectations for those associated with the Company. This Code of Business and Conduct and Ethics incorporates many of the principals in our existing written policy. It also adds certain new principals and improves on the discussion of others.

This Code is intended to qualify as a "Code of Ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.

In the final analysis, our culture is the people—our directors, employees, consultants and other representatives—who conduct themselves in a fair and honest and ethical manner. You have good common sense and you have good values that we believe are consistent with the Company's values. Because this Code cannot, and does not cover, every applicable law or provide answers to all question that might arise, you are encouraged to exercise your good common sense and your good judgement and values. And, if you encounter something in our business that alarms you and is inconsistent with your common sense, judgement and values, let your concerns be known in a professional but determined manner.

Overview

This Code documents and summarizes the Company's fundamental principals and values regarding honesty, loyalty, fairness and forthrightness. This Code promotes the Company's long-standing policies of (i) honest and ethical conduct, (ii) full, fair, accurate, timely and transparent disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in any other public communications of the Company, (iii) compliance with applicable laws, rules and regulations, (iv) avoidance of conflicts of interest, and (v) prompt internal reporting of Code violations and accountability for Code compliance. This Code applies to all employees, officers and directors of the Company and its subsidiaries and affiliates. The Company also expects others who work for, or represent, the Company, such as agents and consultants, to be guided by this Code .

This Code shall be distributed to all employees, officers and agents of the Company, and shall be disclosed in accordance with the requirements of the SEC and the NASDAQ.

Your Responsibility Regarding this Code

It is your responsibility to understand this Code and how it applies to you, to comply with this Code , to report Code violations of which you become aware, and to be accountable to the Company for doing so.

Compliance with this Code is mandatory. If you have questions or concerns about compliance, you are encouraged to talk to supervisors, managers or other appropriate Company personnel who you feel are, or should be knowledgeable about the Code and your situation.

The Company realizes that honest people who have good values and integrity make mistakes and judgement errors. Such things as greed and power and pressure to perform can cause honest people who have high integrity and good ethics to make mistakes and judgement errors. If you realize that you have made a significant mistake or error in judgement regarding matters covered in this Code or the Company's other policies and procedures, you are encouraged to bring it to the appropriate person's attention and to "make it right". In that circumstance, you can expect the Company to go the extra mile with fair treatment and, where appropriate, support. Under no circumstance should you cover-up any such mistake or judgement error.

Amendment and Waiver

The Board of Directors shall review this Code as circumstances dictate, and when necessary or desirable amend the Code to ensure that it is current and meets the needs and objectives of the Company and complies with legal and regulatory requirements.

Any amendment to, or waiver of, a provision of the Code granted to an executive officer or Director of the Company may be made only by the Board and shall be promptly disclosed as required by applicable laws, rules and regulations. Any other amendment or waiver may be made only by the Chief Executive Officer.

Appearances and Impressions

It is often just as important to avoid the appearance (or impression) of impropriety or noncompliance as it is to violate the rules. The Company encourages you to always be alert to the appearance of the choices you make regarding this Code and the Company's Policies and Procedures and avoid anything that might give the impression of impropriety or noncompliance.

Business Entertainment and Gifts

Business entertainment and gifts should only be used to create goodwill and sound working relationships, not to gain unfair advantage. No business entertainment or gift should ever be offered, given or provided unless it (i) is consistent with customary business practices, (ii) is not excessive in value, (iii) cannot be construed as a bribe or payoff, and (iv) does not violate any laws, rules or regulations. Cash gifts should be avoided.

Company Records

The alteration, destruction or falsification of corporate documents or records may constitute a criminal act. Destruction or alteration of documents with the intent to obstruct a pending or anticipated official government proceeding is a criminal act and could result in large fines and time in prison. Document destruction or falsification in other contexts may result in a violation of the federal securities laws or the obstruction of justice laws.

The Company routinely purges and destroys certain documents and records. Questions about the retention and destruction of Company documents and records should be referred to your supervisor.

Competition and Fair Dealing

We do not seek to profit at another's expense. We believe that a good deal is one in which all parties are satisfied. Our history shows that, if we create viable projects supported by good reasoning, our Company will have ample opportunity to grow and prosper.

You should endeavor to deal honestly and fairly with all persons or entities with whom the Company does business. No one should take unfair advantage through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice. Misappropriating proprietary information of other companies or inducing disclosures of such information is prohibited.

Compliance with Laws, Rules and Regulations

The Company's goal and intention is to comply with applicable governmental laws, rules and regulations of the jurisdictions in which we do business. The details of these laws, rules and regulations can be very complex. You are expected to understand the general legal and regulatory framework applicable to your job function. If you are in doubt about the legality or propriety of an action, business practice, or policy, you should seek advice from your supervisor or the employee or officer responsible for legal matters.

