Under cash flow hedge accounting, the after-tax change in the fair value of the open derivative positions (“fair value change”) is reported as Other Comprehensive Income in the equity section of the balance sheet. Alternatively, if the derivative does not qualify as a cash flow hedge, mark-to-market accounting requires that the fair value change be reported in earnings. For our cash flow commodity hedges, we had accounted for the realized gains and losses on these hedging activities in earnings within oil and natural gas revenues when the forecasted transaction occurred. Our derivative instruments had previously been accounted for as cash flow hedges.

In the process of restating our financials to account for our derivatives on a mark-to-market basis, we discovered certain computational errors in the fair value of the Company’s derivatives that was previously reported in Other Comprehensive Income in 2004 and 2005. These errors resulted from the information we had relied upon to establish oil and gas prices in connection with determining the fair value of the derivatives. For all the periods covered by our consolidated financial statements, we used a third-party website source to obtain oil and gas market prices and to calculate the fair value of the derivatives. However, we determined in the course of our evaluation that the information from the third party provider was not entirely reliable and that Houston Ship Channel market prices should have been used in the fair value computation in place of New York Mercantile (“NYMEX”) index prices. Nevertheless, in marking these derivatives to market, the gains and losses reflected in the other income and expense have been based upon corrected fair valuations and were not based upon the information from the third party provider.

Additionally, during the audit of Pinnacle Gas Resources, Inc., an error was discovered that affects amounts that had previously been reported on the Company’s quarterly reports on Form 10-Q for the quarterly periods ended March 31, 2005, June 30, 2005 and September 30, 2005. The error arose as a result of the incorrect accounting for certain natural gas derivatives which had historically been accounted for using the cash flow method. Pinnacle’s management have determined that these derivatives are not eligible for cash flow hedge accounting. Accordingly, Pinnacle restated its 2005 quarters using the non-designated derivatives accounting method. The relative change in the fair value of these derivatives due to changing commodity price is reflected as a gain or loss in Pinnacle’s earnings each quarter. Because the Company's interest in Pinnacle is accounted for using the equity method, the Company determined that the effect of Pinnacle’s restatement of its financial statements required the Company to, in turn, restate its own financial statements.

A comparison of the previously reported and restated amounts from the Company's financial statements is comprised as follows: