The Company’s total proved reserves have a reserve life index of approximately 37 years and its proved producing reserves have a reserve life index of 11 years.

The Company is one of the largest producers and acreage holders in the James Lime play. The Company acquired its initial acreage position and wells producing 5 MMcfe/d in Shelby County, Texas in June 2002. At June 30, 2006, the Company had 58 productive wells and total proved reserves of approximately 260 Bcfe in the James Lime.

The Company also produces out of the shallower Fredericksburg (or Edwards) formation on its East Texas acreage. At June 30, 2006, the Company had seven productive wells and total proved reserves of approximately 38 Bcfe in the Fredericksburg formation, of which 4 Bcfe were proved developed producing.

The Company owns and operates 80 miles of four-to-eight-inch gas gathering lines and gas pipelines and 13 compressor stations with 9,630 total compression horsepower, which gather, process and transport the Company’s gas and third party gas in its East Texas operations area. The Company’s system interconnects to the Texas Eastern, Centerpoint and Shelby County pipelines. During the six months ended June 30, 2006 the Company transported an average of approximately 27.3 MMcf/d of gas.

The Hugoton field has produced over 31 Tcf of gas since its discovery in 1927, making it the most prolific gas field in North America. The Company’s farmout covers approximately 651,000 gross (631,000 net) acres in the heart of the Hugoton field. At June 30, 2006, the Company had 68 productive wells and total proved reserves of approximately 57 Bcfe, of which 17 Bcfe were proved developed producing. The Company has identified three waterfloods, 392 drilling locations and anticipates drilling 33 wells in 2006.

Gas aggregation and pipeline sales increased from $1.2 million to $2.1 million in the first six months of 2006 compared to the first six months of 2005.

Lease operating expenses increased $3.7 million for the first six months of 2006 from the previous comparative period.

Depreciation, depletion and amortization expenses increased to $4.5 million for the six months ended June 30, 2006, an increase of $1.9 million from the comparative period in 2005.

Interest expense increased from $0.3 million in 2005 to $1.0 million in 2006.