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<SEC-DOCUMENT>0000950134-05-006966.txt : 20050406
<SEC-HEADER>0000950134-05-006966.hdr.sgml : 20050406
<ACCEPTANCE-DATETIME>20050406162232
ACCESSION NUMBER:		0000950134-05-006966
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		16
CONFORMED PERIOD OF REPORT:	20041231
FILED AS OF DATE:		20050406
DATE AS OF CHANGE:		20050406

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRIMEENERGY CORP
		CENTRAL INDEX KEY:			0000056868
		STANDARD INDUSTRIAL CLASSIFICATION:	CRUDE PETROLEUM & NATURAL GAS [1311]
		IRS NUMBER:				840637348
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-07406
		FILM NUMBER:		05737193

	BUSINESS ADDRESS:	
		STREET 1:		ONE LANDMARK SQ
		CITY:			STAMFORD
		STATE:			CT
		ZIP:			06901
		BUSINESS PHONE:		2033585700

	MAIL ADDRESS:	
		STREET 1:		ONE LANDMARK SQ
		CITY:			STAMFORD
		STATE:			CT
		ZIP:			06901

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	KRM PETROLEUM CORP
		DATE OF NAME CHANGE:	19900614
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d22569e10vk.htm
<DESCRIPTION>FORM 10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vk</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>








<P align="center" style="font-size: 14pt"><B>U.S. SECURITIES AND EXCHANGE COMMISSION</B>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>


<P align="center" style="font-size: 10pt"><HR size="1" noshade width="26%" align="center" color="#000000">


<P align="center" style="font-size: 18pt"><B>FORM 10-K</B>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="98%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" align="left" colspan="3"><DIV style="margin-left:0px; text-indent:-0px"><B>(Mark One)</B></DIV></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT face="Wingdings">&#254;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE</B></TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>For the fiscal year ended December&nbsp;31, 2004</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>or</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 12pt">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE</B></TD>
</TR>
<TR valign="bottom" style="font-size: 10pt">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>For the Transition Period
From&nbsp;&nbsp;&nbsp;&nbsp; to</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B>Commission File Number 0-7406</B>



<P align="center" style="font-size: 25pt"><B>PrimeEnergy
Corporation</B>
<DIV align="center" style="font-size: 10pt"><B>(Exact name of
registrant as specified in its charter)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Delaware</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>84-0637348</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(state or other jurisdiction of
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Identification No.)</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>One Landmark Square</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>Stamford, Connecticut</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>06901</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B>Registrant&#146;s telephone number, including area code: (203)&nbsp;358-5700</B>



<P align="center" style="font-size: 10pt"><B>Securities registered pursuant to Section&nbsp;12(b) of the Act:<BR>
None</B>



<P align="center" style="font-size: 10pt"><B>Securities registered pursuant to Section&nbsp;12(g) of the Act:<BR>
Common Stock, par value $.10 per share<BR>
(Title of Class)</B>


<P align="left" style="font-size: 10pt">Indicate whether Registrant (1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2)&nbsp;has been subject to such filing
requirements for the past 90&nbsp;days.



<P align="right" style="font-size: 10pt">Yes
<FONT face="Wingdings">&#254;</FONT> No
<FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">Indicate by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405 of Regulation&nbsp;S-B is
not contained herein, and will not be contained, to the best of Registrant&#146;s knowledge, in
definitive proxy or information statements incorporated by reference in Part&nbsp;III of this Form 10-K
or any amendment to this Form 10-K. <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">Indicate by check mark whether the Registrant is an accelerated filer as defined in Exchange Act
Rule&nbsp;12-b-2



<P align="right" style="font-size: 10pt">Yes
<FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>


<P align="left" style="font-size: 10pt">The aggregate market value of the voting stock of the Registrant held by non-affiliates, computed
by reference to the average bid and asked price of such common equity as of the last business day
of the Registrant&#146;s most recently completed second fiscal quarter, was $26,772,385.


<P align="left" style="font-size: 10pt">The number of shares outstanding of each class of the Registrant&#146;s Common Stock as of March&nbsp;28,
2005, was: 3,477,850 shares, Common Stock, $0.10 par value,



<P align="center" style="font-size: 10pt"><B>DOCUMENTS INCORPORATED BY REFERENCE</B>


<DIV align="left" style="font-size: 10pt">Portions of the Registrant&#146;s proxy statement to be furnished to stockholders in connection with its
Annual Meeting of Stockholders to be held in June, 2005, are incorporated by reference in Part&nbsp;III
hereof.</DIV>



<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>









<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>

<DIV style="font-family: 'Times New Roman',Times,serif">












<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000"> PART I</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">Item&nbsp;1. BUSINESS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#002">Item&nbsp;2. PROPERTIES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#003">Item&nbsp;3. LEGAL PROCEEDINGS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">Item&nbsp;4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#005"> PART II</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">Item&nbsp;5. MARKET FOR REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">Item&nbsp;6. SELECTED FINANCIAL DATA</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">Item&nbsp;7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009">Item&nbsp;7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">Item&nbsp;8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">Item&nbsp;9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">Item&nbsp;9A. INTERNAL CONTROLS AND PROCEDURES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">Item&nbsp;9B. OTHER INFORMATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#014">PART III</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#015">Item&nbsp;10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#016">Item&nbsp;11. EXECUTIVE COMPENSATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#017">Item&nbsp;12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#018">Item&nbsp;13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#019">Item&nbsp;14. PRINCIPAL ACCOUNTANT FEES AND SERVICES</A></TD></TR>
<TR><TD colspan="9"><A HREF="#020">PART IV</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#021">Item&nbsp;15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K</A></TD></TR>
<TR><TD colspan="9"><A HREF="#022">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv3w1.txt">Restated Certificate of Incorporation</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv3w2.txt">Bylaws</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv10w18.txt">Composite Copy of Non-Statutory Option Agreements</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv10w22w3.txt">3rd Amendment to Credit Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv10w22w4.txt">4th Amendment to Credit Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv10w25.txt">Credit Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv10w26w1.txt">Security Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv10w26w2.txt">Ratification of and Amendment to Act of Mortgage and Security Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv10w26w3.txt">Ratification of and Amendment to Mortgage, Deed of Trust, Security Agreement</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv21.txt">Subsidiaries</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv23.htm">Consent of Ryder Scott & Co LP</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv31w1.htm">Certification of CEO Pursuant to Rule 13(a)-14(a)/15d-14(a)</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv31w2.htm">Certification of CFO Pursuant to Rule 13(a)-14(a)/15d-14(a)</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv32w1.htm">Certification of CEO Pursuant to 18 U.S.C. Section 1350</A></TD></TR>
<TR><TD colspan="9"><A HREF="d22569exv32w2.htm">Certification of CFO Pursuant to 18 U.S.C. Section 1350</A></TD></TR>
</TABLE>
</CENTER>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>









<P align="center" style="font-size: 12pt"><B>PrimeEnergy Corporation</B>



<P align="center" style="font-size: 10pt"><B>FORM 10-K ANNUAL REPORT<BR>
For the Fiscal Year Ended<BR>
December&nbsp;31, 2004</B>


<!-- link1 " PART I" -->
<DIV align="left"><A NAME="000"></A></DIV>

<P align="center" style="font-size: 10pt"><B>PART I</B>


<!-- link2 "Item&nbsp;1. BUSINESS" -->
<DIV align="left"><A NAME="001"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;1. BUSINESS.</B>



<P align="left" style="font-size: 10pt"><B>General</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Report contains forward-looking statements that are based on management&#146;s current
expectations, estimates and projections. Words such as &#147;expects,&#148; &#147;anticipates,&#148; &#147;intends,&#148;
&#147;plans,&#148; &#147;believes,&#148; &#147;projects&#148; and &#147;estimates,&#148; and variations of such words and similar
expressions are intended to identify such forward-looking statements. These statements constitute
&#147;forward-looking statements&#148; within the meaning of Section&nbsp;27A of the Securities Act of 1933, and
are subject to the safe harbors created thereby. These statements are not guarantees of future
performance and involve risks and uncertainties and are based on a number of assumptions that could
ultimately prove inaccurate and, therefore, there can be no assurance that they will prove to be
accurate. Actual results and outcomes may vary materially from what is expressed or forecast in
such statements due to various risks and uncertainties. These risks and uncertainties include,
among other things, volatility of oil and gas prices, competition, risks inherent in the Company&#146;s
oil and gas operations, the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of reserve estimates, the Company&#146;s ability to replace and expand oil
and gas reserves, and such other risks and uncertainties described from time to time in the
Company&#146;s periodic reports and filings with the Securities and Exchange Commission. Accordingly,
stockholders and potential investors are cautioned that certain events or circumstances could cause
actual results to differ materially from those projected.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PrimeEnergy Corporation (the &#147;Company&#148;) was organized in March, 1973, under the laws of the
State of Delaware.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is engaged in the oil and gas business through the acquisition, exploration,
development, and production of crude oil and natural gas. The Company&#146;s properties are located
primarily in Texas, Oklahoma, West Virginia, the Gulf of Mexico, New Mexico, and Louisiana. The
Company, through its wholly-owned subsidiaries Prime Operating Company, Southwest Oilfield
Construction Company, Eastern Oil Well Service Company and EOWS Midland Company, acts as operator
and provides well servicing support operations for many of the onshore oil and gas wells in which
the Company has an interest, as well as for third parties. The Company owns and operates properties
in the Gulf of Mexico through its sixty percent owned subsidiary F-W Oil Exploration L.L.C. (&#147;FW&#148;).
The Company is also active in the acquisition of producing oil and gas properties through joint
ventures with industry partners. The Company&#146;s wholly-owned subsidiary, PrimeEnergy Management
Corporation (&#147;PEMC&#148;), acts as the managing general partner of 18 oil and gas limited partnerships
(the &#147;Partnerships&#148;) of which two are publicly held, and acts as the managing trustee of two asset
and income business trusts (&#147;the Trusts&#148;).


<P align="left" style="font-size: 10pt"><B>Exploration, Development
and Recent Activities</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s activities include development and exploratory drilling. The Company&#146;s strategy
is to develop a balanced portfolio of drilling prospects that includes lower risk wells with a high
probability of success and higher risk wells with greater economic potential.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December, 2004, the Company had net capitalized costs related to
oil and gas properties of $48 million, including $13 million of
properties under evaluation. Total expenditures for the acquisition,
exploration and development of the Company&#146;s properties during
2004 was $25 million of which $5.5 million was related to exploration
costs expensed during 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Properties
under evaluation include $7.5 million invested in one offshore well
completed and tested during the third quarter of 2004, however, early
production tests have been inconclusive as to the commercial
viability of this prospect. Additional expenditures during 2005 will
be required to determine whether production rates and ultimate
recoverable reserves are sufficient to warrant the costs of setting a
platform and installing production facilities. If this well is
determined to be noncommercial, the write off of this investment in
2005 will have a significant negative impact on the Company&#146;s
earnings.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2004, our offshore properties had net proved reserves of
10.2 BCFE and net capitalized costs of $18.7 million. Approximately
70% of these reserves are undeveloped and will require substantial
capital expenditures during 2005. As of March, 2005, the Company has
spent approximately $7.8 million drilling four successful wells in
the Gulf of Mexico as
part of our program to develop these properties. Our offshore
drilling budget for 2005 is $10 million and an additional $16 million
has been committed to pipeline and facility construction and
installation. Production from these wells, depending on flow rates
and the timing of the completion of the pipelines and facilities, may
add significant gas volumes to the Company&#146;s sales during the
fourth quarter of 2005.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s offshore
properties include a non-operated interest in producing and
undeveloped properties in the Breton Sound Block 41 Field. In
February 2005, a working interest owner in the field completed the
sale of their interest in this asset. The Company has not received an
offer to purchase our interest in the field, however, based on the
price of this transaction, the Company&#146;s ownership position has
an equivalent value of approximately $24 million.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2004, onshore exploration and development expenditures totaled $9.3
million. Spending on projects in our core operating areas for 2005 is
budgeted at $15 million. As of March, 2005, the Company has drilled
four successful wells, one dry hole and is currently drilling two
wells in these areas.

<P align="center" style="font-size: 10pt">2
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that its diversified portfolio approach to its drilling activities
results in more consistent and predictable economic results than might be experienced with a less
diversified or higher risk drilling program profile.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company attempts to assume the position of operator in all acquisitions of producing
properties. The Company will continue to evaluate prospects for leasehold acquisitions and for
exploration and development operations in areas in which it owns interests and is actively pursuing
the acquisition of producing properties. In order to diversify and broaden its asset base, the
Company will consider acquiring the assets or stock in other entities and companies in the oil and
gas business. The main objective of the Company in making any such acquisitions will be to acquire
income producing assets so as to increase the Company&#146;s net worth and increase the Company&#146;s oil
and gas reserve base.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company presently owns producing and non-producing properties located primarily in Texas,
Oklahoma, West Virginia, the Gulf of Mexico, New Mexico, and Louisiana, and owns a substantial
amount of well servicing equipment. The Company does not own any refinery or marketing facilities,
and does not currently own or lease any bulk storage facilities or pipelines other than adjacent to
and used in connection with producing wells and the interests in certain gas gathering systems. All
of the Company&#146;s oil and gas properties and interests are located in the United States.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past, the supply of gas has exceeded demand on a cyclical basis, and the Company is
subject to a combination of shut-in and/or reduced takes of gas production during summer months.
Prolonged shut-ins could result in reduced field operating income from properties in which the
Company acts as operator.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exploration for oil and gas requires substantial expenditures particularly in exploratory
drilling in undeveloped areas, or &#147;wildcat drilling.&#148; As is customary in the oil and gas industry,
substantially all of the Company&#146;s exploration and development activities are conducted through
joint drilling and operating agreements with others engaged in the oil and gas business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summaries of the Company&#146;s oil and gas drilling activities, oil and gas production, and
undeveloped leasehold, mineral and royalty interests are set forth under Item&nbsp;2., &#147;Properties,&#148;
below. Summaries of the Company&#146;s oil and gas reserves, future net revenue and present value of
future net revenue are also set forth under Item&nbsp;2., &#147;Properties &#150; Reserves&#148; below.


<P align="left" style="font-size: 10pt"><B>Well Operations</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s on-shore operations
are conducted through a central office in Houston, Texas,
and district offices in Houston and Midland, Texas, Oklahoma City, Oklahoma, and Charleston, West
Virginia. The Company currently operates 1,542 oil and gas wells, 418 through the Houston office,
158 through the Midland office, 458 through the Oklahoma City office and 497 through the
Charleston, West Virginia office. Substantially all of the wells operated by the Company are wells
in which the Company has an interest. The Company&#146;s off-shore operations are conducted through FW,
also in Houston, Texas.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company operates wells pursuant to operating agreements which govern the relationship
between the Company as operator and the other owners of working interests in the properties,
including the Partnerships, Trusts and joint venture participants. For each operated well, the
Company receives monthly fees that are competitive in the areas of operations and also is
reimbursed for expenses incurred in connection with well operations.


<P align="left" style="font-size: 10pt"><B>The Partnerships, Trusts and Joint Ventures</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 1975, PEMC has acted as managing general partner of various partnerships, trusts and
joint ventures.


<P align="center" style="font-size: 10pt">3
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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PEMC, as managing general partner of the Partnerships and managing trustee of the Trusts, is
responsible for all Partnership and Trust activities, including the review and analysis of oil and
gas properties for acquisition, the drilling of development wells and the production and sale of
oil and gas from productive wells. PEMC also provides administration, accounting and tax
preparation for the Partnerships and Trusts. PEMC is liable for all debts and liabilities of the
Partnerships and Trusts, to the extent that the assets of a given limited partnership or trust are
not sufficient to satisfy its obligations. The Company stopped sponsoring partnerships and trusts
in 1992. Today there are only 18 partnerships and two trusts remaining. The aggregate number of
limited partners in the Partnerships and beneficial owners of the Trusts now administered by PEMC
is approximately 3,730. This number, as well as the number of remaining partnerships noted above,
has decreased in recent years as the Company continues to buy back limited partner interests.


<P align="left" style="font-size: 10pt"><B>Regulation</B>



<P align="left" style="font-size: 10pt">Regulation of Transportation and Sale of Natural Gas:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, the transportation and sale for resale of natural gas in interstate commerce
have been regulated pursuant to the Natural Gas Act of 1938, as amended (&#147;NGA&#148;), the Natural Gas
Policy Act of 1978, as amended (&#147;NGPA&#148;), and regulations promulgated there under by the Federal
Energy Regulatory Commission (&#147;FERC&#148;) and its predecessors. In the past, the federal government has
regulated the prices at which natural gas could be sold. While sales by producers of natural gas
can currently be made at uncontrolled market prices, Congress could reenact price controls in the
future. Deregulation of wellhead natural gas sales began with the enactment of the NGPA. In 1989,
Congress enacted the Natural Gas Wellhead Decontrol Act, as amended (the &#147;Decontrol Act&#148;). The
Decontrol Act removed all NGA and NGPA price and non-price controls affecting wellhead sales of
natural gas effective January&nbsp;1, 1993.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 1985, FERC has endeavored to make natural gas transportation more accessible to natural
gas buyers and sellers on an open and non-discriminatory basis. FERC has stated that open access
policies are necessary to improve the competitive structure of the interstate natural gas pipeline
industry and to create a regulatory framework that will put natural gas sellers into more direct
contractual relations with natural gas buyers by, among other things, unbundling the sale of
natural gas from the sale of transportation and storage services. Beginning in 1992, FERC issued
Order No.&nbsp;636 and a series of related orders (collectively, &#147;Order No.&nbsp;636&#148;) to implement its open
access policies. As a result of the Order No.&nbsp;636 program, the marketing and pricing of natural gas
have been significantly altered. The interstate pipelines&#146; traditional role as wholesalers of
natural gas has been eliminated and replaced by a structure under which pipelines provide
transportation and storage service on an open access basis to others who buy and sell natural gas.
Although FERC&#146;s orders do not directly regulate natural gas producers, they are intended to foster
increased competition within all phases of the natural gas industry.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, FERC issued Order No.&nbsp;637 and subsequent orders (collectively, &#147;Order No.&nbsp;637&#148;),
which imposed a number of additional reforms designed to enhance competition in natural gas
markets. Among other things, Order No.&nbsp;637 revised FERC pricing policy by waiving price ceilings
for short-term released capacity for a two-year experimental period, and effected changes in FERC
regulations relating to scheduling procedures, capacity segmentation, penalties, rights of first
refusal and information reporting. Most major aspects of Order No.&nbsp;637 have been upheld on judicial
review, and most pipelines&#146; tariff filings to implement the requirements of Order No.&nbsp;637 have been
accepted by the FERC and placed into effect.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Outer Continental Shelf Lands Act (&#147;OCSLA&#148;), which FERC implements as to transportation
and pipeline issues, requires that all pipelines operating on or across the outer continental shelf
(&#147;OCS&#148;) provide open access, non-discriminatory transportation service. One of FERC&#146;s principal
goals in carrying out OCSLA&#146;s mandate is to increase transparency in the market to provide
producers and shippers on the OCS with greater assurance of open access service on pipelines
located on the OCS and non-discriminatory rates and conditions of service on such pipelines.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It should be noted that FERC currently is considering whether to reformulate its test for
defining non-jurisdictional gathering in the shallow waters of the OCS and, if so, what form that
new test should take. The stated purpose of this initiative is to devise an objective test that
furthers the goals of the NGA by protecting producers from the unregulated market power of
third-party transporters of gas, while providing incentives for investment in production, gathering
and transportation infrastructure offshore. While we cannot predict whether FERC&#146;s gathering test
ultimately will be revised and, if so, what form such revised test will take, any test that
refunctionalizes as FERC-jurisdictional transmission facilities currently classified as gathering
would impose an increased regulatory burden on the owner of those facilities by subjecting the
facilities to NGA certificate and abandonment requirements and rate regulation.


<P align="center" style="font-size: 10pt">4
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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot accurately predict whether FERC&#146;s actions will achieve the goal of increasing
competition in markets in which our natural gas is sold. Additional proposals and proceedings that
might affect the natural gas industry are pending before FERC and the courts. The natural gas
industry historically has been very heavily regulated; therefore, there is no assurance that the
less stringent regulatory approach recently pursued by FERC will continue. However, we do not
believe that any action taken will affect us in a way that materially differs from the way it
affects other natural gas producers, gatherers and marketers.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intrastate natural gas transportation is subject to regulation by state regulatory agencies.
The basis for intrastate regulation of natural gas transportation and the degree of regulatory
oversight and scrutiny given to intrastate natural gas pipeline rates and services varies from
state to state. Insofar as such regulation within a particular state will generally affect all
intrastate natural gas shippers within the state on a comparable basis, we believe that the
regulation of similarly situated intrastate natural gas transportation in any states in which we
operate and ship natural gas on an intrastate basis will not affect our operations in any way that
is materially different from the effect of such regulation on our competitors.


<P align="left" style="font-size: 10pt">Regulation of Transportation of Oil:



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of crude oil, condensate and natural gas liquids are not currently regulated and are
made at negotiated prices. The transportation of oil in common carrier pipelines is also subject to
rate regulation. FERC regulates interstate oil pipeline transportation rates under the Interstate
Commerce Act. In general, interstate oil pipeline rates must be cost-based, although settlement
rates agreed to by all shippers are permitted and market-based rates may be permitted in certain
circumstances. Effective January&nbsp;1, 1995, FERC implemented regulations establishing an indexing
system (based on inflation) for transportation rates for oil that allowed for an increase or
decrease in the cost of transporting oil to the purchaser. A review of these regulations by the
FERC in 2000 was successfully challenged on appeal by an association of oil pipelines. On remand,
the FERC in February&nbsp;2003 increased the index slightly, effective July&nbsp;2001. Intrastate oil
pipeline transportation rates are subject to regulation by state regulatory commissions. The basis
for intrastate oil pipeline regulation, and the degree of regulatory oversight and scrutiny given
to intrastate oil pipeline rates, varies from state to state. Insofar as effective interstate and
intrastate rates are equally applicable to all comparable shippers, we believe that the regulation
of oil transportation rates will not affect our operations in any way that is materially different
from the effect of such regulation on our competitors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, interstate and intrastate common carrier oil pipelines must provide service on a
non-discriminatory basis. Under this open access standard, common carriers must offer service to
all shippers requesting service on the same terms and under the same rates. When oil pipelines
operate at full capacity, access is governed by prorationing provisions set forth in the pipelines&#146;
published tariffs. Accordingly, we believe that access to oil pipeline transportation services
generally will be available to us to the same extent as to our competitors.


<P align="left" style="font-size: 10pt">Regulation of Production:



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The production of oil and natural gas is subject to regulation under a wide range of local,
state and federal statutes, rules, orders and regulations. Federal, state and local statutes and
regulations require permits for drilling operations, drilling bonds and plugging and abandonment
and reports concerning operations. The states in which we own and operate properties have
regulations governing conservation matters, including provisions for the unitization or pooling of
oil and natural gas properties, the establishment of maximum allowable rates of production from oil
and natural gas wells, the regulation of well spacing, and plugging and abandonment of wells. Many
states also restrict production to the market demand for oil and natural gas, and states have
indicated interest in revising applicable regulations. The effect of these regulations is to limit
the amount of oil and natural gas that we can produce from our wells and to limit the number of
wells or the locations at which we can drill. Moreover, each state generally imposes a production
or severance tax with respect to the production and sale of oil, natural gas and natural gas
liquids within its jurisdiction.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of our offshore operations are conducted on federal leases that are administered by
Minerals Management Service (&#147;MMS&#148;) and are required to comply with the regulations and orders
promulgated by MMS under OCSLA. Among other things, we are required to obtain prior MMS approval
for any exploration plans we pursue and our development and production plans for these leases. MMS
regulations also establish construction requirements for production facilities located on our
federal offshore leases and govern the plugging and abandonment of wells and the removal of
production facilities from these leases. Under limited circumstances, MMS could require us to
suspend or terminate our operations on a federal lease.



<P align="center" style="font-size: 10pt">5
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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MMS also establishes the basis for royalty payments due under federal oil and natural gas
leases through regulations issued under applicable statutory authority. State regulatory
authorities establish similar standards for royalty payments due under state oil and natural gas
leases. The basis for royalty payments established by MMS and the state regulatory authorities is
generally applicable to all federal and state oil and natural gas lessees. Accordingly, we believe
that the impact of royalty regulation on our operations should generally be the same as the impact
on our competitors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The failure to comply with these rules and regulations can result in substantial penalties.
The regulatory burden on the oil and natural gas industry increases our cost of doing business and,
consequently, affects our profitability. Our competitors in the oil and natural gas industry are
subject to the same regulatory requirements and restrictions that affect our operations.


<P align="left" style="font-size: 10pt"><B>Taxation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s oil and gas operations are affected by federal income tax laws applicable to the
petroleum industry. The Company is permitted to deduct currently, rather than capitalize,
intangible drilling and development costs incurred or borne by it. As an independent producer, the
Company is also entitled to a deduction for percentage depletion with respect to the first 1,000
barrels per day of domestic crude oil (and/or equivalent units of domestic natural gas) produced by
it, if such percentage depletion exceeds cost depletion. Generally, this deduction is computed
based upon the lesser of 100% of the net income, or 15% of the gross income from a property,
without reference to the basis in the property. The amount of the percentage depletion deduction so
computed which may be deducted in any given year is limited to 65% of taxable income. Any
percentage depletion deduction disallowed due to the 65% of taxable income test may be carried
forward indefinitely.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Notes 1 and 9 to the consolidated financial statements included in this Report for a
discussion of accounting for income taxes and availability of federal tax net operating loss
carryforwards and alternative minimum tax credit carryforwards.


<P align="left" style="font-size: 10pt"><B>Competition and Markets</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The business of acquiring producing properties and non-producing leases suitable for
exploration and development is highly competitive. Competitors of the Company, in its efforts to
acquire both producing and non-producing properties, include oil and gas companies, independent
concerns, income programs and individual producers and operators, many of which have financial
resources, staffs and facilities substantially greater than those available to the Company.
Furthermore, domestic producers of oil and gas must not only compete with each other in marketing
their output, but must also compete with producers of imported oil and gas and alternative energy
sources such as coal, nuclear power and hydroelectric power. Competition among petroleum companies
for favorable oil and gas properties and leases can be expected to increase.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The availability of a ready market for any oil and gas produced by the Company at acceptable
prices per unit of production will depend upon numerous factors beyond the control of the Company,
including the extent of domestic production and importation of oil and gas, the proximity of the
Company&#146;s producing properties to gas pipelines and the availability and capacity of such
pipelines, the marketing of other competitive fuels, fluctuation in demand, governmental regulation
of production, refining, transportation and sales, general national and worldwide economic
conditions, and use and allocation of oil and gas and their substitute fuels. There is no assurance
that the Company will be able to market all of the oil or gas produced by it or that favorable
prices can be obtained for the oil and gas production.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Listed below are the percent of the Company&#146;s total oil and gas sales made to each of the
customers whose purchases represented more than 10% of the Company&#146;s oil and gas sales.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="60%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Oil Purchasers:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Texon Distributing L.P.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">26.65</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Plains All American Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">29.29</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TEPPCO Crude Oil, L.L.C.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">16.20</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LPC Crude Oil, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">16.10</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gas Purchasers:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unimark LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.29</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although there are no long-term purchasing agreements with these purchasers, the Company
believes that they will continue to purchase its oil and gas products and, if not, could be
replaced by other purchasers.


<P align="center" style="font-size: 10pt">6
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<P align="left" style="font-size: 10pt"><B>Environmental Matters</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Various federal, state and local laws and regulations governing the protection of the
environment, such as the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (&#147;CERCLA&#148;), the Federal Water Pollution Control Act of 1972, as amended (the
&#147;Clean Water Act&#148;), and the Federal Clean Air Act, as amended (the &#147;Clean Air Act&#148;), affect our
operations and costs. In particular, our exploration, development and production operations, our
activities in connection with storage and transportation of oil and other hydrocarbons and our use
of facilities for treating, processing or otherwise handling hydrocarbons and related wastes may be
subject to regulation under these and similar state legislation. These laws and regulations:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#150;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">restrict the types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#150;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#150;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">impose substantial liabilities for pollution resulting from our operations.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">Failure to comply with these laws and regulations may result in the assessment of administrative,
civil and criminal fines and penalties or the imposition of injunctive relief. Changes in
environmental laws and regulations occur regularly, and any changes that result in more stringent
and costly waste handling, storage, transport, disposal or cleanup requirements could materially
adversely affect our operations and financial position, as well as those in the oil and natural gas
industry in general. While we believe that we are in substantial compliance with current applicable
environmental laws and regulations and that continued compliance with existing requirements would
not have a material adverse impact on us, there is no assurance that this trend will continue in
the future.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As with the industry generally, compliance with existing regulations increases our overall
cost of business. The areas affected include:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#150;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">unit production expenses primarily related to the control and limitation of air emissions
and the disposal of produced water;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#150;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">capital costs to drill exploration and development wells primarily related to the
management and disposal of drilling fluids and other oil and natural gas exploration wastes;
and</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#150;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">capital costs to construct, maintain and upgrade equipment and facilities.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Comprehensive
Environmental Response, Compensation and Liability Act of 1980
(&#147;CERCLA&#148;). CERCLA, also known as &#147;Superfund,&#148; imposes liability for response costs and damages
to natural resources, without regard to fault or the legality of the original act, on some classes
of persons that contributed to the release of a &#147;hazardous substance&#148; into the environment. These
persons include the &#147;owner&#148; or &#147;operator&#148; of a disposal site and entities that disposed or arranged
for the disposal of the hazardous substances found at the site. CERCLA also authorizes the
Environmental Protection Agency (&#147;EPA&#148;) and, in some instances, third parties to act in response to
threats to the public health or the environment and to seek to recover from the responsible classes
of persons the costs they incur. It is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. In the course of our ordinary operations, we may generate
waste that may fall within CERCLA&#146;s definition of a &#147;hazardous substance.&#148; We may be jointly and
severally liable under CERCLA or comparable state statutes for all or part of the costs required to
clean up sites at which these wastes have been disposed.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently own or lease properties that for many years have been used for the exploration
and production of oil and natural gas. Although we and our predecessors have used operating and
disposal practices that were standard in the industry at the time, hydrocarbons or other wastes may
have been disposed or released on, under or from the properties owned or leased by us or on, under
or from other locations where these wastes have been taken for disposal. In addition, many of these
properties have been operated by third parties whose actions with respect to the treatment and
disposal or release of hydrocarbons or other wastes were not under our control. These properties
and wastes disposed on these properties may be subject to CERCLA and analogous state laws. Under
these laws, we could be required:


<P align="center" style="font-size: 10pt">7
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT style="font-family: Symbol">&#045;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">to remove or remediate previously disposed wastes, including wastes disposed or released by prior owners or operators;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><FONT style="font-family: Symbol">&#045;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">to clean up contaminated property, including contaminated groundwater; or to perform remedial operations to prevent
future contamination.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At this time, we do not believe that we are associated with any Superfund site and we have not
been notified of any claim, liability or damages under CERCLA.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oil
Pollution Act of 1990. The Oil Pollution Act of 1990, as amended (the &#147;OPA&#148;), and
regulations there under impose liability on &#147;responsible parties&#148; for damages resulting from oil
spills into or upon navigable waters, ad adjoining shorelines or in the exclusive economic zone of
the United States. Liability under OPA is strict, and under certain circumstances joint and
several, and potentially unlimited. A &#147;responsible party&#148; includes the owner or operator of an
onshore facility and the lessee or permittee of the area in which an offshore facility is located.
The OPA also requires the lessee or permittee of the offshore area in which a covered offshore
facility is located to establish and maintain evidence of financial responsibility in the amount of
$35.0&nbsp;million ($10.0&nbsp;million if the offshore facility is located landward of the seaward boundary
of a state) to cover liabilities related to an oil spill for which such person is statutorily
responsible. The amount of required financial responsibility may be increased above the minimum
amounts to an amount not exceeding $150.0&nbsp;million depending on the risk represented by the quantity
or quality of oil that is handled by the facility. We carry insurance coverage to meet these
obligations, which we believe is customary for comparable companies in our industry. A failure to
comply with OPA&#146;s requirements or inadequate cooperation during a spill response action may subject
a responsible party to civil or criminal enforcement actions. We are not aware of any action or
event that would subject us to liability under OPA, and we believe that compliance with OPA&#146;s
financial responsibility and other operating requirements will not have a material adverse effect
on us.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Environmental Protection Agency. U.S. Environmental Protection Agency regulations address
the disposal of oil and natural gas operational wastes under three federal acts more fully
discussed in the paragraphs that follow. The Resource Conservation and Recovery Act of 1976, as
amended (&#147;RCRA&#148;), provides a framework for the safe disposal of discarded materials and the
management of solid and hazardous wastes. The direct disposal of operational wastes into offshore
waters is also limited under the authority of the Clean Water Act. When injected underground, oil
and natural gas wastes are regulated by the Underground Injection Control program under Safe
Drinking Water Act. If wastes are classified as hazardous, they must be properly transported, using
a uniform hazardous waste manifest, documented, and disposed at an approved hazardous waste
facility. We have coverage under the Region VI National Production Discharge Elimination System
Permit for discharges associated with exploration and development activities. We take the necessary
steps to ensure all offshore discharges associated with a proposed operation, including produced
waters, will be conducted in accordance with the permit.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Resource Conservation Recovery Act. RCRA is the principal federal statute governing the
treatment, storage and disposal of hazardous wastes. RCRA imposes stringent operating requirements
and liability for failure to meet such requirements on a person who is either a &#147;generator&#148; or
&#147;transporter&#148; of hazardous waste or an &#147;owner&#148; or &#147;operator&#148; of a hazardous waste treatment,
storage or disposal facility. At present, RCRA includes a statutory exemption that allows most oil
and natural gas exploration and production waste to be classified as nonhazardous waste. A similar
exemption is contained in many of the state counterparts to RCRA. As a result, we are not required
to comply with a substantial portion of RCRA&#146;s requirements because our operations generate minimal
quantities of hazardous wastes. At various times in the past, proposals have been made to amend
RCRA to rescind the exemption that excludes oil and natural gas exploration and production wastes
from regulation as hazardous waste. Repeal or modification of the exemption by administrative,
legislative or judicial process, or modification of similar exemptions in applicable state
statutes, would increase the volume of hazardous waste we are required to manage and dispose of and
would cause us to incur increased operating expenses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clean Water Act. The Clean Water Act imposes restrictions and controls on the discharge of
produced waters and other wastes into navigable waters. Permits must be obtained to discharge
pollutants into state and federal waters and to conduct construction activities in waters and
wetlands. Certain state regulations and the general permits issued under the Federal National
Pollutant Discharge Elimination System program prohibit the discharge of produced waters and sand,
drilling fluids, drill cuttings and certain other substances related to the oil and natural gas
industry into certain coastal and offshore waters. Further, the EPA has adopted regulations
requiring certain oil and natural gas exploration and production facilities to obtain permits for
storm water discharges. Costs may be associated with the treatment of wastewater or developing and
implementing storm water pollution prevention plans. The Clean Water Act and comparable state
statutes provide for civil, criminal and administrative penalties for unauthorized discharges for
oil and other pollutants and impose liability on parties responsible for those discharges for the
costs of cleaning up any


<P align="center" style="font-size: 10pt">8
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">environmental damage caused by the release and for natural resource damages resulting from the
release. We believe that our operations comply in all material respects with the requirements of
the Clean Water Act and state statutes enacted to control water pollution.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Safe Drinking Water Act. Underground injection is the subsurface placement of fluid through a
well, such as the reinjection of brine produced and separated from oil and natural gas production.
The Safe Drinking Water Act of 1974, as amended establishes a regulatory framework for underground
injection, with the main goal being the protection of usable aquifers. The primary objective of
injection well operating requirements is to ensure the mechanical integrity of the injection
apparatus and to prevent migration of fluids from the injection zone into underground sources of
drinking water. Hazardous-waste injection well operations are strictly controlled, and certain
wastes, absent an exemption, cannot be injected into underground injection control wells. In
Louisiana and Texas, no underground injection may take place except as authorized by permit or
rule. We currently own and operate various underground injection wells. Failure to abide by our
permits could subject us to civil and/or criminal enforcement. We believe that we are in compliance
in all material respects with the requirements of applicable state underground injection control
programs and our permits.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marine Protected Areas. Executive Order 13158, issued on May&nbsp;26, 2000, directs federal
agencies to safeguard existing Marine Protected Areas (&#147;MPAs&#148;)in the United States and establish
new MPAs. The order requires federal agencies to avoid harm to MPAs to the extent permitted by law
and to the maximum extent practicable. It also directs the EPA to propose new regulations under the
Clean Water Act to ensure appropriate levels of protection for the marine environment. This order
has the potential to adversely affect our operations by restricting areas in which we may carry out
future development and exploration projects and/or causing us to incur increased operating
expenses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marine Mammal and Endangered Species. Federal Lease Stipulations address the reduction of
potential taking of protected marine species (sea turtles, marine mammals, Gulf Sturgen and other
listed marine species). MMS permit approvals will be conditioned on collection and removal of
debris resulting from activities related to exploration, development and production of offshore
leases. MMS has issued Notices to Lessees and Operators (&#147;NTL&#148;) 2003-G06 advising of requirements
for posting of signs in prominent places on all vessels and structures and of an observing training
program.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consideration of Environmental Issues in Connection with Governmental Approvals. Our
operations frequently require licenses, permits and/or other governmental approvals. Several
federal statutes, including OCSLA, the National Environmental Policy Act (&#147;NEPA&#148;), and the Coastal
Zone Management Act (&#147;CZMA&#148;) require federal agencies to evaluate environmental issues in
connection with granting such approvals and/or taking other major agency actions. OCSLA, for
instance, requires the U.S. Department of Interior (&#147;DOI&#148;) to evaluate whether certain proposed
activities would cause serious harm or damage to the marine, coastal or human environment.
Similarly, NEPA requires DOI and other federal agencies to evaluate major agency actions having the
potential to significantly impact the environment. In the course of such evaluations, an agency
would have to prepare an environmental assessment and, potentially, an environmental impact
statement. CZMA, on the other hand, aids states in developing a coastal management program to
protect the coastal environment from growing demands associated with various uses, including
offshore oil and natural gas development. In obtaining various approvals from the DOI, we must
certify that we will conduct our activities in a manner consistent with an applicable program.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lead-Based Paints. Various pieces of equipment and structures owned by us may have been coated
with lead-based paints as was customary in the industry at the time these pieces of equipment were
fabricated and constructed. These paints may contain lead at a concentration high enough to be
considered a regulated hazardous waste when removed. If we need to remove such paints in connection
with maintenance or other activities and they qualify as a regulated hazardous waste, this would
increase the cost of disposal. High lead levels in the paint might also require us to institute
certain administrative and/or engineering controls required by the Occupational Safety and Health
Act and MMS to ensure worker safety during paint removal.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Air Pollution Control. The Clean Air Act and state air pollution laws adopted to fulfill its
mandates provide a framework for national, state and local efforts to protect air quality. Our
operations utilize equipment that emits air pollutants subject to federal and state air pollution
control laws. These laws require utilization of air emissions abatement equipment to achieve
prescribed emissions limitations and ambient air quality standards, as well as operating permits
for existing equipment and construction permits for new and modified equipment. Air emissions
associated with offshore activities are projected using a matrix and formula supplied by MMS, which
has primacy from the Environmental Protection Agency for regulating such emissions.


<P align="center" style="font-size: 10pt">9
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Naturally Occurring Radioactive Materials (&#147;NORM&#148;). NORM are materials not covered by the
Atomic Energy Act, whose radioactivity is enhanced by technological processing such as mineral
extraction or processing through exploration and production conducted by the oil and natural gas
industry. NORM wastes are regulated under the RCRA framework, but primary responsibility for NORM
regulation has been a state function. Standards have been developed for worker protection;
treatment, storage and disposal of NORM waste; management of waste piles, containers and tanks; and
limitations upon the release of NORM contaminated land for unrestricted use. We believe that our
operations are in material compliance with all applicable NORM standards established by the states,
as applicable.


<P align="left" style="font-size: 10pt"><B>Employees</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March&nbsp;25, 2005, the Company had 190 full-time and 6 part-time employees, 16 of whom were
employed by the Company at its principal offices in Stamford, Connecticut, 20 in Houston, Texas, at
the offices of Prime Operating Company, Eastern Oil Well Service Company, EOWS Midland Company and
F-W Oil Exploration L.L.C., and 160 employees who were primarily involved in the district
operations of the Company in Houston and Midland, Texas, Oklahoma City, Oklahoma and Charleston,
West Virginia.

<!-- link2 "Item&nbsp;2. PROPERTIES" -->
<DIV align="left"><A NAME="002"></A></DIV>


<P align="left" style="font-size: 10pt"><B>Item&nbsp;2. PROPERTIES.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s executive offices are located in leased premises at One Landmark Square,
Stamford, Connecticut. The executive offices of Prime Operating Company, Eastern Oil Well Service
Company, EOWS Midland Company and F-W Oil Exploration L.L.C. are located in leased premises in
Houston, Texas, and the offices of Southwest Oilfield Construction Company are in Oklahoma City,
Oklahoma.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains district offices in Houston and Midland, Texas, Oklahoma City, Oklahoma
and Charleston, West Virginia, and has field offices in Carrizo Springs and Midland, Texas,
Kingfisher and Garvin, Oklahoma and Orma, West Virginia.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of the Company&#146;s oil and gas properties are subject to a mortgage given to
collateralize indebtedness of the Company, or are subject to being mortgaged upon request by the
Company&#146;s lender for additional collateral.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information set forth below concerning the Company&#146;s properties, activities, and oil and
gas reserves include the Company&#146;s interests in affiliated entities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the exploratory and development drilling experience with
respect to wells in which the Company participated during the five years ended December&nbsp;31, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exploratory:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Oil</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right">.400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">2.850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.279</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dry</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">1.594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Development:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Oil</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">3.993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.134</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dry</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">1.594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Oil</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.413</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dry</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.689</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">10
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Oil and Gas Production</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004, the Company had ownership interests in the following numbers of gross
and net producing oil and gas wells and gross and net producing acres (1).

