Summary Results - Second Quarter 2009

Production of 3.9 bcfe, or approximately 42.8 mmcfepd

Revenue of $28.6 million

EBITDAX of $18.6 million

Inaugural Haynesville Shale well, Kardell #1, spudded in San Augustine County

Summary Financial Results -- Second Quarter 2009

The Company reported a net loss of $13.3 million for the second quarter of 2009 compared to a net loss of $25.6million for the second quarter of 2008. Recorded in the 2009 and 2008 quarters were non-cash, pre-tax charges of $16.9 million and $58.8 million, respectively, to reflect the unrealized mark-to-market losses on our commodity price and interest rate hedge instruments. Exclusive of those charges, net income (loss) for the 2009 and 2008 quarters were ($2.3) million and $12.6 million, respectively.

Net cash flow from operations for the second quarter of 2009, which consists of net cash used in or provided by operating activities, plus the period change in certain working capital and other cash flow items, was $12.4million, compared with $31.3million reported for the 2008 quarter. The decrease in cash flow resulted primarily from lower revenues related to lower commodity prices and production.

Revenues for the second quarter of 2009 were $28.6million, a 46% decrease compared to revenue of $53.0 million in the prior year quarter. The decrease in revenues was attributable primarily to an approximate 19% decrease in production and an approximate 33% decline in realized commodity prices.

Production for the second quarter of 2009 was 3.9 Bcfe of natural gas equivalents, or 42,825Mcfe per day, compared with production of 4.8 Bcfe, or 53,127 Mcfe per day, in the 2008 quarter. The decrease in production was primarily due to natural field decline and the Company's allocation of available drilling capital in 2009 to validation of our Haynesville Shale position rather than to production enhancing activity on our existing asset base to offset that natural field decline.

Average prices realized in the second quarter of 2009 (including the effects of realized gains/losses on our commodity price hedges) were $80.62 per barrel, $6.71 per Mcf, $27.37 per barrel and $7.29per Mcfe for oil, natural gas, natural gas liquids and natural gas equivalents, respectively. For the second quarter of 2008, average prices realized were $95.52 per barrel, $10.23 per Mcf, $55.73 per barrel and $10.94 per Mcfe for oil, natural gas, natural gas liquids and natural gas equivalents, respectively.

Direct lease operating expenses for the second quarter of 2009 were $4.2million compared to $5.3 million in the prior year quarter, a decrease resulting from the implementation of cost reduction initiatives during 2009 in response to the lower commodity price environment. On a per Mcfe produced basis, direct lease operating expenses were $1.08 per Mcfe for the second quarter 2009, compared to $1.10 per Mcfe for the second quarter 2008. Exploration expenses were $1.5million for the second quarter of 2009 compared to $0.8million for the prior year quarter due to higher geological and geophysical ("G&G") costs and settled asset retirement costs incurred in the second quarter of 2009. DD&A expense for the second quarter of 2009 was $14.3million, or $3.68per Mcfe, compared to $11.6million, or $2.40perMcfe, in the prior year quarter, due to a higher DD&A rate resulting from asset acquisitions and capital expenditures during the 2008 high-cost environment and a commodity price related reduction in proved reserve estimates.

General and administrative expenses were $4.3million in the second quarter of 2009, or $1.11per Mcfe, compared to $5.5million, or $1.13per Mcfe, in the prior year quarter. Exclusive of the non-cash stock option expense recognized pursuant to SFAS123R, cash general and administrative expenses were $3.7 million, or $0.97per Mcfe, for the second quarter of 2009 and $3.9 million, or $0.79per Mcfe, for the second quarter of 2008. During the second quarter of 2009, the Company implemented a cost reduction program that will provide cost reduction benefits of an estimated $3 -- 4 million per year, on an annualized basis. Realization of those benefits will begin to occur in the third quarter of 2009.

Credit Facility Amendments

On July 31,2009, we entered into an amendment to our senior secured revolving credit facility, dated May31,2007 ("Senior Credit Agreement"). This amendment to the Senior Credit Agreement provides, among other things, for (i) the leverage ratio to be not greater than 3.25to1.00 for the quarter ended June 30, 2009, (ii) the current ratio to be not less than 0.75to1.00 for the quarter ended June 30, 2009, (iii) increasing the applicable margin on LIBOR loans to between 2.75% and 3.50%, and base rate loans to between 1.50% and 2.00%, depending on the percent of the borrowing base utilized at the time of the credit extension, and (iv) increasing the commitment fee on unutilized commitments to 0.50%. As of June30,2009, we had an outstanding loan balance of $152.5million under our Senior Credit Agreement. Our borrowing base under the Senior Credit Agreement was $160.0 million on July1,2009 reducing by $5.0 million on the first day of each subsequent month to $145.0 million at October1,2009. Our next scheduled redetermination date is November 2,2009. We continue to manage our capital expenditures to allow us to meet those step-downs.

On May 13, 2009, we entered into a second amendment to our second lien credit agreement dated May 8, 2007 (the "Second Lien Credit Agreement") with our lenders, including an affiliate of OCM GW Holdings, LLC, our majority stockholder. This second amendment amends the Second Lien Credit Agreement by, among other things, (i) modifying the leverage ratio to be no greater than the ratio equal to the sum of the leverage ratio for the Senior Credit Agreement and 0.25 to 1.00, (ii) modifying the PV-10 ratio beginning with the fiscal quarter ended June30,2009, to not be less than 1.2x, beginning with the fiscal quarter ending December31,2009, to not be less than 1.25x and beginning with the fiscal quarter ending December31,2010 and thereafter, to not be less than 1.5x, (iii) increasing the applicable margin to 8.0% for loans bearing interest at the LIBO Rate and 7.0% for loans bearing interest at the alternate base rate, unless we meet certain leverage and PV-10 ratios, in which case the applicable margin will be 7.0% and 6.0%, respectively, (iv) setting a minimum LIBO Rate of 3.0%, and (v) including certain fee acreage in calculations of our borrowing base after we have granted a lien on such fee acreage. As of June30,2009, we had an outstanding loan balance of $150.0million under our Second Lien Credit Agreement.

Drilling Activity

As previously disclosed, we continue to limit our capital expenditure activity and intend to remain focused on our East Texas Haynesville Shale play for the remainder of 2009. While we continue to build our inventory of exploitation and exploration opportunities in our South Texas and Texas Gulf Coast regions, we anticipate continuing to defer major capital allocation for drilling activities for these areas until drilling costs decline, commodity prices rebound and/or the availability of capital improves.

Haynesville Shale

At the end of June, we spudded our inaugural Haynesville Shale well, the Kardell #1 (50.0% WI), in San Augustine County, with Devon Energy as the operator. We are currently drilling at approximately 13,000 feet, toward a 13,500 total vertical depth, which we anticipate reaching late-August and plan to take cores and perform extensive formation evaluation in the pilot hole. The log analysis run while drilling through the James Lime formation at approximately 8,000 feet was very encouraging. Cores are planned to be taken from the Middle Bossier, James Lime and Haynesville Shale formations. Currently, we expect to drill the horizontal section, complete and test the Kardell #1 in late October / early November.