Finding and Development Costs

The table below reconciles our calculation of finding cost to our costs incurred in the purchase of proved and unproved properties and in development and exploration activities, excluding capitalized interest on unproved properties of $11.7 million, $10.0 million and $5.8 million for the years ended December 31, 2007, 2006 and 2005, respectively. We have also included capitalized overhead in our finding cost of $4.5 million, $3.5 million and $2.1 million for the years ended December 31, 2007, 2006 and 2005, respectively. We have also included non-cash asset retirement obligations of $2.0 million, $0.3 million and $1.8 million for the years ended December 31, 2007, 2006 and 2005, respectively.

For the three year period ended December 31, 2007, our total adjusted costs for exploration, development and acquisition activities was approximately $546.5 million. Total exploration, development and acquisition activities for the three year period ended December 31, 2007 have added approximately 277.1 Bcfe of net proved reserves at an all-sources finding cost of $1.97 per Mcfe.

Our finding and development cost computation excludes net additions/reductions to total future development costs with respect to proved undeveloped properties necessary to convert those properties into proved developed properties of $75.7 million, $31.4 million and $99.8 million at December 31, 2007, 2006 and 2005, respectively, and includes total additions to proved undeveloped reserves of 59.6 Bcfe, 28.4 Bcfe and 25.4 Bcfe for the years ended December 31, 2007, 2006 and 2005, respectively. Accordingly, had we included future development costs in our computations, the average all-sources finding costs would have been $1.98, $3.13 and $4.39 per Mcfe for the years ended December 31, 2007, 2006 and 2005, respectively.

In order to maintain continued growth and profitability, our annual goal is to add new reserves exceeding our yearly production at a finding and development cost that contributes to an acceptable profit margin. Accordingly, we use the finding and development cost in combination with our reserve replacement ratio, as previously defined, to measure our operating and financial performance.

Our all-source finding cost measure is a measure with limitations. Consistent with industry practice, our finding and development costs have historically fluctuated on a year-to-year basis based on a number of factors including the extent and timing of new discoveries and property acquisitions. Due to the timing of proved reserve additions and timing of the related costs incurred to find and develop our reserves, our all-sources finding cost measure often includes quantities of reserves forwhich a majority of the costs of development have not yet been incurred. Conversely, the measure often includes costs to develop proved reserves that had been added in earlier years. Finding and development costs, as measured annually, may not be indicative of our ability to economically replace oil and natural gas reserves because the recognition of costs may not necessarily coincide with the addition of proved reserves. Our all-sources finding cost may also be calculated differently thanthe comparable measure of other oil and gas companies.

Development, Exploration and Acquisition Capital Expenditures

The following table sets forth certain information regarding the gross costs incurred in the purchase of proved and unproved properties and in development and exploration activities.