According to the Energy Information Administration, EIA, between 1980 and 2003, the number of producing natural gas wells in the U.S. more than doubled, from 182,000 to over 383,000 wells, while natural gas production was essentially flat. This resulted in a corresponding decrease of over 50% in the annual natural gas production per well over the period from 1980 to 2003. More recently, in the period from 1999 to 2003, the number of producing natural gas wells in the U.S. grew by 30%, or over 81,000 wells, while natural gas production grew only marginally from 17.6 Tcf to 17.7 Tcf. Furthermore, in 2003, over 50% of natural gas produced in the U.S. was from wells less than three years old. In fact, natural gas produced from recently drilled wells, as a percentage of total U.S. natural gas production, has been steadily increasing in recent years.

According to the EIA, in 2003, 15% of U.S. natural gas demand was satisfied by net imports. Of these net imports of approximately 3.3 Tcf, 2.9 Tcf, or 86%, were via pipeline, primarily from Canada. The balance of 0.4 Tcf was imported liquefied natural gas, LNG. The EIA projects that Canadian imports of natural gas will decrease and LNG imports will continue to increase to meet growing natural gas demand in the U.S. While major investments are being made to increase LNG import capacity, the EIA estimates that LNG imports will still satisfy less than 10% of total U.S. natural gas demand at that time.

According to the EIA, unconventional natural gas production has recently become the largest source of onshore U.S. natural gas supply. The EIA projects that onshore unconventional natural gas production will continue to increase, growing from 6.6 Tcf in 2003 to 8.6 Tcf in 2025 and from 53% of total onshore production in the lower 48 States in 2003 to 63% in 2025.

The Company supports each of these activities with rigs that drill horizontally into the coal seams, providing faster drainage than vertical drilling. The Company also has rigs that work for coal companies in advance of coal mining operations to extract metal casing and other materials from existing wells, to reduce the possibility of underground fires or explosions during mining. The Company markets 30 drilling rigs and store five stacked rigs in the Appalachian Basin.

Most natural gas directed drilling in the Arkoma Basin is conducted by rigs equipped with air compression equipment for underbalanced drilling operations. Currently, the majority of the Company’s rigs in the Arkoma Basin are drilling horizontally into the Hartshorne coal seam, which is found at depths of 300 to 4,000 feet throughout the Arkoma Basin. Unlike CBM plays in other parts of the U.S., the Hartshorne coal seams produce very little water and allow for rapid production of CBM after a well is completed. The typical CBM well the Company drills in this market is 2,500 to 3,000 feet deep with a horizontal section of similar length. While this play began with vertical drilling, it is now almost exclusively drilled horizontally. The Company markets 13 drilling rigs in the Arkoma Basin.

The Barnett Shale formation, found near Fort Worth, Texas, at average depths of 6,500 to 8,500 feet, is the largest natural gas field in Texas. Although natural gas deposits were discovered in the Barnett Shale several decades ago, the technology necessary to economically exploit lower permeability reservoir rock was not available. The use of horizontal drilling to develop the formation, combined with the application of multi-stage fracturing techniques, has opened this formation to extensive drilling. The Company markets 11 drilling rigs in northern Texas.

According to U.S. Geological Survey (USGS) estimates, the Rocky Mountain region has the largest quantity of natural gas resources in the U.S., most of which are considered to be unconventional. The Company’s operations are focused in the Uinta Basin in eastern Utah and the Piceance Basin in western Colorado. Nearly all of the recoverable natural gas reserves in these basins are contained in unconventional formations. Natural gas in the Uinta Basin is produced from three tight sand formations. The Company markets six drilling rigs in the Rocky Mountains.

Drilling operations expenses increased by $1.0 million, or 8.2%, to $12.8 million for the quarter ended March 31, 2005, compared to $11.8 million for the quarter ended March 31, 2004.

Depreciation expense decreased by approximately $52.0 thousand, or 2.4%, to $2.1 million for the quarter ended March 31, 2005, compared to $2.2 million for the quarter ended March 31, 2004.

General and administrative expenses increased approximately $164.0 thousand or 9.1%, to $2.0 million for the quarter ended March 31, 2005, compared to $1.8 million for the quarter ended March 31, 2004.

Interest expense decreased to approximately $153.0 thousand from approximately $166.0 thousand.