amount under our revolving credit facility. We did not receive any proceeds from the shares offered by the selling stockholders.

Barnett Shale Acquisition

On February 27, 2004, we closed a transaction with a private company to acquire working interests and acreage in certain oil and gas wells located in the Newark East Field in Denton County, Texas in the Barnett Shale trend. This acquisition, with a purchase price of $8.2 million, includes non-operated working interests in properties ranging from 12.5% to 45% over 3,800 gross acres, or an average working interest of 39%. The acquisition includes 21 existing gross wells (6.7 net) and interests in approximately 1,500 net acres, which we expect to provide another 31 gross drill sites: 13 of which will target proved undeveloped reserves and 18 of which will be exploratory. Current net production from the acquired properties in March 2004 was approximately 1.4 Mmcfe/d and net proved reserves are internally estimated at 9.7 Bcfe.

Initially, we financed the acquisition with our available cash on hand. In the near term, we expect to establish a new project financing facility to refinance a majority of the acquisition and to fund a majority of our 2004 and 2005 capital expenditure program for the Barnett Shale play.

RESULTS OF OPERATIONS

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Oil and natural gas revenues for 2003 increased 44% to $38.5 million from $26.8 million in 2002. Production volumes for natural gas in 2003 decreased 1% to 4,763 MMcf from 4,801 MMcf in 2002. Realized average natural gas prices increased 53% to $5.35 per Mcf in 2003 from $3.50 per Mcf in 2002. Production volumes for oil in 2003 increased 12% to 450 MBbls from 401 MBbls in 2002. The increase in oil production was due primarily to the commencement of production at the Pauline Huebner A-382 #1, Beach House #1 Hankamer and Espree #1. Natural gas production was virtually unchanged compared to 2002 or declined less than 1%. Oil and natural gas revenues include the impact of hedging activities as discussed below under "Volatility of Oil and Gas Prices."

Average oil prices increased 16% to $28.90 per bbl in 2003 from $24.94 per bbl in 2002.

The following table summarizes production volumes, average sales prices and operating revenues for our oil and natural gas operations for the years ended December 31, 2002 and 2003:

Oil and natural gas operating expenses for 2003 increased 37% to $6.7 million from $4.9 million in 2002. Oil and natural gas operating expenses increased primarily due to higher severance taxes of $0.9 million on higher commodity prices, higher lifting costs of $0.9 million attributable to the increased number of producing wells and in part due to higher ad valorem taxes. Operating expenses per equivalent unit in 2003 increased to $0.90 per Mcfe from $0.68 per Mcfe in 2002. The per unit cost increased primarily as a result of the higher costs noted above.

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