significant potential for us. We may, in the future, either allocate a larger portion of our capital expenditures for development of these interests or sell down or otherwise dispose of these interests.

EAST TEXAS AREA

The East Texas area encompasses multiple objectives, including the Wilcox and Cotton Valley intervals. We are focused on the Camp Hill Field, a Wilcox steam flood project in Anderson County, and the Tortuga Grande Prospect, a Cotton Valley sand opportunity. We have licenses for over 470 square miles of 3-D seismic data in the East Texas area and 2,816 net acres under lease.

We expect to invest $1.5 million to drill eight (6.9 net) wells in this region in 2004.

Camp Hill Project. We own interests in eight leases totaling approximately 600 gross acres in the Camp Hill field in Anderson County, Texas. We currently operate seven of these leases. During the year ended December 31, 2003, the project produced an average of 52 Bbls/d of 19 API gravity oil. The wells produce from a depth of 500 feet and utilize a tertiary steam drive as an enhanced oil recovery process. Although efficient at maximizing oil recovery, the steam drive process is relatively expensive to operate because natural gas or produced crude is burned to create the steam injectant. Lifting costs during the year ended December 31, 2003 averaged $20.80 per barrel ($3.47 per Mcfe). In response to high fuel gas prices, steam injection was reduced in mid-2000. Because profitability increases when natural gas prices drop relative to oil prices, the project is a natural hedge against decreases in natural gas prices relative to oil prices. The oil produced, although viscous, commands a higher price (an average premium of $1.00 per Bbl during the year ended December 31, 2003) than West Texas intermediate crude due to its suitability as a lube oil feedstock. As of December 31, 2003, we had 8.3 MMBbls of proved oil reserves in this project, with 990 MBbls of oil reserves currently developed. We have from time to time chosen to delay development of our proved undeveloped reserves in the Camp Hill Field in East Texas in favor of pursuing shorter-term exploration projects with potential higher rates of return, adding to our lease position in this field and further evaluating additional economic enhancements for this field's development. The proved undeveloped reserves at the Camp Hill Field constitute 71% of our proved reserves and account for 50% of our present value of net future revenues from proved reserves as of December 31, 2003. We anticipate drilling additional wells and increasing steam injection to develop the proved undeveloped reserves in this project, with the timing and amount of expenditures dependent on the relative prices of oil and natural gas. We have an average working interest of approximately 90% in this field and an average net revenue interest of 74%.

Tortuga Grande Prospect. In March 2004 we finalized an agreement to operate the re-entry of an abandoned Cotton Valley test well that calculates on logs to have over 230 feet of sands with possible production. At the time the well was originally drilled, the operator perforated the objective interval and tested gas but in uneconomic volumes. This well was drilled before newer fracturing technologies were developed that could have increased flow rates and during a period when gas prices were significantly lower. Assuming successful testing of this re-entry, there are over 10 potential extension locations on our acreage that may be prospective.

BARNETT SHALE TREND

We began active participation in the Barnett Shale play in the Fort Worth Basin on acreage located west of the city of Fort Worth, Texas in mid-2003. In 2003, we acquired leases on approximately 4,100 net acres and invested $0.9 million to drill six wells (2.6 net), two of which were completed and producing and four of which were awaiting pipeline hookup at year end. Net production from the two online wells (0.6 net) was a combined 380 Mcfe per day at year end.

During 2004, we have drilled eight additional wells (4.0 net) and acquired an additional 2,100 net acres. Seven out of our 14 gross wells were on-line producing approximately 700 Mcfe net per day in March 2004. The remaining seven wells are awaiting completion and pipeline hookup. We received permits for the first proposed well, a horizontal well, for which we will act as operator, and expect to commence drilling in the second quarter of 2004. We are continuing to expand our leasehold acquisition in this trend.

In February 2004 we purchased specified wells and leases in the Barnett Shale trend in Denton County, Texas from a private company for $8.2 million. These non-operated properties have an average 39 percent working interest. The acquisition includes 21 existing gross wells (6.7 net) and interests in approximately 1,500 net acres, which we expect to provide another 27 gross drillsites. Current net production from the acquired properties is approximately 1.4 MMcfe/d and net proved reserves are internally estimated at 9.7 Bcfe.

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