The Permian Basin, the largest onshore oil and gas basin in the United States, is characterized by an extensive production history, mature infrastructure, long reserve life, multiple producing horizons, enhanced recovery potential and a large number of operators.

The Permian Basin is one of the most prolific oil and gas regions in the United States, with its first commercial discovery in 1923 and cumulative production of 32.5 billion barrels of oil and 105 trillion cubic feet of gas as of December 31, 2006.

Current average daily production in the Permian Basin is approximately 10 billion cubic feet equivalent gas per day from approximately 118,000 active producing wells. It underlies an area of Southeast New Mexico and West Texas approximately 250 miles wide and 300 miles long.

Commercial accumulations of hydrocarbons occur in multiple stratigraphic horizons, at depths ranging from approximately 1,000 feet to over 25,000 feet. This area is characterized by long life shallow decline reserves.

The primary producing formation in the Permian Basin under the Company’s core properties in Southeast New Mexico is the Paddock interval of the Yeso formation, which is located at depths ranging from 3,800 feet to 5,800 feet.

The Company has also discovered reserves and are producing oil and natural gas from the Blinebry interval of the Yeso formation, the top of which is located approximately 400 feet below the base of the Paddock interval.

In addition, the Company has assembled a multi-year inventory of development drilling and exploitation projects, including further projects to evaluate the aerial extent of the Blinebry interval.

The Company has also acquired significant acreage positions in the Permian Basin of Southeast New Mexico, the Central Basin Platform, the Delaware Basin and the Val Verde Basin of West Texas, the Williston Basin in North Dakota and the Arkoma Basin in Arkansas, covering unconventional emerging resource plays, where it intends to apply horizontal drilling, advanced fracture stimulation and enhanced recovery technologies.

The Company drilled 140 gross (86.4 net) wells in 2006, 89% of which were completed as producers, 7% of which were dry holes and 4% of which are awaiting completion. In addition, the Company recompleted 103 gross (77.1 net) wells in 2006, 98% of which were productive.

As of December 31, 2006, the Company was involved in six significant unconventional emerging resource plays, with a total acreage position of 218,077 gross (114,139 net) acres. These plays are currently in various stages of maturity. As of December 31, 2006, the Company had an aggregate of 6.0 Bcfe of proved reserves attributed to these plays.

Total production increased 16,277 MMcfe (233%) from 6,998 MMcfe for the year ended December 31, 2005 to 23,275 MMcfe for the year ended December 31, 2006.

Production expenses (including production taxes) increased $23.2 million (159%) from $14.6 million ($2.09 per Mcfe) to $37.8 million ($1.62 per Mcfe) for the years ended December 31, 2005 and 2006, respectively.

Total depreciation and depletion expense increased $49.2 million (428%) from $11.5 million ($1.64 per Mcfe) to $60.7 million ($2.61 per Mcfe) for the years ended December 31, 2005 and 2006, respectively.

Interest expense increased $27.5 million from $3.1 million to $30.6 million for the years ended December 31, 2005 and 2006, respectively.