General and administrative ("G&A") expense for 2004 increased 28% to $7.2 million from $5.6 million for 2003. The increase in G&A was due primarily to higher incentive compensation of $0.4 million, higher compensation costs of $0.2 million, higher professional fees of $0.7 million in connection with (1) the 2003 annual audit and Section 404 of the Sarbanes-Oxley Act compliance project ($0.5 million), and (2) discontinued refinancing projects ($0.2 million), and due to an increase in the allowance for doubtful accounts of $0.3 million.

We recorded a $1.4 million after tax charge, or $0.06 per fully diluted share, on our minority interest in Pinnacle. Of this charge, $0.3 million relates to a valuation allowance for federal income taxes. It is likely that Pinnacle will continue to record a valuation allowance on the deferred federal tax benefit generated from the operating losses incurred during the early development stages of Pinnacle's coalbed methane project. Concurrently, we will record valuation allowances relative to our share of Pinnacle's financial results.

Income taxes increased to $6.9 million in 2004 from $5.1 million in 2003 due to the increase in pre-tax income.

Dividends and accretion of discount on preferred stock decreased to $0.4 million in 2004 from $0.7 million in 2003 as a result of the conversion of all of the Series B Preferred Stock into common stock during the second quarter of 2004.

Net Income available to common shareholders before cumulative effect of change in accounting principle for 2004 increased to $10.5 million from $7.3 million in 2003 primarily as a result of the factors described above.

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

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