dependent on commodity prices, particularly natural gas prices, which are beyond our control and have been and are expected to remain volatile.

Capital funding. In order to fund our growth, we have taken steps to enhance our liquidity. During the first quarter of 2007, we received $72.1 million of net proceeds from borrowings under the amended Second Lien Facility. During the third quarter of 2007, we received approximately $72.0 million in net proceeds from a registered direct offering of 1.8 million shares of our common stock. The proceeds were used to repay borrowings under the Senior Credit Facility and to fund in part our 2007 drilling program and for general corporate purposes. In December 2007, our borrowing base availability on the Senior Credit Facility increased from $117.0 million to $145.0 million, leaving us with a borrowing capacity of $111 million at December 31, 2007. The next borrowing base redetermination is scheduled for May 2008. In February 2008, we received approximately $135.4 million in net proceeds from an underwritten public offering of 2.59 million shares of our common stock.

2008 drilling and capital program. In 2008 we plan to drill 68 gross (62.6 net) wells in the Barnett Shale area, 15 gross (5.8 net) wells in the Gulf Coast area, 40 gross (40.0 net) wells in the Camp Hill Field (which includes approximately 17 service wells), three gross (0.5 net) U.K. North Sea appraisal wells and 29 gross (14.5 net) wells in other areas. Our 2008 capital budget is approximately $300 million and includes approximately $250 million for drilling, comprised of $185 million in Barnett Shale, $23 million in Gulf Coast, $17 million in the U.K. North Sea, $6 million in the Camp Hill Field, and $19 million in other areas, and approximately $50 million for land and seismic activities. The actual number of wells drilled will vary depending upon various factors, including the availability and cost of drilling rigs, land and industry partner issues, our cash flow, success of drilling programs, weather delays and other factors. If we drill the number of wells we have budgeted for 2008, depreciation, depletion and amortization, oil and natural gas operating expenses and production are expected to increase over levels incurred in 2007.

Barnett Shale operations. During the first quarter of 2008, we entered into a drilling contract which is expected to bring our operated rig count to five starting in April 2008. Three of the rigs will be used in southeast Tarrant County, including one in the development of The University of Texas – Arlington (“UTA”) campus. For 2008, we have a six well plan for UTA in which we plan to drill all six wells then fracture stimulate these wells and begin sales before further drilling in the area. In early February 2008, the five wells in our Taylor lease in southeast Tarrant County, began production and sales with initial production rates totaling 23.0 MMcfe/d. There are currently 17 net horizontal wells in the Barnett Shale area already drilled but waiting on completion and/or pipeline connection.

North Sea operations. Following the positive results from the Forties appraisal drilling in the Huntington discovery during the fourth quarter of 2007, we are defining those field limits and establishing reservoir properties in preparation for making application for field development in late 2008. After we receive regulatory approval for our field development we will assess whether we will be able to book proved reserves in connection with this portion of the Huntington discovery. During the first quarter of 2008, we also completed the first appraisal well targeting the Jurassic Fulmar sands in the Huntington discovery and anticipate further appraisal will be required to delineate this reservoir. We currently expect that we will seek to significantly expand our expenditures in this area over the next several years. In 2008, we expect to seek project financing or conventional reserves-based financing to fund the development of the Huntington discovery.

Camp Hill. We have a firm commitment from our drilling contractor to drill exclusively for us through February 2008 with options to extend the contract for four additional three-month periods, providing us the expected rig availability needed to execute our 2008 drilling plan. By the end of 2008, we plan to have four natural gas-fired steam generators operating at the field, of which the first generator is expected to be working near full capacity by April 2008.

Other areas. In the Marcellus Shale in New York and Pennsylvania, where we have acquired approximately 12,500 net acres, we expect to drill four gross (2.8 net) wells. In the Floyd Shale we expect to drill a well in the northwest end of theplay where a competitor’s well has reported a commercial flow rate. In the Fayetteville Shale, we expect to participate in the drilling of eleven outside-operated gross (0.6 net) wells with an average working interest of about five percent.

Natural gas and oil hedges. We expect to hedge production to decrease our exposure to natural gas and oil price fluctuations. At December 31, 2007, we had hedged approximately 14,624,000 MMBtus of natural gas production through 2009 and 45,700 Bbls of oil production through 2008.