Confidential and Proprietary Information

In general, all operations, activities and business affairs of the Company and our business associates are to be kept confidential to the greatest extent possible. Confidential information includes all non-public information that might be of use to competitors, or that might be harmful to the Company or its customers if disclosed. Confidential and proprietary information belongs to the Company, must be treated with strictest confidence, and is not to be disclosed or discussed with others.

Confidential and proprietary information generally includes any and all methods, inventions, improvements or discoveries, whether or not patentable or copyrightable, and any other information of a similar nature disclosed or otherwise made known to the Company as a consequence of, or through, employment or association with the Company (including information originated by Company personnel). This can include, but is not limited to, information regarding the Company's business, products, processes, and services. It also can include information relating to research, development, inventions, trade secrets, intellectual property of any type or description, data, business plans, marketing strategies, engineering, contract negotiation, contents of the Company's policies and procedures, and business methods or practices.

Confidential information does not include (i) information that is in the public domain to the extent such information is readily available and is not subject to confidentiality agreements, (ii) information that becomes generally known to the public other than by disclosure by the Company or its personnel, and (iii) information received from a party that is under no legal obligation of confidentiality with the Company with respect to such information.

The Company has exclusive property rights to all confidential and proprietary information regarding the Company or our business associates. The unauthorized disclosure of this information could destroy its value to the Company and give others an unfair advantage. You are responsible for safeguarding Company information and complying with established security controls and procedures. All documents, records, notebooks, notes, memoranda and similar repositories of information containing information of a secret, proprietary, confidential or generally undisclosed nature relating to the Company or our operations and activities made available to you prior to, or during, the term of your association with the Company, including any copies thereof, belong to the Company and shall be held by you in trust solely for the benefit of the Company. Such information should not be removed from the Company's offices without a supervisor's approval and shall be delivered to the Company by you on the termination of your association with the Company or immediately upon request of the Company.

Intellectual Property

All intellectual property you conceive or develop during the course of your employment shall be the sole property of the Company. The term intellectual property includes any invention, discovery, concept, idea, or writing whether protectable or not by any United States or foreign copyright, trademark, patent, or common law including, but not limited to designs, materials, compositions of matter, machines, manufactures, processes, improvements, data, computer software, writings, formula, maps, techniques, know-how, methods, as well as improvements thereof or know-how related thereto concerning any past, present, or prospective activities of the Company. Intellectual property developed or conceived, either solely by you or with others, during the course of your employment must be promptly disclosed to the Company and you must make reasonable efforts to render any and all aid and assistance, at the Company's expense, to secure the appropriate documentation, patent, copyright, or trademark protection for such intellectual property.

Works of authorship including, but not limited to, literary works such as maps, books, articles, and computer programs, pictorials, graphics, audiovisual works, sound recordings, and architectural works are protected by United States and foreign copyright law as soon as they are reduced to a tangible medium perceptible by humans with or without the aid of a machine. A work does not have to bear a copyright notice in order to be protected and without the copyright owner's permission, no one may make copies of the work, create derivative works, distribute the work, perform the work publicly, or display the work publicly.

Employees may be granted permission to make use of copyrighted works under certain conditions provided that the limitations of those agreements are followed.

Protection and Proper Use of Company Assets

Appropriate steps should be taken within your areas of responsibility to protect Company assets and ensure their proper and efficient use. Company assets should be used for the Company business purposes. Incidental personal use of telephones, fax machines, copy machines, personal computers, and similar equipment is discouraged but may be allowed if (i) there is inconsequential additional cost to the Company, (ii) it does not interfere with your work duties, (iii) it is not related to an illegal activity, and (iv) the use is not specifically banned by other company policies. The Board of Directors may authorize in writing personal use by Company officers of certain Company assets as a benefit or for other bona fide reasons. The Chief Executive Officer may authorize personal use of Company assets in limited circumstances by non-officer employees, agents, or consultants.

Telephones and computer workstations and software, including network access to computing systems such as the Internet and e-mail are provided to improve personal productivity and to efficiently manage proprietary information in a secure and reliable manner. Permission must be obtained to install any software on any Company computer or connect any personal laptop to the Company network. You should not expect a right to privacy regarding e-mail and Internet use. All e-mails and Internet use on Company equipment are subject to monitoring by the Company.

Conflicts of Interest and Corporate Opportunities

A "conflict of interest" exists when a private interest or personal relationship interferes, or appears to interfere, with the best interest of the Company. Company policy is that actual, or apparent, conflicts of interest must be avoided. We should also avoid anything that might give the appearance (or impression) of any conflicts of interest.