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Producing wells (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Oil Wells</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320.99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gas Wells</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">399.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Producing Acres</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">263,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,539</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<HR size="1" width="18%" align="left" noshade color="#000000">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="98%">A gross well or gross acre is a well or an acre in which a working interest is owned. A net
well or net is the sum of the fractional revenue interests owned in gross wells or gross
acres. Wells are classified by their primary product. Some wells produce both oil and gas.</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the Company&#146;s net production of crude oil and natural gas for each
of the five years ended December&nbsp;31, 2004. &#147;Net&#148; production is net after royalty interests of
others are deducted and is determined by multiplying the gross production volume of properties in
which the Company has an interest by percentage of the leasehold, mineral or royalty interest owned
by the Company.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2000</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Oil (barrels)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">371,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">321,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">306,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">298,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gas (Mcf)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,138,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,991,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,540,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,764,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,930,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the Company&#146;s average sales price per barrel of crude oil
and average sales prices per one thousand cubic feet (&#147;Mcf&#148;) of gas, together with the Company&#146;s
average production costs per unit of production for the five years ended December&nbsp;31, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2000</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average sales price per barrel</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average sales price Per Mcf</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average production costs per net equivalent barrel (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.57</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<HR size="1" width="18%" align="left" noshade color="#000000">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="98%">Net equivalent barrels are computed at a rate of 6 Mcf per barrel.</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt"><B>Undeveloped Acreage</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the approximate gross and net undeveloped acreage in which the
Company has leasehold, mineral and royalty interests as of December&nbsp;31, 2004. &#147;Undeveloped acreage&#148;
is that acreage on which wells have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or not such acreage
contains proved reserves.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Leasehold</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Mineral</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Royalty</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Interests</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Interests</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Interests</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Net</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>State</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Acres</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Acres</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Acres</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Acres</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Acres</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Acres</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Colorado</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gulf of Mexico</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Montana</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nebraska</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">North Dakota</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Oklahoma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Texas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wyoming</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">11
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Reserves</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s interests in proved developed and undeveloped oil and gas properties have been
evaluated by Ryder Scott Company, L.P. for each of the five years ended December&nbsp;31, 2004. All of
the Company&#146;s reserves are located within the continental United States. The following table
summarizes the Company&#146;s oil and gas reserves at each of the respective dates (figures rounded):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Reserve Category</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Proved Developed</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Proved Undeveloped</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>As of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Oil</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gas</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Oil</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gas</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Oil</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gas</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>12-31</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(bbls)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Mcf)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(bbls)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Mcf)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(bbls)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Mcf)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,362,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,029,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,362,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,029,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,996,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,266,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">453,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,996,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,719,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,319,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,917,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,319,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,917,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,865,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,045,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,960,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,905,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,005,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,926,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,728,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,142,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,932,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,870,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The estimated future net revenue (using current prices and costs as of those dates,
exclusive of income taxes) and the present value of future net revenue (at a 10% discount for
estimated timing of cash flow) for the Company&#146;s proved developed and proved undeveloped oil and
gas reserves at the end of each of the five years ended December&nbsp;31, 2004, are summarized as
follows (figures rounded):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Proved Developed</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Proved Undeveloped</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Present Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Present Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Present Value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>As of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Future Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Of Future</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Future Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Of Future</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Future Net</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Of Future</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>12-31</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Revenue</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net Revenue</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Revenue</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net Revenue</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Revenue</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net Revenue</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">199,376,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,137,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,376,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,137,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">41,086,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,653,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">957,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">629,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,043,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,282,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,855,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,855,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">141,194,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,695,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,891,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,401,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,085,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,096,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">177,916,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,116,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,484,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,796,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211,400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133,912,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Proved developed&#148; oil and gas reserves are reserves that can be expected to be recovered
from existing wells with existing equipment and operating methods. &#147;Proved undeveloped&#148; oil and gas
reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or
from existing wells where a relatively major expenditure is required for recompletion.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with FASB Statement No.&nbsp;69, December&nbsp;31 market prices are determined using the
daily oil price or daily gas sales price (&#147;spot price&#148;) adjusted for oilfield or gas gathering hub
and wellhead price differentials (e.g. grade, transportation, gravity, sulfur, and BS&#038;W) as
appropriate. Also in accordance with SEC and FASB specifications, changes in market prices
subsequent to December&nbsp;31 are not considered.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
spot price for gas at December&nbsp;31, 2004 and 2003 was $6.18 and $5.97 per MMBTU,
respectively. The range of spot prices during the year 2004 was a low of $ 4.39 and a high of $7.96
and the average was $5.87. The range during the first quarter of 2005 has been from $ 5.56 to $
7.19 with an average of $6.38. The recent futures market prices have traded above $7.00 per
MMBTU.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The NYMEX price for oil at December&nbsp;31, 2004 and 2003 was $43.45 and $32.55 per barrel,
respectively. The range of NYMEX prices during the year 2004 was a low of $32.48 and a high of
$55.17 and the average was $41.31. Range during the first quarter of 2005 has been from $ 42.12 to
$56.72 with an average of $ 49.79. The recent futures market prices have fluctuated around $
54.00.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While it may reasonably be anticipated that the prices received by the Company for the sale of
its production may be higher or lower than the prices used in this evaluation, as described above,
and the operating costs relating to such production may also increase or decrease from existing
levels, such possible changes in prices and costs were, in accordance with rules adopted by the
SEC, omitted from consideration in making this evaluation for the SEC case. Actual volumes
produced, prices received and costs incurred by the Company may vary significantly from the SEC
case.


<P align="center" style="font-size: 10pt">12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since January&nbsp;1, 2005, the Company has not filed any estimates of its oil and gas reserves
with, nor were any such estimates included in any reports to, any federal authority or agency,
other than the Securities and Exchange Commission, except Form EIA-23, Annual Survey of Domestic
Oil and Gas Reserves, filed with The Energy Information Administration of the U.S. Department of
Energy.

<!-- link2 "Item&nbsp;3. LEGAL PROCEEDINGS" -->
<DIV align="left"><A NAME="003"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;3. LEGAL PROCEEDINGS</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, the Company is party to certain legal actions and claims arising in the
ordinary course of business. While the outcome of these events cannot be predicted with certainty,
management does not expect these matters to have a materially adverse effect on the financial
position or results of operations of the Company.

<!-- link2 "Item&nbsp;4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS" -->
<DIV align="left"><A NAME="004"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No matters were submitted during the fourth quarter of the fiscal year ended December&nbsp;31, 2004
to a vote of the Company&#146;s security-holders through the solicitation of proxies or otherwise.


<P align="center" style="font-size: 10pt">13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<!-- link1 " PART II" -->
<DIV align="left"><A NAME="005"></A></DIV>

<P align="center" style="font-size: 10pt"><B>PART II</B>


<!-- link2 "Item&nbsp;5. MARKET FOR REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES" -->
<DIV align="left"><A NAME="006"></A></DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="98%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Item&nbsp;5.</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>MARKET FOR REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Common Stock is traded in the NASDAQ Stock Market, trading symbol &#147;PNRG&#148;. The
high and low bid quotations for each quarterly period during the two years ended December&nbsp;31, 2004,
were as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:25px; text-indent:-0px"><B>2004</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">First Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17.91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19.06</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18.61</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:25px; text-indent:-0px"><B>2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">First Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.43</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">The above quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions,
and may not represent actual transactions.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of record holders of the Company&#146;s Common Stock as of March&nbsp;25, 2005 was 976.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No dividends have been declared or paid during the past two years on the Company&#146;s Common
Stock. Provisions of the Company&#146;s line of credit agreement restrict the Company&#146;s ability to pay
dividends. Such dividends may be declared out of funds legally available therefore, when and as
declared by the Company&#146;s Board of Directors.


<P align="left" style="font-size: 10pt"><U><B>Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities</B></U>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">Maximum Number of</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">Shares that May Yet</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Average Price Paid</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Be Purchased Under The</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

<TD nowrap align="left" style="border-bottom: 1px solid #000000"><DIV style="margin-left:2px; text-indent:-0px">2004 Month</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Number of Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">per share</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Plan (1)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">January</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">478,271</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">February</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>

<TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">462,641</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">459,141</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">April</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,149</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">May</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">434,275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">429,481</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">July</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393,529</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">August</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390,644</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">September</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390,304</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">October</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379,704</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">November</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">367,266</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341,294</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total/Average</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,977</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"></TD>
    <TD align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;In December&nbsp;1993, we announced that our Board of Directors authorized a stock repurchase
program whereby we may purchase outstanding shares of our common stock from time-to-time, in open
market transactions or negotiated sales. A total of 2,400,000 shares have been authorized, to date,
under this program. Through December&nbsp;31, 2004 we repurchased a total of 2,058,706 shares under
this program for $12,929,848 at an average price of $6.28 per share. Additional purchases of
shares may occur as market conditions warrant. We expect future purchases will be funded with
internally generated cash flow or from working capital.


<P align="center" style="font-size: 10pt">14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<!-- link2 "Item&nbsp;6. SELECTED FINANCIAL DATA" -->
<DIV align="left"><A NAME="007"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;6. SELECTED FINANCIAL DATA</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes certain selected financial data to highlight significant trends
in the Company&#146;s financial condition and results of operations for the periods indicated. The
selected financial data should be read in conjunction with the Financial Statements and related
notes included elsewhere in this Report.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2000</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">62,428,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,719,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,186,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,408,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,182,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,223,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,047,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,168,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,968,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,148,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,275,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,702,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,757,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,413,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,365,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.26</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net
income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.08</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,995,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,622,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,644,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,313,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,498,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">69,926,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,255,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,887,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,816,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,094,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">30,290,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,925,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,734,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,958,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,213,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">None</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">None</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">None</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">None</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">None</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<!-- link2 "Item&nbsp;7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->
<DIV align="left"><A NAME="008"></A></DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="98%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Item&nbsp;7.</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>MANAGEMENT&#146;S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion should be read in conjunction with the financial statements of the Company and
notes thereto. The Company&#146;s subsidiaries are defined in Note 1 of the financial statements.


<P align="center" style="font-size: 10pt">15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Liquidity And Capital
Resources:</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flow provided by operations for the year ended December&nbsp;31, 2004, increased by $5
million, compared to the prior year, primarily due to a 18.5% increase in production and an
increase in oil and gas prices throughout the entire year, combined with changes in our working
capital accounts. We expect sufficient cash flow to be provided by operations during 2005 because
of higher projected production from new properties, combined with oil and gas prices consistent
with 2004 and steady operating, general and administrative, interest and financing costs.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Excluding the effects of significant unforeseen expenses or other income, our cash flow from
operations fluctuates primarily because of variations in oil and gas production and prices or
changes in working capital accounts. Our oil and gas production will vary based on actual well
performance but may be curtailed due to factors beyond our control. Hurricanes in the Gulf of
Mexico may shut down our production for the duration of the storm&#146;s presence in the Gulf or damage
production facilities so that we cannot produce from a particular property for an extended amount
of time. In addition, downstream activities on major pipelines in the Gulf of Mexico can also cause
us to shut-in production for various lengths of time.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our realized oil and gas prices vary due to world political events, supply and demand of
products, product storage levels, and weather patterns. We sell the vast majority of our production
at spot market prices. Accordingly, product price volatility will affect our cash flow from
operations. To mitigate price volatility we sometimes lock in prices for some portion of our
production through the use of financial instruments. Currently we have no such arrangements in
place.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect to continue to make significant capital expenditures over the next several years as
part of our long-term growth strategy. We have budgeted $25&nbsp;million for drilling expenditures in
2005. We project that we will spend $10&nbsp;million in the Gulf of Mexico and $15&nbsp;million on onshore
wells. In addition, we have committed approximately $16&nbsp;million for offshore pipelines and production
facilities.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If our exploratory drilling results in significant new discoveries, we will have to expend
additional capital in order to finance the completion, development, and potential additional
opportunities generated by our success. We believe that, because of the additional reserves
resulting from the success and our record of reserve growth in recent years, we will be able to
access sufficient additional capital through additional bank financing.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has in place both a stock repurchase program and a limited partnership interest
repurchase program. Spending under these programs in 2004 was $4.5
million. The Company
expects to expend a similar amount in 2005.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective March&nbsp;2005, we agreed with our lenders to increase the Company&#146;s borrowing base to
$41,000,000. As of March&nbsp;31, 2005, $21,500,000 was borrowed under the facility. The banks review
the borrowing base semi-annually and, at their discretion, may decrease or propose an increase to
the borrowing base relative to a redetermined estimate of proved oil and gas reserves. Our oil and
gas properties are pledged as collateral for the line of credit and we are subject to certain
financial covenants defined in the agreement. We are currently in compliance with these financial
covenants. If we do not comply with these covenants on a continuing basis, the lenders have the
right to refuse to advance additional funds under the facility and/or declare all principal and
interest immediately due and payable.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is the goal of the Company to increase its oil and gas reserves and production through the
acquisition and development of oil and gas properties. The Company also continues to explore and
consider opportunities to further expand its oilfield servicing revenues through additional
investment in field service equipment. However, the majority of the Company&#146;s capital spending is
discretionary, and the ultimate level of expenditures will be dependent on the Company&#146;s assessment
of the oil and gas business environment, the number and quality of oil and gas prospects available,
the market for oilfield services, and oil and gas business opportunities in general.


<P align="center" style="font-size: 10pt">16
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt"><B>Results of Operations:</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2004 as compared to 2003</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company had net income of $7,275,000 in 2004 as compared to $5,702,000 in 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Oil and gas sales </I>were $ 43,967,000 in 2004 as compared to $29,855,000 in 2003. A chart
summarizing oil and gas production and revenue is presented below.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Increase (Decrease)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Barrels of Oil Produced</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">371,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average Price Received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11.55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Oil Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,006,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,693,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,313,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mcf of Gas Produced</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,138,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,991,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,147,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average Price Received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gas Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28,961,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,162,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,799,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Oil &#038; Gas Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,967,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,855,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,112,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Field
Service Revenue</I> increased 9% to $11,965,000 in 2004 from
$11,013,000 in 2003. This
increase reflects higher utilization of equipment during 2004 combined with an upward trend in
rates during the fourth quarter of 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lease operating expenses </I>increased by 17% to $14,939,000 in 2004 as compared to $12,783,000 in
2003. The difference is attributable to production taxes related to higher prices combined with
costs on properties added during 2004 and repairs made to marginal wells currently economic due to
higher product price levels.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General
and administrative expenses </I>increased to $7,536,000 in 2004 as compared to $6,995,000
in 2003. This increase reflects the addition of FW&#146;s costs for the full year and increased
ownership in the Partnerships.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Depreciation
and depletion </I>of oil and gas properties increased to $11,021,000
in 2004 from $6,283,000 in 2003. This increase is related to the additional capital expended during 2003 and 2004
combined with increased production.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Exploration
costs</I> in 2004 of $5,499,000 consist of dry hole expenditures and certain geological, geophysical and
seismic costs. Dry hole costs of $4,656,000 during 2004 were attributable to the drilling of one
offshore well and three wells onshore. Exploration costs of $519,000 were incurred during 2003
drilling seven dry holes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest expense </I>increased to $1,136,000 in 2004 from $880,000 in 2003 due to increased
average outstanding debt. The average interest rates paid on
outstanding borrowings during 2004 and 2003 were 3.91% and 3.84%,
respectively.  As of December&nbsp;31, 2004 and 2003, the total outstanding borrowings were $29,900,000 and
$27,280,000, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income
tax expense </I>of $3,023,000 in 2004 represents a 29% effective rate as compared to the
effective rate of 30% in 2003. Current tax expense in 2004 was $453,000 with the remainder being
attributable to an increase in the Company&#146;s deferred tax liability.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary reason that the Company&#146;s federal tax expense for 2004 is well below the statutory
rate is that the Company is allowed to deduct currently, rather than capitalize, intangible
drilling costs as incurred. The current deduction of these costs, which are capitalized for
financial accounting purposes, is also the primary reason for the increase in the Company&#146;s
deferred tax liability between 2003 and 2004.


<P align="center" style="font-size: 10pt">17
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2003 as compared to 2002</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company had net income of $5,702,000 in 2003 as compared to $1,757,000 in 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Oil and gas sales </I>were $29,855,000 in 2003 as compared to $18,330,000 in 2002. A chart
summarizing oil and gas production and revenue is presented below.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Increase (Decrease)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Barrels of Oil Produced</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">370,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">321,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average Price Received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23.37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Oil Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,693,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,510,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,183,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mcf of Gas Produced</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,991,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,540,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">451,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average Price Received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gas Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,162,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,820,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,342,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Oil &#038; Gas Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,855,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,330,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,525,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Field Service Revenue </I>increased to $11,013,000 in 2003 from $9,891,000 in 2002. This increase
reflects higher utilization of equipment during 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lease operating expenses </I>increased by 25% to $12,783,000 in 2003 as compared to $10,210,000 in
2002. The difference is attributable to production taxes related to higher prices combined with
costs on properties added during 2003 and repairs made to marginal wells currently economic due to
higher product price levels.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General
and administrative expenses </I>increased to $6,995,000 in 2003 as
compared to $6,007,000
in 2002 . This increase reflects the addition of FW&#146;s costs and increased ownership in the
Partnerships offset by savings related to reduced personnel costs in the Connecticut office


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Depreciation
and depletion </I>of oil and gas properties increased by 57% to
$6,283,000 in 2003
from $3,988,000 in 2002. This increase is related to the additional capital costs expended in 2003
combined with increased production.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Exploration costs </I>of $519,000 were incurred during 2003 drilling seven dry holes. Exploration
costs of $894,000 were incurred during 2002 drilling five dry holes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest expense </I>increased to $880,000 in 2003 from $766,000 in 2002 due to increased average
outstanding debt. The average interest rates paid on outstanding borrowings subject to interest at
the bank&#146;s base rate during 2003 and 2002 were 4.50%. During the same periods, the average rates
paid on outstanding borrowings bearing interest based upon the LIBO rate were 3.84% and 3.59%. As
of December&nbsp;31, 2003 and 2002, the total outstanding borrowings were $27,280,000 and $24,500,000,
respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income tax expense </I>of $2,446,000 in 2003 represents a 30% effective rate as compared to the
effective rate of 20% in 2002. Current tax expense in 2003 was $867,000 with the remainder being
attributable to an increase in the Company&#146;s deferred tax liability.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary reason that the Company&#146;s federal tax expense for 2003 is well below the statutory
rate is that the Company is allowed to deduct currently, rather than capitalize, intangible
drilling costs as incurred. The current deduction of these costs, which are capitalized for
financial accounting purposes, is also the primary reason for the increase in the Company&#146;s
deferred tax liability between 2002 and 2003.

<!-- link2 "Item&nbsp;7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK" -->
<DIV align="left"><A NAME="009"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is exposed to interest rate risk on its line of credit, which has variable rates
based upon the lenders base rate, as defined, and the London Inter-Bank Offered rate. Based on the
balance outstanding at December&nbsp;31, 2004 a hypothetical 2.5% increase in the applicable interest
rates would increase interest expense by approximately $727,000.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oil and gas prices have historically been extremely volatile, and have been particularly so in
recent years. The Company did not enter into significant hedging transactions during 2004, and had
no open hedging transactions at December&nbsp;31, 2004. Declines in domestic oil and gas prices could
have a material adverse effect on the Company&#146;s revenues, operating results, estimates of
economically recoverable reserves and the net revenue there from.



<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<!-- link2 "Item&nbsp;8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" -->
<DIV align="left"><A NAME="010"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial statements and supplementary information included in this Report are
described in the Index to Financial statements at Page F-1 of this Report.

<!-- link2 "Item&nbsp;9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE" -->
<DIV align="left"><A NAME="011"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.

<!-- link2 "Item&nbsp;9A. INTERNAL CONTROLS AND PROCEDURES" -->
<DIV align="left"><A NAME="012"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;9A. INTERNAL CONTROLS AND PROCEDURES.</B>

<P align="left" style="font-size: 10pt"><I>(a)&nbsp;&nbsp;Evaluation
of disclosure controls and procedures.</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our
disclosure controls and procedures pursuant to Rule&nbsp;13a-15 under
the Securities Exchange Act of 1934 as of the end of the period
covered by this Annual Report on Form&nbsp;10-K. The evaluation
included certain internal control areas in which we have made and are
continuing to make changes to improve and enhance controls. In
designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of
disclosure controls and procedures must reflect the fact that there
are resource constraints and that management is required to apply its
judgment in evaluating the benefits of possible controls and
procedures relative to their costs.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on that evaluation, our chief executive officer and chief financial
officer concluded that our disclosure controls and procedures are
effective to provide reasonable assurance that information we are
required to disclose in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission
rules and forms, and that such information is accumulated and
communicated to our management, including our chief executive officer
and chief financial officer, as appropriate, to allow timely
decisions regarding required disclosure.

<P align="left" style="font-size: 10pt"><I>(b)&nbsp;&nbsp;Changes in
internal control over financial reporting.</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
were no changes in our internal control over financial reporting that
occurred during the period covered by this Annual Report on Form 10-K
that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management
is currently in the process of comprehensively documenting and
further analyzing our system of internal control over financial
reporting. We are in the process of designing enhanced processes and
controls to address any issues identified through this review. We
plan to continue this initiative as well as prepare for our first
management report on internal control over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act of 2002 for the
annual period ending December&nbsp;31, 2006, which may result in
changes to our internal control over financial reporting.

<!-- link2 "Item&nbsp;9B. OTHER INFORMATION" -->
<DIV align="left"><A NAME="013"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;9B. OTHER INFORMATION</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
information was required to be disclosed by Registrant in a report on
Form 8-K during the fourth quarter of the year covered by this Report.

<!-- link1 "PART III" -->
<DIV align="left"><A NAME="014"></A></DIV>

<P align="center" style="font-size: 10pt"><B>PART III</B>


<!-- link2 "Item&nbsp;10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" -->
<DIV align="left"><A NAME="015"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information relating to the Company&#146;s Directors, nominees for Directors and executive officers
is included in the Company&#146;s definitive proxy statement relating the Company&#146;s Annual Meeting of
Stockholders to be held in June, 2005, which will be filed with the U.S. Securities and Exchange
Commission within 120&nbsp;days of December&nbsp;31, 2004 and which is incorporated herein by reference..

<!-- link2 "Item&nbsp;11. EXECUTIVE COMPENSATION" -->
<DIV align="left"><A NAME="016"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;11. EXECUTIVE COMPENSATION.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information relating to executive compensation is included in the Company&#146;s definitive proxy
statement relating to the Company&#146;s Annual Meeting of Stockholders to be held in June, 2005, which
will be filed with the U.S. Securities and Exchange Commission within 120&nbsp;days of December&nbsp;31, 2004
and which is incorporated herein by reference.


<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- link2 "Item&nbsp;12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS" -->
<DIV align="left"><A NAME="017"></A></DIV>

<P align="left" style="font-size: 10pt; margin-left:48px; text-indent:-48px"><B>Item&nbsp;12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information relating to security ownership of certain beneficial owners and management is
included in the Company&#146;s definitive proxy statement relating the Company&#146;s Annual Meeting of
Stockholders to be held in June, 2005 which will be filed with the U.S. Securities and Exchange
Commission within 120&nbsp;days of December&nbsp;31, 2004 and which is incorporated herein by reference.

<!-- link2 "Item&nbsp;13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS" -->
<DIV align="left"><A NAME="018"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information relating to certain transactions by Directors and executive officers of the
Company is included in the Company&#146;s definitive proxy statement relating the Company&#146;s Annual
Meeting of Stockholders to be held in June, 2005, which will be filed with the U.S. Securities and
Exchange Commission within 120&nbsp;days of December&nbsp;31, 2004 and which is incorporated herein by
reference.

<!-- link2 "Item&nbsp;14. PRINCIPAL ACCOUNTANT FEES AND SERVICES" -->
<DIV align="left"><A NAME="019"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information relating to principal accountant fees and services is included in the Company&#146;s
definitive proxy statement relating to the Company&#146;s Annual Meeting of Stockholders to be held in
June, 2005, which will be filed with the U.S. Securities and Exchange Commission within 120&nbsp;days of
December&nbsp;31, 2004 and which is incorporated herein by reference.

<!-- link1 "PART IV" -->
<DIV align="left"><A NAME="020"></A></DIV>

<P align="center" style="font-size: 10pt"><B>PART IV</B>


<!-- link2 "Item&nbsp;15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K" -->
<DIV align="left"><A NAME="021"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following documents are filed as part of this Report:



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;Financial statements (Index to Financial Statements at page F-1 of this Report)


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;Financial Statement Schedules (Index to Financial Statements &#150; Supplementary Information)


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;Exhibits

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of PrimeEnergy Corporation (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Bylaws of PrimeEnergy Corporation (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Adoption Agreement #003 dated 4/23/2002, MassMutual Life Insurance Company
Flexinvest Prototype Non-Standardized 401(k) Profit-Sharing Plan; EGTRRA
Amendment to the PrimeEnergy employees 401(k) Savings Plan; MassMutual
Retirement Services Flexinvest Defined Contribution Prototype Plan; Protected
Benefit Addendum; Addendum to the Administrative Services Agreement Loan
Agreement; Addendum to Administrative Services Agreement GUST Restatement
Provisions; General Trust Agreement (Incorporated by reference to Exhibit&nbsp;10.3.1
of PrimeEnergy Corporation form 10-K for the year ended December&nbsp;31, 2002) (1)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Composite copy of Non-Statutory Option Agreements (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Credit Agreement dated as of December&nbsp;19, 2002 between PrimeEnergy Corporation,
PrimeEnergy Management Corporation, Prime Operating Company, Eastern Oil Well
Service Company, Southwest Oilfield Construction Company, EOWS Midland Company
and Guaranty Bank , FSB (incorporated by reference to Exhibit&nbsp;10.22 of
PrimeEnergy Corporation 10-K for the year ended December&nbsp;31, 2002)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">20
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Item&nbsp;15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. continued</B>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Credit Agreement effective as of
June&nbsp;1, 2003 between PrimeEnergy Corporation, PrimeEnergy
Management Corporation, Prime Operating Company, Eastern Oil Well
Service Company, Southwest Oilfield Construction Company, EOWS
Midland Company and Guaranty Bank , FSB (Incorporated by reference
to Exhibit&nbsp;10.22.1 of PrimeEnergy Corporation Form&nbsp;10-K for the
year ended December&nbsp;31, 2003)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second Amendment to Credit Agreement effective as of September
22,2003 between PrimeEnergy Corporation, PrimeEnergy Management
Corporation, Prime Operating Company, Eastern Oil Well Service
Company, Southwest Oilfield Construction Company, EOWS Midland
Company, F-W Oil Exploration Company L.L.C. and Guaranty Bank ,
FSB (Incorporated by reference to exhibit 10.2.2 of PrimeEnergy
Corporation Form&nbsp;10-K for the year ended December&nbsp;31, 2003)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Third Amendment to Credit Agreement effective as of
February&nbsp;17, 2004, between PrimeEnergy Corporation, PrimeEnergy Management
Corporation, Prime Operating Company, Eastern Oil Well Service
Company, Southwest Oilfield Construction Company, EOWS Midland
Company, F-W Oil Exploration Company, L.L.C. and Guaranty Bank,
FSB (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fourth Amendment to Credit Agreement effective as of December&nbsp;28,
2004, between PrimeEnergy Corporation, PrimeEnergy Management
Corporation, Prime Operating Company, Eastern Oil Well Service
Company, Southwest Oilfield Construction Company, EOWS Midland
Company and Guaranty Bank, FSB (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mortgage, Deed of Trust, Security Agreement, Financing Statement
and Assignment of Production from PrimeEnergy Corporation and
PrimeEnergy Management Corporation for the benefit of Guaranty
Bank, FSB (Incorporated by reference to Exhibit&nbsp;10.23 of
PrimeEnergy Corporation 10-K for the year ended December&nbsp;31, 2002)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mortgage, Deed of Trust, Security Agreement, Financing Statements
and Assignment of Production effective as of September&nbsp;22,
2003, by and among F-W Oil Exploration L.L.C., PrimeEnergy
Corporation, PrimeEnergy Management Corporation, Prime Operating
Company, Eastern Oil Well Service Company, EOWS Midland Company
and Southwest Oilfield Construction Company for benefit of
Guaranty Bank, FSB (Incorporated by reference to exhibit 10.23.1
to PrimeEnergy Corporation Form&nbsp;10-K for the year ended December
31, 2003)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Act of Mortgage and Security Agreement, by PrimeEnergy Corporation
and PrimeEnergy Management Corporation to Guaranty Bank, FSB
(Incorporated by reference to Exhibit&nbsp;10.24 of PrimeEnergy
Corporation 10-K for the year ended December&nbsp;31, 2002)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Credit Agreement dated December&nbsp;28, 2004, between F-W Oil
Exploration L.L.C. and Guaranty Bank, FSB (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Security Agreement dated December&nbsp;28, 2004, between F-W Oil
Exploration L.L. C. and Guaranty Bank, FSB (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ratification of and Amendment to Act of Mortgage and Security
Agreement effective December&nbsp;28, 2004,by F-W Oil Exploration
L.L.C. for the benefit of Guaranty Bank, FSB (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ratification of and Amendment to Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and Assignment of
Production by F-W Oil Exploration L.L.C. for the benefit of
Guaranty Bank, FSB (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Ryder Scott &#038; Company L.P. Company (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to
Rule13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
as amended (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to
Rule13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">21
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">amended (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section&nbsp;1350, adopted pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section&nbsp;1350, adopted pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="022"></A></DIV>

<P align="center" style="font-size: 10pt"><B>SIGNATURES</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 31st day of March, 2005.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">PrimeEnergy Corporation</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ CHARLES E. DRIMAL, JR</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Charles E. Drimal, Jr.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">President</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the capacities indicated
and on the 31st day of March, 2005.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ CHARLES E. DRIMAL, JR.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director and President;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The Principal Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Charles E. Drimal, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ BEVERLY A. CUMMINGS
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director, Vice President and Treasurer;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The Principal Financial and Accounting</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Beverly A. Cummings
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ MATTHIAS ECKENSTEIN
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ CLINT HURT</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade color="#000000">
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Matthias Eckenstein
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Clint Hurt</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ H. GIFFORD FONG
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ JAN K. SMEETS</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade color="#000000">
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">H. Gifford Fong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Jan K. Smeets</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ THOMAS S.T. GIMBEL
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ GAINES WEHRLE</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade color="#000000">
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thomas S.T. Gimbel
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Gaines Wehrle</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">23
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>INDEX TO FINANCIAL STATEMENTS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Report of
Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Balance Sheets &#151; December&nbsp;31, 2004 and 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Statements of Operations &#151; for the years ended December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Statement of Stockholders&#146; Equity &#151; for the years ended December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consolidated Statements of Cash Flows &#151; for the years ended December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Supplementary Information:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Capitalized
Costs Relating to Oil and Gas Producing Activities, years ended December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities, years ended
December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves, years
ended December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil an
Gas Reserves, years ended December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Reserve Quantity Information, years ended December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Results of Operations from Oil and Gas Producing Activities, years ended December&nbsp;31, 2004, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Notes to Supplementary Information</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-24</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-1
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<P align="center" style="font-size: 10pt"><U>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</U>



<P align="left" style="font-size: 10pt">To the Board of Directors and Stockholders of<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PrimeEnergy Corporation and Subsidiaries:


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We have audited the accompanying consolidated balance sheets of PrimeEnergy Corporation and
Subsidiaries (the Corporation) as of December&nbsp;31, 2004 and 2003, and the related consolidated
statements of operations, stockholders&#146; equity, and cash flows for the years ended December&nbsp;31
2004, 2003 and 2002. These financial statements are the responsibility of the Corporation&#146;s
management. Our responsibility is to express an opinion on these financial statements based on our
audits.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of PrimeEnergy Corporation and Subsidiaries as of
December&nbsp;31, 2004 and 2003, and the consolidated results of its operations and cash flows for the
years ended December&nbsp;31, 2004, 2003 and 2002 in conformity with U.S generally accepted accounting
principles.


<P align="left" style="font-size: 10pt">PUSTORINO, PUGLISI &#038; CO., LLP<BR>
New York, New York<BR>
March&nbsp;30, 2005


<P align="center" style="font-size: 10pt">F-2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">CONSOLIDATED BALANCE SHEETS, December&nbsp;31, 2004 and 2003


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,476,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,891,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,864,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,479,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,694,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,108,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due from related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">447,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">336,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">297,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">409,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">374,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,323,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,694,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, at cost :</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proved oil and gas properties at cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,018,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,012,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unproved oil and gas properties at cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,149,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,091,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less, accumulated depletion and depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,098,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(53,196,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,069,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,907,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Field and office equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,610,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,389,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less, accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,307,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,964,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,303,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,425,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total net property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,372,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,332,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">231,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">69,926,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">58,255,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">The accompanying notes are an integral part of the consolidated financial statements.



<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">CONSOLIDATED BALANCE SHEETS, December&nbsp;31, 2004 and 2003


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES and STOCKHOLDERS&#146; EQUITY:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,929,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,528,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of other long-term obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">692,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Payroll, Benefits, Interest and Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,228,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,504,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Due to related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">933,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,769,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,657,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term bank debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,613,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other long-term obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Asset retirement obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,630,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,237,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,689,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,819,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Preferred stock, $.10 par value, authorized 5,000,000 shares; none issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in
2004 and 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">769,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Paid in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,024,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,024,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,653,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,378,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,446,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,171,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Treasury stock, at cost 4,202,745 common shares in 2004 and 4,065,768 in 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,209,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,735,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,237,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,436,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">69,926,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">58,255,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">The accompanying notes are an integral part of the consolidated financial statements.



<P align="center" style="font-size: 10pt">F-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION AND SUBSIDIARIES



<P align="center" style="font-size: 10pt">CONSOLIDATED STATEMENTS of OPERATIONS



<P align="center" style="font-size: 10pt">for the years ended December&nbsp;31, 2004, 2003 and 2002


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Oil and gas sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,967,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,855,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,330,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Field service revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,965,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,013,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,891,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Administrative overhead fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,317,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,723,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,588,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gains/(losses) on derivative instruments net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(52,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(113,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest and other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">179,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">490,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,428,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,719,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,186,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Costs and expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lease operating expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,939,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,783,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,210,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Field service expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,939,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,970,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,910,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation,
depletion and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,156,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,525,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,231,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,536,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,995,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,007,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exploration costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,499,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,136,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">766,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,205,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,672,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,018,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,223,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,047,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,168,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on sale and exchange of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,298,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,148,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,200,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,023,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,446,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">443,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,275,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,702,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,757,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">The accompanying notes are an integral part of the consolidated financial statements.



<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">CONSOLIDATED STATEMENT of STOCKHOLDERS&#146; EQUITY



<P align="center" style="font-size: 10pt">for the years ended December&nbsp;31, 2004, 2003 and 2002


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid In</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Treasury</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Earnings</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,694,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">769,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,024,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,919,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(12,349,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,363,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchased 92,862 shares of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(745,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(745,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,757,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,757,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,694,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">769,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,024,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,676,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(13,094,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,375,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchased 63,804 shares of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(641,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(641,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,702,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,702,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,694,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">769,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,024,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,378,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(13,735,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,436,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchased 136,977 shares of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,474,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,474,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,275,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,275,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,694,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">769,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,024,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,653,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(16,209,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,237,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">The accompanying notes are an integral part of the consolidated financial statements.




<P align="center" style="font-size: 10pt">F-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">CONSOLIDATED STATEMENT of CASH FLOWS



<P align="center" style="font-size: 10pt">for the years ended December&nbsp;31, 2004, 2003 and 2002


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,275,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,702,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,757,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments
to reconcile net income to net cash provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation, depletion and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,156,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,525,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,231,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dry hole and abandonment costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,499,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(75,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(101,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Provision for deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,358,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,580,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">243,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Increase) decrease in accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,586,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,982,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(328,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Increase) decrease in due from related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,562,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Increase) decrease in other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(137,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">682,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(Increase) decrease in prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(111,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(97,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(175,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (decrease)&nbsp;in accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,016,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,699,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">736,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (decrease)&nbsp;in accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(276,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,712,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (decrease)&nbsp;in due to related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(333,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(500,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">502,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,995,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,622,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,644,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sale of properties and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additions to property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,696,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,835,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,442,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,621,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,734,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,410,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of stock for treasury</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,474,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(641,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(745,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repayment of long-term bank debt and other long-term obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(29,837,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43,679,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43,260,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase in long-term bank debt and other long-term obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,522,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,437,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,572,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,117,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,567,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,585,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,005,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,801,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,891,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,886,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents, end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,476,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,891,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,886,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental disclosures:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes paid during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">83,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income tax refunds received during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">172,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">745,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest paid during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">953,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">880,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">766,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Supplemental information of noncash investing and financing activities:



<P align="left" style="font-size: 10pt">In 2002, the Company recorded capital lease obligations in the amount of $59,000.



<P align="center" style="margin-left:6%; font-size: 10pt">The accompanying notes are an integral part of the consolidated financial statements.


<P align="center" style="font-size: 10pt">F-7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>1.</B>&nbsp;&nbsp;</TD>
    <TD><B>Description of Operations and Significant Accounting Policies</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Nature of Operations</I>:



<P align="left" style="margin-left:3%; font-size: 10pt">PrimeEnergy Corporation (&#147;PEC&#148;), a Delaware corporation,
was organized in March&nbsp;1973. The Company is engaged in the
development, acquisition and production of oil and natural gas
properties. The Company owns leasehold, mineral and royalty interests
in producing and non-producing oil and gas properties across the
United States, including Colorado, Kansas, Louisiana, Mississippi,
Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Texas, Utah,
West Virginia and Wyoming and the Gulf of Mexico. The Company
operates 1,533 wells and owns non-operating interests in over 770
additional wells. Additionally, the Company provides well-servicing
support operations, site-preparation and construction services for
oil and gas drilling and reworking operations, both in connection
with the Company&#146;s activities and providing contract services
for third parties. The Company is publicly traded on the NASDAQ under
the symbol &#147;PNRG&#148;.

<P align="left" style="margin-left:3%; font-size: 10pt">PEC owns
Eastern Oil Well Service Company (&#147;EOWSC&#148;), EOWS Midland
Company (&#147;EMID&#148;)
and Southwest Oilfield Construction
Company (&#147;SOCC&#148;), all of which perform oil and gas field servicing. PEC also owns Prime Operating
Company (&#147;POC&#148;), which serves as operator for most of the producing oil and gas properties owned
by the Company and affiliated entities. During 2003 PEC acquired a sixty percent interest in F-W Oil Exploration LLC,
(&#147;FW&#148;), which owns and operates properties in the Gulf of Mexico. PrimeEnergy Corporation and
its subsidiaries are herein referred to as the &#147;Company.&#148;
PrimeEnergy Management Corporation (&#147;PEMC&#148;), a wholly-owned
subsidiary, acts as the managing general partner, providing
administration, accounting and tax preparation services for 18
private and publicly-held limited partnerships and 2 trusts
(collectively, the &#147;Partnerships&#148;). During the course of
2003 PrimeEnergy dissolved 20 private limited partnerships.

<P align="left" style="margin-left:3%; font-size: 10pt">The markets
for the Company&#146;s products are highly competitive, as oil and
gas are commodity products and prices depend upon numerous factors
beyond the control of the Company, such as economic, political and
regulatory developments and competition from alternative energy
sources.

<P align="left" style="margin-left:3%; font-size: 10pt"><I>Consolidation
and Presentation</I>:



<P align="left" style="margin-left:3%; font-size: 10pt">The consolidated financial statements include the accounts of PrimeEnergy Corporation, its
subsidiaries and the Partnerships, using the proportionate consolidation method, whereby our
proportionate share of each entity&#146;s assets, liabilities, revenue and expenses are included in
the appropriate classifications in the consolidated financial statements. Inter-company balances
and transactions are eliminated in preparing the consolidated
financial statements. Certain 2002 and 2003 amounts have been
reclassified where appropriate to conform with the 2004 presentation. These
reclassifications had no effect on the Company&#146;s  net income
(loss) or stockholders&#146; equity.


<P align="left" style="margin-left:3%; font-size: 10pt"><I>Use of Estimates:</I>



<P align="left" style="margin-left:3%; font-size: 10pt">The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.



<P align="left" style="margin-left:3%; font-size: 10pt">Estimates of oil and gas reserves, as determined by independent petroleum engineers, are
continually subject to revision based on price, production history and other factors. Depletion
expense, which is computed based on the units of production method, could be significantly
impacted by changes in such estimates. Additionally, FAS 144 requires that if the expected future
cash flow from an asset is less than its carrying cost, that asset must be written down to its
fair market value. As the fair market value of an oil and gas property will usually be
significantly less than the total future net revenue expected from that property, small changes
in the estimated future net revenue from an asset could lead to the necessity of recording a
significant impairment of that asset.


<P align="center" style="font-size: 10pt">F-8
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS




<P align="left" style="margin-left:3%; font-size: 10pt"><I>Property and Equipment</I>



<P align="left" style="margin-left:3%; font-size: 10pt">The Company follows the &#147;successful efforts&#148; method of accounting for its oil and gas
properties. Under the successful efforts method, costs of acquiring undeveloped oil and gas
leasehold acreage, including lease bonuses, brokers&#146; fees and other related costs are
capitalized. Provisions for impairment of undeveloped oil and gas leases are based on periodic
evaluations. Annual lease rentals and exploration expenses, including geological and
geophysical expenses and exploratory dry hole costs, are charged against income as incurred.
Costs of drilling and equipping productive wells, including development dry holes and related
production facilities, are capitalized. Costs incurred by the Company related to the
exploration, development and acquisition of oil and gas properties on behalf of the
Partnerships or joint ventures are deferred and charged to the related entity upon the
completion of the acquisition.



<P align="left" style="margin-left:3%; font-size: 10pt">All other property and equipment are carried at cost. Depreciation and depletion of oil and
gas production equipment and properties are determined under the unit-of-production method
based on estimated proved recoverable oil and gas reserves. Depreciation of all other
equipment is determined under the straight-line method using various rates based on useful
lives. The cost of assets and related accumulated depreciation is removed from the accounts
when such assets are disposed of, and any related gains or losses are reflected in current
earnings.



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Asset Retirement Obligation:</I>



<P align="left" style="margin-left:3%; font-size: 10pt">Effective January&nbsp;1, 2003, the Company adopted SFAS No.&nbsp;143, <I>Accounting for Asset Retirement
Obligations</I>. Our asset retirement obligation primarily represents the estimated present value
of the amount the Company will incur to plug, abandon and remediate our producing properties
(including removal of our offshore platforms) at the end of their productive lives, in
accordance with applicable state laws. The Company determined its asset retirement obligation
by calculating the present value of estimated cash flows related to the liability. The
retirement obligation is recorded as a liability at its estimated present value as of the
asset&#146;s inception, with an offsetting increase to producing properties. Periodic accretion of
discount of the estimated liability is recorded as an expense in the income statement.



