The oil and gas industry is highly competitive. Competitors include major oil companies, independent energy companies and individual producers and operators.

The market for oil and natural gas depends on factors , including the extent of domestic production and imports of oil and natural gas, the proximity and capacity of natural gas pipelines and other transportation facilities, demand for oil and natural gas, the marketing of competitive fuels and the effects of state and federal regulation. The oil and gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers.

The Gulf of Mexico shelf has significant undiscovered reserves, in both unexplored and previously explored areas. Additionally, many major integrated and large independent energy companies have redirected their human and financial resources over the last several years away from the Gulf of Mexico shelf to focus on larger projects in the deepwater Gulf of Mexico and other areas of the world. As a result of these trends, as well as improvements in seismic and drilling technology, it is believed that the region offers ample exploration and development opportunities.

The Company’s existing properties are located in the outer continental shelf of the Gulf of Mexico in water depths of up to 75 feet. The reservoirs in the Company’s properties are generally characterized as having high porosity and permeability, which typically result in high production rates.

The Ship Shoal 113 unit is located in federal waters having water depths from 20 to 50 feet, offshore of Terrebonne Parish, Louisiana. The Company operates the three main production platforms and the 23 producing wells comprising this unit. Production from these properties net to the Company’s interest averaged 6.4 MMcf per day and 1,200 barrels of oil per day, or 13.6 MMcfe per day.

South Pelto block 5 and South Timbalier blocks 9, 11 and 16 are located in Louisiana state waters and in federal waters, offshore of Terrebonne Parish, Louisiana in water depths from 30 to 50 feet. The Company has drilled 18 wells, including redrills of existing wells, in these blocks, 17 of which were successful. Production from these properties net to the Company’s interest averaged 6.2 MMcf per day and 362 barrels of oil per day, or 8.4 MMcfe per day.

Ship Shoal blocks 66, 67, 68, 69 and South Pelto block 1 are located in Louisiana state waters and in federal waters with depths from 20 to 35 feet, offshore of Terrebonne Parish, Louisiana. The Company drilled 12 wells, 8 of which were successful. Production from these properties net to the Company’s interest averaged 1.5 MMcf per day and 400 barrels of oil per day, or 3.9 MMcfe per day.

Vermilion block 51 and the adjacent block at South Marsh Island 220 are located in federal waters with depths from 10 to 15 feet, offshore of Vermilion Parish, Louisiana. The Company drilled four wells, all of which were successful. Production from these properties net to the Company’s interest averaged 15.7 MMcf per day and 87 barrels of oil per day, or 16.2 MMcfe per day.

Vermilion blocks 87, 122 and 127 are located in federal waters with depths from 30 to 70 feet, offshore of Vermilion Parish, Louisiana. The Company drilled four wells, all of which were successful. Production from these properties net to the Company’s interest averaged 3.5 MMcf per day and 100 barrels of oil per day, or 4.1 MMcfe per day.

South Pelto block 22 is located in federal waters with depths from 50 to 60 feet, offshore of Terrebonne Parish, Louisiana. The Company drilled three wells, all of which were successful. Production from these properties net to the Company’s interest averaged 1.9 MMcf per day and 311 barrels of oil per day, or 3.8 MMcfe per day.

Oil and gas operating expenses, including production taxes, increased $9.5 million, or 43%, to $31.8 million for the year ended December 31, 2004 from $22.3 million for the year ended December 31, 2003.

The Company incurred $14.7 million in exploration expense for the year ended December 31, 2004. For the year ended December 31, 2003 the Company’s exploration expense was $0.8 million.

Depreciation, depletion and amortization expense increased $0.3 million, or 1%, to $44.6 million for the year ended December 31, 2004 from $44.3 million for the year ended December 31, 2003.

The Company reported net income of $39.0 million for the year ended December 31, 2004 as compared to $51.9 million for the year ended December 31, 2003.