depths and in geologic traps that are difficult to define without the interpretation of 3-D seismic data and (ii) the potential for large accumulations of deeper, over-pressured reserves.

   As a result of the increased availability of economic onshore 3-D seismic surveys and the improvement and increased affordability of data interpretation technologies, the Company has relied almost exclusively on the interpretation of 3-D seismic data in its exploration strategy. The Company generally does not invest any substantial portion of the costs for an exploration well without first interpreting 3-D seismic data. The principal advantage of 3-D seismic data over traditional 2-D seismic analysis is that it affords the geoscientist the ability to interpret a three dimensional cube of data representing a specific project area as compared to interpreting between widely separated two dimensional vertical profiles. As a consequence, the geoscientist is able to more fully and accurately evaluate prospective areas, improving the probability of drilling commercially successful wells in both exploratory and development drilling. The use of 3-D seismic allows the geoscientist to identify and use areas of irregular sand geometry to augment or replace structural interpretation in the identification of potential hydrocarbon accumulations. Additionally, detailed analysis and correlation of the 3-D seismic response to lithology and contained fluids assist geoscientists in identifying and prioritizing drilling targets. Because 3-D analysis is completed over an entire target area cube, shallow, intermediate and deep objectives can be analyzed. Additionally, the more precise structural definition allowed by 3-D seismic data combined with integration of available well and production data assists in the positioning of new development wells.

   The Company has sought to obtain large volumes of 3-D seismic data either by participating in large seismic data acquisition programs either alone or pursuant to joint venture arrangements with other energy companies, or through "group shoots" in which the Company shares the costs and results of seismic surveys. By participating in joint ventures and group shoots, the Company is able to share the up-front costs of seismic data acquisition and interpretation, thereby enabling it to participate in a larger number of projects and diversify exploration costs and risks. Most of the Company's operations are conducted through joint operations with industry participants. As of December 31, 2001, the Company was actively involved in 48 project areas.

   The Company's primary strategy for acreage acquisition in prior years was to obtain leasing options covering large geographic areas in connection with 3-D seismic surveys. Prior to conducting proprietary surveys, the Company typically sought to acquire seismic permits that included options to lease the acreage, thereby ensuring the price and availability of leases on drilling prospects that may result upon completing a successful seismic data acquisition program over a project area. The Company generally attempted to obtain these options covering at least 80% of the project area for proprietary surveys. The size of these surveys has ranged from 10 to 80 square miles. When the Company participated in 3-D group shoots, it generally sought prospective leases as quickly as possible following interpretation of the survey. In connection with some group shoots in which the Company believed that competition for acreage was especially strong, the Company sought to obtain lease options or leases in prospective areas prior to the receipt or interpretation of 3-D seismic data. After receipt of and interpretation of the 3-D seismic data, the Company generally seeks to retain only such acreage or leases as it deems to be prospective based upon the 3-D results and the Company's interpretation. In more recent years, the Company has focused less on conducting proprietary 3-D surveys, and has focused instead on (1) the continual interpretation and evaluation of its existing 3-D seismic database and the drilling of identified prospects on such acreage and (2) the acquisition of existing non-proprietary 3-D data at reduced prices, in many cases contiguous to or in areas nearby existing Company project areas where the Company has extensive knowledge and subsequent acquisition of related acreage as the Company deems to be prospective based upon its interpretation of such 3-D data.

   The Company maintains a flexible and diversified approach to project identification by focusing on the estimated financial results of a project area rather than limiting its focus to any one method or source for obtaining leads for new project areas. The Company's current project areas resulted from leads developed by its project generation network that includes small, independent "prospect generators", the Company's joint venture partners and the Company's internal staff. The Company believes that it has been able to increase the number of potential projects and reduce its costs through the use of these outside sources of project generation. When identifying specific drillsites from within a project area, the Company relies upon its own geoscientists.

OPERATING APPROACH

   The Company's management team has extensive experience in the development and management of exploration projects along the Texas and Louisiana Gulf Coast. The Company believes that the experience of its management in the development of 3-D projects in its core operating areas is a competitive advantage for the Company. The Company's technical and operating employees have an average of 19 years of industry experience, in many cases with major and large independent oil companies, including Shell Oil Company, Vastar Resources, Inc., Pennzoil Company and Tenneco Inc.

   The Company generally seeks to obtain lease operator status and control over field operations, and in particular seeks to control decisions regarding 3-D survey design parameters and drilling and completion methods. As of December 31, 2001, the Company operated 73 producing oil and natural gas wells.

   The Company emphasizes preplanning in project development to lower capital and operational costs and to efficiently integrate