Natural gas is a critical component of energy consumption in the United States. According to the Energy Information Administration, or the EIA, total annual domestic consumption of natural gas is expected to increase from approximately 22.2 trillion cubic feet, or Tcf, in 2005 to approximately 23.35 Tcf in 2010.

The industrial and electricity generation sectors are the largest users of natural gas in the United States. During the last three years, these sectors accounted for approximately 56% of the total natural gas consumed in the United States. In 2005, natural gas represented approximately 36% of all end-user commercial and residential energy requirements.

During the last three years, the United States has on average consumed approximately 22.3 Tcf per year, with average annual domestic production of approximately 18.5 Tcf during the same period. Driven by growth in natural gas demand and high natural gas prices, domestic natural gas production is projected to increase from 18.1 Tcf per year to 20.4 Tcf per year between 2005 and 2015.

The gathering network consists of two distinct systems: the Chico Gathering System which gathers natural gas from Denton, Montague, Wise, Clay, Jack, Palo Pinto and Parker counties on the eastern part of the North Texas System; and the Shackelford Gathering System, which gathers natural gas from Jack, Palo Pinto, Archer, Young, Stephens, Eastland, Throckmorton, Shackelford and Haskell counties on the western part of the North Texas System.

The two gathering systems are connected via a high-pressure 32-mile, 10-inch diameter pipeline, or the Interconnect Pipeline.

The Chico Gathering System consists of approximately 1,860 miles of primarily low pressure gathering pipelines. The natural gas that is gathered on the Chico Gathering System is either delivered directly to the Chico plant, where it is compressed for processing, or is compressed in the field at 13 compressor stations and then transported via one of several high-pressure pipelines to the Chico plant.

For the year ended December 31, 2005 and the nine months ended September 30, 2006, this system gathered approximately 132.8 MMcf/d and 136.0 MMcf/d of natural gas, respectively. As of June 30, 2006, there were approximately 1,830 active meters, both wellhead and central delivery points, connected to the Chico Gathering System.

The Shackelford Gathering System consists of approximately 2,090 miles of natural gas gathering pipelines. The western and southern portions of the Shackelford Gathering System gather natural gas that is transported on intermediate-pressure pipelines to the Shackelford plant. The approximately 18 MMcf/d of natural gas gathered from the northern and eastern portions of the Shackelford Gathering System is typically transported on the Interconnect Pipeline to the Chico plant for processing. This natural gas is compressed at 18 compressor stations to achieve sufficient pressure to enter the high pressure Interconnect Pipeline.

For the year ended December 31, 2005, and the nine months ended September 30, 2006, this system gathered approximately 29.7 MMcf/d and 32.2 MMcf/d of natural gas, respectively. As of June, 2006, there were approximately 820 active meters, including both wellhead and central delivery points, connected to the Shackelford Gathering System.

Product purchases increased by $26.2 million, or 15%, to $205.2 million for the nine months ended September 30, 2006 compared to $179.0 million for the nine months ended September 30, 2005.

Operating expenses increased by $2.1 million, or 13%, to $17.9 million for the nine months ended September 30, 2006 compared to $15.8 million for the nine months ended September 30, 2005.

Depreciation and amortization expense increased by $31.6 million, or 313%, to $41.7 million for the nine months ended September 30, 2006 compared to $10.1 million for the nine months ended September 30, 2005.

Interest expense for the nine months ended September 30, 2006 was $54.4 million compared to zero for the nine months ended September 30, 2005.