As of December 31, 2007, the Company had $34.0 million of borrowings outstanding on a borrowing base availability of $145.0 million.

On September 11, 2007, the Company entered into the Second Amendment (the “Second Amendment”) to the Senior Credit Facility. The Second Amendment provides that in the event the scheduled redetermination of the borrowing base is not made on or prior to January 1, 2008 as a result of the Company’s failure to comply with the requirement to deliver required engineeringreports, the borrowing base will be reduced by $3.0 million commencing on January 1, 2008 and continuing on the first day of each month thereafter until the borrowing base is redetermined. The conforming and non-conforming borrowing base(s) (as defined in the Senior Credit Facility) were amended to be $100.0 million and $17.0 million, respectively. In connection with the Second Amendment, a second bank was added to the credit agreement. In addition, the Second Amendment increased the allowed amount of investments in unrestricted subsidiaries that the Company may make.

On December 20, 2007, the Company entered into the Third Amendment (the “Third Amendment”) to the Senior Credit Facility. The conforming and non-conforming borrowing bases were amended to be $125.0 million and $20.0 million, respectively. In connection with the Third Amendment, the co-lending group was expanded to four banks and the $3.0 million borrowing base reduction associated with the delivery of engineering reports at January 1, 2008 was removed.

If the outstanding principal balance of the revolving loans under the Senior Credit Facility exceeds the borrowing base at any time, the Company has the option within 30 days to take any of the following actions, either individually or in combination: makea lump sum payment curing the deficiency, pledge additional collateral sufficient in the lenders' opinion to increase the borrowing base and cure the deficiency or begin making equal monthly principal payments that will cure the deficiency within the ensuing six-month period. Those payments would be in addition to any payments that may come due as a result of the quarterly borrowing base reductions. Otherwise, any unpaid principal or interest will be due at maturity.

The annual interest rate on each base rate borrowing will be (1) the greatest of the agent’s Prime Rate, the Base CD Rate plus 1.0% and the Federal Funds Effective Rate plus 0.5%, plus (2) a margin between 0.25% and 1.75% (depending on the current level of borrowing base usage). The interest rate on each Eurodollar Loan will be the adjusted LIBO rate plus a margin between1.5% to 3.0% (depending on the current level of borrowing base usage).

The Company is subject to certain covenants under the amended terms of the Senior Credit Facility which include, but are not limited to, the maintenance of the following financial ratios: (1) a minimum current ratio of 1.0 to 1.0; and (2) a maximum total net debt to Consolidated EBITDAX (as defined in the Senior Credit Facility) of 3.75 to 1.0 for the fiscal quarters through and including December 31, 2007, 3.25 to 1.0 for the fiscal quarter March 31, 2008 and thereafter.

The Senior Credit Facility alsoplaces restrictions on indebtedness, dividends to shareholders, liens, investments, mergers, acquisitions, asset dispositions, repurchase or redemption of the Company’s common stock, speculative commodity transactions, transactions with affiliates and other matters. The Senior Credit Facility is subject to customary events of default, the occurrence and continuation of which could result inthe acceleration of amounts due under the facility by the agent or the lenders.

At December 31, 2007, the Company was in compliance with all of its debt covenants.

7.      COMMITMENTS AND CONTINGENCIES

From time to time, the Company is party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.

The operations and financial position of the Company continue to be affected from time to time in varying degrees by domestic and foreign political developments as well as legislation and regulations pertaining to restrictions on oil and natural gas production, imports and exports, natural gas regulation, tax increases, environmental regulations and cancellation of contract rights. Both the likelihood and overall effect of such occurrences on the Company vary greatly and are not predictable.

The Company has a long-term operating lease agreement for its corporate offices that expires December 2011. Under the terms of the lease agreement, the Company received a rent abatement equal to six months of lease payments and a build out allowance that is being amortized to expense over the term of the lease. In July 2006, the Company amended its lease agreementto expand the leased office space by an additional floor. The lease term for the additional floor also expires in December 2011. Rent expense for the years ended December 31, 2007, 2006 and 2005 was $0.9 million, $0.6 million and $0.5 million, respectively, and includes rent expense for the Company’s corporate office and a field office in the Barnett Shale area.