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Income Taxes</I>:



<P align="left" style="margin-left:3%; font-size: 10pt">The Company records income taxes in accordance with Statement of Financial Accounting
Standards (&#147;SFAS&#148;) No.&nbsp;109, &#147;Accounting for Income Taxes.&#148; SFAS No.&nbsp;109 is an asset and
liability approach to accounting for income taxes, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been
recognized in the Company&#146;s financial statements or tax returns.



<P align="left" style="margin-left:3%; font-size: 10pt">Deferred tax liabilities or assets are established for temporary differences between financial
and tax reporting bases and are subsequently adjusted to reflect changes in the rates expected
to be in effect when the temporary differences reverse. A valuation allowance is established
for any deferred tax asset for which realization is not likely.


<P align="center" style="font-size: 10pt">F-9
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS




<P align="left" style="margin-left:3%; font-size: 10pt"><I>General and Administrative Expenses</I>:



<P align="left" style="margin-left:3%; font-size: 10pt">General and administrative expenses represent costs and expenses associated with the operation
of the Company. Certain of the Partnerships sponsored by the Company reimburse general and
administrative expenses incurred on their behalf.



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Income Per Common Share</I>:



<P align="left" style="margin-left:3%; font-size: 10pt">Income per share of common stock has been computed based on the weighted average number of
common shares outstanding during the respective periods in accordance with SFAS No.&nbsp;128,
&#147;Earnings per Share&#148;.



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Statements of cash flows:</I>



<P align="left" style="margin-left:3%; font-size: 10pt">For purposes of the consolidated statements of cash flows, the Company considers short-term,
highly liquid investments with original maturities of less than ninety days to be cash
equivalents.



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Concentration of Credit Risk:</I>



<P align="left" style="margin-left:3%; font-size: 10pt">The Company maintains significant banking relationships with financial institutions in the
State of Texas. The Company limits its risk by periodically evaluating the relative credit
standing of these financial institutions. The Company&#146;s oil and gas production purchasers
consist primarily of independent marketers and major gas pipeline companies.



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Hedging:</I>


<P align="left" style="margin-left:3%; font-size: 10pt">The Company periodically enters into oil and gas financial instruments to manage its
exposure to oil and gas price volatility. The oil and gas reference prices upon which the
price hedging instruments are based reflect various market indices that have a high degree of
historical correlation with actual prices received by the Company.



<P align="left" style="margin-left:3%; font-size: 10pt">The financial instruments are accounted for in accordance with Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging Activities&#148;, which
established new accounting and reporting requirements for derivative instruments and hedging
activities. SFAS No.&nbsp;133, as amended by SFAS No.&nbsp;138, requires that all derivative instruments
subject to the requirements of the statement be measured at fair market value and recognized
as assets or liabilities in the balance sheet. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the resulting designation is
generally established at the inception of a derivative. For derivatives designated as cash
flow hedges and meeting the effectiveness guidelines of SFAS No.&nbsp;133, changes in fair value,
to the extent effective, are recognized in other comprehensive income until the hedged item is
recognized in earnings. Hedge effectiveness is measured at least quarterly based on the
relative changes in fair value between the derivative contract and the hedged item over time.
Any change in fair value of a derivative resulting from ineffectiveness or an excluded
component of the gain/loss is recognized immediately in the statement of operations.


<P align="center" style="font-size: 10pt">F-10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS




<P align="left" style="margin-left:3%; font-size: 10pt"><I>Recently Issued Accounting Standards</I>:



<P align="left" style="margin-left:3%; font-size: 10pt">In April&nbsp;2002, the FASB issued SFAS No.&nbsp;145, &#147;Rescission of FASB Statements No.&nbsp;4, 44 and 64,
Amendment of FASB Statement No.&nbsp;13 and Technical Corrections.&#148; Prior to the adoption of the
provisions of SFAS No.&nbsp;145, generally accepted accounting principles required gains or losses on
the early extinguishment of debt be classified in a company&#146;s periodic consolidated statements of
operations as extraordinary gains or losses, net of associated income taxes, below the
determination of income or loss from continuing operations. SFAS No.&nbsp;145 changes generally
accepted accounting principles to require, except in the case of events or transactions of a
highly unusual and infrequent nature, gains or losses from the early extinguishment of debt be
classified as components of a company&#146;s income or loss from continuing operations. The adoption
of the provisions of SFAS No.&nbsp;145 in 2003 did not affect the Company&#146;s financial position or
results of operations.



<P align="left" style="margin-left:3%; font-size: 10pt">In June&nbsp;2002, the FASB issued SFAS No.&nbsp;146, &#147;Accounting for Costs Associated with Exit or
Disposal Activities.&#148; SFAS No.&nbsp;146 requires that a liability for a cost associated with an exit
or disposal activity be recognized and measured initially at fair value only when the liability
is incurred. SFAS No.&nbsp;146 is effective for exit or disposal activities that are initiated after
December&nbsp;31, 2002. The adoption of SFAS No.&nbsp;146 in 2003 did not effect on the Company&#146;s financial
position or results of operations.



<P align="left" style="margin-left:3%; font-size: 10pt">In November&nbsp;2002, the FASB issued Financial Interpretation No.&nbsp;45, &#147;Guarantor&#146;s Accounting and
Disclosure Requirements for Guarantees, including Indirect Guarantee of Indebtedness of Others&#148;
(FIN 45). FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a
liability for the fair value of the obligation it assumes under that guarantee. FIN 45&#146;s
provisions for initial recognition and measurement should be applied on a prospective basis to
guarantees issued or modified after December&nbsp;31, 2002. The guarantor&#146;s previous accounting for
guarantees that were issued before the date of FIN 45&#146;s initial application may not be revised or
restated to reflect the effect of the recognition and measurement provisions of the
Interpretation. The disclosure requirements are effective for financial statements of both
interim and annual periods that end after December&nbsp;15, 2002. The adoption of FIN 45 did not have
an impact on the Company&#146;s consolidated financial statements.



<P align="left" style="margin-left:3%; font-size: 10pt">In December&nbsp;2002, the FASB issued SFAS 148, &#147;Accounting for Stock-Based Compensation&#151;Transition
and Disclosure.&#148; SFAS No.&nbsp;148 amends FASB Statement No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148; to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure for stock-based employee compensation and the effect of the
method used on the reported results. The provisions of SFAS 148 are effective for financial
statements with fiscal years ending after December&nbsp;15, 2002. The adoption of this statement has
not impacted the Company&#146;s financial position or results of operations.



<P align="left" style="margin-left:3%; font-size: 10pt">In January&nbsp;2003, the FASB issued Financial Interpretation No.&nbsp;46, &#147;Consolidation of Variable
Interest Entities&#151;an interpretation of ARB No.&nbsp;51&#148; (FIN 46). FIN 46 is an interpretation of
Accounting Research Bulletin 51, &#147;Consolidated Financial Statements&#148;, and addresses consolidation
by business enterprises of variable interest entities (VIE&#146;s). The primary objective of FIN 46 is
to provide guidance on the identification of, and financial reporting for, entities over which
control is achieved through means other than voting rights; such entities are known as VIE&#146;s. FIN
46 requires an enterprise to consolidate a variable interest entity if that enterprise has a
variable interest that will absorb a majority of the entity&#146;s expected losses if they occur,
receive a majority of the entity&#146;s expected residual return if they occur, or both. An enterprise
shall consider the rights and obligations conveyed by its variable interests in making this
determination. This guidance applies immediately to variable interest entities created after
January&nbsp;31, 2003, and to variable interest entities in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or interim period beginning after June&nbsp;15,
2003, to variable interest entities in which an enterprise holds a variable interest that it
acquired before February&nbsp;1, 2003. The adoption of this interpretation did not have an effect on
the Company&#146;s financial position or results of operations.



<P align="left" style="margin-left:3%; font-size: 10pt">In December&nbsp;2004, the FASB issued SFAS No.&nbsp;123R, &#147;Share-Based Payment.&#148; SFAS 123R revises
SFAS 123, &#147;Accounting for Stock-Based Compensation&#148;, and focuses on accounting for share-based
payments for services by employer to employee. The statement requires companies to expense the
fair value of employee stock options and other equity-based compensation at the grant date. The
statement does not require a certain type of valuation model and either a binomial or
Black-Scholes model may be used.


<P align="center" style="font-size: 10pt">F-11
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS




<P align="left" style="margin-left:3%; font-size: 10pt">The provisions of SFAS 123R are effective for financial statements for fiscal periods ending
after June&nbsp;15, 2005. We are currently evaluating the method of adoption and the impact on our
operating results. Our future cash flows will not be impacted by the adoption of this standard.




<P align="left" style="margin-left:3%; font-size: 10pt">In February&nbsp;2005, the FASB released for public comment proposed Staff Position FAS 19-a
&#147;Accounting for Suspended Well Costs.&#148; This proposed staff position would amend FASB Statement
No.&nbsp;19 &#147;Financial Accounting and Reporting by Oil and Gas Producing Companies&#148; and provides
guidance about exploratory well costs to companies who use the successful efforts method of
accounting. The proposed position states that exploratory well costs should continue to be
capitalized if: 1) a sufficient quantity of reserves are discovered in the well to justify its
completion as a producing well and 2) sufficient progress is made in assessing the reserves and
the well&#146;s economic and operating feasibility. If the exploratory well costs do not meet both of
these criteria, these costs should be expensed, net of any salvage value. Additional disclosures
are required to provide information about management&#146;s evaluation of capitalized exploratory well
costs. In addition, the Staff Position requires the disclosure of: 1) net changes from period to
period of capitalized exploratory well costs for wells that are pending the determination of
proved reserves, 2) the amount of exploratory well costs that have been capitalized for a period
greater than one year after the completion of drilling and 3) an aging of exploratory well costs
suspended for greater than one year with the number of wells it related to. Further, the
disclosures should describe the activities undertaken to evaluate the reserves and the projects,
the information still required to classify the associated reserves as proved and the estimated
timing for completing the evaluation.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B>&nbsp;&nbsp;</TD>
    <TD><B>Significant Acquisitions, Dispositions and Property
Activity</B></TD>
</TR>

</TABLE>

<P align="left" style="margin-left:3%; font-size: 10pt">As more fully described in Note 7, the Company is committed to offer to repurchase the interests
of the partners and trust unit holders in certain of the Partnerships. The Company purchased such
interests in an amount totaling $ 2,038,305 in 2004, $695,673 in 2003 and $1,203,500 in 2002.
The Company&#146;s proportionate share of assets, liabilities and results of operations related to the
interests in the Partnerships are included in the consolidated financial statements.



<P align="left" style="margin-left:3%; font-size: 10pt">Properties
under evaluation include $7.5 million invested in one offshore well
completed and tested during the third quarter of 2004, however, early
production tests have been inconclusive as to the commercial
viability of this prospect. Additional expenditures during 2005 will
be required to determine whether production rates and ultimate
recoverable reserves are sufficient to warrant the costs of setting a
platform and installing production facilities.

<P align="left" style="margin-left:3%; font-size: 10pt">Effective August&nbsp;15, 2003 the Company acquired a sixty percent interest in F-W Oil Exploration
L.L.C., a licensed Gulf of Mexico operator for a cost of $4,000,000. As of that date FW had
approximately 80,000 net acres to develop and a 12.5% working interest in two producing blocks in
the Gulf of Mexico. The Company&#146;s proportionate share of FW&#146;s assets, liabilities and results of
operations for the effective period are included in the consolidated financial statements.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>3.</B>&nbsp;&nbsp;</TD>
    <TD><B>Accounts Receivable</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">Accounts receivable at December&nbsp;31, 2004 and 2003 consisted of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="60%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Joint interest billing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,048,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,174,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trade receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,728,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,607,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Oil and gas sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,181,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,878,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">324,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">906,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,281,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,565,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(587,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(457,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,694,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,108,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-12
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>4.</B>&nbsp;&nbsp;</TD>
    <TD><B>Other Current Assets</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">Other current assets at December&nbsp;31, 2004 and 2003 consisted of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="79%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Field service inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">375,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">278,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:0px; text-indent: 0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">433,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">297,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>5.</B>&nbsp;&nbsp;</TD>
    <TD><B>Long-Term Bank Debt</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">As of December&nbsp;2002 the Company entered in to a credit agreement with a new primary lender. The
Company and the lender agreed to amend and restate in its entirety the credit agreement dated
April&nbsp;26, 1995 between the Company and its predecessor lender. This agreement will continue to
provide for borrowings under a Master Note. Advances under the agreement, as amended, are limited
to the borrowing base as defined in the agreement. The borrowing base is re-determined by the
lender on a semi-annual basis. The borrowing base as of December&nbsp;31, 2004, was $25&nbsp;million and
included a Term Loan of $4&nbsp;million. The Term Loan called for monthly installments of $66,667
beginning January&nbsp;2003. The credit agreement provides for interest on outstanding borrowings at
the bank&#146;s base rate, as defined, payable monthly, or at rates 2% over the London Inter-Bank
Offered Rate (LIBO rate) payable at the end of the applicable interest period.



<P align="left" style="margin-left:3%; font-size: 10pt">As of September&nbsp;2003 the credit agreement was amended to add FW as an additional borrower. As of
December&nbsp;31, 2003 the total outstanding balance owed by FW to the lender was $3,800,000. FW&#146;s oil
and gas properties are pledged as security under the loan agreement as collateral for amounts due
from FW to the lender. The Company&#146;s proportionate share of amounts owed by FW to the lender are
included in the consolidated financial statements. Total outstanding borrowings under the amended
loan agreement as of December&nbsp;31, 2003 were $28,000,000.



<P align="left" style="margin-left:3%; font-size: 10pt">As of December&nbsp;2004, FW entered into a stand-alone agreement with the same lender and the Company
agreement was amended to remove FW as a borrower and eliminate the Company&#146;s obligation on
amounts owed to the lender by FW. The total outstanding borrowings under the Company&#146;s amended
loan agreement as of December&nbsp;31, 2004 were $23,600,000 with $12,679,992 of additional
availability. The total outstanding borrowings under the FW loan agreement as of December&nbsp;31,
2004, were $10,500,000 with $2,500,000 of additional availability. The Company&#146;s proportionate
share of amounts owed by FW are included in the consolidated financial statements.



<P align="left" style="margin-left:3%; font-size: 10pt">Effective March&nbsp;2005, the lender has agreed to convert the Term Loan into a revolving line of
credit with interest rate options to coincide with the existing line of credit. The Company&#146;s
borrowing base as of March&nbsp;2005 was determined to be $41,000,000.



<P align="left" style="margin-left:3%; font-size: 10pt">The interest rates paid on outstanding borrowings subject to interest at the bank&#146;s base rate as
of December&nbsp;31, 2004 and 2003 were 5.25% and 4.5% respectively. During the same periods, the
average rates paid on outstanding borrowings bearing interest based upon the LIBO rate were 3.91%
and 3.84%. As of December&nbsp;31, 2004 and 2003, the total outstanding consolidated borrowings were
$29,900,000 and $27,280,000, respectively. All borrowings under the
Company&#146;s credit agreements are due March,&nbsp;2007.



<P align="left" style="margin-left:3%; font-size: 10pt">The Company&#146;s oil and gas properties as well as certain receivables and equipment are pledged as
security under the loan agreement. The agreement requires the Company to maintain, as defined, a
minimum current ratio, tangible net worth, debt coverage ratio and interest coverage ratio, and
restrictions are placed on the payment of dividends and the amount of treasury stock the Company
may purchase.


<P align="center" style="font-size: 10pt">F-13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES
</DIV>



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>6.</B>&nbsp;&nbsp;</TD>
    <TD><B>Commitments</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Operating Leases:</I>



<P align="left" style="margin-left:3%; font-size: 10pt">The Company has several noncancelable operating leases, primarily for rental of office space,
that have a term of more than one year.



<P align="left" style="margin-left:3%; font-size: 10pt"><I>Capital Leases:</I>



<P align="left" style="margin-left:3%; font-size: 10pt">The Company has two capital leases for office equipment in other long-term obligations. Future
minimum lease payments under operating and capital leases are as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Operating</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Leases</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Leases</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">344,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,091,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less imputed interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Present value of minimum Lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>


<P align="left" style="margin-left:0%; font-size: 10pt"><I>Asset Retirement Obligation:</I>

<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A reconciliation of our liability for plugging and abandonment
costs for the years ended December&nbsp;31, 2004 and 2003 is as
follows:

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B>2004</B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B>2003</B></TD>
</TR>




<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>







<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Asset retirement
    obligation&nbsp;&#151;&nbsp;beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Liabilities incurred
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Liabilities settled
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,900</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(69,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Accretion expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Change in estimate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,600</FONT></TD>
    <TD><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(64,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Asset retirement obligation&nbsp;&#151;&nbsp;end
    of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">390,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
</TABLE>
</CENTER>

<P align="left" style="margin-left:3%; font-size: 10pt">The Company&#146;s liability is determined using significant
assumptions, including current estimates of plugging and
abandonment costs, annual inflation of these costs, the
productive life of wells and our risk-adjusted interest rate.
Changes in any of these assumptions can result in significant
revisions to the estimated asset retirement obligation.
Revisions to the asset retirement obligation are recorded with
an offsetting change to producing properties, resulting in
prospective changes to depreciation, depletion and amortization
expense and accretion of discount. Because of the subjectivity
of assumptions and the relatively long life of most of our
wells, the costs to ultimately retire our wells may vary
significantly from previous estimates.

<P>
<P align="left" style="margin-left:0%; font-size: 10pt"><B>7.&nbsp;&nbsp;&nbsp;&nbsp;Contingent
Liabilities</B>



<P>
<P align="left" style="margin-left:3%; font-size: 10pt">The Company, as managing general partner of the affiliated Partnerships, is responsible for all
Partnership activities, including the review and analysis of oil and gas properties for
acquisition, the drilling of development wells and the production and sale of oil and gas from
productive wells. The Company also provides the administration, accounting and tax preparation
work for the Partnerships, and is liable for all debts and liabilities of the affiliated
Partnerships, to the extent that the assets of a given limited Partnership are not sufficient to
satisfy its obligations.



<P align="left" style="margin-left:3%; font-size: 10pt">The Company is subject to environmental laws and regulations. Management believes that future
expenses, before recoveries from third parties, if any, will not have a material effect on the
Company&#146;s financial condition. This opinion is based on expenses incurred to date for remediation
and compliance with laws and regulations which have not been material to the Company&#146;s results of
operations.



<P align="left" style="margin-left:3%; font-size: 10pt">As a general partner, the Company is committed to offer to purchase the limited partners&#146;
interest in certain of its managed Partnerships at various annual intervals. Under the terms of a
partnership agreement, the Company is not obligated to purchase an amount greater than 10% of the
total partnership interest outstanding. In addition, the Company will be obligated to purchase
interests tendered by the limited partners only to the extent of one hundred fifty percent of the
revenues received by it from such partnership in the previous year. Purchase prices are based
upon annual reserve reports of independent petroleum engineering firms discounted by a risk
factor. Based upon historical production rates and prices, management estimates that if all such
offers were to be accepted, the maximum annual future purchase commitment would be approximately
$500,000.



<P align="left" style="margin-left:3%; font-size: 10pt">The Company owns approximately a 27% interest in a limited partnership which owns a shopping
center in Alabama. The Company is a guarantor on a mortgage secured by the shopping center. The
Company believes the cash flow from the center is sufficient to service the mortgage. The market
value of the center is currently substantially higher than the balance owed on the mortgage. If
the partnership were unable to pay its obligations under the mortgage agreement, the maximum
amount the Company is committed to pay is $200,000.


<P align="center" style="font-size: 10pt">F-14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS,



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>8.</B>&nbsp;&nbsp;</TD>
    <TD><B>Stock Options and Other Compensation</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">In May&nbsp;1989, non-statutory stock options were granted by the Company to four key executive
officers for the purchase of shares of common stock. At December&nbsp;31, 2004 and 2003, options on
767,500 shares were outstanding and exercisable at prices ranging from $1.00 to $1.25.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>9.</B>&nbsp;&nbsp;</TD>
    <TD><B>Income Taxes</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">The components of the provision for income taxes for the years ended December&nbsp;31, 2004, 2003 and
2002 are as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Federal:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">187,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">696,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">95,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,074,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,460,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">496,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,023,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,446,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">443,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The components of net deferred tax assets (liabilities)&nbsp;are as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Compensation and benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">196,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">196,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">213,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total
current deferred income tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">409,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">374,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Noncurrent assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Alternative minimum tax credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">902,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">902,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Noncurrent liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basis differences relating to partnerships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">468,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,351,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depletion
&#38; depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,064,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,279,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,532,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,630,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net
noncurrent deferred income tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,630,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,237,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued




<P align="left" style="margin-left:3%; font-size: 10pt">The total provision for income taxes for the years ended December&nbsp;31, 2004, 2003 and 2002 varies
from the federal statutory tax rate as a result of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,501,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,770,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">748,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State income tax, net of federal benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">503,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Credit for producing fuel from a non-conventional source</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(134,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Percentage depletion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(811,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(400,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(303,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(170,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(119,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,023,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,446,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">443,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left:3%; font-size: 10pt">For many
years prior to 2003, the Company&#146;s current taxes were lowered due to the utilization of
federal net operating loss and percentage depletion carryforwards. With the filing of the 2002
federal income tax return, all of these carryforwards were used or expired.



<P align="left" style="margin-left:3%; font-size: 10pt">In 2002 and
prior tax years, the Company was allowed a federal tax credit for producing fuel from
a nonconventional source. This credit expired at the end of 2002. To the extent that the credit
for producing fuel from a nonconventional source could not be utilized due to the alternative
minimum tax, it became part of the Company&#146;s alternative minimum tax credit, which may be carried
forward indefinitely. Due to the factors discussed above, it is possible that the Company&#146;s
current tax liabilities in the future will be significantly greater than in past years.



<P align="left" style="margin-left:3%; font-size: 10pt">The primary reason that the Company&#146;s federal tax expense for both 2004 and 2003 is well below
the statutory rate is that the Company is allowed to deduct currently, rather than capitalize,
intangible drilling costs as incurred. The current deduction of these costs, which are
capitalized for financial accounting purposes, is also the primary reason for the increases in
the Company&#146;s deferred tax liability in both 2004 and 2003.



<P align="left" style="margin-left:3%; font-size: 10pt">The Company is entitled to percentage depletion on certain of its wells, which is calculated
without reference to the basis of the property to the extent that such depletion exceeds a
property&#146;s basis they represent a permanent difference which lowers the Company&#146;s effective rate.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>10.</B>&nbsp;&nbsp;</TD>
    <TD><B>Segment Information and Major Customers</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">The Company operates in one industry &#151; oil and gas exploration, development, operation and
servicing. The Company&#146;s oil and gas activities are entirely in the United States.



<P align="left" style="margin-left:3%; font-size: 10pt">The Company sells its oil and gas production to a number of purchasers. Listed below are the
percent of the Company&#146;s total oil and gas sales made to each of the customers whose purchases
represented more than 10% of the Company&#146;s oil and gas sales in the year 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="50%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Oil Purchasers:</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="5"><B>Gas Purchasers:</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Texon Distributing L.P.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">26.65%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Unimark LLC</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.29%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Plains All American Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">29.29%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TEPPCO Crude Oil, L.L.C.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">16.20%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LPC Crude Oil, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">16.10%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left:3%; font-size: 10pt">Although there are no long-term oil and gas purchasing agreements with these purchasers, the
Company believes that they will continue to purchase its oil and gas products and, if not, could
be replaced by other purchasers.


<P align="center" style="font-size: 10pt">F-16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>11.</B>&nbsp;&nbsp;</TD>
    <TD><B>Related Party Transactions</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">PEMC acts as the managing general partner, providing administration, accounting and tax
preparation services for the Partnerships. Certain directors have limited and general partnership
interests in several of these Partnerships. As the managing general partner in each of the
Partnerships, PEMC receives approximately 5% to 15% of the net revenues of each Partnership as a
carried interest in the Partnerships&#146; properties. As more fully described in Note 7, the Company
is committed to offer to repurchase the interests of the partners and trust unit holders in
certain of the Partnerships. The Company purchased such interests in an amount totaling $
2,038,305 in 2004 and $695,673 in 2003.



<P align="left" style="margin-left:3%; font-size: 10pt">The Partnership agreements allow PEMC to receive reimbursement for property acquisition and
development costs and general and administrative overhead, incurred on behalf of the
Partnerships.



<P align="left" style="margin-left:3%; font-size: 10pt">Due to related parties at December&nbsp;31, 2004 and 2003 primarily represents receipts collected by
the Company as agent, from oil and gas sales net of expenses. The amount of such receipts due the
affiliated Partnerships was $600,000 and $933,000 at December&nbsp;31, 2004 and 2003, respectively.
Receivables from related parties consist of reimbursable general and administrative costs, lease
operating expenses and reimbursements for property acquisitions, development, and related costs.



<P align="left" style="margin-left:3%; font-size: 10pt">Treasury stock purchases in 2004 and 2003 included shares acquired from related parties.
Purchases from related parties include a total of 35,000 shares purchased for a total
consideration of $606,100 in 2004, and 37,350 shares purchased for a total consideration of
$398,838 in 2003.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>12.</B>&nbsp;&nbsp;</TD>
    <TD><B>Restricted Cash and Cash Equivalents</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">Restricted cash and cash equivalents includes $1,864,000 and $1,479,000 at December&nbsp;31, 2004 and
2003, respectively, of cash primarily pertaining to unclaimed royalty payments. There were
corresponding accounts payable recorded at December&nbsp;31, 2004 and 2003 for these liabilities.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>13.</B>&nbsp;&nbsp;</TD>
    <TD><B>Salary Deferral Plan</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">The Company maintains a salary deferral plan (the &#147;Plan&#148;) in accordance with Internal Revenue
Code Section&nbsp;401(k), as amended. The Plan provides for discretionary and matching contributions
which approximated $292,000 and $278,000 in 2004 and 2003, respectively.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>14.</B>&nbsp;&nbsp;</TD>
    <TD><B>Earnings per Share</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:3%; font-size: 10pt">Basic earnings per share are computed by dividing earnings available to common stockholders by
the weighted average number of common shares outstanding during the period. Diluted earnings per
share reflect per share amounts that would have resulted if dilutive potential common stock had
been converted to common stock. The following reconciles amounts reported in the financial
statements:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Per share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net Income</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,275,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,569,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">722,283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,275,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,292,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31, 2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Per share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net Income</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,702,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,664,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">683,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,702,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,348,036</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<P align="center" style="font-size: 10pt">F-17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>14.</B>&nbsp;&nbsp;</TD>
    <TD><B>Earnings per Share continued</B></TD>
</TR>

</TABLE>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended December 31, 2002</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Per share</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net Income</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,757,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,738,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">666,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,757,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,405,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>15.</B>&nbsp;&nbsp;</TD>
    <TD><B>Selected Quarterly Financial Information (Unaudited)</B></TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Fourth</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Third</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Second</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>First</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>31, 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">62,428,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">18,530,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">15,540,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">14,987,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">13,371,000</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,223,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,910,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,704,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,975,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,634,000</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,275,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,133,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,756,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,232,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,154,000</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">2.04</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">.89</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.50</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.34</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.32</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Diluted net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">1.70</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">.74</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.41</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.29</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.27</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Fourth</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Third</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Second</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>First</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>31, 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Quarter</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">46,719,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">12,741,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">12,035,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">10,508,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">11,435,000</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,047,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,900,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,041,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,681,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,425,000</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5,702,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,045,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,765,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,067,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1,826,000</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">1.56</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.29</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.48</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.29</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.49</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:15px; text-indent:-15px">Diluted net income per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">1.31</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.24</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.41</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.25</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">0.42</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-18
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="center" style="font-size: 10pt"><B>PRIMEENERGY CORPORATION and SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>SUPPLEMENTARY INFORMATION</B>



<P align="center" style="font-size: 10pt"><B>(Unaudited)</B>



<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">CAPITALIZED COSTS RELATING to OIL and GAS PRODUCING ACTIVITIES



<P align="center" style="font-size: 10pt">December&nbsp;31, 2004, 2003 and 2002



<P align="center" style="font-size: 10pt">(Unaudited)


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Developed oil and gas properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
        <TD align="right">95,018,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">91,012,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">74,319,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Undeveloped oil and gas properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,149,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,091,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,134,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,167,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,103,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,453,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated depreciation, depletion and valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,098,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,196,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,912,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net capitalized costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">48,069,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40,907,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28,541,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">COSTS INCURRED in OIL and GAS PROPERTY ACQUISITION,<BR>
EXPLORATION and DEVELOPMENT ACTIVITIES



<P align="center" style="font-size: 10pt">Years ended December&nbsp;31, 2004, 2003 and 2002



<P align="center" style="font-size: 10pt">(Unaudited)


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of Properties Developed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,038,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,023,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,668,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Undeveloped</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,058,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">873,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">848,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exploration Costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,499,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Development Costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,101,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,294,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,385,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">See accompanying notes to supplementary information.



<P align="center" style="font-size: 10pt">F-19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">STANDARDIZED MEASURE of DISCOUNTED FUTURE<BR>
NET CASH FLOWS RELATING to PROVED OIL and GAS RESERVES



<P align="center" style="font-size: 10pt">Years ended December&nbsp;31, 2004, 2003 and 2002



<P align="center" style="font-size: 10pt">(Unaudited)


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Future cash inflows</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">378,639,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">302,876,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">201,750,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Future production and development costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(167,155,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(138,929,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(104,232,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Future income tax expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(62,819,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47,696,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,230,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Future net cash flows</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148,665,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,251,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,288,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">10% annual discount for estimated timing of cash flow</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(54,254,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(42,999,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,512,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Standardized measure of discounted future net cash flows</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
        <TD align="right">94,411,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">73,252,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">42,776,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">See accompanying notes to supplementary information.



<P align="center" style="font-size: 10pt">F-20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">STANDARDIZED MEASURE of DISCOUNTED FUTURE\<BR>
NET CASH FLOWS and CHANGES THEREIN RELATING<BR>
to PROVED OIL and GAS RESERVES



<P align="center" style="font-size: 10pt">Years ended December&nbsp;31, 2004, 2003 and 2002



<P align="center" style="font-size: 10pt">(Unaudited)



<P align="left" style="font-size: 10pt">The following are the principal sources of change in the standardized measure of discounted future
net cash flows during 2004, 2003 and 2002:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales of oil and gas produced, net of production costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">(29,028,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(17,072,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(8,120,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net changes in prices and production costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,178,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,732,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,488,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Extensions, discoveries and improved recovery</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,792,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,133,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,462,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revisions of previous quantity estimates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,904,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,491,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,192,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reserves purchased, net of development costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,238,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,667,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,824,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net change in development costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(14,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,217,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(311,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accretion of discount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,459,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,278,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,097,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net change in income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(9,656,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,705,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,809,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">286,000</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(265,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,159,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,476,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,810,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Standardized measure of discounted future net cash flow:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,252,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,776,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,966,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">94,411,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">73,252,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,776,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">See accompanying notes to
supplementary information.



<P align="center" style="font-size: 10pt">F-21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">RESERVE QUANTITY INFORMATION



<P align="center" style="font-size: 10pt">Years ended December&nbsp;31, 2004, 2003 and 2002



<P align="center" style="font-size: 10pt">(Unaudited)


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Oil</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gas</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Oil</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gas</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Oil</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gas</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(bbls.)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Mcf)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(bbls.)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Mcf)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(bbls.)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>(Mcf)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proved developed and undeveloped reserves:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,905,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,005,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,319,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,917,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,996,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,719,000</TD>

    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Extensions, discoveries and improved recovery</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,268,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">541,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,245,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273,000</TD>


    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,011,000</TD>

    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revisions of previous estimates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">268,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,806,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">263,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,798,000</TD>

    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">929,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">243,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,571,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,929,000</TD>

    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Production</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(371,000</TD>

    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,138,000</TD>

    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(370,000</TD>

    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>

    <TD align="right">(3,991,000</TD>

    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(321,000</TD>

    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>

    <TD align="right">(3,540,000</TD>

    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">2,932,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,870,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,905,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,005,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,319,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,917,000</TD>

    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proved developed reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,926,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,728,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,865,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,045,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,319,000</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,917,000</TD>

    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">See accompanying notes to
supplementary information.



<P align="center" style="font-size: 10pt">F-22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">RESULTS of OPERATIONS from OIL and GAS PRODUCING ACTIVITIES



<P align="center" style="font-size: 10pt">Years ended December&nbsp;31, 2004, 2003 and 2002



<P align="center" style="font-size: 10pt">(Unaudited)


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2002</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Oil and gas sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,967,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,855,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,330,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Costs and expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Lease operating expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,939,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,783,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,210,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exploration costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,499,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and depletion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,021,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,283,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,988,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,023,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,446,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">443,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,482,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,031,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,535,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Results of operations from producing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,485,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,824,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,735,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">(excluding corporate overhead and interest costs)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">See accompanying notes to
supplementary information.



<P align="center" style="font-size: 10pt">F-23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">PRIMEENERGY CORPORATION and SUBSIDIARIES



<P align="center" style="font-size: 10pt">NOTES to SUPPLEMENTARY INFORMATION



<P align="center" style="font-size: 10pt">(Unaudited)



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>1.</B>&nbsp;&nbsp;</TD>
    <TD><B>Presentation of Reserve Disclosure Information</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>Reserve disclosure information is presented in accordance with the provisions of Statement of
Financial Accounting Standards No.&nbsp;69 (&#147;SFAS 69&#148;), &#147;Disclosures About Oil and Gas Producing
Activities&#148;.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>2.</B>&nbsp;&nbsp;</TD>
    <TD><B>Determination of Proved Reserves</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>The estimates of the Company&#146;s proved reserves were determined by an independent petroleum
engineer in accordance with the provisions of SFAS 69. The estimates of proved reserves are
inherently imprecise and are continually subject to revision based on production history, results
of additional exploration and development and other factors. Estimated future net revenues were
computed by reserves, less estimated future development and production costs based on current
costs.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>3.</B>&nbsp;&nbsp;</TD>
    <TD><B>Results of Operations from Oil and Gas Producing Activities</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>The results of operations from oil and gas producing activities were prepared in accordance with
the provisions of SFAS 69. General and administrative expenses, interest costs and other
unrelated costs are not deducted in computing results of operations from oil and gas activities.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>4.</B>&nbsp;&nbsp;</TD>
    <TD><B>Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and
Gas Reserves</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>The standardized measure of discounted future net cash flows
relating to proved oil and gas reserves and the
changes of standardized measure of discounted future net cash flows relating to proved oil and
gas reserves were prepared in accordance with the provisions of SFAS 69.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>Future cash inflows are computed as described in Note 2 by applying current prices to year-end
quantities of proved reserves.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>Future production and development costs are computed estimating the expenditures to be incurred
in developing and producing the oil and gas reserves at year-end, based on year-end costs and
assuming continuation of existing economic conditions.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>Future income tax expenses are calculated by applying the year-end U.S. tax rate to future
pre-tax cash inflows relating to proved oil and gas reserves, less the tax basis of properties
involved. Future income tax expenses give effect to permanent differences and tax credits and
allowances relating to the proved oil and gas reserves.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;&nbsp;&nbsp;</TD>
    <TD>Future net cash flows are discounted at a rate of 10% annually (pursuant to SFAS 69) to derive
the standardized measure of discounted future net cash flows. This calculation does not
necessarily represent an estimate of fair market value or the present value of such cash flows
since future prices and costs can vary substantially from year-end and the use of a 10% discount
figure is arbitrary.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">F-24
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>d22569exv3w1.txt
<DESCRIPTION>RESTATED CERTIFICATE OF INCORPORATION
<TEXT>
<PAGE>

                                                                     EXHIBIT 3.1

                      RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                             PRIMEENERGY CORPORATION

                            * * * * * * * * * * * * *

      PrimeEnergy  Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:

      1. The name of the corporation is PrimeEnergy Corporation. The name under
which the corporation was originally incorporated was K. R. M. Petroleum
Corporation. The date of filing of its original Certificate of Incorporation
with the Secretary of State was March 22, 1973.

      2. This Restated Certificate of Incorporation restates and integrates and
does not further amend the provisions of the Certificate of the corporation as
heretofore amended or supplemented and there is no discrepancy between those
provisions and the provisions of this Restated Certificate of Incorporation.

      3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is hereby restated without further amendments or changes to read as
herein set forth in full.

      FIRST: The name of the corporation is PrimeEnergy Corporation.

      SECOND: Its registered office in the State of Delaware is located at the
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
name and address of its registered agent is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.

      THIRD: The purpose of the corporation is to acquire, own, hold, deal in,
explore, develop and operate oil, gas and other mineral properties and interests
therein of all kinds; to produce, process, transport and sell the resulting
products and to purchase, lease, own, hold, deal in and operate all equipment,
machinery, facilities, systems and plants necessary for such purposes; and to
engage generally in all phases of the oil and gas business and any lawful act or
activity for which corporations may be organized under the General Law of
Delaware.

                                        1
<PAGE>

      FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is Fifteen Million (15,000,000),
consisting of Ten Million (10,000,000) shares of Common Stock, par value $.10
per share, and Five Million (5,000,000) shares of Preferred Stock, par value
$.10 per share, which shares of Preferred Stock shall be issuable in one or more
series.

      The relative rights, preferences and limitations of each class of capital
stock, and the designation and relative rights, preferences and limitations of
each series of Preferred Stock are to be fixed as follows:

1.    PROVISIONS RELATING TO THE PREFERRED STOCK

      A. The Preferred Stock may be issued from time to time in one or more
series, each of such series to have such designation, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof as are stated and expressed herein and in the resolution
or resolutions providing for the issue of such series adopted by the Board of
Directors as hereinafter provided.

      B. Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Article FOURTH, to authorize the issue of one
or more series of Preferred Stock and with respect to each series to fix by
resolution or resolutions providing for the issue or such series:

      (1) The number of shares to constitute such series and the distinctive
designation thereof;

      (2) The dividend rate, if any, on the shares of such series, whether or
not such dividends shall be cumulative, and, if so, the date or dates from which
dividends shall accumulate and the dates on which dividends, if declared shall
be payable;

      (3) Whether or not the shares of such series shall be redeemable, the
limitations and restrictions with respect to such redemptions, the manner of
selecting shares of such series for redemption if less than all shares are to be
redeemed, and the premium, if any, over and above the par value thereof and any
accrued dividends thereon which the holders of shares of such series shall be
entitled to received upon the redemption thereof, which premium may vary at
different redemption dates and may be different with respect to shares redeemed
through the operation of any retirement or sinking fund and with respect to
shares otherwise redeemed;

      (4) The premium, if any, over and above the par value thereof and any
accrued dividends, if any, thereon which the holders of shares of such series
shall be entitled to received upon the voluntary liquidation, dissolution or
winding up on the corporation, which premium may vary at different dates;

      (5) Whether or not the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund and, if so, whether such
retirement of sinking fund shall be cumulative or noncumulative, the extent to
and the manner in which such fund shall be applied to the purchase or redemption
of the shares of such series for retirement or to other corporate purposes, and
the terms

                                        2
<PAGE>

and provisions relative to the operation thereof;

      (6) Whether or not the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes, or of any other
series of the same class and, if so convertible or exchangeable, the price or
prices of the rate or rates of conversion or exchange and the method, if any, of
adjusting the same;

      (7) The voting powers, if any, of such series in addition to the voting
powers provided in paragraph F of this Section 1; and

      (8) Any other preferences and relative, participating, optional or other
special rights and qualifications, limitations, or restrictions thereof as shall
not be inconsistent with this Section 1.

      C. All shares of any one series of Preferred Stock shall be identical with
each other in all respects, except that shares of any one series issued at
different times may differ as to the date from which dividends thereon may be
cumulative; and all series shall rank equally and be identical in all respects,
except as permitted by the foregoing provisions of paragraph B of this Section
1.

      D. Before any dividends on any class or classes of stock of the
corporation other than the Preferred Stock (other than dividends payable in
shares of any such other class or classes of stock of the corporation) shall be
declared or paid or set apart for payment, the holders of shares of the
Preferred Stock of each series shall be entitled to cash dividends, but only
when and as declared by the Board of Directors out of funds legally available
therefor, at the rate, and no more, fixed by the resolution or resolutions
adopted by the Board of Directors providing for the issue of such series,
payable on such dates as may be fixed in such resolution or resolutions in each
year and, if cumulative, from the date or dates fixed in the resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series. Dividends in full shall not be declared or paid or set apart for payment
on the Preferred Stock of any one series for any dividend period unless
dividends in full have been declared or paid or set apart for payment of the
Preferred Stock of all series for all dividend periods terminating on the same
or any earlier date. When the stated dividends are not paid in full on all
series of the Preferred Stock, the shares of all series shall share ratably in
the payment of dividends, including accumulations, if any, in accordance with
the sums which would be payable on said shares if all dividends were declared
and paid in full. A "dividend period" is the period between any two consecutive
dividend payment dates (or, when shares are originally issued, the period from
the date from which dividends are cumulative to the first dividend payment date)
as fixed for a particular series. Accruals of dividends shall not bear interest.

      E. In the event of any liquidation, dissolution or winding up of the
corporation, before any payment or distribution of the assets of the corporation
shall be made to or set apart for the holders of the shares of the class or
classes of stock of the corporation other than the Preferred Stock, the holders
of the shares of the Preferred Stock shall be entitled to receive payment of ten
cents ($.10) per share, plus an amount equal to all dividends accrued thereon,
if any, to the date of final distribution to such holders, and, in addition
thereto, if such liquidation, dissolution or winding up be

                                        3
<PAGE>

voluntary, the amount of the premium, if any, payable upon such liquidation,
dissolution or winding up as fixed for the shares of the respective series; but
they shall be entitled dissolution or winding up of the corporation, the assets
of the corporation, or proceeds thereof, distributable among the holders of the
shares of the Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds thereof, shall
be distributed among such holders ratably in accordance with the respective
amounts which would be payable on such shares if all amounts payable thereon
were paid in full. For the purposes of this paragraph E, the sale, conveyance,
exchange, or transfer (for cash, shares of stock, securities, or other
consideration) of all or substantially all of the property or assets of the
corporation or a consolidation or merger of the corporation with one or more
corporations shall not be deemed to be a dissolution, liquidation or winding up
voluntary or involuntary.

