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 result from leads developed primarily by the Company's internal staff. Additionally, the Company monitors competitor activity and reviews outside prospect generation by small, independent "prospect generators", or the Company's joint venture partners. The Company complements its exploratory drilling portfolio through the use of these outside sources of project generation, and typically retains operation rights. Specific drill-sites are typically chosen by the Company's 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, processing and analysis of 3-D projects and data in the Gulf Coast Core Areas is a competitive advantage for the Company. The Company's technical and operating employees have an average of 20 years of industry experience, in many cases with major and large independent oil companies, including Shell Oil Company, Arco, 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, 2002, the Company operated 85 producing oil and natural gas wells.

The Company emphasizes preplanning in project development to lower capital and operational costs and to efficiently integrate potential well locations into the existing and planned infrastructure, including gathering systems and other surface facilities. In constructing surface facilities, the Company seeks to use reliable, high quality, used equipment in place of new equipment to achieve cost savings. The Company also seeks to minimize cycle time from drilling to hook-up of wells, thereby accelerating cash flow and improving ultimate project economics

The Company seeks to use advanced production techniques to exploit and expand its reserve base. Following the discovery of proved reserves, the Company typically continues to evaluate its producing properties through the use of 3-D seismic data to locate undrained fault blocks and identify new drilling prospects and performs further reserve analysis and geological field studies using computer aided exploration techniques. The Company has integrated its 3-D seismic data with reservoir characterization and management systems through the use of geophysical workstations which are compatible with industry standard reservoir simulation programs.

SIGNIFICANT PROJECT AREAS

This section is an explanation and detail of some of the relevant project groupings from the Company's overall inventory of seismic data and prospects. It is difficult to uniquely categorize many of the 3-D projects because they were originally screened and selected for multiple objectives. In the Texas Wilcox Areas, additional 3-D data that connects and overlaps existing project area grids continues to be acquired and integrated into the Company's prospect evaluations and as such, a geographical subgrouping is now used to describe the Company's areas of focus, rather than the original project area descriptions. This discussion clarifies this organizational framework and highlights the project areas where the majority of the expected drilling will take place over the next 12 to 18 months.

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