9.     RELATED-PARTY TRANSACTIONS

Due to the limited capital available in the first half of 2006 to fund all of the Company’s ongoing lease acquisition efforts inthe Barnett Shale and other shale plays, the Company elected to enter into several lease option agreements with a number of thirdparties and with Steven A. Webster, the Company’s chairman (collectively, the “counterparties”). The terms and conditions of theleasing arrangement (agreement terms are described below) with Mr. Webster are consistent with the leasing arrangements the Company has entered into with the other third parties. These leasing arrangements provide the Company the option to purchase leases from the counterparties, over an option period, generally 90 days, for the counterparties’ original cost of the leases plus an option fee. Strategically, these leasing arrangements have allowed the Company to temporarily control important acreage positions during periods that the Company has lacked sufficient capital to directly acquire such oil and gas leases.

Since May 2006, the Company has acquired certain oil and gas leases through the aforementioned lease option arrangement with Mr. Webster. The acquisitions were made pursuant to a land option agreement between Mr. Webster and the Company dated January 25, 2006. The terms and conditions of this leasing arrangement with Mr. Webster are consistent with leasing arrangements the Company has entered into with the other third parties. Under the option agreement, Mr. Webster agreed to acquire oil and gas leases in areas where the Company is actively leasing or that it deems prospective. On or before the 90th day from the date that Mr. Webster acquires any lease in these areas, the Company has the option to acquire these leases from Mr. Webster for 110% of Mr. Webster’s purchase price or, on the 90th day, pay a non-refundable 10% option extension fee to add a second 90-day option period. On or before the end of this second 90-day option period, the Company has the option to pay Mr. Webster 110% of his original purchase price to acquire the lease. If, at the end of the second option period, the Company has not exercised its purchase option, Mr. Webster will retain ownership of the oil and gas leases. In addition to the cash payments described above, the Company will assign a one-half of one percent of 8/8ths overriding royalty interest (proportionally reducedto the actual net interest in any given lease acquired) on any lease it acquires from Mr. Webster in the first 90-day option period and a one percent of 8/8ths overriding royalty interest (also proportionally reduced) on any lease acquired from Mr. Webster in the second 90-day option period. As of December 31, 2006, Mr. Webster had acquired oil and gas leases for approximately $4.2 million, the Company had paid approximately $4.4 million for leases from Mr. Webster and the Company had made option extension payments of approximately $48,000 to Mr. Webster. There are currently no outstanding lease options under the arrangement with Mr. Webster. The Company may continue to use these arrangements as a strategic alternative. There was no activity under this arrangement in 2007.

The Company’s Chairman of the Board, Mr. Steven A. Webster serves on the Board of Directors for Basic Energy Services, Inc., Grey Wolf Inc., and Geokinetics, Inc., the parent of Quantum Geophysical, Inc. The Company’s Chief Executive Officer, Mr. S.P. Johnson serves as member on the Board of Directors for Basic Energy Services, Inc. Mr. Thomas L. Carter, Jr., a member of the Company’s Board of Directors, is the Chief Executive Officer and owner of a significant interest in Black Stone Minerals Company, L.P. (“Black Stone Minerals”). Due to these relationships, the Company has deemed these companies to be related parties. The Company incurred the following costs with these related parties:

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It is management’s opinion that the transactions with these entities were executed at prevailing market rates. At December 31,2007 and 2006, the Company had an outstanding related-party net payable balance of approximately $22,000 and net receivable balance of $0.2 million, respectively.

In January 2006, the Company acquired certain oil and gas leases for approximately $1.1 million from Black Stone Acquisitions Partners I L.P., the general partner of which is Black Stone Minerals. Black Stone Acquisition Partners also retains a royalty interest in the acquired leases, which are located in Mississippi. During 2007, the Company acquired additional acreagelocated in Texas from Black Stone for approximately $0.2 million. The terms and conditions of the lease agreement with Black Stone Acquisitions Partners I L.P. and Black Stone are generally consistent with the lease agreements that the Company has