      F. So long as any of the Preferred Stock is outstanding, the corporation:

      (1) will not declare or pay, or set apart for payment, any dividends
(other than dividends payable in shares of any class or classes of stock of the
corporation other than the Preferred Stock), or make any distribution on any
class or classes of stock of the corporation other than the Preferred Stock, and
will not redeem, purchase or otherwise acquire, directly or indirectly, whether
voluntarily, for a sinking fund, or otherwise, any shares of any class or
classes of stock of the corporation other than the Preferred Stock, if at the
time of making such declaration, payment, setting apart, distribution,
redemption, purchase or acquisition the corporation shall be in default with
respect to any dividend payable on or any obligation to retire shares of the
Preferred Stock; provided that, notwithstanding the foregoing, the corporation
may at any time redeem, purchase, or otherwise acquire shares of stock of any
such other class or otherwise acquire shares of stock of any such other class in
exchange for, or out of the net cash proceeds from the concurrent sale of, other
shares of stock of any such other class;

      (2) will not, without the affirmative vote or consent of the holders of at
least a majority of all of the Preferred Stock at the time outstanding, given in
person or by proxy, either in writing or by resolution adopted at a special
meeting called for the purpose, at which the holders of the Preferred Stock,
regardless of series, shall vote separately as a class, amend, alter or repeal
(by any means, including, without limitation, merger or consolidation) any of
the provisions of this Section 1 so as adversely to affect the preferences,
rights or powers of the Preferred Stock; and

      (3) will not, without the affirmative vote or consent of the holders of at
least a majority of any adversely affected series of the Preferred Stock at the
time outstanding, given in person or by proxy, either in writing or by
resolution adopted at a special meeting called for the purpose (the holders of
such series of the Preferred Stock consenting or voting, as the case may be,
separately as a class), amend, alter or repeal (by any means, including, without
limitation, merger or consolidation) any of the provisions herein or in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series so as adversely to affect the preferences, rights or powers
of the Preferred Stock of such series.

                                        4
<PAGE>

      G. If in any case the amounts payable with respect to any obligations to
retire shares of the Preferred Stock are not paid in full in the case of all
series with respect to which obligations exist, the number of shares of each of
such series to be retired pursuant to any such obligations shall be in
proportion to the respective amounts which would be payable on account of such
obligations if all amounts payable in respect to such series were discharged in
full.

2.    PROVISIONS RELATING TO THE COMMON STOCK

      A. Subject to paragraph F of Section 1 and, except as provided in this
Article FOURTH or by resolution or resolutions Board of Directors providing for
the issue of such series of Preferred Stock, the exclusive voting power for all
purposes shall be vested in the holders of Common Stock.

      B. Each share of the Common Stock shall entitle the holder thereof to one
vote, in person or by proxy, at any and all meetings of the stockholders of the
corporation, on all propositions before such meetings.

      C. All shares of the Common Stock shall have equal rights of participation
in dividends and in assets of the corporation on any liquidation after payment
to the holders of the Preferred Stock as set forth in paragraph E of Section 1.

      D. The judgment of the Directors as to the consideration of the issuance
of any such warrant, right, privilege or option and the sufficiency thereof
shall be conclusive. The price to be received by the corporation upon issuance
of shares upon the exercise of any such warrant, right, privilege or option
shall not be less than the par value thereof.

      E. Without action by the stockholders, the authorized shares of stock of
any class may be issued by the corporation from time to time for such
consideration as may be fixed by the Board of Directors, and any and all shares
issued, for which all of the consideration fixed by the Board of Directors shall
have been paid or delivered to the corporation, shall be deemed fully paid and
not liable to any further or assessment thereon, and the holder of such shares
shall not be liable for any further call or assessment thereon whatsoever.

      F. The corporation may from time to time create one of more series of
bonds, debentures, notes or other debt securities, bearing such voting rights as
may be determined by action or the Board of Directors upon the creation of such
series; and if such voting rights confer the right to elect one or more
Directors of the corporation, the Board of Directors shall, at the time of
authorizing such series of debt securities, amend the Bylaws of the corporation
to increase the number of Directors by the number so to be elected.

      G. No holder of stock of any class of the corporation shall have the
preemptive right to purchase or to subscribe for any additional issues of stock
of any class or of any other securities of the corporation or any warrants,
options or rights to purchase any such stock, or any other securities of the
corporation convertible into or exchangeable for such stock of the corporation.

                                        5
<PAGE>

      H. Stockholders of the corporation shall not be entitled to cumulative
voting.

      FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:

      A. To make, alter or repeal the Bylaws of the corporation.

      B. To authorize and cause to be executed mortgages and liens upon the real
and personal property of the corporation.

      C. When and as authorized by the affirmative vote of the holders of a
majority of the stock issued and outstanding having voting power given at a
stockholders' meeting duly called for that purpose, or when authorized by the
written consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease, or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in whole or in
part shares of stock in, and/or other securities of, any other corporation or
corporations, as its Board of Directors shall deem expedient and for the best
interests of the corporation.

      SIXTH. No Director of the corporation shall be liable to any person on
account of any action undertaken by him as such Director in reliance in good
faith upon the existence of any fact or circumstance reported or certified to
the Board of Directors by any officer of the corporation or by any independent
auditor, engineer or consultant retained or employed as such by the Board of
Directors.

      Any person made a party to any civil or criminal action, suit or
proceeding by reason of the fact that he, his testator or intestate, is or was a
Director, officer of employee of the corporation or any corporation which he
served as such at the request of the corporation, shall be indemnified by the
corporation against the reasonable expenses, including attorneys' fees, and
amounts paid in satisfaction of judgment or in settlement, other than amounts
paid to the corporation by him, actually and necessarily incurred by him or
imposed in connection with or resulting from the Denise of such civil or
criminal action, suit or proceeding, or in connection with any appeal therein,
except in a relation to matters as to which it shall be adjudged in such civil
or criminal action, suit or proceeding that such officer, Director or employee
is liable for negligence or misconduct in the performance of his duties. Neither
a conviction in a criminal action, suit or proceeding, whether based upon a plea
of guilty or nolo contendere or its equivalent, or after trial, nor a settlement
in any civil action, suit or proceeding shall or itself be deemed an
adjudication that such officer, Director or employee is liable for negligence or
misconduct in the performance of his duties to the corporation. Any amount
payable pursuant to this Article SIXTH may be determined and paid, at the option
of the person to be indemnified, pursuant to procedure set forth from time to
time in the Bylaws or by any of the following procedures: (a) order of the court
having jurisdiction of any such civil or criminal action, suit or proceeding,
(b) resolution adopted by a majority of a quorum of the Board of Directors of
the

                                        6
<PAGE>

corporation without counting in such majority or quorum any interested
Directors, (c) resolution adopted by the holders of record of a majority of the
outstanding shares of capital stock of the corporation having voting power, or
(d) order of any court having jurisdiction over the corporation. Such right of
indemnification shall not be exclusive of any other right which such officers,
Directors and employees of the corporation, and the corporation, and the other
persons above mentioned, may have such statement, they shall be entitled to
their respective rights of indemnification under any Bylaw, agreement, vote of
stockholders, provisions of law or otherwise as their rights under this Article
SIXTH.

      SEVENTH: Meetings of stockholders may be held without the State of
Delaware if the Bylaws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be from time to time designated by the
Board of Directors or the Bylaws of the corporation.

      EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, with the
exception of the preferences, rights and powers of the Preferred Stock which may
only be amended, altered or repealed as provided in paragraph (6) of Section A
of Article FOURTH hereof, in the manner now or hereafter prescribed by statute,
and all rights conferred herein are granted subject to this reservation.

      NINTH: No person serving as a Director of the corporation shall have any
personal liability to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a Director, provided that, such restriction on
personal liability shall not eliminate or limit the liability of a Director (i)
for any breach of the Director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful payment
of any dividend or unlawful stock purchase or redemption under Section 174 of
the Delaware General Corporation Law; or (iv) for any transaction from which the
Director derived an improper personal benefit.

      This Restated Certificate of Incorporation was duly adopted by the Board
of Directors of the corporation in accordance with Section 245 of the General
Corporation Law of the State of Delaware.

      IN WITNESS WHEREOF, PrimeEnergy Corporation has caused this Restated
Certificate of Incorporation to be signed by Charles E. Drimal, Jr., its
president, this _____ day of March, 2000.

                                                      PrimeEnergy Corporation

                                                      By________________________
                                                          Charles E. Drimal, Jr.
                                                          President

                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>d22569exv3w2.txt
<DESCRIPTION>BYLAWS
<TEXT>
<PAGE>

                                                                     EXHIBIT 3.2
                                     BYLAWS

                                       OF

                             PRIMEENERGY CORPORATION

                                    ARTICLE I

                  Meetings of the Holders of Voting Securities

      Section 1. Meetings for the Election of Directors. The annual meeting of
the holders of each class of securities entitled to vote shall be held for the
election of Directors and for the transaction of such other business as may
properly come before such meeting on the second Tuesday in May of each year, but
if such day be a legal holiday under the laws of the state where the meeting is
to be held, then on the next succeeding day not a legal holiday under the laws
of such state, at 10:00 A.M., local time, or such annual meeting shall be held
on such date and at such hour, not inconsistent with applicable statutes, as may
be designated by the Board of Directors and specified in the notice of the
meeting.

      Section 2. Special Meetings. A special meeting of the holders of any class
of securities entitled to vote may be called by the Chairman of the Board of
Directors or by the President or by resolution of the Board of Directors at any
time, and shall be called by the President or by the Board of Directors whenever
requested in writing so to do by the holders of record of at least one-third of
the issued and outstanding securities of such class.

      Section 3. Place of Meeting. All meetings of the security holders shall be
held at the office of the Company in Stamford, Connecticut, or at such other
place as may be from time to time designated by the Board of Directors, as
provided in the notice of the meeting or in any waivers of notice thereof;
provided, however, that the place of meeting for the election of Directors shall
not be changed within sixty (60) days before the day on which the election is to
be held, and at least twenty (20) days before the election is held a notice of
any such change shall be given to each person entitled to vote thereat, in
person or by letter mailed to his address on the securities ledger of the
Company.

      Section 4. Notice of Meetings. Except as otherwise provided by law, notice
of the time and place of holding each annual or special meeting of security
holders, and, in the case of a special meeting, stating the purpose for which
such meeting is called, shall be in writing and shall be given personally to
each person entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the time fixed for such meeting; if mailed, such
notice shall be addressed to each such person at his address shown by the
securities ledger of the Company. No notice of an adjourned meeting of security
holders need be given unless expressly required by statute.

<PAGE>

      Section 5. Quorum. Except as otherwise provided by law, the holders of
record of a majority in number of the issued and outstanding securities of any
class entitled to vote at a meeting of such holders must be present in person or
by proxy at such meeting to constitute a quorum for the transaction of business.
Whether or not there is a quorum at any meeting of the holders of any class of
securities, the holders of a majority in number of such securities present and
entitled to vote thereat may adjourn the meeting from time to time. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally convened.

      Section 6. Voting. At each meeting of stockholders, each holder of record
of shares of the Company having voting power who is present shall be entitled to
one vote for each share held by him and shall not be entitled to cumulate such
votes.

      The election of Directors and any other vote of stockholders as may be
provided by law shall be by written ballot unless otherwise provided by the
Certificate of Incorporation. In any vote by ballot, a ballot shall be signed by
the stockholder or proxy voting and shall state the number of shares voted
thereby.

      No proxy shall be valid after the expiration of three (3) years from the
date of its execution unless the proxy shall, on its face, name a longer period
for which it is to remain in force.

      Shares of its own capital stock belonging to the Company shall not be
voted directly or indirectly, nor be counted for quorum purposes. However,
nothing herein shall be construed as limiting the right of the Company to vote
stock, including, but not limited to, its own stock held by it in a fiduciary
capacity.

      Except as otherwise provided by the Certificate of Incorporation, any
action required to be or which may be taken at any annual or special meeting of
the stockholders of the Company, may be taken without a meeting, without prior
notice and without a vote if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action of a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.

      Section 7. When a Holder of any Security is deemed to be "Present." For
the purpose of determining a quorum or the right to vote or to be heard on any
question, a holder of record of securities of any class having voting power
shall be deemed to be "present" at any meeting of the holders of such securities
if he is present in person or is represented by a proxy appointed by an
instrument in writing subscribed by or on behalf of such security holder or by
his representative thereunto duly authorized and filed with the Secretary of the
meeting.

                                       2
<PAGE>

                                   ARTICLE II

                               Board of Directors

      Section 1. General Powers. The business of the Company shall, except as
otherwise expressly provided by law or by the Certificate of Incorporation, be
managed by the Board of Directors.

      Section 2. Number, Election and Term of Office.

      (a) The number of Directors which shall constitute the Board shall be not
less than three nor more than fifteen. The initial Board shall consist of seven
Directors. Thereafter, within the limits above specified, the number of
Directors shall be determined by resolution of the Board, or by the stockholders
at the annual meeting.

      (b) Directors need not be stockholders.

      (c) Each Director shall, except for the filling of vacancies as
hereinafter provided, hold office from the date of the annual or special meeting
of the security holders who shall have elected him until the next annual or
special meeting of such security holders convened for the election of Directors,
and until his successor shall have been duly elected and qualified, or until his
death, resignation, disqualification or removal.

      Section 3. Meetings. Upon the adjournment of the annual meeting of
stockholders, the Board of Directors shall meet as soon as practicable to
appoint officers for the ensuing year and to transact such other business as may
properly come before the meeting.

      The Board, by resolution, may provide for the holding of other regular
meetings and may fix the time and place of holding the same.

      Special meetings of the Board of Directors shall be held whenever called
by the President or by any two Directors.

      Section 4. Place of Meeting. The Board may hold its meetings at such place
or places within or without the State of Delaware as the Board of Directors may
from time to time determine, or as may be designated in the notice or in waivers
of notice thereof signed by all of the Directors.

      Section 5. Notice of Meeting. Except as hereinafter provided, notice need
not be given (i) of the regular meeting of the Board of Directors held
immediately following the annual meeting of security holders or (ii) of any
other regular meeting of the Board of Directors if the time and place of meeting
has been specified in a resolution of the Board of Directors adopted at least
twenty (20) days prior to the time of holding such meeting, or (iii) with
respect to any meeting if every member of the Board of Directors is present.
Except as otherwise required by law, notice of the time and place of holding
each other meeting of the Board of Directors shall be mailed to each Director,

                                       3
<PAGE>

postage prepaid, addressed to him at his residence or usual place of business,
or at such other address as he may have designated in a written request filed
with the Secretary of the Company at least two (2) days before the day on which
the meeting is to be held, or shall be sent to him at such address by telegram
or cablegram or given personally or by telephone at least twenty-four (24) hours
before the time at which such meeting is to be held. notice shall be deemed to
have been given when deposited in the mail or filed with the telegraph or cable
office, properly addressed. Notice of a meeting of the Board need not state the
purposes thereof, except as otherwise by law or by Article VIII, of these Bylaws
expressly provided. No notice of an adjourned meeting need be given.

      Section 6. Quorum and Manner of Acting. At each meeting of the Board a
majority of the total number of Directors must be present to constitute a quorum
for the transaction of business and (except as otherwise provided by law, by the
Certificate of Incorporation or by the Bylaws) the act of a majority of the
Directors so present at a meeting at which a quorum is present shall constitute
the act of the Board; whether or not there is a quorum at any meeting, a
majority of the Directors who are present may adjourn the meeting from time to
time to a day certain. The Directors shall act only as a Board and shall have no
power as individual Directors.

      Section 7. Resignations. Any Director may resign at any time by giving
written notice thereof to the Chairman of the Board, the President or to the
Board. Such resignation shall take effect as of is date unless some other date
is specified therein, in which event it shall be effective as of that date. The
acceptance of such resignation shall not be necessary to make it effective.

      Section 8. Vacancies. Any vacancy in the Board arising at any time from
any cause, including an increase in the number of Directors by an amendment of
the Bylaws adopted by a majority of the whole Board and including the failure of
the security holders to elect a full Board, may be filled by the vote of a
majority of the Directors remaining in office although such majority is less
than a quorum; or any such vacancy may be filled by the security holders
entitled to vote upon the election of such Directors at any special meeting of
security holders called as provided in Section 2 of Article I. Any Director so
appointed or elected shall hold office until the next annual or special meeting
of the security holders who shall have elected him or his predecessor and until
his successor shall have been duly elected and qualified.

      Section 9. Fees. Directors shall not receive any stated compensation for
their services as such, but, subject to such limitations with respect thereto as
may be determined from time to time by the stockholders or by resolution of the
Board, fees in a reasonable amount may be paid (either per annum or on the
occasion of each meeting) to the Directors for attendance at meetings of the
Board or adjournments thereof. By resolution of the Board, Directors may also be
reimbursed for traveling expenses incurred in attending such meetings or
adjournments thereof. Nothing herein contained shall be construed to preclude
any Director from serving the Company in any other capacity or receiving
compensation for such service.

                                       4
<PAGE>

      Section 10. Action Without Meeting. Except as restricted by the
Certificate of Incorporation or these Bylaws, (a) any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee; and (b) members of the Board or of any committee may participate in a
meeting of the board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting in such manner shall
constitute presence in person at such meeting.

                                   ARTICLE III

                         Executive and Other Committees

      Section 1. Executive Committee, General Powers and Membership. The Board
may, by resolution adopted by a majority of the whole Board, elect from its
members an Executive Committee and/or one or more other committees, each
consisting of one or more members. Unless otherwise expressly provided by law or
by the Certificate of Incorporation of the Company or by resolution of the
Board, the Executive committee shall have and may exercise all the powers
conferred upon it by the Board (except the power to appoint or remove a member
of the Executive Committee or of any other committee and the power to remove an
officer appointed by the Board), and each other committee shall have and may
exercise, when the Board is not in session, such powers as the Board shall
confer. All action by any committee shall be reported to the Board at its
meeting next succeeding such action and, insofar as the rights of third parties
shall not be affected thereby, shall be subject to revision and alteration by
the Board.

      Section 2. Organization. Unless otherwise provided by resolution of the
Board, a chairman chosen by each committee shall preside at all meetings of such
committee and the Secretary of the Company shall act as secretary thereof. In
the absence at the meeting of the Secretary, the chairman of such meeting shall
appoint an Assistant Secretary of the Company or, if none is present, some other
person to act as Secretary of the meeting.

      Section 3. Meetings. Each committee shall adopt its own rules governing
the time and place of holding and the method of calling its meetings and the
conduct of its proceedings and shall meet as provided by such rules and by
resolution of the Board, and it shall also meet at the call of any members of
the committee. Unless otherwise provided by such rules or by said resolution,
notice of the time and place of each meeting of a committee shall be mailed,
sent or given to each member of such committee in the same manner as provided in
Section 5 of Article II with respect to notices of meetings of the Board.

      Section 4. Quorum and Manner of Acting. A majority of the members of each
committee shall be either present in person at, or participating by telephone
in, each meeting of such committee in order to constitute a quorum for the
transaction of business thereat. The act of a

                                       5
<PAGE>

majority of the members so present at or participating in a meeting at which a
quorum is present or participating shall be the act of such committee. The
members of each committee shall act only as a committee, and shall have no power
as individual members.

      Section 5. Removal. Any member of any committee may be removed from such
committee, either with or without cause, at any time, by resolution adopted by a
majority of the whole Board at any meeting of the Board.

      Section 6. Vacancies. Any vacancy in any committee shall be filled by the
Board in the manner prescribed by these Bylaws for the original appointment of
the members of such committee.

                                   ARTICLE IV

                                    Officers

      Section 1. Appointment and Term of Office. The officers of the Company
shall consist of the President, a Secretary and a Treasurer, and there may be
one or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers, and such other officers as may be appointed by the Board.
One of the Directors may also be chosen Chairman of the Board. Each of such
officers (except such as may be appointed pursuant to the provisions of
paragraph (f) of Section 2 of this Article IV) shall be chosen annually by the
Board at its regular meeting immediately following the annual meetings of
security holders and shall hold office until the next annual election and until
his successor is chosen and qualified. One person may hold and perform the
duties of any two or more of said offices.

      Section 2. Powers and Duties. The powers and duties of the officers shall
be those usually pertaining to their respective offices, subject to the
supervision and direction of the Board. The officers of the Company may be as
follows:

      (a) Chairman of the Board. The Chairman of the Board (if there be one)
shall preside at all meetings of the Board and shall be ex officio a member of
all committees of the Directors and shall perform such other duties as shall be
assigned to him from time to time by the Board.

      (b) President. The President shall be the chief executive officer of the
Company and shall have general supervision of the business of the Company and
over its several officers; subject, however, to the control of the Board. If
there shall be no Chairman of the Board, the President, when present shall
preside at all meetings of the Board and shall be ex officio a member of all
committees of the Directors. He may execute and deliver in the name and on
behalf of the Company deeds, mortgages, leases, assignments, bonds, contracts or
other instruments authorized by the Board, unless the execution and delivery
thereof shall be expressly delegated by these Bylaws or by the Board to some
other officer or agent of the Company. He shall, unless otherwise directed by
the Board or by any committee thereunto authorized, attend in person or by
substitute or proxy appointed by him and act and vote on behalf of the Company
at all meetings of the stockholders of any corporation in which the Company
holds stock.

                                       6
<PAGE>

      (c) Vice Presidents. Vice Presidents shall perform the duties assigned to
them by the Board or delegated to them by the President and, in order of
seniority, at his request or in his absence shall perform as well the duties of
the President's office. Each Vice President shall have power also to execute and
deliver in the name and on behalf of the Company deeds, mortgages, leases,
assignments, bonds, contracts or other instruments authorized by the Board,
unless the execution and delivery thereof shall be expressly delegated by these
Bylaws or by the Board to some other officer or agent of the Company.

      (d) The Secretary. The Secretary shall keep the minutes of the meetings of
the Board of Directors, of all committees and of the stockholders and shall be
the custodian of all corporate records and of the seal of the Company. He shall
see that all notices are duly given in accordance with these Bylaws or as
required by law.

      (e) The Treasurer. The Treasurer shall be the principal accounting officer
of the Company and shall have charge of the corporate funds and securities and
shall keep a record of the property and indebtedness of the Company. He shall,
if required by the Board, give bond for the faithful discharge of this duties in
such sum and with such surety or sureties as the Board may require.

      (f) Other Officers. The Board may appoint such other officers, agents or
employees as it may deem necessary for the conduct of the business of the
Company. In addition, the Board may authorize the President or some other
officer to appoint such agents or employees as they deem necessary for the
conduct of the business of the Company.

      Section 3. Resignations. Any officer may resign at any time by giving
written notice thereof to the President or to the Board. Any such resignation
shall take effect as of its date unless some other date is specified therein, in
which event it shall be effective as of that date. The acceptance of such
resignation shall not be necessary to make it effective.

      Section 4. Removal. Any officer may be removed at any time, either with or
without cause, by resolution adopted by a majority of the whole Board at any
meeting of the Board or by the committee or superior officer by whom he was
appointed to office or upon whom such power of removal has been conferred by
resolution adopted by a majority of the whole Board.

      Section 5. Vacancies. A vacancy in any office arising at any time from any
cause may be filled by the Board or by the officer or committee authorized by
the Board to appoint to that office.

      Section 6. Salaries. Salaries of all officers shall be fixed from time to
time by the Board of Directors or the Executive Committee and no officer shall
be precluded from receiving a salary because he is also a Director of the
Company.

                                       7
<PAGE>

                                    ARTICLE V

                    Shares of Stock and their Transfer; Books

      Section 1. Forms of Certificates. Shares of the capital stock of the
Company shall be represented by certificates in such form, not inconsistent with
law or with the Certificate of Incorporation of the Company, as shall be
approved by the Board, and shall be signed by the Chairman or Vice-Chairman of
the Board, or the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer. Where any such
certificate is countersigned (1) by a transfer agent other than the Company or
its employee, or, (2) by a registrar other than the Company or its employee, any
other signature upon such certificate may be facsimile, engraved or printed.

      Section 2. Transfer of Shares. If one or more holders of the stock of any
class shall, by agreement among themselves or with the Company, restrict the
transfer of any share held by them through the granting of preferential rights
of purchase or otherwise, then any party to such agreement may file an executed
counterpart of the same with the officer of the Company charged with the
maintenance of the stock books of the Company or with any transfer agent or
registrar designated by the Company in respect of the shares of such class.
Following the filing of any such counterpart, each certificate evidencing shares
to which such restriction is or may be applied which shall thereafter be issued
by the Company shall bear an appropriate notice of such restriction, and no
share subject to such restriction shall be transferred until written evidence
satisfactory to the Company of compliance by the transferor with any such
restriction shall have been filed with the Company. Shares of stock of the
Company shall be transferred only on the stock books of the Company by the
holder of record thereof in person or by his duly authorized attorney upon
surrender of the certificate therefor and upon compliance with any restriction
relating to such transfer.

      Section 3. Stockholders of Record. Stockholders of record entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or to any allotment of rights or to
exercise the rights in respect of any change or conversion or exchange of
capital stock or for the purpose of any other lawful action shall be determined
according to the Company's record of stockholders and, if so determined by the
Board of Directors in the manner provided by statute, shall be such stockholders
of record at the date (a) fixed for closing the stock transfer books or (b) as
of the date of record.

      Section 4. Lost, Stolen or Destroyed Certificates. The Board may direct
the issuance of new or duplicate stock certificates in place of lost, stolen or
destroyed certificates upon being furnished with evidence satisfactory to it of
the loss, theft or destruction and upon being furnished with indemnity
satisfactory to it. The Board may delegate to any committee authority to
administer the provisions of this Section 4.

                                       8
<PAGE>

      Section 5. Closing of Transfer Books and Fixing of Record Date. The Board
shall have power to close the stock transfer books of the Company for a period
not exceeding sixty (60) days preceding the date of any meeting of stockholders,
or the date for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of capital stock
shall go into effect, or for a period not exceeding sixty (60) days in
connection with obtaining the consent of stockholders for any purpose; or the
Board may, in its discretion, fix a date not more than sixty (60) nor less than
ten (10) days before any stockholders' meeting nor more than sixty (60) days
prior to any other action as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any meeting and at any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend, or any
allotment of rights, or to exercise the rights in respect of any change,
conversion or exchange of capital stock, and in such case such stockholders and
only such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to notice and to vote at such meeting and at any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of such dividend, or to exercise such rights, as the case
may be, notwithstanding any transfer of any stock on the books of the Company
after such record date fixed as aforesaid.

      Section 6. Regulations. The Board may make such rules and regulations not
inconsistent with the Certificate of Incorporation nor these Bylaws as it may
deem expedient concerning the issuance, transfer and registration of
certificates of stock. It may appoint one or more transfer agents or registrars
of transfers, or both, and may require all certificates of stock to bear the
signature of either or both.

      Section 7. Examination of Stockholder List. The officer who has charge of
the stock ledger of the Company shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.

                                   ARTICLE VI

                            Execution of Instruments

      Section 1. Contracts, etc. The Board or any committee thereunto authorized
may authorize any officer or officers, agent or agents, to enter into any
contract or to execute and deliver in the name and on behalf of the Company any
contract or other instrument except certificates

                                       9
<PAGE>

representing shares of stock of the Company, and such authority may be general
or may be confined to specific instances.

      Section 2. Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes, acceptances or other evidence of indebtedness issued by
or in the name of the Company shall be signed by such officer or officers, agent
or agents of the Company and in such manner as shall be determined from time to
time by resolution of the Board. Unless otherwise provided by resolution of the
Board, endorsements for deposit to the credit of the Company in any of its duly
authorized depositories may be made by hand-stamped legend in the name of the
Company or by written endorsement of any officer without countersignature.

      Section 3. Loans. No loans shall be contracted on behalf of the Company
unless authorized by the Board, but when so authorized, unless a particular
officer or agent is directed to negotiate the same, may be negotiated up to the
amount so authorized by the President or a Vice President or the Treasurer; and
such officers are hereby severally authorized to execute and deliver in the name
and on behalf of the Company notes or other evidences of indebtedness
countersigned by the President or a Vice President or the Treasurer; and such
officers are hereby severally authorized to execute and deliver in the name and
on behalf of the Company notes or other evidences of indebtedness countersigned
by the President or a Vice President for the amount of such loans and to give
security for the payment of any and all loans, advances or indebtedness by
hypothecating, pledging or transferring any part or all of the property of the
Company, real or personal, at any time owned by the Company.

      Section 4. Sale or Transfer of Securities held by the Corporation. Stock
certificates, bonds or other securities at any time owned by the Company may be
held on behalf of the Company or sold, transferred or otherwise disposed of
pursuant to authorization by the Board, or of any committee thereunto duly
authorized, and, when so authorized to be sold, transferred or otherwise
disposed of, may be transferred from the name of the Company by the signature of
the President or a Vice President and the Treasurer or the Assistant Treasurer
or the Secretary or the Assistant Secretary.

                                   ARTICLE VII

                                  Miscellaneous

      Section 1. Offices. The Company shall have an office at such place in the
State of Delaware and may have offices at such place or places within or outside
the State of Delaware as the Board shall from time to time determine.

      Section 2. Fiscal Year. Until otherwise determined by the Board, the
fiscal year of the Company shall be the calendar year.

                                       10
<PAGE>

      Section 3. Seal. The corporate seal shall be a device containing the name
of the Company, the year of its organization and the words, "Corporate seal,
Delaware."

      Section 4. Waiver of Notice. The giving of any notice of the time, place
or purpose of holding any meeting of stockholders or Directors and any
requirement as to publication thereof, whether statutory or otherwise, shall be
waived by the attendance at such meeting by any person entitled to receive such
notice and may be waived by such person by an instrument in writing executed and
filed with the records of the meeting either before of after the holding
thereof.

      Section 5. Form of Notice. Whenever, under the provisions of the statutes
or of the Certificate of Incorporation or of these Bylaws, notice is required to
be given to any Director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
Company, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to Directors may also be given by telegram.

                                  ARTICLE VIII

                            Amendment of These Bylaws

      As provided in the Certificate of Incorporation of the Company, the Board
of Directors of the Company may alter or repeal these Bylaws in whole or in part
at any regular or special meeting of the Board, provided notice of the proposed
change is included in notice of the meeting. In addition, these Bylaws may be
amended or repealed in whole or in part by the affirmative vote of the holders
of a majority in number of the issued and outstanding shares of the Company
having voting power and present at any regular or special meeting of
stockholders, provided notice of the proposed amendment or repeal is included in
the notice of meeting.

                                       11
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>4
<FILENAME>d22569exv10w18.txt
<DESCRIPTION>COMPOSITE COPY OF NON-STATUTORY OPTION AGREEMENTS
<TEXT>
<PAGE>


                                                                   EXHIBIT 10.18


                          K.R.M. PETROLEUM CORPORATION

                      NONSTATUTORY STOCK OPTION AGREEMENT

OPTION NO.: 3

OPTIONEE: Charles E. Drimal, Jr.

DATE OF GRANT: May 16, 1989

OPTION PRICE: $1.00

COVERED SHARES: 523,125

         1.      Definitions. All terms used in this Agreement shall have the
meanings set forth below:

                 (a)      "Agreement" means this Nonstatutory Stock Option
Agreement.

                 (b)      "Change in Control" means the acquisition of 51% or
more of the outstanding voting capital stock of the Corporation by any company
or other person or group of companies or other persons acting in concert, or
the merger or consolidation of the Corporation with, or the acquisition of a
majority of the assets of the Corporation by, any of such persons.

                 (c)      "Code" means the Internal Revenue Code of 1986, as
amended.

                 (d)      "Common Stock" means the common stock, par value
$0.10 per share, of the Corporation.

                 (e)      "Corporation" means K.R.M. Petroleum Corporation, a
Delaware corporation, and any successor thereto.

                 (f)      "Covered Shares" means the number of Shares set forth
on page 1 of this Agreement.

                 (g)      "Date of Exercise" means the date on which the
Corporation receives notice of the exercise of the Option in accordance with
the terms of Article 4.


<PAGE>
                          K.R.M. PETROLEUM CORPORATION

                      NONSTATUTORY STOCK OPTION AGREEMENT

OPTION NO.:   4

OPTIONEE:        Charles E. Drimal, Jr.

DATE OF GRANT: May 16, 1989

OPTION PRICE: $1.25

COVERED SHARES: 174,375

         1.      Definitions. All terms used in this Agreement shall have the
meanings set forth below:

                 (a)      "Agreement" means this Nonstatutory Stock Option
Agreement.

                 (b)      "Change in Control" means the acquisition of 51% or
more of the outstanding voting capital stock of the Corporation by any company
or other person or group of companies or other persons acting in concert, or
the merger or consolidation of the Corporation with, or the acquisition of a
majority of the assets of the Corporation by, any of such persons.

                 (c)      "Code" means the Internal Revenue Code of 1986, as
amended.

                 (d)      "Common Stock" means the common stock, par value
$0.10 per share, of the Corporation.

                 (e)      "Corporation" means K.R.M. Petroleum Corporation, a
Delaware corporation, and any successor thereto.

                 (f)      "Covered Shares" means the number of Shares set forth
on page 1 of this Agreement.

                 (g)      "Date of Exercise" means the date on which the
Corporation receives notice of the exercise of the Option in accordance with
the terms of Article 4.
<PAGE>
                          K.R.M. PETROLEUM CORPORATION

                      NONSTATUTORY STOCK OPTION AGREEMENT

OPTION NO.:      5

OPTIONEE:        Beverly A. Cummings

DATE OF GRANT: May 16, 1989

OPTION PRICE: $1.00

COVERED SHARES: 52,500

         1.      Definitions. All terms used in this Agreement shall have the
meanings set forth below:

                 (a)      "Agreement" means this Nonstatutory Stock Option
Agreement.

                 (b)      "Change in Control" means the acquisition of 51% or
more of the outstanding voting capital stock of the Corporation by any company
or other person or group of companies or other persons acting in concert, or
the merger or consolidation of the Corporation with, or the acquisition of a
majority of the assets of the Corporation by, any of such persons.

                 (c)      "Code" means the Internal Revenue Code of 1986, as
amended.

                 (d)      "Common Stock" means the common stock, par value $0.10
per share, of the Corporation.

                 (e)      "Corporation" means K.R.M. Petroleum Corporation, a
Delaware corporation, and any successor thereto.

                 (f)      "Covered Shares" means the number of Shares set forth
on page 1 of this Agreement.

                 (g)      "Date of Exercise" means the date on which the
Corporation receives notice of the exercise of the Option in accordance with
the terms of Article 4.
<PAGE>
                          K.R.M. PETROLEUM CORPORATION

                      NONSTATUTORY STOCK OPTION AGREEMENT

OPTION NO.: 6

OPTIONEE:        Beverly A. Cummings

DATE OF GRANT:   May 16, 1989

OPTION PRICE: $1.25

COVERED SHARES: 17,500

         1.      Definitions. All terms used in this Agreement shall have the
meanings set forth below:

                 (a)      "Agreement" means this Nonstatutory Stock Option
Agreement.

                 (b)      "Change in Control" means the acquisition of 51% or
more of the outstanding voting capital stock of the Corporation by any company
or other person or group of companies or other persons acting in concert, or
the merger or consolidation of the Corporation with, or the acquisition of a
majority of the assets of the Corporation by, any of such persons.

                 (c)      "Code" means the Internal Revenue Code of 1986, as
amended.

                 (d)      "Common Stock" means the common stock, par value
$0.10 per share, of the Corporation.

                 (e)      "Corporation" means K.R.M. Petroleum Corporation, a
Delaware corporation, and any successor thereto.

                 (f)      "Covered Shares" means the number of Shares set forth
on page 1 of this Agreement.

                 (g)      "Date of Exercise" means the date on which the
Corporation receives notice of the exercise of the Option in accordance with
the terms of Article 4.
<PAGE>
                                                                               2


                 (h)      "Date of Grant" means the date on which the option is
granted.

                 (i)      "Fair Market Value" of a Share means the amount equal
to the fair market value of a Share as determined by the Board pursuant to a
reasonable method adopted in good faith for such purpose.

                 (j)      "Option" means the option to purchase the Covered
Shares granted pursuant to this Agreement.

                 (k)      "Option Period" means the period during which the
option may be exercised.

                 (l)      "Option Price" means the price per Share at which the
Option may be exercised, as set forth on page 1 of this Agreement.

                 (m)      "Optionee" means the individual to whom the Option is
granted.

                 (n)      "Securities Act" means the Securities Act of 1933, as
amended.

                 (o)      "Share" means a share of authorized but unissued or
reacquired Common Stock.

                 (p)      "Subsidiary" means a corporation at least 50% of the
total combined voting power of all classes of stock of which is owned by the
Corporation, either directly or through one or more other Subsidiaries.

         2.      Grant of Option.  Subject to the terms and conditions of this
Agreement, the Corporation hereby grants to the Optionee an Option to purchase
the Covered Shares from the Corporation at the Option Price, as the same may be
adjusted from time to time pursuant to the terms of Article 6.

         3.      Terms of the Option.

                 (a)      Type of Option. The Option is intended to be a
nonstatutory stock option, and is not an incentive stock option within the
meaning of section 422A of the Code.

                 (b) Option Period. The Option may be exercised with respect to
full Shares (and no fractional Shares shall be issued) as follows:
<PAGE>
                                                                               3

                           (i)     the Option shall not be exercisable until one
year after the Date of Grant;

                          (ii)     the Option shall be exercisable with respect
to 20% of the Covered Shares beginning one year after the Date of Grant;

                         (iii)     the Option shall be exercisable with respect
to a cumulative maximum of 40% of the Covered Shares beginning two years after
the Date of Grant;

                          (iv)     the Option shall be exercisable with respect
to a cumulative maximum of 60% of the Covered Shares beginning three years after
the Date of Grant;

                           (v)     the Option shall be exercisable with respect
to a cumulative maximum of 80% of the Covered Shares beginning four years after
the Date of Grant; and

                          (vi)    the Option shall be fully exercisable
beginning five years after the Date of Grant.

                 (c)      Notwithstanding anything to the contrary contained
herein, the Option shall expire at the earlier of (i) three months after
termination of the Optionee's employment with the Corporation or its Subsidiary
for any reason except death or disability or (ii) one year after termination of
the Optionee's employment with the Corporation or its Subsidiary by reason of
death or disability.

                 (d)      Nontransferability. The Optionee may not assign or
transfer the option other than by will or by the laws of descent and
distribution. The Option may be exercised, during the Optionee's lifetime, only
by the Optionee.  To the extent the Option is exercisable at the time of the
Optionee's death, it is exercisable by the person designated by will or
entitled by the laws of descent and distribution, upon such death, to any
remaining rights arising out of the Option. The Option is not subject, in whole
or in part, to attachment, execution or levy of any kind.

                 (e)      Payment upon Change in Control. Upon a Change in
Control, the Corporation shall pay the Optionee in complete cancellation of the
Option an amount of cash equal to the product of (i) the excess of (A) the Fair
Market Value of a Share on the date of such Change in Control over (B) the
Option Price times (ii) the number of Shares with respect to which the Option
is then outstanding and has not terminated, whether or not the Option is then
exercisable with respect to such Shares.
<PAGE>
                                                                               4

         4.      Exercise.

                 (a)      Notice. The Option shall be exercised, in whole or in
part, by the delivery to the Corporation of written notice of such exercise, in
such form as the Corporation may from time to time prescribe, accompanied by:
(i) full payment of the Option Price with respect to that portion of the Option
being exercised and (ii) full payment of any amounts required to be withheld
pursuant to applicable income tax laws in connection with such exercise. The
date of delivery of such notice shall be the Date of Exercise of such Option.
Until the Corporation notifies the Optionee to the contrary, the form attached
to this Agreement as Exhibit A shall be used to exercise the Option.

                 (b)      Payment of the Option Price and Withholding. Upon
exercise of the Option, in whole or in part, the Optionee shall pay the Option
Price and satisfy any applicable income tax withholding requirements in cash.

                 (c)      Effect. The exercise, in whole or in part, of the
Option shall cause a reduction in the number of unexercised Covered Shares
equal to the number of Shares with respect to which the Option is exercised.

         5.      Restrictions on Exercise and upon Shares Issued upon Exercise.
Notwithstanding any other provision of this Agreement, the Optionee agrees, for
himself and his successors, that the Option may not be exercised at any time
that the Corporation does not have in effect a registration statement under the
Securities Act relating to the offer of Common Stock to the Optionee, unless
the Optionee furnishes to the Corporation an opinion of counsel reasonably
satisfactory to the Corporation to the effect that such registration is not
required, or unless the Corporation agrees to permit such exercise. The
Optionee further agrees, for himself and his successors, that (i) upon the
issuance of any Shares upon the exercise of the Option, he will, upon the
request of the Corporation, agree in writing that he is acquiring such Shares
for investment only and not with a view to resale, and (ii) that he will not
sell, pledge or otherwise dispose of such Shares so issued unless and until:

                 (a)      the Corporation is furnished with an opinion of
counsel to the effect that registration of such Shares is not required by the
Securities Act or by the rules and regulations thereunder;
<PAGE>
                                                                               5

                 (b)      the staff of the Securities and Exchange Commission
has issued a "no-action" letter with respect to such disposition; or

                 (C)      such registration or notification as is, in the
opinion of counsel for the Corporation, required for the lawful disposition of
such Shares has been filed by the Corporation and has become effective;
provided, however, that the Corporation is not obligated hereby to file any
such registration or notification.

The Optionee further agrees that the Corporation may place a legend embodying
such restriction on the certificates evidencing such Shares.

         6.      Capital Adjustments. The number of Shares subject to the
Option and the Option Price shall be subject to such adjustment, if any, as the
Corporation in its sole discretion deems appropriate to reflect such events as
stock dividends, stock splits, recapitalizations, mergers, consolidations or
reorganizations of or by the Corporation.

         7.      Rights as Shareholder. The Optionee shall have no rights as a
shareholder with respect to any Shares subject to the Option until and unless a
certificate or certificates representing such Shares are issued to the Optionee
pursuant to this Agreement. Except as the Corporation may determine, no
adjustment shall be made for dividends or other rights for which the record
date is prior to the issuance of such certificate or certificates.

         8.      Employment. Neither the granting of the Option evidenced by
this Agreement nor any term or provision of this Agreement shall constitute or
be evidence of any understanding, express or implied, on the part of the
Corporation to employ the Optionee for any period.

         9.      Governing Law. This Agreement shall be governed, construed and
administered in accordance with the laws of the State of Delaware.
<PAGE>
                                                                               6

                 IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be signed on its behalf effective as of the Date of Grant.

ATTEST:


                                            K.R.M. PETROLEUM CORPORATION

[ILLEGIBLE]                                 By: /s/ BEVERLY A. CUMMINGS
- -------------------------------------          --------------------------------
Accepted and agreed to as of the Date of Grant.

                                 [ILLEGIBLE]
                     -----------------------------------
                                  Optionee
<PAGE>
                                   EXHIBIT A

                               EXERCISE OF OPTION

Secretary
K.R.M. Petroleum Corporation

         The undersigned optionee under the Nonstatutory Stock Option Agreement
identified as Option No._____ (the "Agreement"), hereby irrevocably elects to
exercise the Option granted in the Agreement to purchase _____ shares of common
voting stock of K.R.M. Petroleum Corporation, $0.10 par value, and herewith
makes payment of $ ________ in cash in payment of the option price in respect
of such exercise.


                                              ---------------------------------
                                                  (Signature of Optionee)

Date Received by K.R.M. Petroleum Corporation:
                                              ---------------------------------



                                  Received by:
                                              ---------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.22.3
<SEQUENCE>5
<FILENAME>d22569exv10w22w3.txt
<DESCRIPTION>3RD AMENDMENT TO CREDIT AGREEMENT
<TEXT>
<PAGE>
                                                               EXHIBIT 10.22.3

ATTORNEYS & COUNSELORS
1401 McKinney Street, Suite 1900                               Donna Lyn Carter
Houston, Texas 77010                        [JW LOGO]          (713)752-4217
(713) 752-4200 - fax (713) 752-4221                            dcarter@jw.com
www.jw.com                            JACKSON WALKER L.L.P.

                                         March 19, 2004

      VIA FEDERAL EXPRESS

      Mr. Dan Solomon
      Guaranty Bank, FSB
      8333 Douglas Avenue
      Dallas, Texas 75225

            Re:   Guaranty Bank, FSB/PrimeEnergy Corporation Credit Facility
                  (Our File No. 120117.00012)

      Dear Dan:

            As we discussed, enclosed is a counterpart original Third Amendment
      to Credit Agreement dated effective February 17, 2004, between PrimeEnergy
      Corporation, PrimeEnergy Management Corporation, PrimeEnergy Operating
      Company, Eastern Oil Well Service Company, Southwest Oilfield Construction
      Company, EOWS Midland Company F-W Oil Exploration L.L.C. and Guaranty
      Bank, FSB, as Agent and a Lender.

            Please acknowledge receipt of the above referenced document by
      signing the enclosed copy of this letter and returning it to me in the
      enclosed postage paid envelope.

                                            Very truly yours,

                                            /s/ Donna L. Carter
                                            Donna L. Carter
                                            Paralegal/Transactions

      DLC/cmj
      Enclosures
      cc:  Ms. Beverly Cummings (w/ encl.)

           Wayne G. Dotson (Firm)

      Receipt of the above referenced document is acknowledged this ___ day of
      March, 2004.

Austin                               ___________________________________________
Dallas                               Dan Solomon, Guaranty Bank, FSB
Fort Worth
Houston
Richardson
San Angelo                           ___________________________________________
San Antonio                          Beverly Cummings, PrimeEnergy Corporation

Member of GLOBALAW(TM)

<PAGE>

Delivery Ticket                                                      Page 1 of 1

Last step: Please print this page as the delivery ticket for the courier.

[HOUSTON EXPRESS LOGO]

Houston Express Couriers, Inc.
P.O. Box 70349
Houston, Texas 77270
Phone Number: 713-869-0100

CUSTOMER: Jackson Walker Law Firm
DATE: 3/19/2004
TICKET NUMBER: W59150
TYPE OF DELIVERY: Super Express (A.S.A.P.)

<TABLE>
<CAPTION>
                             Shipper                                                   Consignee
<S>                          <C>                               <C>                <C>
COMPANY                      Jackson Walker Law Firm           COMPANY            PrimeEnergy
                                                                                  Corporation
ADDRESS LINE 1               1401 McKinney Street, Suite       ADDRESS LINE       2900 Wilcrest Drive
                             1900                              1
ADDRESS LINE 2                                                 ADDRESS LINE
                                                               2                  Suite 475
CITY, STATE, ZIP             Houston, TX 77010                 CITY, STATE, ZIP   Houston, TX 77042
ATTENTION                    Cynthia John                      ATTENTION          Beverly Cummings
PHONE                        713-752-4200 ext. 4325            PHONE              713-735-0000

RETURN SERVICE               NO                                NIGHT SERVICE      No
LEAVE WITHOUT                NO                                NO. PIECES         1
SIGNATURE
DESCRIPTION                                                    C-M #              120117.00012
BILLING ID                   120117.00012
ENTERED BY                   Cynthia John
SPECIAL INSTRUCTIONS
TRACKING INFORMATION
</TABLE>

Continue | Log Out

<PAGE>

- --------------------------------------------------------------------------------

                       THIRD AMENDMENT TO CREDIT AGREEMENT

                                     BETWEEN

                             PRIMEENERGY CORPORATION
                       PRIMEENERGY MANAGEMENT CORPORATION
                             PRIME OPERATING COMPANY
                        EASTERN OIL WELL SERVICE COMPANY
                     SOUTHWEST OILFIELD CONSTRUCTION COMPANY
                              EOWS MIDLAND COMPANY
                           F-W OIL EXPLORATION L.L.C.

                                       AND

                          GUARANTY BANK, FSB, AS AGENT
                                  AND A LENDER

                        EFFECTIVE AS OF FEBRUARY 17, 2004

                        ---------------------------------

             REDUCING REVOLVING LINE OF CREDIT OF UP TO $50,000,000
                   REDUCING REVOLVING TERM LOAN OF $3,599,998

                        ---------------------------------

- --------------------------------------------------------------------------------
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>                                                                      <C>
ARTICLE I   DEFINITIONS ..........................................         1
  1.01      Terms Defined Above ..................................         1
  1.02      Terms Defined in Agreement ...........................         1
  1.03      References ...........................................         1
  1.04      Articles and Sections ................................         2
  1.05      Number and Gender ....................................         2
ARTICLE II  AMENDMENTS ...........................................         2
  2.01      Amendment of Section 1.2 .............................         2
  2.02      Amendment of Section 2.9 .............................         2
ARTICLE III CONDITIONS ...........................................         3
  3.01      Receipt of Documents .................................         3
  3.02      Accuracy of Representations and Warranties ...........         3
  3.03      Matters Satisfactory to Lenders ......................         3
ARTICLE IV  REPRESENTATIONS AND WARRANTIES .......................         3
ARTICLE V   RATIFICATION .........................................         4
ARTICLE VI  MISCELLANEOUS ........................................         4
  6.01      Scope of Amendment ...................................         4
  6.02      Agreement as Amended .................................         4
  6.03      Parties in Interest ..................................         4
  6.04      Rights of Third Parties ..............................         4
  6.05      ENTIRE AGREEMENT .....................................         4
  6.06      GOVERNING LAW ........................................         4
  6.07      JURISDICTION AND VENUE ...............................         5
</TABLE>

<PAGE>

                       THIRD AMENDMENT TO CREDIT AGREEMENT

      This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is made
and entered into effective as of February 17, 2004, between PRIMEENERGY
CORPORATION, a Delaware corporation ("PEC"), PRIMEENERGY MANAGEMENT CORPORATION,
a New York corporation, PRIME OPERATING COMPANY, a Texas corporation, EASTERN
OIL WELL SERVICE COMPANY, a West Virginia corporation, SOUTHWEST OILFIELD
CONSTRUCTION COMPANY, an Oklahoma corporation, EOWS MIDLAND COMPANY, a Texas
corporation, and F-W OIL EXPLORATION L.L.C., a Delaware limited liability
company ("FWOE") (collectively, the "Borrower"), with each other lender that is
a signatory hereto or becomes a signatory hereto as provided in Section 9.1,
(individually, together with its successors and assigns, a "Lender" and
collectively together, with their respective successors and assigns, the
"Lenders") and GUARANTY BANK, FSB, a federal savings bank, as agent for the
Lenders (in such capacity, together with its successors in such capacity
pursuant to the terms hereof, the "Agent").

                              W I T N E S S E T H

      WHEREAS, the above named parties did execute and exchange counterparts of
that certain Credit Agreement dated December 19,2002, as amended by First
Amendment to Credit Agreement dated effective as of June 1, 2003, and as further
amended by Second Amendment to Credit Agreement dated effective as of September
22,2003 (the "Agreement"), to which reference is here made for all purposes;

      WHEREAS, the parties subject to and bound by the Agreement are desirous of
amending the Agreement in the particulars hereinafter set forth;

      NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties to the Agreement, as set forth therein, and the mutual covenants and
agreements of the parties hereto, as set forth in this Third Amendment, the
parties hereto agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

      1.01 Terms Defined Above. As used herein, each of the terms "Agent,"
"Agreement," "Borrower," "Lenders" and "Third Amendment," shall have the meaning
assigned to such term hereinabove.

      1.02 Terms Defined in Agreement. As used herein, each term defined in the
Agreement shall have the meaning assigned thereto in the Agreement, unless
expressly provided herein to the contrary.

      1.03 References. References in this Third Amendment to Article or Section
numbers shall be to Articles and Sections of this Third Amendment, unless
expressly stated herein to the contrary. References in this Third Amendment to
"hereby," "herein," hereinafter," hereinabove," "hereinbelow," "hereof," and
"hereunder" shall be to this Third Amendment in its entirety and not only to the
particular Article or Section in which such reference appears.

                                       1
<PAGE>

      1.04 Articles and Sections. This Third Amendment, for convenience only,
has been divided into Articles and Sections and it is understood that the
rights, powers, privileges, duties, and other legal relations of the parties
hereto shall be determined from this Third Amendment as an entirety and without
regard to such division into Articles and Sections and without regard to
headings prefixed to such Articles and Sections.

      1.05 Number and Gender. Whenever the context requires, reference herein
made to the single number shall be understood to include the plural and likewise
the plural shall be understood to include the singular. Words denoting sex shall
be construed to include the masculine, feminine, and neuter, when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative. Definitions of terms defined in
the singular and plural shall be equally applicable to the plural or singular,
as the case may be.

                                   ARTICLE II
                                   AMENDMENTS

      The Borrower and the Lender hereby amend the Agreement in the following
particulars:

      2.01 Amendment of Section 1.2. Section 1.2 of the Agreement is hereby
amended as follows:

      The following definitions shall be added and/or amended to read as
      follows:

      "Commitment Termination Date" shall mean March 31,2007.

      "Final Maturity" shall mean March 31, 2007.

      2.02 Amendment of Section 2.9(a). Section 2.9(a) of the Agreement shall be
amended to read as follows:

      "2.9 Borrowing Base Determinations, (a) The Borrowing Base as of February
      17, 2003, is acknowledged by the Borrower and the Lenders to be
      $44,000,000."

      2.03 Addition of Section 2.9(e). Section 2.9(e) is added to the Agreement
      to read as follows:

      "2.9 Borrowing Base Determinations.---(e) The Borrowing Base may be
      decreased by the Borrower by giving the Agent written notice of the amount
      of the decrease and the resulting Borrowing Base. The Borrower may then
      only borrow up to the amount of the decreased Borrowing Base and if any
      future increase in the Borrowing Base is required the Borrower shall
      furnish the Agent with the information requested by the Agreement as set
      forth in (b) above and pay all fees required by increasing the Borrowing
      Base."

      2.04 Amendment of Section 2.25. Section 2.25 of the Agreement is amended
      to read as follows:

                                       2
<PAGE>

      "2.25 Limitation of Liability of FWOE. FWOE's liability to the Lender on
      the Note and other obligations under the Agreement is limited to
      $10,120,000.00."

      2.05  Amendment of Section 6.8. Section 6.8 of the Agreement shall be
      amended to add the following sentence:

      "6.8 Dividends and Distributions.---Notwithstanding the above, FWOE may
      repay advances made by PEC in the amount of $1,275,000.00 and by Frank C.
      Wade in the amount of $847,260.00."

                                   ARTICLE III
                                   CONDITIONS

      The obligation of the Lenders to amend the Agreement as provided herein is
subject to the fulfillment of the following conditions precedent:

      3.01  Receipt of Documents. The Agent shall have received, reviewed, and
approved the following documents and other items, appropriately executed when
necessary and in form and substance satisfactory to the Lender:

      (a)   multiple counterparts of this Third Amendment as requested by the
            Agent.

      (b)   payment by Borrower to Guaranty Bank, FSB of $165,000 as an
            extension fee;

      (c)   payment by Borrower to Guaranty Bank, FSB of $91,000 as a Facility
            Fee for the increase in the Borrowing Base; and

      (d)   such other agreements, documents, items, instruments, opinions,
            certificates, waivers, consents, and evidence as the Agent may
            reasonably request.

      3.02   Accuracy of Representations and Warranties. The representations and
warranties contained in Article IV of the Agreement and this Third Amendment
shall be true and correct.

      3.03   Matters Satisfactory to Lenders. All matters incident to the
consummation of the transactions contemplated hereby shall be satisfactory to
the Lenders.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

      The Borrower hereby expressly re-makes, in favor of the Lenders, all of
the representations and warranties set forth in Article IV of the Agreement, and
represents and warrants that all such representations and warranties remain true
and unbreached.

                                        3

<PAGE>

                                    ARTICLE V
                                  RATIFICATION

      Each of the parties hereto does hereby adopt, ratify, and confirm the
Agreement and the other Loan Documents, in all things in accordance with the
terms and provisions thereof, as amended by this Third Amendment.

                                   ARTICLE VI
                                  MISCELLANEOUS

      6.01   Scope of Amendment. The scope of this Third Amendment is expressly
limited to the matters addressed herein and this Third Amendment shall not
operate as a waiver of any past, present, or future breach, Default, or Event of
Default under the Agreement. except to the extent, if any, that any such breach,
Default, or Event of Default is remedied by the effect of this Third Amendment.

      6.02   Agreement as Amended. All references to the Agreement in any
document heretofore or hereafter executed in connection with the transactions
contemplated in the Agreement shall be deemed to refer to the Agreement as
amended by this Third Amendment.

      6.03   Parties in Interest. All provisions of this Third Amendment shall
be binding upon and shall inure to the benefit of the Borrower, the Lender and
their respective successors and assigns.

      6.04   Rights of Third Parties. All provisions herein are imposed solely
and exclusively for the benefit of the Lender and the Borrower, and no other
Person shall have standing to require satisfaction of such provisions in
accordance with their terms and any or all of such provisions may be freely
waived in whole or in part by the Lender at any time if in its sole discretion
it deems it advisable to do so.

      6.05   ENTIRE AGREEMENT. THIS THIRD AMENDMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SUPERSEDES ANY PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL, BETWEEN SUCH PARTIES
REGARDING THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS THIRD AMENDMENT,
THE AGREEMENT, THE NOTE, THE SECURITY INSTRUMENTS, AND THE OTHER WRITTEN
DOCUMENTS REFERRED TO IN THE AGREEMENT OR EXECUTED IN CONNECTION WITH OR AS
SECURITY FOR THE NOTE REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

      6.06   GOVERNING LAW. THIS THIRD AMENDMENT, THE AGREEMENT AND THE NOTE
SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. THE PARTIES ACKNOWLEDGE AND
AGREE THAT THIS AGREEMENT AND THE NOTE AND THE TRANSACTIONS CONTEMPLATED

                                        4

<PAGE>

HEREBY BEAR A NORMAL, REASONABLE, AND SUBSTANTIAL RELATIONSHIP TO THE STATE OF
TEXAS.

      6.07  JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS THIRD AMENDMENT, THE AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED
IN COURTS HAVING SITUS IN HARRIS COUNTY, TEXAS. EACH OF THE BORROWER AND THE
LENDER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT
LOCATED IN HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE BORROWER OR THE LENDER IN ACCORDANCE WITH THIS SECTION.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

                                        5

<PAGE>

      IN WITNESS WHEREOF, this Third Amendment to Credit Agreement is executed
effective the date first hereinabove written.

                               BORROWER

                               PRIMEENERGY CORPORATION
                               PRIMEENERGY MANAGEMENT
                               CORPORATION, PRIME OPERATING
                               COMPANY, EASTERN OIL WELL SERVICE
                               COMPANY, SOUTHWEST OILFIELD
                               CONSTRUCTION COMPANY
                               EOWS MIDLAND COMPANY

                               By: /s/ Beverly A. Cummings
                                   ----------------------------------------
                                   Beverly A. Cummings
                                   Executive Vice President, Treasurer, and
                                   Chief Financial Officer

                               F-W OIL EXPLORATION L.L.C.

                               By: /s/ Jim R. Brock
                                   ----------------------------------------
                                   Jim R. Brock
                                   President and CFO

                                        6

<PAGE>

                               AGENT AND LENDER

                               GUARANTY BANK, FSB

                               By: /s/ Richard E. Menchaca
                                   ----------------------------------------
                                   Richard E. Menchaca
                                   Senior Vice President

                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.22.4
<SEQUENCE>6
<FILENAME>d22569exv10w22w4.txt
<DESCRIPTION>4TH AMENDMENT TO CREDIT AGREEMENT
<TEXT>
<PAGE>

                                                                 EXHIBIT 10.22.4

================================================================================

                      FOURTH AMENDMENT TO CREDIT AGREEMENT

                                     BETWEEN

                             PRIMEENERGY CORPORATION
                       PRIMEENERGY MANAGEMENT CORPORATION
                             PRIME OPERATING COMPANY
                        EASTERN OIL WELL SERVICE COMPANY
                     SOUTHWEST OILFIELD CONSTRUCTION COMPANY
                              EOWS MIDLAND COMPANY

                                      AND

                          GUARANTY BANK, FSB, AS AGENT
                                  AND A LENDER

                       EFFECTIVE AS OF DECEMBER 28, 2004

                       ---------------------------------

             REDUCING REVOLVING LINE OF CREDIT OF UP TO $50,000,000
                   REDUCING REVOLVING TERM LOAN OF $3,599,998

                       ---------------------------------

================================================================================

<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                             PAGE
                                                             ----
<S>                                                          <C>
  ARTICLE I    DEFINITIONS.................................    1
    1.01       Terms Defined Above.........................    1
    1.02       Terms Defined in Agreement..................    1
    1.03       References..................................    1
    1.04       Articles and Sections.......................    2
    1.05       Number and Gender...........................    2
 ARTICLE II    AMENDMENTS..................................    2
    2.01       Amendment of Section 1.2....................    2
    2.02       Amendment of Section 2.9....................    2
ARTICLE III    CONDITIONS..................................    2
    3.01       Receipt of Documents........................    2
    3.02       Accuracy of Representations and Warranties..    3
    3.03       Matters Satisfactory to Lenders.............    3
 ARTICLE IV    REPRESENTATIONS AND WARRANTIES..............    3
 ARTICLE V     RATIFICATION................................    3
 ARTICLE VI    MISCELLANEOUS...............................    3
    6.01       Scope of Amendment..........................    3
    6.02       Agreement as Amended........................    3
    6.03       Parties in Interest.........................    3
    6.04       Rights of Fourth Parties....................    3
    6.05       ENTIRE AGREEMENT............................    3
    6.06       GOVERNING LAW...............................    4
    6.07       JURISDICTION AND VENUE......................    4
</TABLE>

<PAGE>

                      FOURTH AMENDMENT TO CREDIT AGREEMENT

      This FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Fourth Amendment") is
made and entered into effective as of December 28, 2004, between PRIMEENERGY
CORPORATION, a Delaware corporation ("PEC"), PRIMEENERGY MANAGEMENT CORPORATION,
a New York corporation, PRIME OPERATING COMPANY, a Texas corporation, EASTERN
OIL WELL SERVICE COMPANY, a West Virginia corporation, SOUTHWEST OILFIELD
CONSTRUCTION COMPANY, an Oklahoma corporation, and EOWS MIDLAND COMPANY, a Texas
corporation (collectively, the "Borrower"), with each other lender that is a
signatory hereto or becomes a signatory hereto as provided in Section 9.1,
(individually, together with its successors and assigns, a "Lender" and
collectively together, with their respective successors and assigns, the
"Lenders") and GUARANTY BANK, FSB, a federal savings bank, as agent for the
Lenders (in such capacity, together with its successors in such capacity
pursuant to the terms hereof, the "Agent").

                               W I T N E S S E T H

      WHEREAS, the above named parties did execute and exchange counterparts of
that certain Credit Agreement dated December 19, 2002, as amended by First
Amendment to Credit Agreement dated effective as of June 1, 2003, as further
amended by Second Amendment to Credit Agreement dated effective as of September
22, 2003, and as further amended by Third Amendment to Credit Agreement dated
effective as of February 17, 2004 (the "Agreement"), to which reference is here
made for all purposes;

      WHEREAS, the parties subject to and bound by the Agreement are desirous of
amending the Agreement in the particulars hereinafter set forth;

      NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties to the Agreement, as set forth therein, and the mutual covenants and
agreements of the parties hereto, as set forth in this Fourth Amendment, the
parties hereto agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

      1.01 Terms Defined Above. As used herein, each of the terms "Agent,"
"Agreement," "Borrower," "Fourth Amendment," and "Lenders" and shall have the
meaning assigned to such term hereinabove.

      1.02 Terms Defined in Agreement. As used herein, each term defined in the
Agreement shall have the meaning assigned thereto in the Agreement, unless
expressly provided herein to the contrary.

      1.03 References. References in this Fourth Amendment to Article or Section
numbers shall be to Articles and Sections of this Fourth Amendment, unless
expressly stated herein to the contrary. References in this Fourth Amendment to
"hereby," "herein," hereinafter," hereinabove," "hereinbelow," "hereof," and
"hereunder" shall be to this Fourth Amendment in its entirety and not only to
the particular Article or Section in which such reference appears.

                                       1
<PAGE>

      1.04 Articles and Sections. This Fourth Amendment, for convenience only,
has been divided into Articles and Sections and it is understood that the
rights, powers, privileges, duties, and other legal relations of the parties
hereto shall be determined from this Fourth Amendment as an entirety and without
regard to such division into Articles and Sections and without regard to
headings prefixed to such Articles and Sections.

      1.05 Number and Gender. Whenever the context requires, reference herein
made to the single number shall be understood to include the plural and likewise
the plural shall be understood to include the singular. Words denoting sex shall
be construed to include the masculine, feminine, and neuter, when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative. Definitions of terms defined in
the singular and plural shall be equally applicable to the plural or singular,
as the case may be.

                                   ARTICLE II
                                   AMENDMENTS

      The Borrower and the Lender hereby amend the Agreement in the following
particulars:

      2.01 Deletion of F-W Oil Exploration L.L.C. F-W Oil Exploration L.L.C. is
hereby deleted from the Agreement and released from all Obligations hereunder.

      2.02 Amendment of Section 2.9(a). Section 2.9(a) of the Agreement shall be
amended to read as follows:

      "2.9 Borrowing Base Determinations. (a) The Borrowing Base as of December
      28, 2004, is acknowledged by the Borrower and the Lenders to be
      $33,880,000."

      2.03 Amendment of Exhibit I. Exhibit I, i.e., the Form of Promissory Note,
shall be as set forth on Exhibit I to this Fourth Amendment.

                                  ARTICLE III
                                   CONDITIONS

      The obligation of the Lenders to amend the Agreement as provided herein is
subject to the fulfillment of the following conditions precedent:

      3.01 Receipt of Documents. The Agent shall have received, reviewed, and
approved the following documents and other items, appropriately executed when
necessary and in form and substance satisfactory to the Lender:

      (a)   multiple counterparts of this Fourth Amendment as requested by the
            Agent;

      (b)   the Note;

      (c)   such other agreements, documents, items, instruments, opinions,
            certificates, waivers, consents, and evidence as the Agent may
            reasonably request.

                                       2
<PAGE>

      3.02 Accuracy of Representations and Warranties. The representations and
warranties contained in Article IV of the Agreement and this Fourth Amendment
shall be true and correct.

      3.03 Matters Satisfactory to Lenders. All matters incident to the
consummation of the transactions contemplated hereby shall be satisfactory to
the Lenders.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

      The Borrower hereby expressly re-makes, in favor of the Lenders, all of
the representations and warranties set forth in Article IV of the Agreement, and
represents and warrants that all such representations and warranties remain true
and unbreached.

                                   ARTICLE V
                                  RATIFICATION

      Each of the parties hereto does hereby adopt, ratify, and confirm the
Agreement and the other Loan Documents, in all things in accordance with the
terms and provisions thereof, as amended by this Fourth Amendment.

                                   ARTICLE VI
                                  MISCELLANEOUS

      6.01 Scope of Amendment. The scope of this Fourth Amendment is expressly
limited to the matters addressed herein and this Fourth Amendment shall not
operate as a waiver of any past, present, or future breach, Default, or Event of
Default under the Agreement. except to the extent, if any, that any such breach,
Default, or Event of Default is remedied by the effect of this Fourth Amendment.

      6.02 Agreement as Amended. All references to the Agreement in any document
heretofore or hereafter executed in connection with the transactions
contemplated in the Agreement shall be deemed to refer to the Agreement as
amended by this Fourth Amendment.

      6.03 Parties in Interest. All provisions of this Fourth Amendment shall be
binding upon and shall inure to the benefit of the Borrower, the Lender and
their respective successors and assigns.

      6.04 Rights of Fourth Parties. All provisions herein are imposed solely
and exclusively for the benefit of the Lender and the Borrower, and no other
Person shall have standing to require satisfaction of such provisions in
accordance with their terms and any or all of such provisions may be freely
waived in whole or in part by the Lender at any time if in its sole discretion
it deems it advisable to do so.

      6.05 ENTIRE AGREEMENT. THIS FOURTH AMENDMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SUPERSEDES ANY PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL, BETWEEN SUCH PARTIES
REGARDING THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS FOURTH AMENDMENT,
THE AGREEMENT, THE NOTE, THE SECURITY INSTRUMENTS, AND THE OTHER

                                       3
<PAGE>

WRITTEN DOCUMENTS REFERRED TO IN THE AGREEMENT OR EXECUTED IN CONNECTION WITH OR
AS SECURITY FOR THE NOTE REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

      6.06 GOVERNING LAW. THIS FOURTH AMENDMENT, THE AGREEMENT AND THE NOTE
SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. THE PARTIES ACKNOWLEDGE AND
AGREE THAT THIS AGREEMENT AND THE NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY
BEAR A NORMAL, REASONABLE, AND SUBSTANTIAL RELATIONSHIP TO THE STATE OF TEXAS.

      6.07 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS FOURTH AMENDMENT, THE AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED
IN COURTS HAVING SITUS IN HARRIS COUNTY, TEXAS. EACH OF THE BORROWER AND THE
LENDER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT
LOCATED IN HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE BORROWER OR THE LENDER IN ACCORDANCE WITH THIS SECTION.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

                                       4
<PAGE>

      IN WITNESS WHEREOF, this Fourth Amendment to Credit Agreement is executed
effective the date first hereinabove written.

                             BORROWER

                             PRIMEENERGY CORPORATION
                             PRIMEENERGY MANAGEMENT
                             CORPORATION, PRIME OPERATING
                             COMPANY, EASTERN OIL WELL SERVICE
                             COMPANY, SOUTHWEST OILFIELD
                             CONSTRUCTION COMPANY
                             EOWS MIDLAND COMPANY

                             By: /s/ Beverly A. Cummings
                                 ---------------------------------------
                                 Beverly A. Cummings
                                 Executive Vice President, Treasurer, and
                                 Chief Financial Officer

                                       5
<PAGE>

                                     AGENT AND LENDER

                                     GUARANTY BANK, FSB

                                     By: /s/  Arthur R. Gralla
                                         ---------------------------------------
                                         Arthur R. Gralla, Jr.
                                         Managing Director

                                       6
<PAGE>

                                 PROMISSORY NOTE

$50,000,000                      Houston, Texas                December 28, 2004

      FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker") promises
to pay to the order of GUARANTY BANK, FSB ("Payee"), at its banking quarters in
Houston, Harris County, Texas, the sum of FIFTY MILLION DOLLARS ($50,000,000),
or so much thereof as may be advanced against this Note pursuant to the Credit
Agreement dated of even date herewith by and between Maker and Payee (as
amended, restated, or supplemented from time to time, the "Credit Agreement"),
together with interest at the rates and calculated as provided in the Credit
Agreement.

      Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, certain events which will entitle the
holder hereof to accelerate the maturity of all amounts due hereunder.
Capitalized terms used but not defined in this Note shall have the meanings
assigned to such terms in the Credit Agreement.

      This Note is issued pursuant to, is the "Note" under, and is payable as
provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.

      Without being limited thereto or thereby, this Note is secured by the
Security Instruments.

      THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW;
PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL
NOT APPLY TO THIS NOTE.

                             PRIMEENERGY CORPORATION
                             PRIMEENERGY MANAGEMENT
                             CORPORATION, PRIME OPERATING
                             COMPANY, EASTERN OIL WELL SERVICE
                             COMPANY, SOUTHWEST OILFIELD
                             CONSTRUCTION COMPANY
                             EOWS MIDLAND COMPANY

                             By: /s/ Beverly A. Cummings
                                -----------------------------------------
                                 Beverly A. Cummings
                                 Executive Vice President, Treasurer, and
                                 Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>7
<FILENAME>d22569exv10w25.txt
<DESCRIPTION>CREDIT AGREEMENT
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.25


                                CREDIT AGREEMENT

                                     BETWEEN

                           F-W OIL EXPLORATION L.L.C.

                                       AND

                               GUARANTY BANK, FSB

                                DECEMBER 28, 2004

                  REVOLVING LINE OF CREDIT OF UP TO $50,000,000

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>                                                                                       <C>
ARTICLE I DEFINITIONS AND INTERPRETATION................................................    1
     1.1       Terms Defined Above......................................................    1
     1.2       Additional Defined Terms.................................................    1
     1.3       Undefined Financial Accounting Terms.....................................   14
     1.4       References...............................................................   14
     1.5       Articles and Sections....................................................   14
     1.6       Number and Gender........................................................   14
     1.7       Incorporation of Exhibits................................................   15

ARTICLE II TERMS OF FACILITY ...........................................................   15
     2.1       Revolving Line of Credit.................................................   15
     2.2       Letter of Credit Facility................................................   15
     2.3       Use of Loan Proceeds and Letters of Credit...............................   16
     2.4       Interest.................................................................   16
     2.5       Repayment of Loans and Interest..........................................   17
     2.6       Outstanding Amounts......................................................   17
     2.7       Time, Place, and Method of Payments......................................   17
     2.8       Borrowing Base Determinations............................................   17
     2.9       Mandatory Prepayments....................................................   18
     2.10      Voluntary Prepayments and Conversions of Loans...........................   18
     2.11      Commitment Fee...........................................................   19
     2.12      Facility Fee.............................................................   19
     2.13      Letter of Credit Fee.....................................................   19
     2.14      Engineering Fee..........................................................   19
     2.15      Loans to Satisfy Obligations of Borrower.................................   20
     2.16      Security Interest in Accounts; Right of Offset...........................   20
     2.17      General Provisions Relating to Interest..................................   20
     2.18      Yield Protection.........................................................   21
     2.19      Limitation on Types of Loans.............................................   23
     2.20      Illegality...............................................................   24
     2.21      Regulatory Change........................................................   24
     2.22      Limitations on Interest Periods..........................................   24
     2.23      Letters in Lieu of Transfer Orders.......................................   24
     2.24      Power of Attorney........................................................   25

ARTICLE III CONDITIONS .................................................................   25
     3.1       Receipt of Loan Documents and Other Items................................   25
     3.2       Each Loan and Letter of Credit...........................................   27

ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................................   29
     4.1       Due Authorization........................................................   29
</TABLE>

                                      -i-

<PAGE>

<TABLE>
<S>                                                                                        <C>
     4.2       Limited Liability Company Existence......................................   29
     4.3       Valid and Binding Obligations............................................   30
     4.4       Security Instruments.....................................................   30
     4.5       Title to Assets..........................................................   30
     4.6       No Material Misstatements................................................   30
     4.7       Liabilities, Litigation, and Restrictions................................   30
     4.8       Authorizations; Consents.................................................   30
     4.9       Compliance with Laws.....................................................   31
     4.10      ERISA....................................................................   31
     4.11      Environmental Laws.......................................................   31
     4.12      Compliance with Federal Reserve Regulations..............................   32
     4.13      Investment Company Act Compliance........................................   32
     4.14      Public Utility Holding Company Act Compliance............................   32
     4.15      Proper Filing of Tax Returns; Payment of Taxes Due.......................   32
     4.16      Refunds..................................................................   32
     4.17      Gas Contracts............................................................   32
     4.18      Intellectual Property....................................................   33
     4.19      Casualties or Taking of Property.........................................   33
     4.20      Locations of Borrower....................................................   33
     4.21      Subsidiaries.............................................................   33

ARTICLE V AFFIRMATIVE COVENANTS ........................................................   33
     5.1       Maintenance and Access to Records........................................   33
     5.2       Monthly Financial Statements.............................................   33
     5.3       Quarterly Financial Statements; Compliance Certificates..................   33
     5.4       Annual Financial Statements..............................................   34
     5.5       Oil and Gas Reserve Reports..............................................   34
     5.6       Title Opinions; Title Defects and Mortgages..............................   34
     5.7       Notices of Certain Events................................................   35
     5.8       Letters in Lieu of Transfer Orders; Division Orders......................   36
     5.9       Additional Information...................................................   36
     5.10      Compliance with Laws.....................................................   36
     5.11      Payment of Assessments and Charges.......................................   36
     5.12      Maintenance of Limited Liability Company Existence and Good Standing.....   37
     5.13      Payment of Note; Performance of Obligations..............................   37
     5.14      Further Assurances.......................................................   37
     5.15      Initial Fees and Expenses of Counsel to Lender...........................   37
     5.16      Subsequent Fees and Expenses of Lender...................................   37
     5.17      Operation of Oil and Gas Properties......................................   38
     5.18      Maintenance and Inspection of Properties.................................   38
     5.19      Maintenance of Insurance.................................................   38
     5.20      INDEMNIFICATION..........................................................   38
     5.21      Future Subsidiaries......................................................   39
     5.22      Hedging..................................................................   39
</TABLE>

                                      -ii-
<PAGE>

<TABLE>
<S>                                                                                       <C>
ARTICLE VI NEGATIVE COVENANTS ..........................................................   39
     6.1       Indebtedness.............................................................   40
     6.2       Contingent Obligations...................................................   40
     6.3       Liens....................................................................   40
     6.4       Sales of Assets..........................................................   40
     6.5       Leasebacks...............................................................   40
     6.6       Loans or Advances........................................................   40
     6.7       Investments..............................................................   41
     6.8       Dividends and Distributions..............................................   41
     6.9       Issuance of Stock; Changes in Limited Liability Structure................   41
     6.10      Transactions with Affiliates.............................................   41
     6.11      Lines of Business........................................................   41
     6.12      ERISA Compliance.........................................................   41
     6.13      Interest Coverage Ratio..................................................   41
     6.14      Current Ratio............................................................   42
     6.15      Tangible Net Worth.......................................................   42
     6.16      Bank Debt Coverage Ratio.................................................   42
     6.17      General and Administrative Expenses......................................   42

ARTICLE VII EVENTS OF DEFAULT ..........................................................   42
     7.1       Enumeration of Events of Default.........................................   42
     7.2       Remedies.................................................................   44

ARTICLE VIII MISCELLANEOUS .............................................................   45
     8.1       Transfers; Participations................................................   45
     8.2       Survival of Representations, Warranties, and Covenants...................   45
     8.3       Notices and Other Communications.........................................   45
     8.4       Parties in Interest......................................................   46
     8.5       Rights of Third Parties..................................................   46
     8.6       Renewals; Extensions.....................................................   46
     8.7       No Waiver; Rights Cumulative.............................................   46
     8.8       Survival Upon Unenforceability...........................................   46
     8.9       Amendments; Waivers......................................................   46
     8.10      Controlling Agreement....................................................   47
     8.11      Disposition of Collateral................................................   47
     8.12      GOVERNING LAW............................................................   47
     8.13      JURISDICTION AND VENUE...................................................   47
     8.14      WAIVER OF RIGHTS TO JURY TRIAL...........................................   47
     8.15      ENTIRE AGREEMENT.........................................................   48
     8.16      Counterparts.............................................................   48
</TABLE>

LIST OF EXHIBITS
Exhibit I      -     Form of Note
Exhibit II     -     Form of Borrowing Request
Exhibit III    -     Form of Compliance Certificate

                                      -iii-
<PAGE>

Exhibit IV     -     Form of Opinion of Counsel
Exhibit VI     -     Disclosures

                                      -iv-
<PAGE>

                                CREDIT AGREEMENT

      THIS CREDIT AGREEMENT is made and entered into this 28 day of December,
2004, by and between F-W OIL EXPLORATION L.L.C. a Delaware limited liability
company (the "Borrower"), and GUARANTY BANK, FSB, a federal savings bank, (the
"Lender").

                              W I T N E S S E T H:

      In consideration of the mutual covenants and agreements herein contained,
the Borrower and the Lender hereby agree as follows:

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

      1.1 Terms Defined Above. As used in this Credit Agreement, the terms
"Borrower" and "Lender" shall have the meaning assigned to them hereinabove.

      1.2 Additional Defined Terms. As used in this Credit Agreement, each of
the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:

            "Additional Costs" shall mean costs which the Lender determine are
      attributable to its obligation to make or its making or maintaining any
      LIBO Rate Loan, or any reduction in any amount receivable by the Lender in
      respect of any such obligation or any LIBO Rate Loan, resulting from any
      Regulatory Change which (a) changes the basis of taxation of any amounts
      payable to the Lenders under this Agreement or the Note in respect of any
      LIBO Rate Loan (other than taxes imposed on the overall net income of the
      Lender), (b) imposes or modifies any reserve, special deposit, minimum
      capital, capital rates, or similar requirements relating to any extensions
      of credit or other assets of, or any deposits with or other liabilities
      of, the Lender (including LIBO Rate Loans and Dollar deposits in the
      London interbank market in connection with LIBO Rate Loans), or any
      commitments of the Lenders hereunder, (c) increases the Assessment Rate,
      or (d) imposes any other condition affecting this Agreement or any of such
      extensions of credit, liabilities, or commitments.

            "Adjusted LIBO Rate" shall mean, for any LIBO Rate Loan, an interest
      rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
      determined by the Lender to be equal to the sum of the LIBO Rate for such
      Loan plus the Applicable Margin, but in no event exceeding the Highest
      Lawful Rate.

            "Affiliate" shall mean any Person directly or indirectly
      controlling, or under common control with, the Borrower and includes any
      Subsidiary of the Borrower and any "affiliate" of the Borrower within the
      meaning of Reg.

<PAGE>

      Section 240.12b-2 of the Securities Exchange Act of 1934, as amended, with
      "control," as used in this definition, meaning possession, directly or
      indirectly, of the power to direct or cause the direction of management,
      policies or action through ownership of voting securities, contract,
      voting trust, or membership in management or in the group appointing or
      electing management or otherwise through formal or informal arrangements
      or business relationships.

            "Agreement" shall mean this Credit Agreement, as it may be amended,
      supplemented, or restated from time to time.

            "Applicable Lending Office" shall mean, for each type of Loan, the
      lending office of the Lender (or an affiliate of the Lender) designated
      for such type of Loan on the signature pages hereof or such other office
      of the Lender (or an affiliate of the Lender) as the Lender may from time
      to time specify to the Borrower as the office by which Loans of such type
      are to be made and maintained.

            "Applicable Margin" shall mean as to each LIBO Rate Loan or Letter
      of Credit Fee 2.50%.

            "Assessment Rate" shall mean, for any Interest Period, the average
      rate (rounded upwards if necessary to the nearest 1/100 of 1%) charged by
      the Federal Deposit Insurance Corporation (or any successor thereto) to
      the Lender for deposit insurance for Dollar time deposits with the Lender
      at the Principal Office during such Interest Period, as determined by the
      Lender.

            "Available Commitment" shall mean, at any time, an amount equal to
      the remainder, if any, of (a) the Borrowing Base in effect at such time
      minus (b) the Loan Balance at such time.

            "Bank Debt" shall mean the amount owed under this Agreement by the
      Borrower to the Lender.

            "Base Rate" shall mean, at any time, the rate of interest per annum
      then most recently established by the Lender as its base rate, which rate
      may not be the lowest rate of interest charged by the Lender to its
      borrowers. Each change in any interest rate provided for herein based upon
      the Base Rate resulting from a change in the Base Rate shall take effect
      without notice to the Borrower at the time of such change in the Base
      Rate.

            "Borrowing Base" shall mean, at any time, the amount determined by
      the Lender in accordance with Section 2.8 and then in effect.

            "Borrowing Request" shall mean each written request, in
      substantially the form attached hereto as Exhibit II, by the Borrower to
      the Lender for a borrowing, conversion, or prepayment pursuant to Sections
      2.1 or 2.10, each of which shall:

                                      -2-
<PAGE>

                  (a) be signed by a Responsible Officer of the Borrower;

                  (b) when requesting a borrowing, be accompanied by a
            Compliance Certificate or acknowledgment that Borrower is in
            compliance;

                  (c) specify the amount and type of Loan requested, and, as
            applicable, the Loan to be converted or prepaid and the date of the
            borrowing, conversion, or prepayment (which shall be a Business
            Day);

                  (d) when requesting a Floating Rate Loan, be delivered to the
            Lender no later than 5:00 p.m., Central Standard or Daylight Savings
            Time, as the case may be, on the Business Day preceding the day of
            the requested borrowing, conversion, or prepayment;

                  (e) when requesting a LIBO Rate Loan, be delivered to the
            Lender no later than 10:00 a.m., Central Standard or Daylight
            Savings Time, as the case may be, three Business Days preceding the
            requested borrowing, conversion, or prepayment and designate the
            Interest Period requested with respect to such Loan.

            "Business Day" shall mean (a) for all purposes other than as covered
      by clause (b) of this definition, a day other than a Saturday, Sunday,
      legal holiday for commercial banks under the laws of the State of Texas,
      or any other day when banking is suspended in the State of Texas, and (b)
      with respect to all requests, notices, and determinations in connection
      with, and payments of principal and interest on, LIBO Rate Loans, a day
      which is a Business Day described in clause (a) of this definition and
      which is a day for trading by and between banks for Dollar deposits in the
      London interbank market.

            "Closing Date" shall mean the effective date of this Agreement.

