__________
^(1.)    Based on Houston Ship Channel spot prices.

The fair value of the outstanding derivatives at December 31, 2006 and 2005 was an asset of $6.0 million and a liability of $3.4 million, respectively.

In November 2001, the Company had no-cost collars with an affiliate of Enron Corp. which, because of Enron’s financial condition, were no longer considered effective. An allowance was recorded at that time for the full value of the collars (the “Enron Claim”) that was classified as other expense. The Company sold its Enron Claim to a financial institution for $0.5 million that was recorded in the third quarter of 2004 as other income.

During the third quarter of 2005, the Company entered into interest rate swap agreements with respect to amounts outstanding under the Second Lien Credit Facility. These arrangements were designed to manage the Company’s exposure to interest rate fluctuations during the period beginning January 1, 2006 through June 30, 2007 by effectively exchanging existing obligations to pay interest based on floating rates for obligations to pay interest based on fixed LIBO rates. In connection with the amendment to the Company’s Second Lien Credit Facility, the remaining open derivative positions on interest rate swaps were cash settled, resulting in a realized gain of $0.6 million on December 21, 2006. On January 5, 2007, the Company opened new derivative positions in the form of interest rate swaps on the entire outstanding principal of its Second Lien Credit Facility, covering the year ended December 31, 2007.

12.      SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)

The following disclosures provide unaudited information required by SFAS No. 69, “Disclosures About Oil and Gas Producing Activities.”

Costs Incurred

Costs incurred in oil and natural gas property acquisition, exploration and development activities are summarized below: