The table does not include 7,422 gross and 3,334 net acres that we had a right to acquire in Texas, pursuant to various seismic and lease option agreements at December 31, 2003. Under the terms of our option agreements, we typically have the right for a period of one year, subject to extensions, to exercise our option to lease the acreage at predetermined terms. Our lease agreements generally terminate if producing wells have not been drilled on the acreage within a period of three years. Further, the table does not include 28,511 gross and 10,430 net acres in Wyoming that CCBM has the right to earn pursuant to certain drilling obligations and other predetermined terms.

MARKETING

Our production is marketed to third parties consistent with industry practices. Typically, oil is sold at the wellhead at field-posted prices plus a bonus and natural gas is sold under contract at a negotiated price based upon factors normally considered in the industry, such as distance from the well to the pipeline, well pressure, estimated reserves, quality of natural gas and prevailing supply and demand conditions.

Our marketing objective is to receive the highest possible wellhead price for our product. We are aided by the presence of multiple outlets near our production in the Texas and Louisiana onshore Gulf Coast. We take an active role in determining the available pipeline alternatives for each property based on historical pricing, capacity, pressure, market relationships, seasonal variances and long-term viability.

There are a variety of factors that affect the market for natural gas and oil, including:

• the extent of domestic production and imports of natural gas and oil;
  
  
• the proximity and capacity of natural gas pipelines and other transportation facilities;
  
  
• demand for natural gas and oil;
  
  
• the marketing of competitive fuels; and
  
  
• the effects of state and federal regulations on natural gas and oil production and sales.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors--Natural gas and oil prices are highly volatile, and lower prices will negatively affect our financial results," "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors--We are subject to various governmental regulations and environmental risks" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors--The marketability of our natural gas production depends on facilities that we typically do not own or control, which could result in a curtailment of production and revenues."

We from time to time market our own production where feasible with a combination of market-sensitive pricing and forward-fixed pricing. We utilize forward pricing to take advantage of anomalies in the futures market and to hedge a portion of our production deliverability at prices exceeding forecast. All of these hedging transactions provide for financial rather than physical settlement. For a discussion of these matters, our hedging policy and recent hedging positions, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Critical Accounting Policies and Estimates--Derivative Instruments and Hedging Activities," "Qualitative and Quantitative Disclosures About Market Risk--Derivative Instruments and Hedging Activities," and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors--We may continue to hedge the price risks associated with our production. Our hedge transactions may result in our making cash payments or prevent us from benefiting to the fullest extent possible from increases in prices for natural gas and oil."

COMPETITION AND TECHNOLOGICAL CHANGES

We encounter competition from other natural gas and oil companies in all areas of our operations, including the acquisition of exploratory prospects and proven properties. Many of our competitors are large, well-established companies that have been engaged in the natural gas and oil business for much longer than we have and possess substantially larger operating staffs and greater capital resources than we do. We may not be able to conduct our operations, evaluate and select suitable properties and consummate transactions successfully in this highly competitive environment.

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