            "Code" shall mean the United States Internal Revenue Code of 1986,
      as amended from time to time.

            "Collateral" shall mean the Mortgaged Properties and any other
      Property now or at any time used or intended as security for the payment
      or performance of all or any portion of the Obligations.

            "Commitment" shall mean the obligation of the Lender, subject to
      applicable provisions of this Agreement, to make Loans to or for the
      benefit of the Borrower pursuant to Section 2.1 and to issue Letters of
      Credit pursuant to Section 2.2

                                      -3-
<PAGE>

            "Commitment Fee" shall mean each fee payable to the Lender by the
      Borrower pursuant to Section 2.11.

            "Commitment Period" shall mean the period from and including the
      Closing Date to but not including the Commitment Termination Date.

            "Commitment Termination Date" shall mean March 31, 2007.

            "Commodity Hedge Agreement" shall mean any crude oil, natural gas,
      or other hydrocarbon floor, collar, cap, price protection, or swap
      agreement, in form and substance with a Person acceptable to the Lender.

            "Commonly Controlled Entity" shall mean any Person which is under
      common control with the Borrower within the meaning of Section 4001 of
      ERISA.

            "Compliance Certificate" shall mean each certificate, substantially
      in the form attached hereto as Exhibit III, executed by a Responsible
      Officer of the Borrower and furnished to the Lender from time to time in
      accordance with Sections 5.3 and 5.4.

            "Contingent Obligation" shall mean, as to any Person, without
      duplication, any obligation of such Person guaranteeing or in effect
      guaranteeing any Indebtedness, leases, dividends, or other obligations of
      any other Person (for purposes of this definition, a "primary obligation")
      in any manner, whether directly or indirectly, including, without
      limitation, any obligation of such Person, regardless of whether such
      obligation is contingent, (a) to purchase any primary obligation or any
      Property constituting direct or indirect security therefore, (b) to
      advance or supply funds (i) for the purchase or payment of any primary
      obligation, or (ii) to maintain working or equity capital of any other
      Person in respect of any primary obligation, or otherwise to maintain the
      net worth or solvency of any other Person, (c) to purchase Property,
      securities or services primarily for the purpose of assuring the owner of
      any primary obligation of the ability of the Person primarily liable for
      such primary obligation to make payment thereof, or (d) otherwise to
      assure or hold harmless the owner of any such primary obligation against
      loss in respect thereof, with the amount of any Contingent Obligation
      being deemed to be equal to the stated or determinable amount of the
      primary obligation in respect of which such Contingent Obligation is made
      or, if not stated or determinable, the maximum reasonably anticipated
      liability in respect thereof as determined by such Person in good faith.

            "Current Assets" shall mean all assets which would, in accordance
      with GAAP, be included as current assets on a balance sheet of the
      Borrower as of the date of calculation, plus unused availability under
      this facility less current assets resulting from Commodity Hedge
      Agreements.

                                      -4-
<PAGE>

            "Current Liabilities" shall mean all liabilities which would, in
      accordance with GAAP, be included as current liabilities on a balance
      sheet of the Borrower as of the date of calculation, but excluding the
      current maturities under this facility both principal and interest, and
      less current payables resulting from Commodity Hedge Agreements and
      accounts payable within 60 days or longer if within terms agreed to with a
      trade creditor.

            "Default" shall mean any event or occurrence which with the lapse of
      time or the giving of notice or both would become an Event of Default.

            "Default Rate" shall mean a per annum interest rate equal to the
      Base Rate plus five percent (5%), but in no event exceeding the Highest
      Lawful Rate.

            "Dollars" and "$" shall mean dollars in lawful currency of the
      United States of America.

            "EBITDAX" shall mean, for any period, Net Income for such period
      plus interest expense, federal and state income taxes, depreciation,
      amortization, exploration expenses and other non-cash expenses, less
      non-cash gains for such period deducted in the determination of net income
      for such period.

            "Environmental Complaint" shall mean any written complaint, order,
      directive, claim, citation, notice of environmental report or
      investigation, or other notice by any Governmental Authority or any other
      Person with respect to (a) air emissions, (b) spills, releases, or
      discharges to soils, any improvements located thereon, surface water,
      groundwater, or the sewer, septic, waste treatment, storage, or disposal
      systems servicing any Property of the Borrower, (c) solid or liquid waste
      disposal, (d) the use, generation, storage, transportation, or disposal of
      any Hazardous Substance, or (e) other environmental, health, or safety
      matters affecting any Property of the Borrower or the business conducted
      thereon.

            "Environmental Laws" shall mean (a) the following federal laws as
      they may be cited, referenced, and amended from time to time: the Clean
      Air Act, the Clean Water Act, the Safe Drinking Water Act, the
      Comprehensive Environmental Response, Compensation and Liability Act, the
      Endangered Species Act, the Resource Conservation and Recovery Act, the
      Hazardous Materials Transportation Act, the Superfund Amendments and
      Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
      equivalent environmental statutes of any state in which Property of the
      Borrower is situated, as they may be cited, referenced and amended from
      time to time; (c) any rules or regulations promulgated under or adopted
      pursuant to the above federal and state laws; and (d) any other equivalent
      federal, state, or local statute or any requirement, rule, regulation,
      code, ordinance, or order adopted pursuant thereto, including, without
      limitation, those relating to the generation, transportation, treatment,
      storage, recycling, disposal, handling, or release of Hazardous
      Substances.

                                      -5-
<PAGE>

            "ERISA" shall mean the Employee Retirement Income Security Act of
      1974, as amended from time to time, and the regulations thereunder and
      interpretations thereof.

            "Event of Default" shall mean any of the events specified in Section
      7.1.

            "Facility Fee" shall mean the fee payable to the Lender by the
      Borrower pursuant to Section 2.12.

            "Final Maturity" shall mean March 31, 2007.

            "Financial Statements" shall mean statements of the financial
      condition of the Borrower as at the point in time and for the period
      indicated and consisting of at least a balance sheet and related
      statements of operations, common stock and other stockholders' equity, and
      cash flows for the Borrower and, when required by applicable provisions of
      this Agreement to be audited, accompanied by the unqualified certification
      of an independent certified public accountants acceptable to the Lender,
      all of which shall be prepared in accordance with GAAP consistently
      applied and in comparative form with respect to the corresponding period
      of the preceding fiscal period.

            "Fixed Rate Loan" shall mean any LIBO Rate Loan.

            "Floating Rate" shall mean an interest rate per annum equal to the
      Base Rate from time to time in effect plus three-fourths of one percent
      (3/4 of 1%), but in no event exceeding the Highest Lawful Rate.

            "Floating Rate Loan" shall mean any Loan and any portion of the Loan
      Balance which the Borrower has requested, in the initial Borrowing Request
      for such Loan or a subsequent Borrowing Request for such portion of the
      Loan Balance, bearing interest at the Floating Rate, or which pursuant to
      the terms hereof is otherwise required to bear interest at the Floating
      Rate.

            "GAAP" shall mean generally accepted accounting principles
      established by the Financial Accounting Standards Board or the American
      Institute of Certified Public Accountants and in effect in the United
      States from time to time.

            "Governmental Authority" shall mean any nation, country,
      commonwealth, territory, government, state, county, parish, municipality,
      or other political subdivision and any entity exercising executive,
      legislative, judicial, regulatory, or administrative functions of or
      pertaining to government.

            "Hazardous Substances" shall mean flammables, explosives,
      radioactive materials, hazardous wastes, asbestos, or any material
      containing asbestos, polychlorinated biphenyls (PCBs), toxic substances or
      related materials, petroleum, petroleum products, associated oil or
      natural gas exploration,

                                      -6-
<PAGE>

      production, and development wastes, or any substances defined as
      "hazardous substances," "hazardous materials," "hazardous wastes," or
      "toxic substances" under the Comprehensive Environmental Response,
      Compensation and Liability Act, as amended, the Superfund Amendments and
      Reauthorization Act, as amended, the Hazardous Materials Transportation
      Act, as amended, the Resource Conservation and Recovery Act, as amended,
      the Toxic Substances Control Act, as amended, or any other law or
      regulation now or hereafter enacted or promulgated by any Governmental
      Authority.

            "Highest Lawful Rate" shall mean the maximum non-usurious interest
      rate, if any (or, if the context so requires, an amount calculated at such
      rate), that at any time or from time to time may be contracted for, taken,
      reserved, charged, or received under applicable laws of the State of Texas
      or the United States of America, whichever authorizes the greater rate, as
      such laws are presently in effect or, to the extent allowed by applicable
      law, as such laws may hereafter be in effect and which allow a higher
      maximum non-usurious interest rate than such laws now allow.

            "Indebtedness" shall mean, as to any Person, without duplication,
      (a) all liabilities (excluding reserves for deferred income taxes,
      deferred compensation liabilities, and other deferred liabilities and
      credits) which in accordance with GAAP would be included in determining
      total liabilities as shown on the liability side of a balance sheet, (b)
      all obligations of such Person evidenced by bonds, debentures, promissory
      notes, or similar evidences of indebtedness, (c) all other indebtedness of
      such Person for borrowed money, and (d) all obligations of others, to the
      extent any such obligation is secured by a Lien on the assets of such
      Person (whether or not such Person has assumed or become liable for the
      obligation secured by such Lien). (Provided, however, Indebtedness shall
      not include unsecured advances by members and/or shareholders).

            "Insolvency Proceeding" shall mean application (whether voluntary or
      instituted by another Person) for or the consent to the appointment of a
      receiver, trustee, conservator, custodian, or liquidator of any Person or
      of all or a substantial part of the Property of such Person, or the filing
      of a petition (whether voluntary or instituted by another Person)
      commencing a case under Title 11 of the United States Code, seeking
      liquidation, reorganization, or rearrangement or taking advantage of any
      bankruptcy, insolvency, debtor's relief, or other similar law of the
      United States, the State of Texas, or any other jurisdiction.

            "Intellectual Property" shall mean patents, patent applications,
      trademarks, tradenames, copyrights, technology, know-how, and processes.

            "Interest Expense" shall mean, for any period, the total interest
      expense (including, without limitation, interest expense attributable to
      capitalized leases) of the Borrower for such period, determined in
      accordance with GAAP.

                                      -7-
<PAGE>

            "Interest Period" shall mean, subject to the limitations set forth
      in Section 2.22, with respect to any LIBO Rate Loan, a period commencing
      on the date such Loan is made or converted from a Loan of another type
      pursuant to this Agreement or the last day of the next preceding Interest
      Period with respect to such Loan and ending on the numerically
      corresponding day in the calendar month that is one, two, or three months
      thereafter, as the Borrower may request in the Borrowing Request for such
      Loan.

            "Investment" in any Person shall mean any stock, bond, note, or
      other evidence of Indebtedness, or any other security (other than current
      trade and customer accounts) of, investment or partnership interest in or
      loan to, such Person.

            "L/C Exposure" shall mean, at any time, the aggregate maximum amount
      available to be drawn under outstanding Letters of Credit at such time.

            "Letter of Credit" shall mean any standby letter of credit issued by
      the Lender for the account of the Borrower pursuant to Section 2.2.

            "Letter of Credit Application" shall mean the standard letter of
      credit application employed by the Lender from time to time in connection
      with letters of credit, provided that in the event of a conflict between
      the terms of each Letter of Credit Application and this Agreement, this
      Agreement shall control.

            "Letter of Credit Fee" shall mean each fee payable to the Lender by
      the Borrower pursuant to Section 2.13 upon or in connection with the
      issuance of a Letter of Credit.

            "LIBO Rate" shall mean, with respect to any Interest Period for any
      LIBO Rate Loan, the lesser of (a) the rate per annum (rounded upwards, if
      necessary, to the nearest 1/16 of 1%) equal to the average of the offered
      quotations appearing on Telerate Page 3750 (or if such Telerate Page shall
      not be available, any successor or similar service selected by the Lender
      and the Borrower) as of approximately 10:00 a.m., Central Standard or
      Daylight Savings Time, as the case may be, on the day two Business Days
      prior to the first day of such Interest Period for Dollar deposits in an
      amount comparable to the principal amount of such LIBO Rate Loan and
      having a term comparable to the Interest Period for such LIBO Rate Loan,
      or (b) the Highest Lawful Rate. If neither such Telerate Page 3750 nor any
      successor or similar service is available, the term "LIBO Rate" shall
      mean, with respect to any Interest Period for any LIBO Rate Loan, the
      lesser of (a) the rate per annum (rounded upwards if necessary, to the
      nearest 1/16 of 1%) quoted by the Lender at approximately 11:00 a.m.,
      London time (or as soon thereafter as practicable) two Business Days prior
      to the first day of the Interest Period for such LIBO Rate Loan for the
      offering by the Lender to leading banks in the London interbank market of
      Dollar deposits in an amount comparable to the

                                      -8-
<PAGE>

      principal amount of such LIBO Rate Loan and having a term comparable to
      the Interest Period for such LIBO Rate Loan, or (b) the Highest Lawful
      Rate.

            "LIBO Rate Loan" shall mean any Loan and any portion of the Loan
      Balance which the Borrower has requested, in the initial Borrowing Request
      for such Loan or a subsequent Borrowing Request for such portion of the
      Loan Balance, bearing interest at the Adjusted LIBO Rate and which is
      permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.

            "Lien" shall mean any interest in Property securing an obligation
      owed to, or a claim by, a Person other than the owner of such Property,
      whether such interest is based on common law, statute, or contract, and
      including, but not limited to, the lien or security interest arising from
      a mortgage, ship mortgage, encumbrance, pledge, security agreement,
      conditional sale or trust receipt, or a lease, consignment, or bailment
      for security purposes (other than true leases or true consignments), liens
      of mechanics, materialmen, and artisans, maritime liens and reservations,
      exceptions, encroachments, easements, rights of way, covenants,
      conditions, restrictions, leases, and other title exceptions and
      encumbrances affecting Property which secure an obligation owed to, or a
      claim by, a Person other than the owner of such Property (for the purpose
      of this Agreement, the Borrower shall be deemed to be the owner of any
      Property which it has acquired or holds subject to a conditional sale
      agreement, financing lease, or other arrangement pursuant to which title
      to the Property has been retained by or vested in some other Person for
      security purposes), and the filing or recording of any financing statement
      or other security instrument in any public office.

            "Limitation Period" shall mean, any period while any amount remains
      owing on the Note and interest on such amount, calculated at the
      applicable interest rate, plus any fees or other sums payable under any
      Loan Document and deemed to be interest under applicable law, would exceed
      the amount of interest which would accrue at the Highest Lawful Rate.

            "Loan" shall mean any loan made by the Lender to or for the benefit
      of the Borrower pursuant to this Agreement and any payment made by the
      Lender under a Letter of Credit.

            "Loan Balance" shall mean, at any time, the outstanding principal
      balance of the Notes at such time plus the L/C Exposure at such time.

            "Loan Documents" shall mean this Agreement, the Note, the Letter of
      Credit Applications, the Letters of Credit, the Security Instruments, and
      all other documents and instruments now or hereafter delivered pursuant to
      the terms of or in connection with this Agreement, the Note, the Letter of
      Credit Applications, the Letters of Credit, or the Security Instruments,
      and all renewals and extensions of, amendments and supplements to, and
      restatements of, any or all of the foregoing from time to time in effect.

                                      -9-
<PAGE>

            "Low Price Period" shall mean if natural gas prices, based on the 12
      month forward strip as quoted on NYMEX, drop to 112% of the Lender's
      prevailing price assumption on natural gas (as of the Closing Date the
      Lender's assumption is $4.25 per mcf resulting in a trigger price of $4.76
      per mcf) for 10 consecutive Business Days.

            "Material Adverse Effect" shall mean (a) any adverse effect on the
      business, operations, properties, or financial condition of the Borrower,
      which substantially increases the risk that any of the Obligations will
      not be repaid as and when due, or (b) any substantially adverse effect
      upon the Collateral.

            "Mortgaged Properties" shall mean all Oil and Gas Properties of the
      Borrower subject to a perfected first-priority Lien in favor of the Lender
      for the benefit of the Lenders, subject only to Permitted Liens, as
      security for the Obligations.

            "Multiemployer Plan" shall mean a Plan which is a multiemployer plan
      as defined in Section 4001(a)(3) of ERISA.

            "Net Income" shall mean, for any period, the net income (or loss) of
      the Borrower for such period, determined in accordance with GAAP.

            "Note" shall mean, the promissory note of the Borrower in the form
      attached hereto as Exhibit I with all blanks in such form completed
      appropriately, together with all renewals, extensions for any period,
      increases, and rearrangements thereof.

            "Obligations" shall mean, without duplication, (a) all Indebtedness
      evidenced by the Note, (b) the Reimbursement Obligations, (c) the undrawn,
      unexpired amount of all outstanding Letters of Credit, (d) the obligation
      of the Borrower for the payment of Commitment Fees, Facility Fees, Letter
      of Credit Fees, and Engineering Fees, (e) all obligations and liabilities
      whether now existing or hereafter arising of the Borrower to the Lender in
      connection with any Commodity Hedge Agreement or Rate Management
      Transaction, including Letters of Credit issued outside of this facility
      for Commodity Hedge Agreements or Rate Management Transactions, and (f)
      all other obligations and liabilities of the Borrower to the Lender, now
      existing or hereafter incurred, under, arising out of or in connection
      with any Loan Document, and to the extent that any of the foregoing
      includes or refers to the payment of amounts deemed or constituting
      interest, only so much thereof as shall have accrued, been earned and
      which remains unpaid at each relevant time of determination.

            "Oil and Gas Properties" shall mean fee, leasehold, or other
      interests in or under mineral estates or oil, gas, and other liquid or
      gaseous hydrocarbon leases with respect to Properties situated in the
      United States or offshore from any State of the United States, including,
      without limitation, overriding royalty and royalty

                                      -10-
<PAGE>

      interests, leasehold estate interests, net profits interests, production
      payment interests, and mineral fee interests, together with contracts
      executed in connection therewith and all tenements, hereditaments,
      appurtenances and Properties appertaining, belonging, affixed, or
      incidental thereto.

            "PBGC" shall mean the Pension Benefit Guaranty Corporation
      established pursuant to Subtitle A of Title IV of ERISA or any entity
      succeeding to any or all of its functions under ERISA.

            "Permitted Liens" shall mean (a) Liens for taxes, assessments, or
      other governmental charges or levies not yet due or which (if foreclosure,
      distraint, sale, or other similar proceedings shall not have been
      initiated) are being contested in good faith by appropriate proceedings,
      and such reserve as may be required by GAAP shall have been made therefor,
      (b) Liens in connection with workers' compensation, unemployment insurance
      or other social security (other than Liens created by Section 4068 of
      ERISA), old-age pension, or public liability obligations which are not yet
      due or which are being contested in good faith by appropriate proceedings,
      if such reserve as may be required by GAAP shall have been made therefore,
      (c) Liens in favor of vendors, carriers, warehousemen, repairmen,
      mechanics, workmen, materialmen, construction, or similar Liens arising by
      operation of law in the ordinary course of business in respect of
      obligations which are not yet due or which are being contested in good
      faith by appropriate proceedings, if such reserve as may be required by
      GAAP shall have been made therefore, (d) Liens in favor of operators and
      non-operators under joint operating agreements or similar contractual
      arrangements arising in the ordinary course of the business of the
      Borrower to secure amounts owing, which amounts are not yet due or are
      being contested in good faith by appropriate proceedings, if such reserve
      as may be required by GAAP shall have been made therefore, (e) Liens under
      production sales agreements, division orders, operating agreements, and
      other agreements customary in the oil and gas business for processing,
      producing, and selling hydrocarbons securing obligations not constituting
      Indebtedness and provided that such Liens do not secure obligations to
      deliver hydrocarbons at some future date without receiving full payment
      therefore within 90 days of delivery, (f) easements, rights of way,
      restrictions, and other similar encumbrances, and minor defects in the
      chain of title which are customarily accepted in the oil and gas financing
      industry, none of which interfere with the ordinary conduct of the
      business of the Borrower or materially detract from the value or use of
      the Property to which they apply, (h) Liens in favor of the Lender and
      other Liens expressly permitted under the Security Instruments and (i)
      Liens not to exceed $50,000.

            "Person" shall mean an individual, corporation, partnership, trust,
      unincorporated organization, limited liability company, government, any
      agency or political subdivision of any government, or any other form of
      entity.

                                      -11-
<PAGE>

            "Plan" shall mean, at any time, any employee benefit plan which is
      covered by ERISA and in respect of which the Borrower or any Commonly
      Controlled Entity is (or, if such plan were terminated at such time, would
      under Section 4069 of ERISA be deemed to be) an "employer" as defined in
      Section 3(5) of ERISA.

            "Principal Office" shall mean the principal office of the Lender in
      Houston, Texas, presently located at 333 Clay Street, Suite 4400, Houston,
      Texas 77002.

            "Prohibited Transaction" shall have the meaning assigned to such
      term in Section 4975 of the Code.

            "Property" shall mean any interest in any kind of property or asset,
      whether real, personal or mixed, tangible or intangible.

            "Rate Management Transaction" shall mean any transaction (including
      an agreement with respect thereto) now existing or hereafter entered into
      between Borrower and Lenders which is a rate swap, basis swap, forward
      rate transaction, commodity swap, commodity option, equity or equity index
      swap, equity or equity index option, bond option, interest rate option,
      foreign exchange transaction, cap transaction, floor transaction, collar
      transaction, forward transaction, currency swap transaction,
      cross-currency rate swap transaction, currency option or any other similar
      transaction (including any option with respect to any of these
      transactions) or any combination thereof, whether linked to on or more
      interest rates, foreign currencies, commodity prices, equity prices or
      other financial measures.

            "Regulation D" shall mean Regulation D of the Board of Governors of
      the Federal Reserve System, as the same may be amended or supplemented
      from time to time.

            "Regulatory Change" shall mean the passage, adoption, institution,
      or amendment of any federal, state, local, or foreign Requirement of Law
      (including, without limitation, Regulation D), or any interpretation,
      directive, or request (whether or not having the force of law) of any
      Governmental Authority or monetary authority charged with the enforcement,
      interpretation, or administration thereof, occurring after the Closing
      Date and applying to a class of banks including the Lender.

            "Reimbursement Obligation" shall mean the obligation of the Borrower
      to provide to the Lenders or reimburse the Lenders for any amounts
      payable, paid, or incurred by the Lenders with respect to Letters of
      Credit.

            "Release of Hazardous Substances" shall mean any emission, spill,
      release, disposal, or discharge, except in accordance with a valid permit,
      license,

                                      -12-
<PAGE>

      certificate, or approval of the relevant Governmental Authority, of any
      Hazardous Substance into or upon (a) the air, (b) soils or any
      improvements located thereon, (c) surface water or groundwater, or (d) the
      sewer or septic system, or the waste treatment, storage, or disposal
      system servicing any Property of the Borrower.

            "Reorganization" shall mean, with respect to any Multiemployer Plan,
      that such Plan is in reorganization within the meaning of such term in
      Section 4241 of ERISA.

            "Reportable Event" shall mean any of the events set forth in Section
      4043(b) of ERISA, other than those events as to which the thirty-day
      notice period is waived under subsections .13, .14, .16, .18, .19 or .20
      of PBGC Reg. Section 2615.

            "Requirement of Law" shall mean, as to any Person, the certificate
      or articles of incorporation and by-laws or other organizational or
      governing documents of such Person, and any applicable law, treaty,
      ordinance, order, judgment, rule, decree, regulation, or determination of
      an arbitrator, court, or other Governmental Authority, including, without
      limitation, rules, regulations, orders, and requirements for permits,
      licenses, registrations, approvals, or authorizations, in each case as
      such now exist or may be hereafter amended and are applicable to or
      binding upon such Person or any of its Property or to which such Person or
      any of its Property is subject.

            "Reserve Report" shall mean each report delivered to the Lender
      pursuant to Section 5.5, provided that Borrower shall not be required to
      deliver more than three reports.

            "Responsible Officer" shall mean, as to any Person, its President,
      Chief Executive Officer or any Vice President.

            "Security Instruments" shall mean the security instruments executed
      and delivered in satisfaction of the condition set forth in Section
      3.1(f), and all other documents and instruments at any time executed as
      security for all or any portion of the Obligations, as such instruments
      may be amended, restated, or supplemented from time to time.

            "Single Employer Plan" shall mean any Plan which is covered by Title
      IV of ERISA, but which is not a Multiemployer Plan.

            "Subsidiary" shall mean, as to any Person, a corporation of which
      shares of stock having ordinary voting power (other than stock having such
      power only by reason of the happening of a contingency) to elect a
      majority of the board of directors or other managers of such corporation
      are at the time owned, or the management of which is otherwise controlled,
      directly or indirectly through one or more intermediaries, or both, by
      such Person.

                                      -13-
<PAGE>

            "Superfund Site" shall mean those sites listed on the Environmental
      Protection Agency National Priority List and eligible for remedial action
      or any comparable state registries or list in any state of the United
      States.

            "Tangible Net Worth" shall mean (a) total assets, as would be
      reflected on a balance sheet of the Borrower prepared in accordance with
      GAAP, exclusive of Intellectual Property, experimental or organization
      expenses, franchises, licenses, permits, and other intangible assets,
      treasury stock, unamortized underwriters' debt discount and expenses, and
      goodwill minus (b) total liabilities, as would be reflected on a balance
      sheet of the Borrower prepared in accordance with GAAP exclusive of
      unsecured advances by members and/or shareholders.

            "Transferee" shall mean any Person to which any Lender has sold,
      assigned, transferred, or granted a participation in any of the
      Obligations, as authorized pursuant to Section 8.1, and any Person
      acquiring, by purchase, assignment, transfer, or participation, from any
      such purchaser, assignee, transferee, or participant, any part of such
      Obligations.

            "UCC" shall mean the Uniform Commercial Code as from time to time in
      effect in the State of Texas.

      1.3 Undefined Financial Accounting Terms. Undefined financial accounting
terms used in this Agreement shall be defined according to GAAP at the time in
effect.

      1.4 References. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears.

      1.5 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.

      1.6 Number and Gender. Whenever the context requires, reference herein
made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.

                                      -14-
<PAGE>

      1.7 Incorporation of Exhibits. The Exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for all
purposes.

                                   ARTICLE II

                                TERMS OF FACILITY

      2.1 Revolving Line of Credit. (a) Upon the terms and conditions
(including, without limitation, the right of the Lender to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, the Lender agrees,
during the Commitment Period, to make Loans, in immediately available funds at
the Applicable Lending Office or the Principal Office, to or for the benefit of
the Borrower in an amount not to exceed at any time outstanding the Borrowing
Base then in effect. Loans shall be made from time to time on any Business Day
designated by the Borrower in its Borrowing Request.

            (b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow and convert Loans of one
type or with one Interest Period into Loans of another type or with a different
Interest Period. Except for prepayments made pursuant to Section 2.9, each
borrowing, conversion, and prepayment of principal of Loans shall be in an
amount at least equal to $100,000. Each borrowing, prepayment, or conversion of
or into a Loan of a different type or, in the case of a LIBO Rate Loan, having a
different Interest Period, shall be deemed a separate borrowing, conversion, and
prepayment for purposes of the foregoing, one for each type of Loan or Interest
Period. Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of LIBO Rate Loans having the same Interest Period
shall be at least equal to $100,000; and if any LIBO Rate Loan would otherwise
be in a lesser principal amount for any period, such Loan shall be a Floating
Rate Loan during such period.

            (c) The Loans shall be made and maintained at the Applicable Lending
Office or the Principal Office and shall be evidenced by the Notes.

            (d) Not later than 2:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on the date specified for each borrowing, the Lender
shall make available, in immediately available funds, for the account of the
Borrower. The amount so received by the Lender shall, subject to the terms and
conditions hereof, be made available to the Borrower in immediately available
funds at the Principal Office by the end of that Business Day. All Loans by the
Lender shall be maintained at the Applicable Lending Office of the Lender and
shall be evidenced by the Note of the Lender.

            (e) The face amounts of the Note has been established as an
administrative convenience and do not commit the Lender to advance funds
hereunder in excess of the then current Borrowing Base.

      2.2 Letter of Credit Facility. (a) Upon the terms and conditions and
relying on the representations and warranties contained in this Agreement, the
Lender, agrees from the date of

                                      -15-
<PAGE>

this Agreement until the date which is thirty days prior to the Commitment
Termination Date, to issue Letters of Credit for the account of the Borrower
and/or the benefit of any Subsidiary of the Borrower and to renew and extend
such Letters of Credit. Letters of Credit shall be issued, renewed, or extended
from time to time on any Business Day designated by the Borrower following the
receipt in accordance with the terms hereof by the Lender of the written (or
oral, confirmed promptly in writing) request by a Responsible Officer of the
Borrower and a Letter of Credit Application. Letters of Credit shall be issued
in such amounts as the Borrower may request; provided, however, that (i) no
Letter of Credit shall have an expiration date which is more than 365 days after
the issuance thereof or subsequent to Final Maturity, (ii) each automatically
renewable Letter of Credit shall provide that it may be terminated by the Lender
at its then current expiry date by not less than 30 days' written notice by the
Lender to the beneficiary of such Letter of Credit, and (iii) the Lender shall
not be obligated to issue any Letter of Credit if (A) the face amount thereof
would exceed the Available Commitment, or (B) after giving effect to the
issuance thereof, (B) the L/C Exposure, when added to the Loan Balance then
outstanding, would exceed the Commitment Amount, or (C) the L/C Exposure would
exceed $2,000,000 and (iv) notwithstanding the above, Letters of Credit may be
issued for Commodity Hedge Agreements or Rate Management Transactions at the
sole discretion of the Lender. Any Letters of Credit issued under (iv) above
shall be cross-collateralized and cross-defaulted with the other Obligations
hereunder.

      2.3 Use of Loan Proceeds and Letters of Credit. Proceeds of the Loan shall
be used solely for acquisitions, exploration and development of Oil and Gas
Properties and for general limited liability company purposes.

            (a) Letters of Credit shall be used solely for other general limited
liability company purposes and to support Commodity Hedge Agreements and Rate
Management Transactions.

      2.4 Interest. Subject to the terms of this Agreement (including, without
limitation, Section 2.17), interest on the Loans shall accrue and be payable at
a rate per annum equal to the Floating Rate for each Floating Rate Loan and the
Adjusted LIBO Rate for each LIBO Rate Loan. Interest on all Floating Rate Loans
shall be computed on the basis of a year of 365 or 366 days, as applicable, for
the actual days elapsed (including the first day but excluding the last day)
during the period for which payable. Interest on all LIBO Rate Loans shall be
computed on the basis of a year of 360 days for the actual days elapsed
(including the first day but excluding the last day) during the period for which
payable. Notwithstanding the foregoing, interest on past-due principal and, to
the extent permitted by applicable law, past-due interest, shall accrue at the
Default Rate, computed on the basis of a year of 365 or 366 days, as the case
may be, for the actual days elapsed (including the first day but excluding the
last day) during the period for which payable, and shall be payable upon demand
by the Lender at any time as to all or any portion of such interest. In the
event that the Borrower fails to select the duration of any Interest Period for
any LIBO Rate Loan within the time period and otherwise as provided herein, such
Loan (if outstanding as a LIBO Rate Loan) will be automatically converted into a
Floating Rate Loan on the last day of the then current Interest Period for such
Loan or (if outstanding as a Floating Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Floating Rate

                                      -16-
<PAGE>

Loan. Interest provided for herein shall be calculated on unpaid sums actually
advanced and outstanding pursuant to the terms of this Agreement and only for
the period from the date or dates of such advances until repayment.

      2.5 Repayment of Loans and Interest. Accrued and unpaid interest on each
outstanding Floating Rate Loan shall be due and payable monthly commencing on
the first day of February 2005, and continuing on the first day of each calendar
month thereafter while any Floating Rate Loan remains outstanding, the payment
in each instance to be the amount of interest which has accrued and remains
unpaid in respect of the relevant Loan. Accrued and unpaid interest on each
outstanding LIBO Rate Loan shall be due and payable on the last day of the
Interest Period for such LIBO Rate Loan and, in the case of any Interest Period
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each
payment hereunder or under the Note, the Borrower shall specify to the Lender
the Loans or other amounts payable by the Borrower hereunder to which such
payment is to be applied. In the event the Borrower fails to so specify, or if
an Event of Default has occurred and is continuing, the Lender may apply such
payment as it may elect in its sole discretion.

      2.6 Outstanding Amounts. The outstanding principal balance of the Note
reflected by the notations by the Lender on its records shall be deemed
rebuttably presumptive evidence of the principal amount owing on the Note. The
liability for payment of principal and interest evidenced by the Note shall be
limited to principal amounts actually advanced and outstanding pursuant to this
Agreement and interest on such amounts calculated in accordance with this
Agreement.

      2.7 Time, Place, and Method of Payments. All payments required pursuant to
this Agreement or the Note shall be made in lawful money of the United States of
America and in immediately available funds, shall be deemed received by the
Lender on the Business Day received, or on the next Business Day following
receipt if such receipt is after 2:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on any Business Day, and shall be made at the
Principal Office. Except as provided to the contrary herein, if the due date of
any payment hereunder or under the Note would otherwise fall on a day which is
not a Business Day, such date shall be extended to the next succeeding Business
Day, and interest shall be payable for any principal so extended for the period
of such extension.

      2.8 Borrowing Base Determinations. (a) The Borrowing Base as of the
Closing Date, is acknowledged by the Borrower and the Lenders to be $13,000,000.

            (b) The Borrowing Base shall be redetermined semi-annually on the
basis of information supplied by the Borrower in compliance with the provisions
of this Agreement, including, without limitation, Reserve Reports, and all other
relevant information available to the Lenders. In addition, the Lender shall, in
the normal course of business following a request of

                                      -17-
<PAGE>

the Borrower, redetermine the Borrowing Base; provided, however, the Lender
shall not be obligated to respond to more than three such requests during any
calendar year. Notwithstanding the foregoing, the Lender may at its discretion
redetermine the Borrowing Base and the amount by which the Borrowing Base shall
be reduced each calendar month as set forth in Section 2.8(a) at any time and
from time to time.

            (c) Upon each determination of the Borrowing Base by the Lender, the
Lender shall notify the Borrower orally (confirming such notice promptly in
writing) of such determination, and the Borrowing Base and the monthly amount by
which the Borrowing Base shall be reduced so communicated to the Borrower shall
become effective upon such written notification and shall remain in effect until
the next subsequent determination of the Borrowing Base and the monthly amount
by which the Borrowing Base shall be reduced.

            (d) The Borrowing Base shall represent the determination by the
Lender, in accordance with the applicable definitions and provisions herein
contained and its customary lending practices for loans of this nature, of the
value, for loan purposes, of the Mortgaged Properties, subject, in the case of
any increase in the Borrowing Base, to the credit approval process of the
Lender. Furthermore, the Borrower acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by the Borrower to be essential for the adequate
protection of the Lender.

      2.9 Mandatory Prepayments. If at any time the sum of the Loan Balance
exceeds the Borrowing Base then in effect, or a Low Price Period pursuant to
Section 5.22, the Borrower shall, within 10 Business Days of notice from the
Lender of such occurrence, (a) prepay, or make arrangements acceptable to the
Lender for the prepayment of, the amount of such excess for application on the
Loan Balance, (b) provide additional collateral, of character and value
satisfactory to the Lender in their reasonable discretion, to secure the
Obligations by the execution and delivery to the Lender of security instruments
in form and substance satisfactory to the Lender in the exercise of its
reasonable discretion, or (c) effect any combination of the alternatives
described in clauses (a) and (b) of this Section and acceptable to the Lender in
its reasonable discretion. In the event that a mandatory prepayment is required
under this Section and the amount owed on the Note plus accrued interest is less
than the amount required to be prepaid, the Borrower shall repay the amount owed
on the Note plus accrued interest and, in accordance with the provisions of the
relevant Letter of Credit Applications executed by the Borrower or otherwise to
the reasonable satisfaction of the Lender, deposit with the Lender, as
additional collateral securing the Obligations, an amount of cash, in
immediately available funds, equal to the L/C Exposure minus the Borrowing Base.
The cash deposited with the Lender in satisfaction of the requirement provided
in this Section may be invested, at the reasonable discretion of the Lender and
then only at the express direction of the Borrower as to investment vehicle and
maturity (which shall be no later than the latest expiry date of any then
outstanding Letter of Credit), for the account of the Borrower in cash or cash
equivalent investments offered by or through the Lender.

      2.10 Voluntary Prepayments and Conversions of Loans. Subject to applicable
provisions of this Agreement, the Borrower shall have the right at any time or
from time to time

                                      -18-
<PAGE>

to prepay Loans and to convert Loans of one type or with one Interest Period
into Loans of another type or with a different Interest Period; provided,
however, that (a) the Borrower shall give the Lender notice of each such
prepayment or conversion of all or any portion of a LIBO Rate Loan no less than
two Business Days prior to prepayment or conversion, (b) any LIBO Rate Loan may
be prepaid or converted only on the last day of an Interest Period for such
Loan, (c) the Borrower shall pay all accrued and unpaid interest on the amounts
prepaid or converted, and (d) no such prepayment or conversion shall serve to
postpone the repayment when due of any Obligation.

      2.11 Commitment Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder and to compensate the Lender for
maintaining funds available, the Borrower shall pay to the Lender for the
account of the Lenders, in immediately available funds, on the first day of
April, 2005, and on the first day of each third calendar month thereafter during
the Commitment Period, a fee in the amount of .375% per annum, calculated on the
basis of a year of 365 or 366 days, as the case may be, for the actual days
elapsed (including the first day but excluding the last day), on the average
daily amount of the Available Commitment during the preceding quarterly period.

      2.12 Facility Fee. In addition to interest on the Note as provided herein
and all other fees payable hereunder and to compensate the Lenders for the costs
of the extension of credit hereunder, the Borrower shall pay to the Lender for
the account of the Lenders, in immediately available funds, a facility fee in
the amount of $21,600 which is due on the Closing Date and three fourths of one
percent (3/4 of 1%) of any future increase in the Borrowing Base over
$13,000,000.

      2.13 Letter of Credit Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder, the Borrower agrees to pay to the
Lender, on the date of issuance of each Letter of Credit, a fee equal to the
greater of $500 or the Applicable Margin, calculated on the basis of a year of
365 or 366 days, as the case may be, for the actual days elapsed (including the
first day but excluding the last day), on the face amount of such Letter of
Credit during the period for which such Letter of Credit is issued; provided,
however, in the event such Letter of Credit is canceled prior to its original
expiry date or a payment is made by the Lender with respect to such Letter of
Credit, the Lender shall, within 30 days after such cancellation or the making
of such payment, rebate to the Borrower the unearned portion of such fee. The
Borrower also agrees to pay to the Lender on demand its customary letter of
credit transactional fees, including, without limitation, amendment fees,
payable with respect to each Letter of Credit.

      2.14 Engineering Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder and to compensate the Lender for the
costs of evaluating the Mortgaged Properties and reviewing the Reserve Reports
the Borrower shall pay to the Lender, in immediately available funds (which
funds may be paid to the Lender by wire transfer or check executed by an
authorized officer of the Borrower and made payable to the Lender), $5,000 for
each engineering review.

                                      -19-
<PAGE>

      2.15 Loans to Satisfy Obligations of Borrower. The Lender may, but shall
not be obligated to, but only if an Event of Default exists, make Loans for the
benefit of the Borrower and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrower contained in
this Agreement or any other Loan Document. Any such Loan shall be evidenced by
the Note and shall be made as a Floating Rate Loan.

      2.16 Security Interest in Accounts; Right of Offset. As security for the
payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Lender grants to the Lender a security interest in
all funds of the Borrower now or hereafter or from time to time on deposit with
the Lender, with such interest of the Lender to be retransferred, reassigned,
and/or released by the Lender, at the expense of the Borrower upon payment in
full and complete performance by the Borrower of all Obligations. All remedies
as secured party or assignee of such funds shall be exercisable by the Lender
during the existence of the occurrence of any Event of Default, regardless of
whether the exercise of any such remedy would result in any penalty or loss of
interest or profit with respect to any withdrawal of funds deposited in a time
deposit account prior to the maturity thereof. Furthermore, the Borrower hereby
grants to the Lender the right, exercisable during the existence of an Event of
Default, of offset or banker's lien against all funds of the Borrower now or
hereafter or from time to time on deposit with the Lender, regardless of whether
the exercise of any such remedy would result in any penalty or loss of interest
or profit with respect to any withdrawal of funds deposited in a time deposit
account prior to the maturity thereof, provided that such Obligation shall have
matured, whether by acceleration of maturity or otherwise.

      2.17 General Provisions Relating to Interest. (a) It is the intention of
the parties hereto to comply strictly with the usury laws of the State of Texas
and the United States of America. In this connection, there shall never be
collected, charged, or received on the sums advanced hereunder interest in
excess of that which would accrue at the Highest Lawful Rate. For purposes of
Chapter 303 of the Texas Finance Code (Vernon's 1999), the Borrower agrees that
the Highest Lawful Rate shall be the "weekly ceiling" as defined in such
Section, provided that the Lenders may also rely, to the extent permitted by
applicable laws of the State of Texas or the United States of America, on
alternative maximum rates of interest under other laws of the State of Texas or
the United States of America applicable to the Lender, if greater.

            (b) Notwithstanding anything herein or in the Note to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Note shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower for the payment of fees or other charges deemed to be
interest under applicable law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
laws of the State of Texas or the United States of America, the interest rate to
be charged hereunder shall remain at the Highest Lawful Rate until such time as
there has been paid to the Lender (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that the Lender would have received during
the Limitation Period had the interest rate remained at the otherwise applicable
rate, and (ii) all interest and fees otherwise payable to the Lender but for the
effect of such Limitation Period.

                                      -20-
<PAGE>

            (c) If, under any circumstances, the aggregate amounts paid on the
Note or under this Agreement or any other Loan Document include amounts which by
law are deemed interest and which would exceed the amount permitted if the
Highest Lawful Rate were in effect, the Borrower stipulates that such payment
and collection will have been and will be deemed to have been, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the result of mathematical error on the part of the Borrower and the
Lender; and the Lenders shall promptly refund the amount of such excess (to the
extent only of such interest payments in excess of that which would have accrued
and been payable on the basis of the Highest Lawful Rate) upon discovery of such
error by the Lender or notice thereof from the Borrower. In the event that the
maturity of any Obligation is accelerated, by reason of an election by the
Lender or otherwise, or in the event of any required or permitted prepayment,
then the consideration constituting interest under applicable laws may never
exceed the Highest Lawful Rate; and excess amounts paid which by law are deemed
interest, if any, shall be credited by the Lender on the principal amount of the
Obligations, or if the principal amount of the Obligations shall have been paid
in full, refunded to the Borrower.

