Our involvement in the North Sea began in 2003 when we were awarded seven acreage blocks in 2003 from the U.K.’s 21st license round. We subsequently generated over a dozen prospects from these blocks and renewed two of the licenses with four-year terms in 2006, while relinquishing three of the less prospective blocks. As of December 31, 2007, we held three 4-year licenses over four exploration blocks, totaling over 110,600 gross acres (24,800 net) all located in mature producing areasof the Central and Southern North Sea in water depths of 30 to 350 feet. As of year-end 2007, we had met all associated drilling commitments under these license agreements.

On three of our licenses, we successfully promoted our interests to other parties more experienced in drilling and operating in this region, leaving us with a carried interest on four exploration wells. Two of the four drilled wells resulted in three discoveries, including two discoveries at Huntington and an apparent gas discovery at our Monterey prospect in the Southern Gas Basin. Monterey (25% working interest and 3% overriding royalty interest) was a late-2006 discovery that tested at 2 MMcf/d, and is currently shut-in awaiting completion of pre-development studies by the operator. A final decision on development by the partners is expected in the coming year.

From inception of our activity in this area in early 2003 through year-end 2006, we incurred only $1.7 million in total project costs (net of partner reimbursements) in an effort to create substantial value while minimizing front-end cost. We spent 9.4 million in the U.K. North Sea in 2007, largely for our participation in the Huntington Forties appraisal drilling during thesecond half of 2007. Our estimated net firm project commitments for the Huntington Forties field in 2008 includes approximately $6.6 million, largely for development planning, engineering and geological and geophysical studies, seismic acquisition and reprocessing, new acreage acquisition, and further prospect generation.

OTHER PROJECT AREAS

Wyoming/Montana Coalbed Methane Project Area

Our interests in coalbed methane areas include a direct ownership in 14,056 net acres in Wyoming and Montana at December 31, 2007. In addition, through our subsidiary CCBM, Inc., we have a minority interest of approximately 8.3% of the shares (on a fully diluted basis) of Pinnacle Gas Resources, Inc., a publicly traded coalbed methane production company.

Working Interest and Drilling in Project Areas

The actual working interest we will ultimately own in a well will vary based upon several factors, including the depth, cost and risk of each well relative to our strategic goals, activity levels and budget availability.From time to time some fraction of these wells may be sold to industry partners either on a prospect by prospect basis or a program basis. In addition, we may also contribute acreage to larger drilling units thereby reducing prospect working interest. We have, in the past, retained less than 100% working interest in our drilling prospects. References to our interests are not intended to imply that we have or will maintain any particular level of working interest.

Although we have identified or budgeted for numerous drilling prospects, we may not be able to lease or drill those prospects within our expected time frame or at all. Wells that are currently part of our capital budget may be based on statistical results of drilling activities in other 3-D project areas that we believe are geologically similar rather than on analysisof seismic or other data in the prospect area, in which case actual drilling and results are likely to vary, possibly materially,from those statistical results. In addition, our drilling schedule may vary from our expectations because of future uncertainties. Our final determination of whether to drill any scheduled or budgeted wells will be dependent on a number of factors, including (1) the results of our exploration efforts and the acquisition, review and analysis of the seismic data; (2) the availability of sufficient capital resources to us and the other participants for the drilling of the prospects; (3) the approval of the prospects by the other participants after additional data has been compiled; (4) economic and industry conditions at the time of drilling, including prevailing and anticipated prices for natural gas and oil and the availability and prices of drilling rigs and crews; and (5) the availability of leases and permits on reasonable terms for the prospects. There can be no assurance thatthese projects can be successfully developed or that any identified drillsites or budgeted wells discussed will, if drilled, encounter reservoirs of commercially productive oil or natural gas. We may seek to sell or reduce all or a portion of our interest in a project area or with respect to prospects or wells within a project area.

Our success will be materially dependent upon the success of our exploratory drilling program, which is an activity that involves numerous risks. See “Item 1A. Risk Factors—Natural gas and oil drilling is a speculative activity and involves numerous risks and substantial and uncertain costs that could adversely affect us.”