The Washakie Basin is located in the southeast one-third of the Greater Green River Basin in southwestern Wyoming. Commercial CBM production in the Washakie Basin was initially established in 2002 on the eastern rim of the Washakie Basin. The Washakie Basin is generally characterized by shallow Mesa Verde coalbeds. The Mesa Verde coalbeds in this area differ from those found in the Powder River Basin in that they are thinner zones but have significantly higher gas content, much like the coalbeds found in the Drunkard’s Wash field in the Unit Basin of Utah. CBM field development in the Washakie Basin is usually accomplished by grouping wells into “pods” of 10 to 24 wells, complete with associated infrastructure, including water disposal wells, gathering and compression. The productive pods are typically grouped into individual federal units of up to 25,000 acres each, which facilitates development operations.

The Washakie Basin comprises approximately the southeast one-third of the Greater Green River Basin in southwestern Wyoming, and the Powder River Basin in northeastern Wyoming.

The Washakie Basin is the Company’s largest acreage position. As of June 30, 2004, the Company had assembled 247,450 gross (140,782 net) acres prospective for CBM development in this area, of which 136,157 are net undeveloped. This area contains approximately 1,049 identified drilling locations primarily on 80-acre and 160-acre well spacing. The report prepared by Williamson Petroleum Consultants as of December 31, 2003 estimates that the gross recoverable proved reserves for the 22 wells drilled and their 23 well offsets in the Company’s first two pilot programs in this basin were 45.5 Bcfe on 80-acre and 160-acre spacing. The Company owns a 57% average working interest in this acreage.

The Company’s Atlantic Rim project comprises approximately 212,258 gross (113,248 net) acres on the eastern rim of the Washakie Basin. Following completion of the Doty Mountain unit, the Company expects to have drilled a total of 56 CBM wells in the Atlantic Rim project in 2004. Additionally, upon completion of an ongoing environmental impact study being conducted on the Atlantic Rim area by the Rawlins Office of the BLM covering approximately 310,000 acres, the Company plans to significantly increase drilling activities in the Atlantic Rim project.

The Company’s initial pod, the Sun Dog unit, is a 10-well pilot program drilled on 80-acre spacing. The Sun Dog unit commenced production in April 2002 at a gross rate of approximately 400 Mcf/d of gas and 12,000 Bbls/d of water. Since April 2002, production rates from the Sun Dog unit wells have increased steadily to over 3,600 Mcf/d of gas and 13,000 Bbls/d of water. As of June 30, 2004, the wells have continued to exhibit a typical CBM negative decline curve, increasing daily gas production with relative water production rates decreasing as a percentage of gas production. Based on a report from Williamson Petroleum Consultants, as of December 31, 2003, estimated gross ultimate recoverable reserves for the 10 producing wells and eight undrilled offset locations in the Sun Dog unit average 1.1 Bcfe per well. The Company currently owns a working interest of approximately 29.1% in the wells drilled in the initial pod of the Sun Dog unit and, together with the Company’s drilling programs, the Company owns a working interest of approximately 76.1%.

The Company’s second producing pod in the Atlantic Rim project, the Blue Sky unit, is a 12-well pilot program drilled on 160-acre spacing. This program commenced production in August 2003 and as of June 30, 2004, was producing 203 Mcf/d of natural gas and approximately 12,500 Bbls/d of water. Based on prior desorption, permeability, pressure build-up and other tests, it is believed that as the wells dewater, the Blue Sky unit wells should exhibit daily production rates and a CBM negative decline curve similar to other CBM wells.

Net loss from turnkey activities was $94,000 for the first six months of 2004. This compares to net income of $642,000 for the corresponding period in 2003.

Oil and gas sales from marketing activities increased $6,000 in the first six months of 2004 to $2.8 million, a nominal increase compared to the same period last year.

The gross profit from marketing activities for the first six months of 2004 was $71,000 as compared to $58,000 in the same period last year.