Field operations conducted by the Company’s personnel include duties performed by “pumpers” or employees whose primary responsibility is to operate the wells. Other field personnel are experienced and involved in the activities of well servicing, the development and completion of new wells and the construction of supporting infrastructure for new wells (such as electric service, salt water disposal facilities, and gas feeder lines). The primary equipment categories owned by the Company are trucks, well service rigs, stimulation assets and construction equipment. The Company utilizes third party contractors on an “as needed” basis to supplement its field personnel.

The Company also provides, on an in-house basis, many of the services required for the completion and maintenance of its CBM wells.

The Company relys on third-party contractors to drill its wells. The Company also performs its own fracturing and stimulation work. The Company has its own fleet of 20 well service units that it uses in the process of completing its wells, and also to perform remedial field operations required to maintain production from its existing wells.

As of December 31, 2006, the Company had over 4,500 leases covering approximately 510,000 net acres in the Cherokee Basin. The typical Cherokee Basin gas lease provides for the payment of royalties to the mineral owner for all gas produced from any well drilled on the lease premises.

The Company will become a party to an existing midstream services and gas dedication agreement entered into on December 22, 2006, but effective as of December 1, 2006, between its Parent and Quest Midstream. Pursuant to the midstream services agreement, Quest Midstream will gather and provide certain midstream services, including, dehydration, treating and compression, to the Company for all gas produced from its wells in the Cherokee Basin that are connected to Quest Midstream’s gathering system.

The initial term of the midstream services agreement expires on December 1, 2016, with two additional five-year extension periods that may be exercised by either party upon 180 days’ notice.

In accordance with the midstream services agreement, the Company will bear the cost to remove and dispose of free water from its gas prior to delivery to Quest Midstream and of all fuel requirements necessary to perform the gathering and midstream services, plus any gas shrinkage.

The midstream services agreement also requires the drilling of a minimum of 750 new wells in the Cherokee Basin during the two year period ending December 1, 2008, 151 of which have been drilled in the Cherokee Basin through March 31, 2007. The Company expects to drill 434 additional wells in 2007 and 325 wells in 2008.

Oil and gas production costs were $7.2 million for the three months ended March 31, 2007 as compared to $3.5 million for the three months ended March 31, 2006, an increase of $3.7 million, or 107%.

Interest expense was $7.0 million for the three months ended March 31, 2007 compared to $2.8 million for the three months ended March 31, 2006, an increase of $4.2 million, or 148%.