Permian Basin

Permian Basin Region

Our Permian Basin operations include assets in Texas and New Mexico. As of December 31, 2006, the Permian Basin region contributed 116.1 MMBOE (89% oil) of estimated proved reserves to our portfolio of operations, which represented 47% of our total estimated proved reserves. Approximately 96% of the proved reserves of our Permian Basin operations are related to properties in Texas.

North Ward Estes

The North Ward Estes field includes six base leases with 100% working interest in 58,000 gross and net acres in Ward and Winkler Counties, Texas. As of December 31, 2006, there were approximately 935 producing wells and 440 injection wells. The Yates Formation at 2,600 feet is the primary producing zone with additional production from other zones including the Queen at 3,000 feet. We also have the rights to deeper horizons under 34,140 gross acres in the North Ward Estes field. The North Ward Estes properties produced at an estimated average net daily rate of 5,370 Bopd (including NGLs) and 5,880 Mcf/d of gas during the month of December 2006. In the North Ward Estes field, the estimated proved reserves as of December 31, 2006 were 20% PDP, 26% PDNP and 54% PUD.

The North Ward Estes field was initially developed in the 1930’s and full scale waterflooding was initiated in 1955. A CO2 enhanced recovery project was implemented in the core of the field in 1989, but was terminated in 1996 after a successful top lease by a third party. We reinitiated water injection in 2006 and have successfully re-pressured the pilot area for the resumptions of the CO2 flood. We began construction of a gas plant to process and separate the CO2 from the produced gas in the fourth quarter of 2006, and we plan to begin CO2 injection late in the first quarter of 2007. A contract for the future purchase of significant CO2 volumes was executed during 2006.

We also have interests in certain other fields within the Permian Basin of Texas and New Mexico, including 2,250 producing oil and gas wells. These properties produced at an estimated average net daily rate of 7,990 Bopd (including NGLs) and 18,340 Mcf/d of gas during the month of December 2006.

Would Have Field

We own an 87% operated working interest in the Would Have field in Howard County, Texas, currently producing from 57 active wells. Discovered in 2001, this field produces from two sub-units of the Clearfork Formation, the Would Have and the Dillard Limestones. Waterflood expansion into the eastern half of the field is currently underway. During 2006 we drilled two successful Varel (San Andres) tests, and plans are underway to participate in a “Wolfberry” (Wolfcamp & Sprayberry) test on the lease.

Keystone South, Martin and Flying W Fields

We own a 100% working interest and operate these three fields located on the Western edge of the Midland Basin. Production comes from the Clearfork Formation, with additional production from the Wichita, Wolfcamp, Devonian, Silurian, McKee and Ellenburger Formations. During 2006 we drilled a total of seven wells in these fields. Based on the 2006 success, we are planning additional wells for 2007.