Business Strategy

We seek to grow reserves and production profitably through a balanced mix of developmental drilling, acquisitions, enhancements, EOR projects and a modest number of exploration projects. Further, we strive to control our operations and costs and to minimize commodity price risk through a conservative financial hedging program. The principal elements of our strategy include:

Continue lower-risk development drilling program. During the year ended December 31, 2008, we spent approximately $171.0 million on development drilling, which represents 56% of our capital expenditures for such period. A majority of these drilling wells are in our core areas of the Mid-Continent and the Permian Basin. The wells we drill in these areas are generally development (infill or single stepout) wells. We currently plan to spend $38.0 million, or approximately 75% of our capital expenditures, on developmental drilling in 2009.

Acquire long-lived properties with enhancement opportunities. We continually evaluate acquisition opportunities and expect that they will continue to play a significant role in increasing our reserve base and future drilling inventory. We have traditionally targeted smaller asset acquisitions which allow us to absorb, enhance and exploit the properties without taking on excessive integration risk. In 2006, we also made a larger acquisition that complemented our existing properties in our core areas. During the year ended December 31, 2008, we made approximately $39.2 million of proved reserve acquisitions, or 13% of our total capital expenditures. As part of our plan to keep capital expenditures within cash flow, we have not budgeted any significant amounts for acquisitions in 2009.

Apply technical expertise to enhance mature properties. Once we acquire a property and become the operator, we seek to maximize production through enhancement techniques and the reduction of operating costs. We have built our Company around a strong engineering team with expertise in the areas where we operate. We believe retaining our own field staff and operating offices close to our properties allows us to maintain tight control over our operations. We have 17 field offices throughout Oklahoma, Texas and Louisiana. Our personnel possess a high degree of expertise in working with lower pressure or depleted reservoirs and, as a result, are able to identify enhancement opportunities with low capital requirements such as installing a plunger lift, pumping unit or compressor. As of December 31, 2008, we had an inventory of 806 enhancement projects requiring total estimated capital expenditures of $69.4 million.

Expand CO₂ EOR activities. As of December 31, 2008, we have accumulated interests in 61 properties in Oklahoma, Kansas, New Mexico and Texas that meet our criteria for CO₂ EOR operations and we are expanding our CO₂ pipeline system to initiate CO₂ injection in certain of these properties. We began CO₂ injection in our Perryton Unit in December 2006 and will begin CO₂ injection in our Booker Area Units in the second quarter of 2009 and in our NW Camrick Unit in 2010. To support our existing CO₂ EOR projects, we currently inject approximately 33.4 MMcf per day of purchased and recycled CO₂. We have a 100% ownership interest in our 86-mile Borger CO₂ pipeline, a 29% interest in the 120-mile Enid to Purdy CO₂ pipeline, a 58% interest in and operate the 23-mile Purdy to Velma CO₂ pipeline, and a 100% interest in approximately 126 miles of pipeline located between Liberal, Kansas and Booker, Texas. We have installed compression facilities to capture approximately 16 MMcf per day of CO₂ from the Arkalon ethanol plant and expect to initiate injection of this CO₂ into the Booker area fields in the second quarter of 2009.

Pursue modest exploration program. In the current low-priced commodity environment, we do not plan to spend any significant amount on exploratory activities.

Control operations and costs. We seek to serve as operator of the wells in which we own a significant interest. As operator, we are better positioned to control the (1) timing and plans for future enhancement and exploitation efforts; (2) costs of enhancing, drilling, completing and producing the wells; and (3) marketing negotiations for our oil and gas production to maximize both volumes and wellhead price. As of December 31, 2008, we operated properties comprising approximately 82% of our proved reserves.

Hedge production to stabilize cash flow. Our long-lived reserves provide us with relatively predictable production. To protect cash flows that we use for on-going operations, for capital investments, and to lock in returns on acquisitions, we enter into commodity price swaps, costless collars, and basis protection swaps. We consider all these derivative instruments to be economic hedges of our proved developed production, regardless of whether hedge accounting is applied. As of December 31, 2008, we had commodity price swaps, costless collars, and basis protection swaps in place for approximately 50% of our most recent internally estimated proved developed gas production for 2009 through 2011. We also had commodity price swaps and costless collars in place for approximately 66% of our most recent internally estimated proved developed oil production for 2009 through 2013. While our derivative activities protect our cash flows during periods of commodity price declines, we recorded losses on derivative activities of $8.8 million and $51.9 million for the years ended December 31, 2006 and 2007, respectively, through a period of increasing commodity prices. For the year ended December 31, 2008, we recorded a gain on derivative activities of $50.5 million. In December 2008, we received proceeds of $32.6 million from the monetization of derivative contracts which had original settlement dates from January through June 2009.