East Texas/North Louisiana

Our East Texas/North Louisiana area is comprised of the Cotton Valley Sand trend, which covers portions of the East Texas Basin and the Northern Louisiana Salt Basin, and the Haynesville shale play that rapidly developed in northwest Louisiana and East Texas beginning in 2008. We are targeting tight gas sand reservoirs along the Cotton Valley Sand trend at depths of approximately 6,500 to 15,000 feet. Operations in the area are generally characterized by long-lived reserves, high drilling success rates and wells with relatively high initial production rates. Due to the tight nature of the reservoirs, development programs are mostly focused on infill development drilling and extension of field limits. The Haynesville/Bossier shale plays lie beneath the Cotton Valley. The majority of our focus in this area is on horizontal shale development drilling.

Haynesville/Bossier shale

We announced during the third quarter of 2009 a definitive agreement with BG Group for the joint development and operation of our Haynesville shale and certain other related natural gas assets located in East Texas and North Louisiana. This transformational transaction presents us with the opportunity to enhance our value and accelerate the acquisition of additional Haynesville acreage.

The core area of the Haynesville shale is located in Desoto and Caddo Parishes in Louisiana and Harrison and Panola Counties in Texas. A large percentage of our core area acreage is held by our existing Cotton Valley, Hosston and Travis Peak production.

Our development program in the Haynesville shale play has transitioned from a vertical testing and data acquisition program to a full horizontal development drilling program. Our first horizontal well, the Oden 30H #6 in DeSoto Parish, Louisiana has performed exceptionally well, having produced more than 4 Bcf of natural gas during its first two years of production. We expect significant production and reserve growth with our Haynesville shale development program.

The Bossier shale section overlies the Haynesville shale. In 2009, we initiated a Bossier shale testing program. The Bossier shale has up to five times the thickness of the Haynesville shale in the DeSoto Parish area, and may hold significant reserve potential.

We have a strong commitment to technical evaluations to improve our understanding of these shale plays, and have made appropriate investments to reduce risks. We are members of a major shale consortium, reservoir engineering consortium and several other engineering and geoscience study projects.

Vernon/Kelleys Fields

The Vernon Field, located in Jackson Parish, Louisiana, is our largest producing field, accounting for approximately 25% of our company production during 2010. The field produces from the Lower Cotton Valley and Bossier Sand formations at depths ranging from 12,000 to 15,000 feet. A focus on maintaining base production levels and lowering our operating expenses is a priority. We gather and treat our own natural gas and have access to numerous transmission lines in the area. The Kelleys Field is located north of the Vernon Field.

East Texas/North Louisiana Cotton Valley Area

Within our Cotton Valley Area, we are active in Harrison, Panola, Rusk, Upshur and Gregg Counties in Texas, primarily across four fields—Danville, Waskom, Oak Hill and Minden. We are also active in Caddo and DeSoto Parishes Louisiana, primarily in four fields—Holly, Kingston, Caspiana and Longwood. We are primarily focused on developing Cotton Valley sands at depths ranging from approximately 10,400 to 11,000 feet and the Travis Peak and Hosston Sands at approximately 7,800 to 10,000 feet. Our natural gas is gathered through gathering lines operated by TGGT.