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:

(1) |
Including the
impact of hedging. |
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.
28
|