            (d) All sums paid, or agreed to be paid, to the Lender for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term hereof until paid in full so that the actual
rate of interest is uniform but does not exceed the Highest Lawful Rate
throughout the full term hereof.

      2.18 Yield Protection. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrower shall pay to
the Lender from time to time such amounts as the Lender may determine are
necessary to compensate it for any Additional Costs incurred by the Lender.

            (b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender from
time to time on request such amounts as the Lenders may determine are necessary
to compensate the Lender for any costs attributable to the maintenance by the
Lender (or any Applicable Lending Office), pursuant to any Regulatory Change, of
capital in respect of the Commitment, such compensation to include, without
limitation, an amount equal to any reduction of the rate of return on assets or
equity of the Lender (or any Applicable Lending Office) to a level below that
which the Lender (or any Applicable Lending Office) could have achieved but for
such Regulatory Change.

            (c) Without limiting the effect of the other provisions of this
Section (but without duplication), in the event that any Requirement of Law or
Regulatory Change or the compliance by the Lender therewith shall (i) impose,
modify, or hold applicable any reserve, special deposit, or similar requirement
against any Letter of Credit or obligation to issue Letters of Credit, or (ii)
impose upon the Lender any other condition regarding any Letter of Credit or
obligation to issue Letters of Credit, and the result of any such event shall be
to increase the cost to the Lender of issuing or maintaining any Letter of
Credit or obligation to issue Letters of Credit or any liability with respect to
payments by the Lender under Letters of Credit, or to reduce any amount
receivable in connection therewith, then within 15 days of demand by the

                                      -21-
<PAGE>

Lender, the Borrower shall pay to the Lender, from time to time as specified by
the Lender, additional amounts which shall be sufficient to compensate the
Lender for such increased cost or reduced amount receivable.

            (d) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender such
amounts as shall be sufficient in the reasonable opinion of the Lender to
compensate it for any loss, cost, or expense incurred by and as a result of:

                  (i) any payment, prepayment, or conversion by the Borrower of
            a LIBO Rate Loan on a date other than the last day of an Interest
            Period for such Loan; or

                  (ii) any failure by the Borrower to borrow a LIBO Rate Loan
            from the Lender on the date for such borrowing specified in the
            relevant Borrowing Request;

such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any, of (A) the amount of interest which
would have accrued on the principal amount so paid, prepaid, converted, or not
borrowed for the period from the date of such payment, prepayment, conversion,
or failure to borrow to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow, the Interest Period for such
Loan which would have commenced on the date of such failure to borrow) at the
applicable rate of interest for such Loan provided for herein over (B) the
interest component (as reasonably determined by the Lender) of the amount (as
reasonably determined by the Lender) the Lender would have bid in the London
interbank market for Dollar deposits of amounts comparable to such principal
amount and maturities comparable to such period; provided, however, that the
Lender shall be limited to recover their actual losses and not anticipated
profits.

            (e) Determinations by the Lender for purposes of this Section of the
effect of any Regulatory Change on capital maintained, their costs or rate of
return, maintaining Loans, issuing Letters of Credit, its obligation to make
Loans and issue Letters of Credit, or on amounts receivable by it in respect of
Loans, Letters of Credit, or such obligations, and the additional amounts
required to compensate the Lender under this Section shall be rebuttable
presumptions of the additional amounts due, provided that such determinations
are made on a reasonable basis. The Lender shall furnish the Borrower with a
certificate setting forth in reasonable detail the basis and amount of increased
costs incurred or reduced amounts receivable as a result of any such event, and
the statements set forth therein shall be rebuttable presumptions of the
additional amounts due. The Lender shall (i) notify the Borrower, as promptly as
practicable after the Lender obtains knowledge of any Additional Costs or other
sums payable pursuant to this Section and determines to request compensation
therefore, of any event occurring after the Closing Date which will entitle the
Lender to compensation pursuant to this Section; provided that the Borrower
shall not be obligated for the payment of any Additional Costs or other sums
payable pursuant to this Section after the earlier of (A) the Final Maturity
(provided that the Obligations have been paid in full) and (B) the expiration of
the Commitment (provided that the

                                      -22-
<PAGE>

Obligations have been paid in full) to the extent such Additional Costs or
other sums accrued more than 90 days prior to the date upon which the Borrower
was given such notice; and (ii) designate a different Applicable Lending Office
for the Loans of the Lender affected by such event if such designation will
avoid the need for or reduce the amount of such compensation and will not, in
the sole opinion of the Lender, be materially disadvantageous to the Lender. If
the Lender request compensation from the Borrower under this Section, the
Borrower may, by notice to the Lender, require that the Loans by the Lender of
the type with respect to which such compensation is requested be converted into
Floating Rate Loans in accordance with Section 2.10. Any compensation requested
by the Lender pursuant to this Section shall be due and payable to the Lender
within fifteen days of delivery of any such notice by the Lender to the
Borrower.

            (f) The Lender agrees that it shall not request, and the Borrower
shall not be obligated to pay, any Additional Costs or other sums payable
pursuant to this Section unless similar additional costs and other sums payable
are also generally assessed by the Lender against other customers of the Lender
similarly situated where such customers are subject to documents providing for
such assessment.

      2.19 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, no more than 5 separate Loans shall be outstanding at any one
time, with, for purposes of this Section, all Floating Rate Loans constituting
one Loan and all LIBO Rate Loans for the same Interest Period constituting one
Loan. Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any interest rate for any LIBO Rate Loan for any Interest
Period therefor:

            (a) the Lender determines (which determination shall be conclusive)
      that quotations of interest rates for the deposits referred to in the
      definition of "LIBO Rate" in Section 1.2 are not being provided in the
      relevant amounts or for the relevant maturities for purposes of
      determining the rate of interest for such Loan as provided in this
      Agreement; or

            (b) the Lender determines (which determination shall be conclusive)
      that the rates of interest referred to in the definition of "LIBO Rate" in
      Section 1.2 upon the basis of which the rate of interest for such Loan for
      such Interest Period is to be determined do not accurately reflect the
      cost to the Lenders of making or maintaining such Loan for such Interest
      Period,

then the Lender shall give the Borrower prompt notice thereof; and so long as
such condition remains in effect, the Lender shall be under no obligation to
make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate Loans,
and the Borrower shall, on the last day of the then current Interest Period for
each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert
such Loan into another type of Loan in accordance with Section 2.10. Before
giving such notice pursuant to this Section, the Lender will designate a
different available Applicable Lending Office for LIBO Rate Loans or take such
other action as the Borrower may request if such designation or action will
avoid the need to suspend the obligation of the Lender

                                      -23-
<PAGE>

to make LIBO Rate Loans hereunder and will not, in the opinion of the Lender, be
materially disadvantageous to the Lender.

      2.20 Illegality. Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful for the Lender or their Applicable Lending
Office to (a) honor its obligation to make any type of LIBO Rate Loans
hereunder, or (b) maintain any type of LIBO Rate Loans hereunder, then the
Lender shall promptly notify the Borrower thereof; and the obligation of the
Lender hereunder to make such type of LIBO Rate Loans and to convert other types
of Loans into LIBO Rate Loans of such type shall be suspended until such time as
the Lender may again make and maintain LIBO Rate Loans of such type, and the
outstanding LIBO Rate Loans of such type shall be converted into Floating Rate
Loans in accordance with Section 2.10. Before giving such notice pursuant to
this Section, the Lender will designate a different available Applicable Lending
Office for LIBO Rate Loans or take such other action as the Borrower may request
if such designation or action will avoid the need to suspend the obligation of
the Lenders to make LIBO Rate Loans and will not, in the opinion of the Lender,
be disadvantageous to the Lender.

      2.21 Regulatory Change. In the event that by reason of any Regulatory
Change, the Lender (a) incur Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of the Lender which includes deposits by reference to which the
interest rate on any LIBO Rate Loan is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Lender which
includes any LIBO Rate Loan, or (b) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then, at
the election of the Lender with notice to the Borrower, the obligation of the
Lender to make such LIBO Rate Loans and to convert Floating Rate Loans into such
LIBO Rate Loans shall be suspended until such time as such Regulatory Change
ceases to be in effect, and all such outstanding LIBO Rate Loans shall be
converted into Floating Rate Loans in accordance with Section 2.10.

      2.22 Limitations on Interest Periods. Each Interest Period selected by the
Borrower (a) which commences on the last Business Day of a calendar month (or,
with respect to any LIBO Rate Loan, any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month, (b) which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, with respect to any LIBO Rate Loan, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day), (c) which would otherwise commence before and end after
Final Maturity shall end on Final Maturity, and (d) shall have a duration of not
less than one month, as to any LIBO Rate Loan, and, if any Interest Period would
otherwise be a shorter period, the relevant Loan shall be a Floating Rate Loan
during such period.

      2.23 Letters in Lieu of Transfer Orders. The Lender agrees that none of
the letters in lieu of transfer or division orders provided by the Borrower
pursuant to Section 3.1(f)(iii) or Section 5.8 will be sent to the addressees
thereof prior to the occurrence of an Event of Default,

                                      -24-
<PAGE>

at which time the Lender may, at its option and in addition to the exercise of
any of its other rights and remedies, send any or all of such letters.

      2.24 Power of Attorney. The Borrower hereby designates the Lender as its
Lender and attorney-in-fact, to act in its name, place, and stead for the
purpose of completing and, upon the occurrence of an Event of Default,
delivering any and all of the letters in lieu of transfer orders delivered by
the Borrower to the Lender pursuant to Section 3.1(f)(iii) or Section 5.8,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms all that the Lender shall lawfully do or cause to
be done by virtue of this power of attorney and the rights granted with respect
to such power of attorney. This power of attorney is coupled with the interests
of the Lender in the Collateral, shall commence and be in full force and effect
as of the Closing Date and shall remain in full force and effect and shall be
irrevocable so long as any Obligation remains outstanding or unpaid or any
Commitment exists. The powers conferred on the Lender by this appointment are
solely to protect the interests of the Lender under the Loan Documents and shall
not impose any duty upon the Lender to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.

                                  ARTICLE III

                                   CONDITIONS

      The obligations of the Lender to enter into this Agreement and to make
Loans and issue Letters of Credit are subject to the satisfaction of the
following conditions precedent:

      3.1 Receipt of Loan Documents and Other Items. The Lender shall have no
obligation under this Agreement unless and until all matters incident to the
consummation of the transactions contemplated herein, including, without
limitation, the review by the Lender or its counsel of the title of the Borrower
to its Oil and Gas Properties, shall be satisfactory to the Lender, and the
Lender shall have received, reviewed, and approved the following documents and
other items, appropriately executed when necessary and, where applicable,
acknowledged by one or more authorized officers of the Borrower, all in form and
substance satisfactory to the Lender and dated, where applicable, of even date
herewith or a date prior thereto and acceptable to the Lender:

            (a) multiple counterparts of this Agreement, as requested by the
      Lender;

            (b) the Note;

            (c) copies of the formation documents of the Borrower and all
      amendments thereto, accompanied by a certificate dated the Closing Date
      issued by the secretary or an assistant secretary or another authorized
      representative of the Borrower to the effect that each such copy is
      correct and complete;

                                      -25-
<PAGE>

            (d) a certificate of incumbency dated the Closing Date, including
      specimen signatures of all officers or other representatives of the
      Borrower who are authorized to execute Loan Documents on behalf of the
      Borrower, such certificate being executed by the manager or another
      authorized representative of the Borrower;

            (e) copies of resolutions of the Borrower, adopted by the board of
      directors of the Borrower approving the Loan Documents to which the
      Borrower is a party and authorizing the transactions contemplated herein
      and therein, accompanied by a certificate dated the Closing Date issued by
      the manager or another authorized representative of the Borrower to the
      effect that such copies are true and correct copies of resolutions duly
      adopted and that such resolutions constitute all the resolutions adopted
      with respect to such transactions, have not been amended, modified, or
      rescinded in any respect, and are in full force and effect as of the date
      of such certificate;

            (f) multiple counterparts, as requested by the Lender, of the
      following Security Instruments creating, evidencing, perfecting, and
      otherwise establishing Liens in favor of the Lender in and to the
      Collateral:

                  (i) Mortgage and Deed of Trust, Indenture, Security Agreement,
            Assignment of Production, and Financing Statement from the Borrower
            covering 90% of all Oil and Gas Properties of the Borrower and all
            improvements, personal property, and fixtures related thereto;

                  (ii) Financing Statements from the Borrower, as debtor,
            constituent to the instrument described in clause (i) above;

                  (iii) undated letters, in form and substance satisfactory to
            the Lender, from the Borrower to each purchaser of production and
            disburser of the proceeds of production from or attributable to the
            Mortgaged Properties, together with additional letters with the
            addressees left blank, authorizing and directing the addressees to
            make future payments attributable to production from the Mortgaged
            Properties directly to the Lender;

                  (iv) Security Agreement from the Borrower pledging accounts,
            contract rights, etc.;

                  (v) Financing Statements from the Borrower, as debtor,
            constituent to the instrument described in clause (iv) above;

            (g) certificates dated as of a recent date from the Secretary of
      State or other appropriate Governmental Authority evidencing the existence
      or

                                      -26-
<PAGE>

      qualification and good standing of the Borrower in its jurisdictions of
      formation and in any other jurisdictions where it does business;

            (h) unaudited Financial Statements of the Borrower as of December
      31, 2003; and unaudited Financial Statements of the Borrower as of
      September 30, 2004;

            (i) results of searches of the UCC Records of the Secretary of State
      of the States of Texas, Delaware, and Louisiana from a source acceptable
      to the Lender and reflecting no Liens against any of the Collateral as to
      which perfection of a Lien is accomplished by the filing of a financing
      statement other than in favor of the Lender;

            (j) confirmation, acceptable to the Lender, of the title of the
      Borrower to the Mortgaged Properties, free and clear of Liens other than
      Permitted Liens;

            (k) all operating, lease, sublease, royalty, sales, exchange,
      processing, farm-out, bidding, pooling, unitization, communitization, and
      other material agreements relating to the Mortgaged Properties reasonably
      requested by the Lender;

            (l) engineering reports covering the Mortgaged Properties;

            (m) the opinion of James Gilbert, counsel to the Borrower, in the
      form attached hereto as Exhibit IV, with such changes thereto as may be
      approved by the Lender;

            (n) certificates evidencing the insurance coverage required pursuant
      to Section 5.19;

            (o) payment of the Facility Fee in the amount of $21,600;

            (p) payment of the fees described in Section 5.15;

            (q) letter dated December 28, 2004 from the Borrower to the Lender
      in regard to cash capital contributions for the South Padre Island Project
      and;

            (r) such other agreements, documents, instruments, opinions,
      certificates, waivers, consents, and evidence as the Lender may reasonably
      request; and

      3.2 Each Loan and Letter of Credit. In addition to the conditions
precedent stated elsewhere herein, the Lender shall not be obligated to make any
Loan or issue any Letter of Credit unless:

                                      -27-
<PAGE>

            (a) the Borrower shall have delivered to the Lender a Borrowing
      Request at least the requisite time prior to the requested date for the
      relevant Loan, or a Letter of Credit Application at least three Business
      Days prior to the requested issuance date for the relevant Letter of
      Credit; and each statement or certification made in such Borrowing Request
      or Letter of Credit Application, as the case may be, shall be true and
      correct in all material respects on the requested date for such Loan or
      the issuance of such Letter of Credit;

            (b) no Event of Default or Default shall exist or will occur as a
      result of the making of the requested Loan or the issuance of the
      requested Letter of Credit;

            (c) if requested by the Lender, the Borrower shall have delivered
      evidence satisfactory to the Lender substantiating any of the material
      matters contained in this Agreement which are necessary to enable the
      Borrower to qualify for such Loan or the issuance of such Letter of
      Credit;

            (d) no event shall have occurred which, in the reasonable opinion of
      the Lender, would have a Material Adverse Effect;

            (e) each of the representations and warranties contained in this
      Agreement shall be true and correct and shall be deemed to be repeated by
      the Borrower as if made on the requested date for such Loan or the
      issuance of such Letter of Credit (except to the extent such
      representations and warranties expressly refer to an earlier date, in
      which case, they shall be true and correct as of such earlier date)
      provided, however, for purposes of this Section 3.2, in each
      representation and warranty in Article IV that makes reference to an
      Exhibit, the representation under this Section 3.2 that such
      representation and warranty in Article IV is true on and as of the date of
      the making of such Loan or the issuance of such Letter of Credit shall
      take into account (i) any subsequent amendments to any Exhibit referred to
      therein, (ii) any exception contained in a written notice received by the
      Lender which makes specific reference to the applicable Exhibit, or (iii)
      any written disclosure made by the Borrower or any of its Subsidiaries
      prior to the date as of which such representation or warranty is made,
      provided that such amendment, exception or disclosure has been consented
      to by the Lender if such amendment, exception or disclosure amends or
      waives provisions of this Agreement or is otherwise required under the
      terms of this Agreement.

            (f) all of the Security Instruments shall be in full force and
      effect and provide to the Lender the security intended thereby;

            (g) neither the consummation of the transactions contemplated hereby
      nor the making of such Loan or the issuance of such Letter of Credit shall
      contravene, violate, or conflict with any Requirement of Law;

                                      -28-
<PAGE>

            (h) the Borrower shall hold full legal title to the Collateral and
      be the sole beneficial owner thereof;

            (i) the Lender shall have received the payment of all fees payable
      to the Lender hereunder and reimbursement from the Borrower, or special
      legal counsel for the Lender shall have received payment from the
      Borrower, for (i) all reasonable fees and expenses of counsel to the
      Lender for which the Borrower is responsible pursuant to applicable
      provisions of this Agreement and for which invoices have been presented at
      least 15 days prior to the date of the relevant Loan or Letter of Credit
      Application (otherwise the initial Borrowing which must be presented at
      least five days prior to the Closing Date), and (ii) estimated fees
      charged by filing officers and other public officials incurred or to be
      incurred in connection with the filing and recordation of any Security
      Instruments, for which invoices have been presented as of or prior to the
      date of the requested Loan or Letter of Credit Application (otherwise the
      initial Borrowing which must be presented at least five days prior to the
      Closing Date); and

            (j) all matters incident to the consummation of the transactions
      hereby contemplated shall be satisfactory to the Lender.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

      To induce the Lender to enter into this Agreement and to make the Loans
and issue Letters of Credit, the Borrower represents and warrants to the Lender
(which representations and warranties shall survive the delivery of the Note)
that:

      4.1 Due Authorization. The execution and delivery by the Borrower of this
Agreement and the borrowings hereunder, the execution and delivery by the
Borrower of the Note, the repayment of the Note and interest and fees provided
for in the Note and this Agreement, the execution and delivery of the Security
Instruments by the Borrower and the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary limited liability company action by the
Borrower, and do not and will not (a) require the consent of any Governmental
Authority, (b) contravene or conflict with any Requirement of Law, (c) except as
shown on Exhibit VI, contravene or conflict with any indenture, instrument, or
other agreement to which the Borrower is a party or by which any Property of the
Borrower may be presently bound or encumbered, except where such contravention
or conflict would not individually or in the aggregate result in a Material
Adverse Effect, or (d) result in or require the creation or imposition of any
Lien in, upon or of any Property of the Borrower under any such indenture,
instrument, or other agreement, other than the Loan Documents.

      4.2 Limited Liability Company Existence. The Borrower is a limited
liability company duly organized, legally existing, and in good standing under
the laws of its state of formation and is duly qualified as foreign limited
liability company and is in good standing in all

                                      -29-
<PAGE>

jurisdictions wherein the ownership of Property or the operation of its business
necessitates same, other than those jurisdictions wherein the failure to so
qualify will not have a Material Adverse Effect.

      4.3 Valid and Binding Obligations. All Loan Documents, when duly executed
and delivered by the Borrower, will be the legal, valid, and binding obligations
of the Borrower, enforceable against the Borrower in accordance with their
respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relative to enforceability.

      4.4 Security Instruments. The provisions of each Security Instrument are
effective to create in favor of the Lender, a legal, valid, and enforceable Lien
in all right, title, and interest of the Borrower in the Collateral described
therein, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relative to enforceability, which Liens,
assuming the accomplishment of recording and filing in accordance with
applicable laws prior to the intervention of rights of other Persons, shall
constitute fully perfected first-priority Liens on all right, title, and
interest of the Borrower in the Collateral described therein subject to
Permitted Liens.

      4.5 Title to Assets. The Borrower has good and indefeasible title to all
of its interests in its Properties then owned by it, free and clear of all Liens
except Permitted Liens.

      4.6 No Material Misstatements. As of the Closing Date, no information,
exhibit, statement, or report furnished to the Lender by or at the direction of
the Borrower in connection with this Agreement contains any material
misstatement of fact or omits to state a material fact or any fact necessary to
make the statements contained therein not misleading as of the date made or
deemed made.

      4.7 Liabilities, Litigation, and Restrictions. As of the Closing Date,
other than as listed under the heading "Liabilities" on Exhibit VI attached
hereto, the Borrower has no liabilities, direct, or contingent, which would
result in a Material Adverse Effect, except as set forth under the heading
"Litigation" on Exhibit VI hereto, no litigation or other action of any nature
affecting the Borrower is pending before any Governmental Authority or, to the
best knowledge of the Borrower, threatened against or affecting the Borrower
which might reasonably be expected to result in any material impairment of its
ownership of any Collateral or have a Material Adverse Effect. To the best
knowledge of the Borrower, after due inquiry, no unusual or unduly burdensome
restriction, restraint or hazard exists by contract, Requirement of Law, or
otherwise relative to the business or operations of the Borrower or the
ownership and operation of the Collateral would result in a Material Adverse
Effect, other than such as relate generally to Persons engaged in business
activities similar to those conducted by the Borrower.

      4.8 Authorizations; Consents. Except as expressly contemplated by this
Agreement, no authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any Governmental Authority or any other Person is
required to authorize or is otherwise required in connection with the valid
execution and delivery by the Borrower of the Loan Documents or

                                      -30-
<PAGE>

any instrument contemplated hereby, the repayment by the Borrower of the Note
and interest and fees provided in the Note and this Agreement, or the
performance by the Borrower of the Obligations.

      4.9 Compliance with Laws. The Borrower and its Property, including,
without limitation, the Mortgaged Property, are in compliance with all material
applicable Requirements of Law, including, without limitation, Environmental
Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, except to the
extent non-compliance with any such Requirements of Law could not reasonably be
expected to have a Material Adverse Effect.

      4.10 ERISA. No Reportable Event has occurred with respect to any Single
Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the knowledge of the Borrower, (a) no Reportable Event
has occurred with respect to any Multiemployer Plan, and (b) each Multiemployer
Plan has complied with and been administered in all material respects with
applicable provisions of ERISA and the Code. The present value of all benefits
vested under each Single Employer Plan maintained by the Borrower or any
Commonly Controlled Entity (based on the assumptions used to fund such Plan) did
not, as of the last annual valuation date applicable thereto, exceed the value
of the assets of such Plan allocable to such vested benefits. Neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan for which there is any withdrawal
liability. As of the most recent valuation date applicable to any Multiemployer
Plan, neither the Borrower nor any Commonly Controlled Entity would become
subject to any liability under ERISA if the Borrower or such Commonly Controlled
Entity were to withdraw completely from such Multiemployer Plan. Neither the
Borrower nor any Commonly Controlled Entity has received notice that any
Multiemployer Plan is Insolvent or in Reorganization. To the knowledge of the
Borrower, no such Insolvency or Reorganization is reasonably likely to occur.
Based upon GAAP existing as of the date of this Agreement and current factual
circumstances, the Borrower has no reason to believe that the annual cost during
the term of this Agreement to the Borrower and all Commonly Controlled Entities
for post-retirement benefits to be provided to the current and former employees
of the Borrower and all Commonly Controlled Entities under Plans which are
welfare benefit plans (as defined in Section 3(1) of ERISA) will, in the
aggregate, have a Material Adverse Effect.

      4.11 Environmental Laws. To the knowledge and belief of the Borrower,
except as would not have a Material Adverse Effect, or as described on Exhibit
VI under the heading "Environmental Matters:"

            (a) no Property of the Borrower is currently on or has ever been on,
      or is adjacent to any Property which is on or has ever been on, any
      federal or state list of Superfund Sites;

            (b) no Hazardous Substances have been generated, transported, and/or
      disposed of by the Borrower at a site which was, at the time of such
      generation, transportation, and/or disposal, or has since become, a
      Superfund Site;

                                      -31-
<PAGE>

            (c) except in accordance with applicable Requirements of Law or the
      terms of a valid permit, license, certificate, or approval of the relevant
      Governmental Authority, no Release of Hazardous Substances by the Borrower
      or from, affecting, or related to any Property of the Borrower or adjacent
      to any Property of the Borrower has occurred; and

            (d) no Environmental Complaint has been received by the Borrower.

      4.12 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, T, U, or X.

      4.13 Investment Company Act Compliance. The Borrower is not, nor is the
Borrower directly or indirectly controlled by or acting on behalf of any Person
which is, an "investment company" or an "affiliated person" of an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

      4.14 Public Utility Holding Company Act Compliance. The Borrower is not a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.

      4.15 Proper Filing of Tax Returns; Payment of Taxes Due. The Borrower has
duly and properly filed its United States income tax return and all other tax
returns which are required to be filed and has paid all taxes due except such as
are being contested in good faith and as to which adequate provisions and
disclosures have been made. The respective charges and reserves on the books of
the Borrower with respect to taxes and other governmental charges are adequate.

      4.16 Refunds. Except as described on Exhibit VI under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any
Governmental Authority exist which could result in the Borrower being required
to refund any material portion of the proceeds received or to be received from
the sale of hydrocarbons constituting part of the Mortgaged Property.

      4.17 Gas Contracts. Except as described on Exhibit VI under the heading
"Gas Contracts," the Borrower (a) is not obligated in any material respect by
virtue of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Mortgaged Property at some future date
without receiving full payment therefor within 90 days of delivery, and (b) has
not produced gas, in any material amount, subject to, and neither the Borrower
nor any of the Mortgaged Properties is subject to, balancing rights of third
parties or subject to balancing duties under governmental requirements, except
as to such matters for which the Borrower has reflected in the most recent
engineering report or established monetary reserves adequate in amount to
satisfy such obligations and has segregated such reserves from other accounts.

                                      -32-
<PAGE>

      4.18 Intellectual Property. The Borrower owns or is licensed to use all
Intellectual Property necessary to conduct all business material to its
financial condition, business, or operations as such business is currently
conducted. No claim has been asserted or is pending by any Person with the
respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
the Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by the Borrower does not infringe on the rights of any
Person, except for such claims and infringements as do not, in the aggregate,
give rise to any material liability on the part of the Borrower.

      4.19 Casualties or Taking of Property. Except as disclosed on Exhibit VI
under the heading "Casualties," except as would not result in a Material Adverse
Effect, neither the business nor any Property of the Borrower has been
materially adversely affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of Property, or cancellation of contracts, permits, or
concessions by any Governmental Authority, riot, activities of armed forces, or
acts of God.

      4.20 Locations of Borrower. The principal place of business and chief
executive office of the Borrower is located at the address of the Borrower set
forth in Section 8.3 or at such other location as the Borrower may have, by
proper written notice hereunder, advised the Lender, provided that such other
location is within a state in which appropriate financing statements from the
Borrower in favor of the Lender have been filed.

      4.21 Subsidiaries. As of the Closing Date, the Borrower has no
Subsidiaries except those described on Exhibit VI under the heading
"Subsidiaries".

                                   ARTICLE V

                              AFFIRMATIVE COVENANTS

      So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower shall:

      5.1 Maintenance and Access to Records. Keep adequate records, of all its
transactions so that at any time, and from time to time, its true and complete
financial condition may be readily determined, and promptly following the
reasonable request of the Lender, make such records available for inspection by
the Lender and, at the expense of the Borrower, allow the Lender to make and
take away copies thereof.

      5.2 Monthly Cash Report. Deliver to the Lender on or before the 15th day
after the close of each month during the term of this Agreement a copy of its
monthly cash report at the close of such monthly period.

      5.3 Quarterly Financial Statements; Compliance Certificates. Deliver to
the Lender, (a) on or before the 45th day after the close of each of the first
three quarterly periods of each fiscal year of the Borrower, a copy of its
unaudited Financial Statements at the close of such quarterly period and from
the beginning of such fiscal year to the end of such period, such

                                      -33-
<PAGE>

Financial Statements to be certified by a Responsible Officer of the Borrower as
having been prepared in accordance with GAAP (with the exception of footnotes)
consistently applied and as a fair presentation of the condition of the
Borrower, subject to changes resulting from normal year-end audit adjustments,
and (b) on or before the 45th day after the close of each fiscal quarter, with
the exception of the last fiscal quarter, a Compliance Certificate.

      5.4 Annual Financial Statements. Deliver to the Lender, on or before the
120th day after the close of each fiscal year of the Borrower, a copy of its
annual audited Financial Statements and a Compliance Certificate on the 120th
day after the close of each fiscal year.

      5.5 Oil and Gas Reserve Reports. (a) Deliver to the Lender no later than
March 1 of each year during the term of this Agreement, engineering reports in
form and substance satisfactory to the Lender, certified by any nationally or
regionally-recognized independent consulting petroleum engineers acceptable to
the Lender, as fairly and accurately setting forth (i) the proven and producing,
shut-in, behind-pipe, and undeveloped oil and gas reserves (separately
classified as such) attributable to the Mortgaged Properties as of January 1 of
the year for which such reserve reports are furnished, (ii) the aggregate
present value of the future net income with respect to such Mortgaged
Properties, discounted at a stated per annum discount rate of proven and
producing reserves, (iii) projections of the annual rate of production, gross
income, and net income with respect to such proven and producing reserves, and
(iv) information with respect to the "take-or-pay," "prepayment," and
gas-balancing liabilities of the Borrower.

            (b) Deliver to the Lender no later than September 1 of each year
during the term of this Agreement, engineering reports in form and substance
satisfactory to the Lender prepared by or under the supervision of any
nationally or regionally-recognized independent consulting petroleum engineer
evaluating the Mortgaged Properties as of July 1 of the year for which such
reserve reports are furnished and updating the information provided in the
reports pursuant to Section 5.5(a).

            (c) Each of the reports provided pursuant to this Section shall be
submitted to the Lender together with additional data concerning pricing,
quantities of production from the Mortgaged Properties, volumes of production
sold, purchasers of production, gross revenues, expenses, and such other
information and engineering and geological data with respect thereto as the
Lender may reasonably request.

      5.6 Title Opinions; Title Defects and Mortgages. Promptly upon the request
of the Lender, furnish to the Lender title opinions, in form and substance and
by counsel satisfactory to the Lender, or other confirmation of title acceptable
to the Lender, covering Oil and Gas Properties constituting not less than 81% of
the value, determined by the Lender in its sole discretion, of the Mortgaged
Properties; and promptly, but in any event within 60 days after notice by the
Lender of any defect, material in the opinion of the Lender in value, in the
title of the Borrower to any of its Oil and Gas Properties, clear such title
defects, and, in the event any such title defects are not cured in a timely
manner, pay all related costs and fees incurred by the Lender to do so. The
Borrower shall at all times have granted a Mortgage to the Lender covering

                                      -34-
<PAGE>

a minimum of 90% of the value, determined by the Lender in its sole discretion,
of its Oil and Gas Properties.

      5.7 Notices of Certain Events. Deliver to the Lender, immediately upon
having knowledge of the occurrence of any of the following events or
circumstances, a written statement with respect thereto, signed by a Responsible
Officer of the Borrower and setting forth the relevant event or circumstance and
the steps being taken by the Borrower with respect to such event or
circumstance:

            (a) any Default or Event of Default;

            (b) any default or event of default under any contractual obligation
      of the Borrower, or any litigation, investigation, or proceeding between
      the Borrower and any Governmental Authority which, in either case, if not
      cured or if adversely determined, as the case may be, could reasonably be
      expected to have a Material Adverse Effect;

            (c) any litigation or proceeding involving the Borrower as a
      defendant or in which any Property of the Borrower is subject to a claim
      and in which the amount involved is $100,000 or more and which is not
      covered by insurance or in which injunctive or similar relief is sought;

            (d) the receipt by the Borrower of any Environmental Complaint;

            (e) any actual, proposed, or threatened testing or other
      investigation by any Governmental Authority or other Person concerning the
      environmental condition of, or relating to, any Property of the Borrower
      or adjacent to any Property of the Borrower following any allegation of a
      violation of any Requirement of Law;

            (f) any Release of Hazardous Substances by the Borrower or from,
      affecting, or related to any Property of the Borrower or adjacent to any
      Property of the Borrower except in accordance with applicable Requirements
      of Law or the terms of a valid permit, license, certificate, or approval
      of the relevant Governmental Authority, or the violation of any
      Environmental Law, or the revocation, suspension, or forfeiture of or
      failure to renew, any permit, license, registration, approval, or
      authorization which could reasonably be expected to have a Material
      Adverse Effect;

            (g) the change in identity or address of any Person remitting to the
      Borrower proceeds from the sale of hydrocarbon production from or
      attributable to any Mortgaged Property;

            (h) any change in the senior management of the Borrower;

                                      -35-
<PAGE>

            (i) any Reportable Event or imminently expected Reportable Event
      with respect to any Plan; any withdrawal from, or the termination,
      Reorganization or Insolvency of, any Multiemployer Plan; the institution
      of proceedings or the taking of any other action by the PBGC, the Borrower
      or any Commonly Controlled Entity or Multiemployer Plan with respect to
      the withdrawal from, or the termination, Reorganization or Insolvency of,
      any Single Employer Plan or Multiemployer Plan; or any Prohibited
      Transaction in connection with any Plan or any trust created thereunder
      and the action being taken by the Internal Revenue Service with respect
      thereto;

            (j) any other event or condition which could reasonably be expected
      to have a Material Adverse Effect.

      5.8 Letters in Lieu of Transfer Orders; Division Orders. Promptly upon
request by the Lender at any time and from time to time, execute such letters in
lieu of transfer orders, in addition to the letters signed by the Borrower and
delivered to the Lender in satisfaction of the condition set forth in Section
3.1(f)(iii) and/or division and/or transfer orders as are necessary or
appropriate to transfer and deliver to the Lender proceeds from or attributable
to any Mortgaged Property.

      5.9 Additional Information. Furnish to the Lender, promptly upon the
request of the Lender, such additional financial or other information concerning
the assets, liabilities, operations, and transactions of the Borrower as the
Lender may from time to time request; and notify the Lender not less than ten
Business Days prior to the occurrence of any condition or event that may change
the proper location for the filing of any financing statement or other public
notice or recording for the purpose of perfecting a Lien in any Collateral,
including, without limitation, any change in its name or the location of its
principal place of business or chief executive office; and upon the request of
the Lender, execute such additional Security Instruments as may be necessary or
appropriate in connection therewith.

      5.10 Compliance with Laws. Except to the extent the failure to comply or
cause compliance would not have a Material Adverse Effect, comply with all
applicable Requirements of Law, including, without limitation, (a) the Natural
Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental Laws, and (d)
all permits, licenses, registrations, approvals, and authorizations (i) related
to any natural or environmental resource or media located on, above, within, in
the vicinity of, related to or affected by any Property of the Borrower, (ii)
required for the performance of the operations of the Borrower, or (iii)
applicable to the use, generation, handling, storage, treatment, transport, or
disposal of any Hazardous Substances; and cause all employees, crew members,
Lenders, contractors, subcontractors, and future lessees (pursuant to
appropriate lease provisions) of the Borrower, while such Persons are acting
within the scope of their relationship with the Borrower, to comply with all
such Requirements of Law as may be necessary or appropriate to enable the
Borrower to so comply.

      5.11 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property

                                      -36-
<PAGE>

of the Borrower, except any of the foregoing being contested in good faith and
as to which adequate reserve in accordance with GAAP has been established or
unless failure to pay would not have a Material Adverse Effect.

      5.12 Maintenance of Limited Liability Company Existence and Good Standing.
Maintain its limited liability company existence or qualification and good
standing in its jurisdictions of incorporation or formation and in all
jurisdictions wherein the Property now owned or hereafter acquired or business
now or hereafter conducted necessitates same, unless the failure to do so would
not have a Material Adverse Effect.

      5.13 Payment of Note; Performance of Obligations. Pay the Note according
to the reading, tenor, and effect thereof, as modified hereby, and do and
perform every act and discharge all of its other Obligations.

      5.14 Further Assurances. Promptly cure any defects in the execution and
delivery of any of the Loan Documents and all agreements contemplated thereby,
and execute, acknowledge, and deliver such other assurances and instruments as
shall, in the opinion of the Lender, be necessary to fulfill the terms of the
Loan Documents.

      5.15 Initial Fees and Expenses of Counsel to Lender. Upon request by the
Lender, promptly reimburse the Lender for all reasonable fees and expenses of
Jackson Walker L.L.P., special counsel to the Lender, in connection with the
preparation of this Agreement and all documentation contemplated hereby, the
satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Instruments, and the consummation of the transactions
contemplated in this Agreement.

      5.16 Subsequent Fees and Expenses of Lender. Upon request by the Lender,
promptly reimburse the Lender (to the fullest extent permitted by law) for all
amounts reasonably expended, advanced, or incurred by or on behalf of the Lender
to satisfy any obligation of the Borrower under any of the Loan Documents; to
collect the Obligations; to ratify, amend, restate, or prepare additional Loan
Documents, as the case may be; for the filing and recordation of Security
Instruments; to enforce the rights of the Lender under any of the Loan
Documents; and to protect the Properties or business of the Borrower, including,
without limitation, the Collateral, which amounts shall be deemed compensatory
in nature and liquidated as to amount upon notice to the Borrower by the Lender
and which amounts shall include, but not be limited to (a) all court costs, (b)
reasonable attorneys' fees, (c) reasonable fees and expenses of auditors and
accountants incurred to protect the interests of the Lender, (d) fees and
expenses incurred in connection with the participation by the Lender as a member
of the creditors' committee in a case commenced under any Insolvency Proceeding,
(e) fees and expenses incurred in connection with lifting the automatic stay
prescribed in Section 362 Title 11 of the United States Code, and (f) fees and
expenses incurred in connection with any action pursuant to ss.1129 Title 11 of
the United States Code all reasonably incurred by the Lender in connection with
the collection of any sums due under the Loan Documents, together with interest
at the per annum interest rate equal to the Floating Rate, calculated on a basis
of a calendar year of 365 or 366 days, as the case may be, counting the actual
number of days elapsed, on each such amount from the date of notification

                                      -37-
<PAGE>

that the same was expended, advanced, or incurred by the Lender until the date
it is repaid to the Lender, with the obligations under this Section surviving
the non-assumption of this Agreement in a case commenced under any Insolvency
Proceeding and being binding upon the Borrower and/or a trustee, receiver,
custodian, or liquidator of the Borrower appointed in any such case.

      5.17 Operation of Oil and Gas Properties. Develop, maintain, and operate
its Oil and Gas Properties in a prudent and workmanlike manner in accordance
with industry standards.

      5.18 Maintenance and Inspection of Properties. Maintain all of its
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all necessary replacements thereof and operate such Properties in
a good and workmanlike manner; and permit any authorized representative of the
Lender to visit and inspect, at the expense of the Borrower, any tangible
Property of the Borrower.

      5.19 Maintenance of Insurance. Maintain insurance with respect to its
Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lender, maintained by Borrower, naming the Lender as loss
payee, and, upon any renewal of any such insurance and at other times upon
request by the Lender, furnish to the Lender evidence, satisfactory to the
Lender, within 30 days of the Closing Date of the maintenance of such insurance.
The Lender shall have the right to collect, and the Borrower hereby assigns to
the Lender, any and all monies that may become payable under any policies of
insurance relating to business interruption, if any, or by reason of damage,
loss, or destruction of any of the Collateral. In the event of any damage, loss,
or destruction for which insurance proceeds relating to business interruption,
if any, or Collateral exceed $100,000, the Lender may, at its option, apply all
such sums or any part thereof received by it toward the payment of the
Obligations, whether matured or unmatured, application to be made first to
interest and then to principal, and shall deliver to the Borrower the balance,
if any, after such application has been made. In the event of any such damage,
loss, or destruction for which insurance proceeds are $100,000 or less, provided
that no Default or Event of Default has occurred and is continuing, the Lender
shall deliver any such proceeds received by it to the Borrower. In the event the
Lender receives insurance proceeds not attributable to Collateral or business
interruption, the Lender shall deliver any such proceeds to the Borrower.

      5.20 INDEMNIFICATION. INDEMNIFY AND HOLD THE LENDER AND ITS SHAREHOLDERS,
OFFICERS, DIRECTORS, EMPLOYEES, LENDERS, ATTORNEYS-IN-FACT, AND AFFILIATES AND
EACH TRUSTEE FOR THE BENEFIT OF THE LENDER AND EACH LENDER UNDER ANY SECURITY
INSTRUMENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES,
LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS
AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND ENFORCEMENT ACTIONS OF
ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH
(INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND EXPENSES), ARISING DIRECTLY
OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE PRESENCE OF ANY HAZARDOUS
SUBSTANCES ON, UNDER,

                                      -38-
<PAGE>

OR FROM ANY PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM
HEREOF, (B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE
BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY THE
BORROWER OR ANY PREDECESSOR IN TITLE, EMPLOYEE, LENDER, CONTRACTOR, OR
SUBCONTRACTOR OF THE BORROWER OR ANY OTHER PERSON AT ANY TIME OCCUPYING OR
PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL,
STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS
SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY
RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE BORROWER, (D) ANY
CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING IN CONNECTION WITH
THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR DISPOSAL OF ANY
HAZARDOUS SUBSTANCES BY THE BORROWER OR ANY EMPLOYEE, LENDER, CONTRACTOR, OR
SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS ARE ACTING WITHIN THE SCOPE OF
THEIR RELATIONSHIP WITH THE BORROWER, IRRESPECTIVE OF WHETHER ANY OF SUCH
ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE REQUIREMENTS
OF LAW, OR (E) THE PERFORMANCE AND ENFORCEMENT OF ANY LOAN DOCUMENT OR ANY OTHER
ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE
FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE, WHETHER SOLE OR CONCURRENT,
ON THE PART OF THE LENDER AND EACH LENDER OR ANY OF ITS SHAREHOLDERS, OFFICERS,
DIRECTORS, EMPLOYEES, LENDERS, ATTORNEYS-IN-FACT, OR AFFILIATES OR ANY TRUSTEE
FOR THE BENEFIT OF THE LENDER UNDER ANY SECURITY INSTRUMENT; WITH THE FOREGOING
INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT.

