the common
stock on the date the options were granted over the aggregate exercise price of
the options. This deferred compensation would be amortized over the vesting period
of each option to the extent that the market value exceeds the exercise price
of the option. Had compensation cost been determined consistent with SFAS No.
123 “Accounting for Stock Based Compensation” for all options, the Company's net
income and earnings per share would have been as follows: 
The
Company typically uses fixed rate swaps and costless collars to manage the risk
of its exposure to material changes in the price of oil and natural gas and variable
interest rates on long-term debt. Repriced options are accounted for as compensatory
options using variable plan accounting treatment in accordance with FASB Interpretation
No. 44, “Accounting for Certain Transactions involving Stock Based Compensation
- An Interpretation of APB No. 25” (FIN 44). Under variable plan accounting, compensation
expense is adjusted for increases or decreases in the fair market value of the
Company’s common stock to the extent that the market value exceeds the exercise
price of the option. Variable plan accounting is applied to the repriced options
until the options are exercised, forfeited, or expire unexercised (See Note 10).
The fair value of each option grant was estimated on
the date of grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 2003, 2004 and 2005: risk free interest rate of
4.0%, 4.3% and 4.3%, respectively, expected dividend yield of 0%, expected life
of 10 years and expected volatility of 72.2%, 43.2% and 46.1% respectively. The
Company records deferred compensation based on the closing price of the Company’s
stock on the issuance date for restricted stock. The deferred compensation is
amortized to stock based compensation expense ratably over the vesting period
of the restricted stock (one to three years).Deferred compensation amounted to
$1.1 million as of December 31, 2005. Derivative Instruments
The Company uses derivatives to manage price and
interest rate risk underlying its oil and gas production and the variable interest
rate on its Second Lien Credit Facility. | 
