Total oil purchased and sold under hedging arrangements during 1999, 2000 and 2001 were 45,200 Bbls, 87,900 Bbls and 18,000 Bbls, respectively. Total natural gas purchased and sold under hedging arrangements in 1999, 2000 and 2001 were 2,050,000 MMBtu, 1,590,000 MMBtu and 3,087,000 MMBtu, respectively. The net gains and (losses) realized by the Company under such hedging arrangements were $(412,000) and $(1,537,700) and $2,015,000 for 1999, 2000 and 2001, respectively.

     At December 31, 2001, the Company had no derivative instruments outstanding designated as hedge positions. At December 31, 2000, the Company had outstanding hedge positions covering 1,710,000 MMBtu and 18,000 Bbls. These consisted of 1,080,000 MMBtu with a floor of $4.00 and a ceiling of $5.19 for January through December 2001 production and 630,000 MMBtu at an average fixed price of $6.60 for January through March 2001 production. The 18,000 Bbls of oil hedges had a floor of $30.00 and a ceiling of $32.28 for January through March 2001 production. These instruments had a fair market value of ($3,025,000) at December 31, 2000.

     At March 28, 2002, the Company had outstanding hedge positions covering 1,705,000 MMBtu of natural gas at an average fixed price of $3.19 for April 2002 through December 2002 production. The Company also had outstanding hedge positions covering 18,200 Bbls. of oil at an average fixed price of $24.65 for April 2002 through June 2002 production and 54,900 Bbls of oil hedged under a costless collar arrangement at a $22.00 floor and a $25.00 cap for April 2002 through September 2002 production.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

     COMMODITY RISK. The Company's major market risk exposure is the commodity pricing applicable to its oil and natural gas production. Realized commodity prices received for such production are primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to natural gas. The effects of such pricing volatility have been discussed above, and such volatility is expected to continue. A 10 percent fluctuation in the price received for oil and gas production would have an approximate $2.6 million impact on the Company's annual revenues and operating income.

     To mitigate some of this risk, the Company engages periodically in certain limited hedging activities but only to the extent of buying protection price floors. Costs and any benefits derived from these price floors are accordingly recorded as a reduction or increase, as applicable, in oil and gas sales revenue and were not significant for any year presented. The costs to purchase put options are amortized over the option period. The Company does not hold or issue derivative instruments for trading purposes. Income and (losses) realized by the Company related to these instruments were ($412,000), ($1,537,000) and $2,015,000 or ($0.18), ($0.73) and $0.63 per MMBtu for the years ended December 31, 1999, 2000, and 2001,respectively.

     INTEREST RATE RISK. The Company's exposure to changes in interest rates results from its floating rate debt. In regards to its Revolving Credit Facility, the result of a 10 percent fluctuation in short-term interest rates would have impacted 2001 cash flow by approximately $38,000.

     FINANCIAL INSTRUMENTS & DEBT MATURITIES. The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank borrowing, Subordinated Notes payable and Series B Redeemable Preferred Stock. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the highly liquid nature of these short-term instruments. The fair values of the bank and vendor borrowings approximate the carrying amounts as of December 31, 2001 and 2000, and were determined based upon interest rates currently available to the Company for borrowings with similar terms. Maturities of the debt are $2,107,000 in 2002, $8,205,391 in 2003, $3,836,498 in 2004 and the balance in 2007.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The response to this item is included elsewhere in this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Arnold L. Chavkin resigned as a director of the Company, effective March 11, 2002. Bryan Martin has been elected as a director of the Company. Mr. Martin is a Principal with JP Morgan Partners, LLC.

     The information required by this item is incorporated by reference to information under the caption "Proposal 1-Election of Directors" and to the information under the caption "Section 16(a) Reporting Delinquencies" in the Company's definitive Proxy Statement (the "2002 Proxy Statement") for its 2002 annual meeting of shareholders. The 2002 Proxy Statement will be filed with the Securities and Exchange Commission (the "Commission") not later than 120 days subsequent to December 31, 2001.