each received a 26.9% interest in Pinnacle. Simultaneously with the contribution of these assets, Credit Suisse First Boston Private Equity entities (the "CSFB Parties") contributed $17.6 million cash along with a future cash commitment to Pinnacle in exchange for common stock, warrants and preferred stock equal to a 46.2% interest on a fully diluted basis. In February 2004, the CSFB Parties contributed additional funds of $11.8 million into Pinnacle to continue funding the 2004 development program which will increase their ownership to 66.7% on a fully diluted basis should we and RMG each elect not to exercise our available options. The business operations and development program of Pinnacle does not require us to provide any further capital infusion, unless we determine to exercise our options. See "The Pinnacle Transaction" for more information on this transaction.

In addition to our interest in Pinnacle, CCBM retained interests in approximately 145,000 gross acres in the Castle Rock coalbed methane project area in Montana and the Oyster Ridge project area in Wyoming.

In mid-2003, we became active in the Barnett Shale play located in Tarrant and Parker counties in Northeast Texas. The Barnett Shale is a blanket marine shale formation that is natural gas bearing at depths ranging from 6,000 to 8,500 feet and is ubiquitous across the Fort Worth Basin. Though this area has been well known for natural gas production for many years, improvements in fracture techniques in recent years have dramatically changed the economics of producing this reservoir. The reserve profile from productive wells drilled in the Barnett Shale region is noteably longer-lived compared to the typical reserve profile from wells drilled in our onshore Gulf Coast core area.

Accordingly, we believe that developing producing reserves in the Barnett Shale play will have the potential to lengthen our overall average reserve life and, on balance, add a long-lived cash flow stream to fund our future capital exploration and development program. In our Barnett Shale play to date, including our $8.2 million acquisition in February 2004 (see the "Barnett Shale Trend" below for more information on this transaction), and drilling participations, we have acquired approximately 7,500 net acres and drilled 14 gross (7 net) wells. As of March 2004, our current net production and proved reserves in the Barnett Shale trend are estimated at 2.0 Mmcfe/d and 11.3 Bcfe, respectively.

Certain terms used herein relating to the oil and natural gas industry are defined in "Glossary of Certain Industry Terms" below.

BUSINESS STRATEGY

Growth Through the Drillbit

Our objective is to create shareholder value through the execution of a business strategy designed to capitalize on our strengths. Key elements of our business strategy include:

• Grow Primarily Through Drilling. We are pursuing an active technology-driven exploration drilling program. We generate exploration prospects through geological and geophysical analysis of 3-D seismic and other data. Our ability to successfully define and drill exploratory prospects is demonstrated by our exploratory drilling success rate in the onshore Gulf Coast core area of 73% over the last three years. We are drilling or plan to drill approximately 35 wells (14.3 net) in the onshore Gulf Coast area during 2004. We have budgeted approximately $40 to $45 million for capital expenditures in 2004, $39.8 million of which we expect to use for drilling activities in the onshore Gulf Coast area.
  
  
• Focus on Prolific and Industry-Proven Trends. We focus our activities primarily in the prolific onshore Gulf Coast area where our management, our technical staff and our field operations teams have significant prior experience. Although we have broadened our areas of operations to include the Rocky Mountains and have purchased interests in the Barnett Shale trend and the U.K. North Sea, we plan to focus a majority of our near-term capital expenditures in the onshore Gulf Coast region, where we believe our accumulated data and knowledge base provide a competitive advantage.
  
  
• Aggressively Evaluate 3-D Seismic Data and Acquire Acreage to Maintain a Large Drillsite Inventory. We have accumulated and continue to add to a multiyear inventory of 3-D seismic and geologic data along the prolific producing trends of our onshore Gulf Coast region. In 2003, we added approximately 1,050 square miles of newly released 3-D and seismic data. We believe our utilization of large-scale 3-D seismic surveys and related technology provides us with the opportunity to maximize our exploration success. As of December 31, 2003, we had accumulated licenses for approximately 8,700 square miles of 3-D seismic data and identified over 210 drilling locations and extension opportunities, including 123 currently under lease or in the process of being leased.
  
  
• Maintain a Balanced Exploration Drilling Portfolio. We seek to balance our drilling program between projects with relatively lower risk and moderate potential and drilling prospects that have relatively higher risk and substantial potential.

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