You owe a duty to the Company to advance its interests when the opportunity to do so arises. Failure to do so creates a conflict of interest. Company policy is that you shall not (i) take for yourself or others opportunities that are discovered through the use of the Company property, information or position, (ii) use the Company property, information, or position for improper personal gain, or (iii) compete with the Company directly or indirectly.

No Code can define all possible areas of conflicts of interests. However, general guidelines would include (i) avoiding competing directly or indirectly with the Company in any manner, (ii) being proprietary with all Company data and information, and (iii) avoiding doing Company business with family members or organizations owned by family members or that employs family members, (iv) directly or indirectly soliciting or seeking personal gain, including, but not limited to, gifts, loans or professional favors from persons or entities with which the Company does business or may do business, and (v) assuring that all purchases, materials, etc. are based on arms-length transactions and are made at fair market values.

Full-time employees should not engage in any form of outside employment, including but not limited to self-employment, without the prior written approval of the Chief Executive Officer. Services as an officer, director, partner or consultant for outside organizations should be made known to the Chief Executive Officer and must be approved in advance by the Company.

Employee Relations

Our people are our most important asset. It is the Company's policy to (i) provide an environment where employees will adhere to this Code and conduct themselves with fairness, honesty, integrity and professionalism in the performance of their duties and all of their business relationships, treating each other with respect and professionalism, (ii) provide equal opportunity in recruiting, hiring, developing, promoting and compensating without regard to age, color, non-disqualifying disability, gender, national origin, race, marital status, veteran status, religion or any other basis that is protected under applicable law, (iii) to foster a professional, safe and discrimination-free work environment, where mutual respect is practiced by all employees, and (iv) to hire, evaluate and promote employees on the basis of their ability, achievements, experience and performance.

Ethnic, racial, religious, sexual or any other type of unlawful harassment is prohibited. Company policy prohibits illegal workplace harassment of any kind, whether the harasser or the victim is a co-worker, supervisor, agent, customer, guest or supplier. Company policy also prohibits retaliation against anyone who has made a harassment complaint.

Financial Integrity and Disclosures

The Company will make and keep books, records and accounts, which in reasonable detail accurately and fairly present the transactions and assets and liabilities of our Company in accordance to the laws, rules and regulations to which the Company is subject. The Company will also make full, fair, accurate, timely and understandable disclosure in its reports and documents filed with the Securities and Exchange Commission and in other public communications. Records must be retained in accordance with applicable laws, rules and regulations.

You are prohibited from directly or indirectly falsifying or causing to be false or misleading any financial or accounting books, records or accounts. You are also expressly prohibited from directly or indirectly manipulating an audit, and from destroying or tampering with any record, document or tangible object with the intent to obstruct a pending or contemplated audit, review or federal investigation. Commission of, or participation in, prohibited activities or illegal conduct may subject the perpetrator to federal penalties, as well as consequences invoked by the Company that may include termination of employment.

You are prohibited from directly or indirectly, making, or causing to be made, a materially false or misleading statement, or omitting to state, or causing another person to omit to state, any material fact necessary to make statements made not misleading in connection with the audit of financial statements by independent accountants, the preparation of any required reports, or any other work which involves or relates to preparation of the Company's financial statements and related reports.

The Company has numerous internal controls, policies and procedures related to its accounting and financial operations. Each employee is required to be thoroughly familiar with the controls, policies and procedures that relate to his or her area of responsibility. If you have any related questions, you should consult the Chief Financial Officer or Chief Executive Officer.

The Audit Committee of the Company's Board of Directors has established procedures for the receipt, retention and treatment of any complaints received regarding accounting, internal accounting controls or auditing matters of the Company and the confidential, anonymous submission by employees of concerns regarding such matters. If you have any concerns that alarm you regarding questionable accounting, internal accounting controls or auditing matters of the Company, you may make anonymous submissions in writing directly to the Chair of the Audit Committee of CREDO Petroleum Corporation at a post office box maintained by the Company for that purpose. Any such submissions will be handled as described in the Company's Audit Committee Charter.

In the event of a pending or anticipated subpoena, legal proceeding or governmental investigation, you must not dispose of, alter or conceal any records or documents that are in any way related or relevant to that matter.

Insider Trading or Stock Tipping

Directors, officers, employees, consultants, and business associates who are aware of material, non-public information from, or about, the Company (an "Insider") are prohibited, directly or through family members or other persons or entities, from (i) buying or selling securities (or derivatives relating to such securities) of the Company, or (ii) passing on, tipping or disclosing material, non-public information to others outside the Company including family and friends.

Such activities will be disciplined and may include termination of employment, civil actions (including penalties of up to three times the amount of profit gained or loss avoided by the insider trade or stock tip), or criminal action (including jail time).

