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| (1) | The
PV-10 Value as of December 31, 2005 is pre-tax and was determined by using the
December 31, 2005 sales prices, which averaged $57.17 per Bbl of oil, $8.04 per
Mcf of natural gas. Management believes that the presentation of PV-10 Value may
be considered a non-GAAP financial measure as defined in Item 10(e) of Regulation
S-K. Therefore we have included a reconciliation of the measure to the most directly
comparable GAAP financial measure (standardized measure of discounted future net
cash flows in footnote (2) below). Management believes that the presentation of
PV-10 Value provides useful information to investors because it is widely used
by professional analysts and sophisticated investors in evaluating oil and gas
companies. Because many factors that are unique to each individual company may
impact the amount of future income taxes to be paid, the use of the pre-tax measure
provides greater comparability when evaluating companies. It is relevant and useful
to investors for evaluating the relative monetary significance of our oil and
natural gas properties. Further, investors may utilize the measure as a basis
for comparison of the relative size and value of our reserves to other companies.
Management also uses this pre-tax measure when assessing the potential return
on investment related to its oil and natural gas properties and in evaluating
acquisition candidates. The PV-10 Value is not a measure of financial or operating
performance under GAAP, nor is it intended to represent the current market value
of the estimated oil and natural gas reserves owned by us. PV-10 Value should
not be considered in isolation or as a substitute for the standardized measure
of discounted future net cash flows as defined under GAAP. | | (2) | Future
income taxes and present value discounted (10%) future income taxes were $195.9
and $104.9 million, respectively. Accordingly, the after-tax PV-10 Value of Total
Proved Reserves (or “Standardized Measure of Discounted Future Net Cash Flows”)
is $299.3 million. |
No estimates of proved
reserves comparable to those included herein have been included in reports to
any federal agency other than the Securities and Exchange Commission (the “Commission”).
The reserve data set forth in this Annual Report on Form 10- K/A represent only
estimates. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations— Risk Factors—Our reserve data and estimated discounted
future net cash flows are estimates based on assumptions that may be inaccurate
and are based on existing economic and operating conditions that may change in
the future.” Our future oil and natural gas production
is highly dependent upon our level of success in finding or acquiring additional
reserves. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Risk Factors—We depend on successful exploration, development
and acquisitions to maintain reserves and revenue in the future.” Also, the failure
of an operator of our wells to adequately perform operations, or such operator’s
breach of the applicable agreements, could adversely impact us. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Risk
Factors—We cannot control the activities on properties we do not operate and are
unable to ensure their proper operation and profitability.” In
accordance with SEC regulations, Ryder Scott Company Petroleum Engineers, Fairchild
& Wells, Inc. and DeGolyer and MacNaughton each used year-end oil and natural
gas prices in effect at December 31, 2005, adjusted for basis and quality differentials.
The prices used in calculating the estimated future net revenue attributable to
proved reserves do not necessarily reflect market prices for oil and natural gas
production subsequent to December 31, 2005. There can be no assurance that all
of the proved reserves will be produced and sold within the periods indicated,
that the assumed prices will actually be realized for such production or that
existing contracts will be honored or judicially enforced. In particular, natural
gas prices at December 31, 2005 were at or near their record highs. While crude
oil prices have remained approximately the same since year-end, natural gas prices
have experienced significant volatility and since that time prices for natural
gas have fallen substantially. As of March 15, 2006, the average price of natural
gas that we receive for our production had fallen to approximately $7.00 per Mcf.
Decreases in the assumed commodity prices result in decreases in estimated future
net revenue as well as in estimated reserves. DeGolyer
and MacNaughton determined 55% of our proved reserves for the year ended December
31, 2005, which reserves were located on our Barnett Shale properties. Fairchild
& Wells, Inc. determined 28% of our proved reserves for the year ended December
31, 2005, which reserves were located on our properties in the Camp Hill field.
Ryder Scott Company Petroleum Engineers determined 17% of our proved reserves
for the year ended December 31, 2005, which reserves were located on our Gulf
Coast and all other remaining properties. | |
