As of June 30, 2001, the Company has acquired leasehold positions in over 82,000 gross (37,500 net) acres in the Bossier trend, primarily located in Freestone, Leon and Robertson counties. The Bossier Sand was deposited as a series of stacked blanket sandstone reservoirs covering a large areal extent along the edge of the East Texas Basin. The Bossier Sand typically occurs at depths between 10,000 and 13,000 feet with net pay from 20 to 100 feet. Recent advances in fracture stimulation technology have led to enhanced production and greater total recoverable reserves from the tight, low-permeability Bossier Sand.

Through April 30, 2001, the Company has drilled 11 wells in the Bossier Sand, all of which have been successfully completed. In addition to the Bossier Sand, each well has other potentially producing formations in one or more of the Cotton Valley Lime, Cotton Valley Sand, Travis Peak, Pettit or Rodessa reservoirs.

The 11 wells completed as of April 30, 2001 have contributed reserves, on average, of 1.9 Bcfe per well, and have experienced an average initial production rate of 1.5 Mmcfe/d. The Company plans to drill approximately 30 gross Bossier wells in the remainder of 2001 and 63 gross wells in 2002.

Geologically, the Company’s exploration effort in the Amacker Tippett Area is primarily based upon subsurface analysis combined with 3-D seismic surveys. In February of this year, the Company acquired 42 square miles of 3-D seismic data adjoining its existing Amacker Tippett 3-D survey and it has recently entered into an agreement with EOG Resources to purchase an additional adjoining 18 square miles of 3-D seismic data. The Company currently has a total of 11,803 gross (6,209 net) acres under lease, with an additional 2,400 gross acres under option to lease within its 3-D area.

Through April 30, 2001, the Company has drilled six wells in the Eumont Area, all of which were successfully completed. These six wells contributed reserves, on average, of 1.2 Bcfe per well. The Company has accumulated 4,296 gross (2,776 net) acres to date in the Eumont Area and continue to work with Texaco Exploration and Production, Inc., Chevron USA, Inc., OXY USA, Inc. and ExxonMobil to establish additional leasehold in the region for future drillsites.

Through April 30, 2001, the Company has drilled four wells in the Red Hills Area, all of which were successfully completed. Three of these wells were completed in the Lower Wolfcamp reservoir and one was completed in the Siluro-Devonian reservoir. These four wells contributed reserves, on average, of 2.9 Bcfe per well. The Company currently has acreage sufficient to drill five Lower Wolfcamp development wells, which, if successful, could add an additional six drilling locations.

The Company’s Morrow activities and prospects are located in Lea, Eddy and Chaves Counties. The Company’s activity includes drilling, completion, recompletion and workover operations. Since December 1998, the Company has drilled 13 wells on its leasehold that target the Morrow. Eleven of these 13 wells were successfully completed in the Morrow and six have proved reserves behind-the-pipe. These 11 wells contributed reserves, on average, of 2.2 Bcfe per well. The Company currently has an additional 18 Morrow drilling locations, nine of which it intenda to drill during the remainder of 2001.

Lease operating expense increased by approximately $1.1 million (94%) in the three months ended March 31, 2001 compared to the first quarter of 2000.

Depreciation, depletion and amortization expense increased by approximately $609.0 thousand (24%) in the three months ended March 31, 2001 compared to the first quarter of 2000.

General and administrative expense increased by approximately $1.3 million (156%) in the three months ended March 31, 2001 as compared to the first quarter of 2000.

Interest expense increased by approximately $286.2 thousand (39%) in the three months ended March 31, 2001 compared to the first quarter of 2000.