Any undisclosed, non-public information that could affect the Company stock price should be considered material. Examples of undisclosed information include, but is not limited to, those set forth below:

•: Financial results, a change in earnings or earnings projections, or unexpected or unusual gains or losses in major operations
•: Negotiations and agreements regarding mergers, concessions, joint ventures, acquisitions, divestitures, business combinations or tender offers
•: Stock or cash dividends
•: Major regulatory changes
•: Major management changes
•: Information as to results of significant drilling and exploration activity
•: Information about advances in intellectual property or the use thereof
•: A substantial contract award or termination
•: A major lawsuit or claim
•: The gain or loss of a significant customer or supplier
•: Information that is considered confidential

The same policy also applies to securities issued by another company if you have acquired material, non-public information relating to such company in the course of your employment or affiliation with the Company.

When material information has been publicly disclosed, each Insider must continue to refrain from buying or selling the securities in question until the third business day after the information has been publicly released to allow the markets time to absorb the information. Officers and directors of the Company are subject to more stringent laws and regulations and should consult the Company or its legal counsel regarding such matters.

Prohibited Payments

Political contributions to candidates by corporations are prohibited under United States law except for certain non-federal elections. Therefore, no one may make or commit to any political contributions on behalf of the Company, and political contributions may not be made, either directly or indirectly, through the use of the Company expense accounts, through payments to third parties or through other such devices.

Federal and state laws, rules and regulations, including the Foreign Corrupt Practices Act, prohibit the payment of inappropriate gratuities to federal and state or foreign government personnel or political candidates. Company policy is not to make any payments, gifts or gratuities to federal, state or foreign government officials. Illegal payments to government officials, either directly or through agents or other third parties, are strictly prohibited.

Prohibited Substances

The Company prohibits the use of alcohol, illegal drugs or other prohibited items, including legal drugs which affect the ability to perform one's work duties, while on Company premises. The Company also strictly prohibits the possession or use of firearms, weapons or explosives on its property, and also prohibits you from reporting to work while under the influence of alcohol or illegal drugs. The Company may perform pre-employment and random drug testing.

Reporting of Code Violations

You should be alert and sensitive to situations that could result in actions that might violate federal, state, or local laws or the standards of conduct set forth in this Code . If you believe your own conduct or that of a fellow employee may have violated any such laws or this Code , you have an obligation to report the matter.

Generally, you should raise such matters first with an immediate supervisor. However, if you are not comfortable bringing the matter up with your immediate supervisor, or do not believe the supervisor has dealt with the matter properly, then you should raise the matter with the Chief Executive Officer or the Chairman of the Audit Committee. Directors and officers should report any potential violations of this Code to the Chairman of the Audit Committee. Probable violations should be reported and the Company encourages all means of reporting them.

Company policy is that there shall be no retaliation, discrimination or intimidation in any form against any person who in good faith and pursuant to the provisions of this Code reports a matter which the reporting person reasonably believes constitutes a violation of this Code or applicable laws, rules or regulations (except that appropriate disciplinary action may be taken against the reporting person if such person was involved in the violation).

If the Company receives information regarding a potential violation of this Code , the Chief Executive Officer or the Board of Directors, as appropriate, shall evaluate such information as to applicability, materiality and credibility. If, in their sole judgement, it is determined that the information is applicable, material and credible, they will initiate an informal inquiry or a formal investigation with respect thereto, prepare a report of the results of such investigation, including recommendations as to the disposition of such matter, including appropriate disciplinary action.

If an executive officer or Director is involved in the potential violation or if the Chief Executive Officer determines that a potential violation of the Code warrants, the Board shall, as appropriate, conduct an investigation in a manner consistent with the foregoing procedures.

All documents and reports with respect to potential violations of this Code and the resolution and any action taken with respect thereto shall be retained in accordance with applicable laws, rules and regulations.

Discipline for Noncompliance with this Code

Disciplinary actions for violations of this Code can include verbal or written reprimands, suspension or termination of employment or a potential civil lawsuit against principal violator and any others involved in the violation. The violation of laws, rules or regulations, which can subject the Company to fines and other penalties, may result in criminal prosecution.

Policies and Procedures of the Company

This Code is not intended to supersede the existing Policies and Procedures of the Company as set forth in the Company's various Policy and Procedure documents. Some of those Policies and Procedures elaborate in more detail about certain concepts covered by this Code . In addition to compliance with this Code , compliance with the Company's various other detailed Policy and Procedures is mandatory. You are responsible for familiarity with and compliance with any Company Policies and Procedures that apply to areas in which you work. In the inadvertent event of conflict between the provisions of this Code and such other Policy and Procedure documents, the provisions of this Code shall prevail.