      5.21 Future Subsidiaries. In the event Borrower acquires any Subsidiaries,
it agrees to have such Subsidiary become a Borrower under this Agreement or to
guarantee the Obligation hereunder whichever the Lender requires.

      5.22 Hedging. If at any time, there is a Low Price Period the Borrower
agrees to hedge a minimum of 50% of Borrower's proved producing oil and gas
reserves (as determined by the Lender's engineering evaluation) on a rolling 12
month basis or pay down the Loan Balance to equal the Lender's revised
Borrowering Base, within 10 Business Days following the Low Price Period.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

      So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower will not:

                                      -39-
<PAGE>

      6.1 Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable in excess of $50,000 in the aggregate incurred in the ordinary
course of business, which are not unpaid in excess of 60 days beyond invoice
date or are being contested in good faith and as to which such reserve as is
required by GAAP has been made or if there is an agreement between the trade
creditor and the Borrower allowing a longer time for payment, (c) crude oil,
natural gas, or other hydrocarbon floor, collar, cap, price protection, or swap
agreements ("Commodity Hedge Agreements"), in form and substance and with a
Person acceptable to the Lender, provided that (i) each commitment issued under
such agreement must also be approved by the Lender, (ii) such agreements shall
not be entered into with respect to Mortgaged Properties constituting more than
80% of monthly production of proven producing reserves as forecast in Lender's
most recent engineering evaluation, (iii) that the strike prices in such
agreements are not less than the prices used by the Lender in its most recent
Borrowing Base determination, and (iv) the Lender shall receive a security
interest in the Commodity Hedge Agreements, (d) Rate Management Transactions, in
form and substance and with a Person acceptable to the Lender, (e) Indebtedness
secured by Permitted Liens and (f) existing loans to Frank Wade and F-W Oil
Interests, Inc.

      6.2 Contingent Obligations. Create, incur, assume, or suffer to exist any
Contingent Obligation; provided, however, the foregoing restriction shall not
apply to (a) performance guarantees and performance surety or other bonds
provided in the ordinary course of business, or (b) trade credit incurred or
operating leases entered into in the ordinary course of business.

      6.3 Liens. Create, incur, assume, or suffer to exist any Lien on any of
its Oil and Gas Properties or any other Property, whether now owned or hereafter
acquired; provided, however, the foregoing restrictions shall not apply to
Permitted Liens.

      6.4 Sales of Assets. Without the prior written consent of the Lenders,
sell, transfer, or otherwise dispose of, in one or any series of transactions
assets in excess of $100,000 in the aggregate, whether now owned or hereafter
acquired, or enter into any agreement to do so; provided, however, the foregoing
restriction shall not apply to the sale of hydrocarbons or inventory in the
ordinary course of business or the sale or other disposition of Property
destroyed, lost, worn out, damaged or having only salvage value or no longer
used or useful in the business of the Borrower.

      6.5 Leasebacks. Enter into any agreement to sell or transfer any Property
and thereafter rent or lease as lessee such Property or other Property intended
for the same use or purpose as the Property sold or transferred.

      6.6 Loans or Advances. Make or agree to make or allow to remain
outstanding any loans or advances to any Person; provided, however, the
foregoing restrictions shall not apply to (a) advances or extensions of credit
in the form of accounts receivable incurred in the ordinary course of business
and upon terms common in the industry for such accounts receivable, (b) advances
to employees of the Borrower for the payment of expenses in the ordinary course
of

                                      -40-
<PAGE>

business or (c) repayment of unsecured member and/or shareholder advances not to
exceed $1,000,000.

      6.7 Investments. Acquire Investments in, or purchase or otherwise acquire
all or substantially all of the assets of, any Person; provided, however, the
foregoing restriction shall not apply to the purchase or acquisition of (a) Oil
and Gas Properties, (b) Investments in the form of (i) debt securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof, with maturities of no more than one year,
(ii) commercial paper of a domestic issuer rated at the date of acquisition at
least P-2 by Moody's Investor Service, Inc. or A-2 by Standard & Poor's
Corporation and with maturities of no more than one year from the date of
acquisition, or (iii) repurchase agreements covering debt securities or
commercial paper of the type permitted in this Section, certificates of deposit,
demand deposits, eurodollar time deposits, overnight bank deposits and bankers'
acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through the Lender or any bank or
trust company organized under the laws of the United States or any state thereof
and having capital surplus and undivided profits aggregating at least
$500,000,000, (c) other short-term Investments similar in nature and degree of
risk to those described in clause (b) of this Section, or (d) money-market
funds.

      6.8 Dividends and Distributions. Declare, pay, or make, whether in cash or
Property of the Borrower, any dividend or distribution to any Person.

      6.9 Issuance of Stock; Changes in Limited Liability Structure. Issue or
agree to issue additional shares of capital stock, in one or any series of
transactions; enter into any transaction of consolidation, merger, or
amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution).

      6.10 Transactions with Affiliates. Directly or indirectly, enter into any
transaction (including the sale, lease, or exchange of Property or the rendering
of service) with any of its Affiliates, other than upon fair and reasonable
terms no less favorable than could be obtained in an arm's length transaction
with a Person which was not an Affiliate.

      6.11 Lines of Business. Expand, on its own or through any Subsidiary, into
any line of business other than those in which the Borrower is engaged as of the
date hereof.

      6.12 ERISA Compliance. Permit any Plan maintained by it or any Commonly
Controlled Entity to (a) engage in any Prohibited Transaction, (b) incur any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA, or (c) terminate in a manner which could result in the imposition of a
Lien on any Property of the Borrower pursuant to Section 4068 of ERISA; or
assume an obligation to contribute to any Multiemployer Plan; or acquire any
Person or the assets of any Person which has now or has had at any time an
obligation to contribute to any Multiemployer Plan.

      6.13 Interest Coverage Ratio. Permit, as of the close of any fiscal
quarter, the ratio of (a) EBITDAX on a trailing four-quarter basis to (b)
Interest Expense on a trailing four quarter basis to be less than 3.00 to 1.00,
beginning with the period ending December 31, 2004.

                                      -41-
<PAGE>

      6.14 Current Ratio. Permit, as of the close of any fiscal quarter, the
ratio of Current Assets to Current Liabilities to be less than 1.00 to 1.00,
beginning with the period ending December 31, 2004.

      6.15 Tangible Net Worth. Permit Tangible Net Worth, as adjusted for
exploration costs as of the close of any fiscal quarter, to be less than
$15,000,000 on the Closing Date, plus 75% of positive quarterly net income
thereafter.

      6.16 Bank Debt Coverage Ratio. Permit, as of the close of any fiscal
quarter, the ratio of (a) Bank Debt to (b) EBITDAX measured on a trailing four
quarter basis, to be greater than 2.75 to 1.00, beginning with the period ending
December 31, 2004.

      6.17 General and Administrative Expenses. Permit, as of the close of any
fiscal quarter, general and administrative expenses to be more than 18% of gross
revenue measured on a trailing four quarter basis beginning with the period
ending December 31, 2004.

      6.18 Drilling Expenses for South Padre Island Project. Will not spend any
money over its available cash or availability under this Agreement for the
drilling and/or completion of the South Padre Island Project unless it has
obtained sufficient monies from Shareholders of in excess of 99% of Borrowers
for payment of such expenses at the time such expenses are due as set forth in
the letter described in 3.1 of herein.

                                  ARTICLE VII

                                EVENTS OF DEFAULT

      7.1 Enumeration of Events of Default. Any of the following events shall
constitute an Event of Default:

            (a) default shall be made in the payment when due on any installment
      of principal or interest under this Agreement or the Note or in the
      payment when due on any fee or other sum payable under any Loan Document
      and such default as to interest or fees only shall have continued for
      three Business Days;

            (b) default shall be made by the Borrower in the due observance or
      performance of any of their respective obligations under the Loan
      Documents, and such default shall continue for 30 days after the earlier
      of notice thereof to the Borrower by the Lender or knowledge thereof by
      the Borrower;

            (c) any representation or warranty made by the Borrower in any of
      the Loan Documents proves to have been untrue in any material respect or
      any representation, statement (including Financial Statements),
      certificate, or data furnished or made to the Lender in connection
      herewith proves to have been untrue in any material respect as of the date
      the facts therein set forth were stated or certified;

                                      -42-
<PAGE>

            (d) default shall be made by the Borrower (as principal or guarantor
      or other surety) in the payment or performance of any bond, debenture,
      note, or other Indebtedness or under any credit agreement, loan agreement,
      indenture, promissory note, or similar agreement or instrument executed in
      connection with any of the foregoing, and such default shall remain
      unremedied for in excess of the period of grace, if any, with respect
      thereto;

            (e) the Borrower shall be unable to satisfy any condition or cure
      any circumstance specified in Article III, the satisfaction or curing of
      which is precedent to the right of the Borrower to obtain a Loan or the
      issuance of a Letter of Credit and such inability shall continue for a
      period in excess of 30 days;

            (f) either the Borrower shall (i) apply for or consent to the
      appointment of a receiver, trustee, or liquidator of it or all or a
      substantial part of its assets, (ii) file a voluntary petition commencing
      an Insolvency Proceeding, (iii) make a general assignment for the benefit
      of creditors, (iv) be unable, or admit in writing its inability, to pay
      its debts generally as they become due, or (v) file an answer admitting
      the material allegations of a petition filed against it in any Insolvency
      Proceeding;

            (g) an order, judgment, or decree shall be entered against either
      the Borrower by any court of competent jurisdiction or by any other duly
      authorized authority, on the petition of a creditor or otherwise, granting
      relief in any Insolvency Proceeding or approving a petition seeking
      reorganization or an arrangement of its debts or appointing a receiver,
      trustee, conservator, custodian, or liquidator of it or all or any
      substantial part of its assets, and such order, judgment, or decree shall
      not be dismissed or stayed within 60 days;

            (h) the levy against any significant portion of the Property of the
      Borrower, or any execution, garnishment, attachment, sequestration, or
      other writ or similar proceeding which is not permanently dismissed or
      discharged within 30 days after the levy;

            (i) a final and non-appealable order, judgment, or decree shall be
      entered against the Borrower for money damages and/or Indebtedness due in
      an amount in excess of $500,000, except as disclosed on the Closing Date
      in Exhibit V and such order, judgment, or decree shall not be paid in
      full, dismissed, or stayed within 60 days;

            (j) any charges are filed or any other action or proceeding is
      instituted by any Governmental Authority against either the Borrower under
      the Racketeering Influence and Corrupt Organizations Statute (18 U.S.C.
      Section 1961 et seq.), the result of which could be the forfeiture or
      transfer of any material Property of the Borrower subject to a Lien in
      favor of the Lender and/or the Lenders without (i) satisfaction or
      provision for satisfaction of such Lien, or (ii)

                                      -43-
<PAGE>

      such forfeiture or transfer of such Property being expressly made subject
      to such Lien;

            (k) the Borrower shall have (i) concealed, removed, or diverted, or
      permitted to be concealed, removed, or diverted, any part of its Property,
      with intent to hinder, delay, or defraud its creditors or any of them,
      (ii) made or suffered a transfer of any of its Property which may be
      fraudulent under any bankruptcy, fraudulent conveyance, or similar law,
      (iii) made any transfer of its Property to or for the benefit of a
      creditor at a time when other creditors similarly situated have not been
      paid, or (iv) shall have suffered or permitted, while insolvent, any
      creditor to obtain a Lien upon any of its Property through legal
      proceedings or distraint which is not vacated within 30 days from the date
      thereof;

            (l) any Security Instrument shall for any reason not, or cease to,
      create valid and perfected first-priority Liens against the Collateral
      purportedly covered thereby;

            (m) the Borrower shall cease to be owned by its presently existing
      shareholders; or

            (n) the occurrence of a Material Adverse Effect and the same shall
      remain unremedied for in excess of 60 days after notice given by the
      Lender;

      7.2 Remedies. (a) Upon the occurrence of an Event of Default specified in
Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all Obligations
shall automatically become immediately due and payable, without presentment,
demand, protest, notice of protest, default, or dishonor, notice of intent to
accelerate maturity, notice of acceleration of maturity, or other notice of any
kind, except as may be provided to the contrary elsewhere herein, all of which
are hereby expressly waived by the Borrower; (ii) the Commitment shall
immediately cease and terminate unless and until reinstated by the Lender in
writing; and (iii) the Lender are hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held by the Lender and any and all other
indebtedness at any time owing by the Lender to or for the credit or account of
the Borrower against any and all of the Obligations although such Obligations
may be unmatured.

            (b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Lender may, by notice to the
Borrower, declare all Obligations immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lender
in writing; and (iii) the Lender are hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being expressly waived
by the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held by the Lender and any and all other

                                      -44-
<PAGE>

indebtedness at any time owing by the Lender to or for the credit or account of
the Borrower against any and all of the Obligations although such Obligations
may be unmatured.

            (c) Upon the occurrence of any Event of Default, the Lender may, in
addition to the foregoing in this Section, exercise any or all of its rights and
remedies provided by law or pursuant to the Loan Documents.

                                  ARTICLE VIII

                                  MISCELLANEOUS

      8.1 Transfers; Participations. The Lender with the consent of the
Borrower, which consent will not be unreasonably withheld and only if there is
no occurrence and continuance of an Event of Default, otherwise Lender may
without the consent of the Borrower, at any time, sell, transfer, assign, or
grant participations in the Obligation or any portion thereof; and the Lender
may forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable. The
Borrower agrees that each Transferee, regardless of the nature of any transfer
to it, may exercise all rights (including, without limitation, rights of
set-off) with respect to the portion of the Obligations held by it as fully as
if such Transferee were the direct holder thereof, subject to any agreements
between such Transferee and the transferor to such Transferee.

      8.2 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Notes and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.

      8.3 Notices and Other Communications. Except as to oral notices expressly
authorized herein, which oral notices shall be confirmed in writing, all
notices, requests, and communications hereunder shall be in writing (including
by telecopy). Unless otherwise expressly provided herein, any such notice,
request, demand, or other communication shall be deemed to have been duly given
or made when delivered by hand, or, in the case of delivery by mail, when
deposited in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:

            (a)   if to the Lender, to:

                  Guaranty Bank, FSB
                  333 Clay Street, Suite 4400
                  Houston, Texas  77002
                  Attention:  Arthur R. Gralla, Jr.
                  Telecopy:  (713) 890-8868

                                      -45-
<PAGE>

            (b)   if to the Borrower, to:

                  F-W Oil Exploration L.L.C.
                  9821 Katy Freeway, Suite 1050
                  Houston, TX  77024
                  Attention:  Jim R. Brock
                  Telecopy: (713) 461-9231

      Any party may, by proper written notice hereunder to the others, change
the individuals or addresses to which such notices to it shall thereafter be
sent.

      8.4 Parties in Interest. Subject to applicable restrictions contained
herein, all covenants and agreements herein contained by or on behalf of the
Borrower, or the Lender shall be binding upon and inure to the benefit of the
Borrower, or the Lender, as the case may be, and their respective legal
representatives, successors, and assigns.

      8.5 Rights of Third Parties. All provisions herein are imposed solely and
exclusively for the benefit of the Lender and the Borrower. No other Person
shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms.

      8.6 Renewals; Extensions. All provisions of this Agreement relating to the
Note shall apply with equal force and effect to each promissory note hereafter
executed which in whole or in part represents a renewal or extension of any part
of the Indebtedness of the Borrower under this Agreement, the Note, or any other
Loan Document.

      8.7 No Waiver; Rights Cumulative. No course of dealing on the part of the
Lender, its officers or employees, nor any failure or delay by the Lender with
respect to exercising any of its rights under any Loan Document shall operate as
a waiver thereof. The rights of the Lender under the Loan Documents shall be
cumulative and the exercise or partial exercise of any such right shall not
preclude the exercise of any other right. Neither the making of any Loan nor the
issuance of a Letter of Credit shall constitute a waiver of any of the
covenants, warranties, or conditions of the Borrower contained herein. In the
event the Borrower is unable to satisfy any such covenant, warranty, or
condition, neither the making of any Loan nor the issuance of a Letter of Credit
shall have the effect of precluding the Lender from thereafter declaring such
inability to be an Event of Default as hereinabove provided.

      8.8 Survival Upon Unenforceability. In the event any one or more of the
provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.

      8.9 Amendments; Waivers. Neither this Agreement nor any provision hereof
may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed

                                      -46-
<PAGE>

by the party against whom enforcement of the amendment, waiver, discharge, or
termination is sought.

      8.10 Controlling Agreement. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.

      8.11 Disposition of Collateral. Notwithstanding any term or provision,
express or implied, in any of the Security Instruments, the realization,
liquidation, foreclosure, or any other disposition on or of any or all of the
Collateral shall be in the order and manner and determined in the sole
discretion of the Lender; provided, however, that in no event shall the Lender
violate applicable law or exercise rights and remedies other than those provided
in such Security Instruments or otherwise existing at law or in equity.

      8.12 USA Patriot Act Notice. Lender hereby notices Borrower that pursuant
to the requirements of the USA Patriot Act (Title 111 of Pub. L. 107-56 (signed
into law October 26, 2001)) (the "Act") it is required to obtain, verify and
record information that identifies Borrower, which information includes the
names and address of Borrower and other information that will allow Lender to
identify Borrower in accordance with the Act.

      8.13 GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE DEEMED TO BE
CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS
FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.

      8.14 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON, HARRIS
COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.

      8.15 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER, LENDER AND THE LENDERS
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM,
OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS

                                      -47-
<PAGE>

AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN
THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION
ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.

      8.16 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

      8.17 Counterparts. For the convenience of the parties, this Agreement may
be executed in multiple counterparts, each of which for all purposes shall be
deemed to be an original, and all such counterparts shall together constitute
but one and the same Agreement.

                                      -48-
<PAGE>

      IN WITNESS WHEREOF, this Agreement is deemed executed effective as of the
date first above written.

                                    BORROWER:

                                    F-W OIL EXPLORATION L.L.C.

                                    By: /s/ Jim R. Brock
                                        -------------------
                                        Jim R. Brock
                                        President and CFO

                                      -49-
<PAGE>

                                    LENDER AND LENDER:

                                    GUARANTY BANK, FSB

                                    By: /s/ Arthur R. Gralla
                                        ----------------------
                                        Arthur R. Gralla, Jr.
                                        Managing Director

                                      -50-
<PAGE>

                                    EXHIBIT I

                                 [FORM OF NOTE]

                                 PROMISSORY NOTE

$50,000,000                       Houston, Texas              December 28, 2004

      FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker") promises
to pay to the order of GUARANTY BANK, FSB ("Payee"), at its banking quarters in
Houston, Harris County, Texas, the sum of FIFTY MILLION DOLLARS ($50,000,000),
or so much thereof as may be advanced against this Note pursuant to the Credit
Agreement dated of even date herewith by and between Maker and Payee (as
amended, restated, or supplemented from time to time, the "Credit Agreement"),
together with interest at the rates and calculated as provided in the Credit
Agreement.

      Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, certain events which will entitle the
holder hereof to accelerate the maturity of all amounts due hereunder.
Capitalized terms used but not defined in this Note shall have the meanings
assigned to such terms in the Credit Agreement.

      This Note is issued pursuant to, is the "Note" under, and is payable as
provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.

      Without being limited thereto or thereby, this Note is secured by the
Security Instruments.

      THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW;
PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL
NOT APPLY TO THIS NOTE.

                           (Page One of Two Page Note)

                                       I-i
<PAGE>

                                       F-W OIL EXPLORATION L.L.C.

                                       By: _________________________
                                           Jim R. Brock
                                           President and CFO

                                      I-ii
<PAGE>

                                   EXHIBIT II

                           [FORM OF BORROWING REQUEST]

GUARANTY BANK, FSB
333 CLAY STREET, SUITE 4400
HOUSTON, TEXAS  77002
Attention:  Richard E. Menchaca

      Re:   Credit Agreement dated as of December 28, 2004, by and between F-W
            OIL EXPLORATION L.L.C. and GUARANTY BANK, FSB, (as amended,
            restated, or supplemented from time to time, the "Credit Agreement")

Ladies and Gentlemen:

      Pursuant to the Credit Agreement, the Borrower hereby makes the requests
indicated below:

      1.    Loans

      (a)   Amount of new Loan: $

      (b)   Requested funding date:    , 20

      (c)   $________________ of such Loan is to be a Floating Rate Loan;

            $________________ of such Loan is to be a LIBO Rate Loan.

      Requested Interest Period for LIBO Rate Loan: ____ months.

      2.    Continuation or conversion of LIBO Rate Loan maturing on :

      (a)   Amount to be continued as a LIBO Rate Loan is $        , with
            an Interest Period of        months;

      (b)   Amount to be converted to a Floating Rate Loan is $        ;
            and

      3.    Conversion of Floating Rate Loan:

      (a)   Requested conversion date:        , 20     .

      (b)   Amount to be converted to a LIBO Rate Loan is $        , with
            an Interest Period of _____ months.

      The undersigned certifies that she/he is the ____ of the Borrower, has
obtained all consents necessary, and as such she/he is authorized to execute
this request on behalf of the

                                      II-i
<PAGE>

Borrower. The undersigned further certifies, represents, and warrants on behalf
of the Borrower that the Borrower is entitled to receive the requested
borrowing, continuation, or conversion under the terms and conditions of the
Credit Agreement and are in full compliance with all the terms and conditions of
the Credit Agreement. Each capitalized term used but not defined herein shall
have the meaning assigned to such term in the Credit Agreement.

                                       F-W OIL EXPLORATION L.L.C.

                                       By: ______________________
                                           Jim R. Brock
                                           President and CFO

                                      II-ii
<PAGE>

                                   EXHIBIT III

                        [FORM OF COMPLIANCE CERTIFICATE]

                                 ________, 2004

GUARANTY BANK, FSB
333 CLAY STREET, SUITE 4400
HOUSTON, TEXAS  77002
Attention:  Richard E. Menchaca

      Re:   Credit Agreement dated as of December 28, 2004, by and between F-W
            OIL EXPLORATION L.L.C. and Guaranty Bank, FSB, (as amended,
            restated, or supplemented from time to time, the "Credit Agreement")

Ladies and Gentlemen:

      Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower, hereby certifies to you
the following information as true and correct as of the date hereof or for the
period indicated, as the case may be:

      1.    To the best of the knowledge of the undersigned, no Default or Event
      of Default exists as of the date hereof or has occurred since the date of
      our previous certification to you, if any.

      1.    To the best of the knowledge of the undersigned, the following
      Defaults or Events of Default exist as of the date hereof or have occurred
      since the date of our previous certification to you, if any, and the
      actions set forth below are being taken to remedy such circumstances:

      2.    The compliance of the Borrower with the financial covenants of the
      Credit Agreement, as of the close of business on_____________ , is
      evidenced by the following:

      (a)   Section 6.13: Interest Coverage Ratio. Permit, as of the close of
            any fiscal quarter, the ratio of (a) EBITDAX on a trailing
            four-quarter basis to (b) Interest Expense on a trailing four
            quarter basis to be less than 3.00 to 1.00, beginning with the
            period ending December 31, 2004.

                                     Actual

                                  _____ to 1.0

      (b)   Section 6.14: Current Ratio. Permit, as of the close of any fiscal
            quarter, the ratio of Current Assets to Current Liabilities to be
            less

                                      III-i
<PAGE>

            than 1.00 to 1.00, beginning with the period ending December 31,
            2004.

                                     Actual

                                     ____ to 1.0

      (c)   Section 6.15: Tangible Net Worth. Permit Tangible Net Worth, as
            adjusted for exploration costs as of the close of any fiscal
            quarter, to be less than $15,000,000 on the Closing Date, plus 75%
            of positive quarterly net income thereafter.

                   Required          Actual

      (d)   Section 6.16: Bank Debt Coverage Ratio. Permit, as of the close of
            any fiscal quarter, the ratio of (a) Bank Debt to (b) EBITDAX
            measured on a trailing four quarter basis, to be greater than 2.75
            to 1.00, beginning with the period ending December 31, 2004.

                                     Actual

                                     ____ to 1.0

      (e)   Section 6.17: General and Administrative Expenses. Permit, as of the
            close of any fiscal quarter, general and administrative expenses to
            be more than 18% of gross revenue measured on a trailing four
            quarter basis beginning with the period ending December 31, 2004.

                                     Actual

                                     ____ %

      3.    No Material Adverse Effect has occurred since the date of the
      Financial Statements dated as of __________.

                                     III-ii
<PAGE>

      Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.

                                       Very truly yours,

                                       F-W OIL EXPLORATION L.L.C.

                                       By: ____________________________
                                           Jim R. Brock
                                           President and CFO

                                     III-iii
<PAGE>

                                   EXHIBIT IV

                          [FORM OF OPINION OF COUNSEL]

                                 [Closing Date]

GUARANTY BANK, FSB
333 CLAY STREET, SUITE 4400
HOUSTON, TEXAS  77002
Attention:  Richard E. Menchaca

      Re:   Credit Agreement dated as of December 28, 2004, by and between F-W
            OIL EXPLORATION L.L.C. and GUARANTY BANK, FSB, (as amended,
            restated, or supplemented from time to time, the "Credit Agreement")

Ladies and Gentlemen:

      We have acted as counsel to F-W OIL EXPLORATION L.L.C. (the "Borrower") in
connection with the transactions contemplated in the Credit Agreement. This
Opinion is delivered pursuant to Section 3.1(m) of the Credit Agreement, and the
Lender is hereby authorized to rely upon this Opinion in connection with the
transactions contemplated in the Credit Agreement. Each capitalized term used
but not defined herein shall have the meaning assigned to such term in the
Credit Agreement.

      In our representation of the Borrower, we have examined an executed
counterpart of each of the following (the "Loan Documents"):

            (a) the Credit Agreement;

            (b) the Note;

            (c) Mortgage, Deed of Trust, Indenture, Security Agreement,
      Assignment of Production, and Financing Statement dated of even date
      herewith from the Borrower in favor of the Lender (the "Mortgage"); and

            (d) Financing Statements from the Borrower, as debtors, constituent
      to the Mortgage (the "Financing Statement").

            (e) a certificate of incumbency dated the Closing Date, including
      specimen signatures of all officers or other representatives of the
      Borrower who are authorized to execute Loan Documents on behalf of the
      Borrower, such certificate being executed by the manager or another
      authorized representative of the Borrower;

                                      IV-i
<PAGE>

            (f) copies of resolutions, to the extent required under the
      Operating Agreement of the Borrower, adopted by the board of directors of
      the Borrower approving the Loan Documents to which the Borrower is a party
      and authorizing the transactions contemplated herein and therein,
      accompanied by a certificate dated the Closing Date issued by the manager
      or another authorized representative of the Borrower to the effect that
      such copies are true and correct copies of resolutions duly adopted and
      that such resolutions constitute all the resolutions adopted with respect
      to such transactions, have not been amended, modified, or rescinded in any
      respect, and are in full force and effect as of the date of such
      certificate;

            (g) multiple counterparts, as requested by the Lender, of the
      following Security Instruments creating, evidencing, perfecting, and
      otherwise establishing Liens in favor of the Lender in and to the
      Collateral:

                  (i) Ratification of Mortgage and Deed of Trust, Indenture,
            Security Agreement, Assignment of Production, and Financing
            Statement from the Borrower covering all Oil and Gas Properties of
            the Borrower and all improvements, personal property, and fixtures
            related thereto;

                  (ii) Financing Statements from the Borrower, as debtor,
            constituent to the instrument described in clause (i) above;

                  (iii) undated letters, in form and substance satisfactory to
            the Lender, from the Borrower to each purchaser of production and
            disburser of the proceeds of production from or attributable to the
            Mortgaged Properties, together with additional letters with the
            addressees left blank, authorizing and directing the addressees to
            make future payments attributable to production from the Mortgaged
            Properties directly to the Lender;

                  (iv) Security Agreement from the Borrower pledging contract
            rights, etc.;

                  (v) Financing Statements from the Borrower, as debtor,
            constituent to the instrument described in clause (iv) above;

                  (vi) Assignment of Partnership Interest (Security Agreement)
            from the Borrower pledging certain partnership interest;

                  (vii) Financing Statement from the Borrower, as debtor,
            constituent to the instrument described in Clause (vi) above;

                                      IV-ii
<PAGE>

            (h) certificates dated as of a recent date from the Secretary of
      State or other appropriate Governmental Authority evidencing the existence
      or qualification and good standing of the Borrower in its jurisdictions of
      formation and in any other jurisdictions where it does business;

      We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrower, certificates of public
officials and officers of the Borrower, agreements, instruments, and documents
as we have deemed necessary as a basis for the opinions hereinafter expressed.

      In making such examinations, we have, with your permission, assumed:

            (a) the genuineness of all signatures to the Loan Documents other
      than those of the Borrower;

            (b) the authenticity of all documents submitted to us as originals
      and the conformity with the originals of all documents submitted to us as
      copies;

            (c) the Lender is authorized and has the power to enter into and
      perform its obligations under the Credit Agreement;

            (d) the due authorization, execution, and delivery of all Loan
      Documents by each party thereto other than the Borrower; and

            (e) the Borrower has title to all Property covered or affected by
      the Mortgage.

      Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:

            1. The Borrower is a corporation or limited liability companies duly
      organized, legally existing, and in good standing under the laws of their
      respective states of incorporation and are duly qualified as foreign
      corporations or limited liability companies and are in good standing in
      all jurisdictions wherein the ownership of their respective Property or
      the operation of their respective businesses necessitates same.

            2. The execution and delivery by the Borrower of the Credit
      Agreement and the borrowings thereunder, the execution and delivery by the
      Borrower of the other Loan Documents to which the Borrower is a party, and
      the payment and performance of all Obligations of the Borrower thereunder
      are within the power of the Borrower, have been duly authorized by all
      necessary corporate action, and do not (a) require the consent of any
      Governmental Authority, (b) contravene or conflict with any Requirement of
      Law, (c) to our knowledge after due inquiry, contravene or conflict with
      any indenture, instrument, or other agreement to which the Borrower is a
      party or by which any Property of the Borrower may be presently bound or
      encumbered, or (d) result in or require the creation or imposition of any
      Lien upon any Property of the Borrower other than as contemplated by the
      Loan Documents.

                                     IV-iii
<PAGE>

            3. The Loan Documents to which the Borrower is a party constitute
      legal, valid, and binding obligations of the Borrower, enforceable against
      the Borrower in accordance with their respective terms.

            4. The forms of the Mortgage and the Financing Statement and the
      description of the Mortgaged Property (as such term is defined in the
      Mortgage and so used herein) situated in the State of Texas (the "State")
      satisfy all applicable Requirements of Law of the State and are legally
      sufficient under the laws of the State to enable the Lender to realize the
      practical benefits purported to be afforded by the Mortgage.

            5. The Mortgage creates a valid lien upon and security interest in
      all Mortgaged Property situated in the State to secure the Indebtedness
      (as such term is defined in the Mortgage and so used herein).

            6. The Mortgage and the Financing Statement are in satisfactory form
      for filing and recording in the offices described below.

            7. The filing and/or recording, as the case may be, of (a) the
      Mortgage in the office of the county clerk of each county in the State in
      which any portion of the Mortgaged Property is located, and as a financing
      statement and utility security instrument in the office of the Secretary
      of State of the State, and (b) the Financing Statement in the Uniform
      Commercial Code records in each county in the State in which any portion
      of the Mortgaged Property is located are the only recordings or filings in
      the State necessary to perfect the liens and security interests in the
      Mortgaged Property created by the Mortgage or to permit the Lender to
      enforce in the State its rights under the Mortgage. No subsequent filing,
      re-filing, recording, or re-recording will be required in the State in
      order to continue the perfection of the liens and security interests
      created by the Mortgage except that (a) a continuation statement must be
      filed with respect to the Mortgage filed as a financing statement in the
      office of the Secretary of State of the State and with respect to the
      Financing Statement in the Uniform Commercial Code records in each county
      in the State in which any portion of the Mortgaged Property is located,
      each within six months prior to the expiration of five years from the date
      of the relevant initial financing statement filing, (b) a subsequent
      continuation statement must be filed within six months prior to the
      expiration of each subsequent five-year period from the date of each
      initial financing statement filing, and (c) amendments or supplements to
      the Mortgage filed as a financing statement and the Financing Statement
      and/or additional financing statements may be required to be filed in the
      event of a change in the name, identity, or structure of the Borrower or
      in the event the financing statement filing otherwise becomes inaccurate
      or incomplete.

            8. To our knowledge after due inquiry, except as disclosed in
      Exhibit VI to the Credit Agreement, no litigation or other action of any
      nature affecting the Borrower is pending before any Governmental Authority
      or threatened against the Borrower. To our knowledge after due inquiry, no
      unusual or unduly burdensome restriction, restraint, or

                                      IV-iv
<PAGE>

      hazard exists by contract, Requirement of Law, or otherwise relative to
      the business or operations of the Borrower or the ownership and operation
      of any Properties of the Borrower other than such as relate generally to
      Persons engaged in business activities similar to those conducted by the
      Borrower, as the case may be.

            9. No authorization, consent, approval, exemption, franchise, permit
      or license of, or filing (other than filing of Security Instruments in
      appropriate filing offices) with, any Governmental Authority or any other
      Person is required to authorize or is otherwise required in connection
      with the valid execution and delivery by the Borrower of the Loan
      Documents or any instrument contemplated thereby, or the payment
      performance by the Borrower of the Obligations.

            10. No transaction contemplated by the Loan Documents is in
      violation of any regulations promulgated by the Board of Governors of the
      Federal Reserve System, including, without limitation, Regulations G, T,
      U, or X.

            11. The Borrower is not, nor is the Borrower directly or indirectly
      controlled by or acting on behalf of any Person which is, an "investment
      company" or an "affiliated person" of an "investment company" within the
      meaning of the Investment Company Act of 1940, as amended.

            12. The Borrower is not a "holding company," or an "affiliate" of a
      "holding company" or of a "subsidiary company" of a "holding company,"
      within the meaning of the Public Utility Holding Company Act of 1935, as
      amended.

      The opinions expressed herein are subject to the following qualifications
      and limitations:

            A. We are licensed to practice law only in the State and other
      jurisdictions whose laws are not applicable to the opinions expressed
      herein; accordingly, the foregoing opinions are limited solely to the laws
      of the State, applicable United States federal law.

            B. The validity, binding effect, and enforceability of the Loan
      Documents may be limited or affected by bankruptcy, insolvency,
      moratorium, reorganization, or other similar laws affecting rights of
      creditors generally, including, without limitation, statutes or rules of
      law which limit the effect of waivers of rights by a debtor or grantor;
      provided, however, that the limitations and other effects of such statutes
      or rules of law upon the validity and binding effect of the Loan Documents
      should not differ materially from the limitations and other effects of
      such statutes or rules of law upon the validity and binding effect of
      credit agreements, promissory notes, guaranties, and security instruments
      generally.

            C. The enforceability of the respective obligations of the Borrower
      under the Loan Documents is subject to general principles of equity
      (whether such enforceability is considered in a suit in equity or at law).

                                      IV-v
<PAGE>

      This Opinion is furnished by us solely for the benefit of the Lender in
connection with the transactions contemplated by the Loan Documents and is not
to be quoted in whole or in part or otherwise referred to or disclosed in any
other transaction.

                                Very truly yours,

                                      IV-vi
<PAGE>

                                   EXHIBIT VI

                                   DISCLOSURES

Section 4.7                            Liabilities
                                       See the Company's financial statements as
                                       of September 30, 2004, including the
                                       Notes Payable to Frank C. Wade.
                                       Litigation
                                       Cause No. 2004-17179; Charles Kana v.
                                       F-W Oil Exploration L.L.C., et al.; in
                                       the 151st Judicial District Court of
                                       Harris County, Texas
Section 4.11                           Environmental Matters
                                       None.
Section 4.16                           Refunds
                                       None.
Section 4.17                           Gas Contracts
                                       None.
Section 4.19                           Casualties
                                       None.
Section 4.21                           Subsidiaries
                                       None.

                                     VIII-i
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26.1
<SEQUENCE>8
<FILENAME>d22569exv10w26w1.txt
<DESCRIPTION>SECURITY AGREEMENT
<TEXT>
<PAGE>
                                                                 EXHIBIT 10.26.1

================================================================================

                               SECURITY AGREEMENT

                                     BETWEEN

                           F-W OIL EXPLORATION L.L.C.

                                       AND

                               GUARANTY BANK, FSB
                                 (SECURED PARTY)

                                DECEMBER 28, 2004

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                           PAGE
                                                                                                           ----
<S>                                                                                                        <C>
ARTICLE I     DEFINITIONS AND INTERPRETATION..............................................................  1
         1.1  Terms Defined Above.........................................................................  1
         1.2  Terms Defined in Credit Agreement...........................................................  1
         1.3  Additional Defined Terms....................................................................  1
         1.4  Undefined Financial Accounting Terms........................................................  3
         1.5  References..................................................................................  3
         1.6  Articles and Sections.......................................................................  3
         1.7  Number and Gender...........................................................................  3

ARTICLE II    GRANT OF SECURITY INTEREST..................................................................  4

ARTICLE III   REPRESENTATIONS AND WARRANTIES..............................................................  4
         3.1  Validity, Perfection and Priority...........................................................  4
         3.2  No Liens; Other Financing Statements........................................................  4
         3.3  Location of Debtor and Collateral...........................................................  5
         3.4  Accounts....................................................................................  5
         3.5  Tradenames; Prior Names.....................................................................  5

ARTICLE IV    COVENANTS...................................................................................  5
         4.1  Further Assurances..........................................................................  5
         4.2  Change of Chief Executive Office............................................................  6
         4.3  Change of Name or Corporate Structure.......................................................  6
         4.4  Maintain Records and Accounts...............................................................  6
         4.5  Right of Inspection.........................................................................  6
         4.6  Possession of Collateral....................................................................  7
         4.7  Financing Statement Filings; Notifications..................................................  7

ARTICLE V     ACCOUNTS....................................................................................  7
         5.1  Debtor Remains Liable under Accounts........................................................  7
         5.2  Collections on Accounts.....................................................................  7

ARTICLE VI    POWER OF ATTORNEY...........................................................................  8
         6.1  Appointment as Attorney-in-Fact.............................................................  8
         6.2  No Duty on the Part of Secured Party........................................................  9

ARTICLE VII   REMEDIES; RIGHTS UPON DEFAULT...............................................................  9
         7.1  Rights and Remedies Generally...............................................................  9
         7.2  Proceeds.................................................................................... 10
         7.3  Collection of Accounts...................................................................... 10
         7.4  Disposition of Collateral................................................................... 10
         7.5  Debtor's Accounts........................................................................... 11
         7.6  Possession of Collateral.................................................................... 11
         7.7  Disposition of the Collateral............................................................... 11
</TABLE>

                                     -i-
<PAGE>

<TABLE>
<S>                                                                                                        <C>
         7.8  Recourse.................................................................................... 12
         7.9  Expenses; Attorneys' Fees................................................................... 12
         7.10 Application of Proceeds..................................................................... 12
         7.11 Limitation on Duties Regarding Preservation of Collateral................................... 12
         7.12 Waiver of Claims............................................................................ 13
         7.13 Discontinuance of Proceedings............................................................... 13

ARTICLE VIII  INDEMNITY................................................................................... 13
         8.1  INDEMNITY................................................................................... 13
         8.2  Indemnity Obligations Secured by Collateral; Survival....................................... 14

ARTICLE IX    MISCELLANEOUS............................................................................... 15
         9.1  No Waiver; Remedies Cumulative.............................................................. 15
         9.2  Termination; Release........................................................................ 15
         9.3  Counterparts................................................................................ 15
         9.4  Marshalling................................................................................. 15
         9.5  Severability................................................................................ 15
         9.6  Financing Statement Filing.................................................................. 15
         9.7  Notices and Other Communications............................................................ 15
         9.8  Parties in Interest......................................................................... 16
         9.9  Amendments.................................................................................. 16
         9.10 ENTIRE AGREEMENT............................................................................ 16
         9.11 GOVERNING LAW............................................................................... 16
         9.12 JURISDICTION AND VENUE...................................................................... 16
</TABLE>

                                     -ii-
<PAGE>

                               SECURITY AGREEMENT

      This SECURITY AGREEMENT (this "Agreement"), dated as of December 28, 2004,
is by and between F-W OIL EXPLORATION L.L.C., (the "Debtor"), and GUARANTY BANK,
FSB, a federal savings bank ("Secured Party").

                              W I T N E S S E T H:

      WHEREAS, pursuant to the terms and conditions of the Credit Agreement
dated December __, 2004, by and among the Debtor and the Secured Party (as
amended, restated, or supplemented from time to time, the "Credit Agreement"),
and

      WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Secured Party to extend credit to or for the benefit of the Borrower pursuant to
the Credit Agreement, Debtor has agreed to execute this Agreement in favor of
the Secured Party;

      NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

      1.1 Terms Defined Above. As used herein, each of the terms "Agreement,"
"Borrower," "Credit Agreement," "Debtor," and "Secured Party" shall have the
meaning assigned to such term hereinabove.

      1.2 Terms Defined in Credit Agreement. Each capitalized term used but not
defined herein shall have the meaning assigned to such term in the Credit
Agreement.

      1.3 Additional Defined Terms. As used herein, each of the following terms
shall have the following meanings:

            "Accounts" shall mean all accounts receivable, book debts, notes,
      drafts, instruments, documents, acceptances, and other forms of
      obligations now owned or hereafter received or acquired by or belonging or
      owing to Debtor (including, without limitation, under any trade names,
      styles, or divisions thereto), whether arising from the sale or lease of
      goods or the rendition of services or any other transaction (including,
      without limitation, any such obligation which might be characterized as an
      account, general intangible, other than contract rights under contracts
      containing prohibitions against assignment of or the granting of a
      security interest in the rights of a party thereunder, or chattel paper
      under the Uniform Commercial Code in effect in any jurisdiction), and all
      rights of Debtor in, to, and under all purchase orders now owned or
      hereafter received or acquired by it for goods or services, and all rights
      of Debtor to any goods the sale or lease of which gave rise to any of the
      foregoing (including, without limitation, returned or repossessed goods
      and rights of unpaid sellers), and all moneys due or to

<PAGE>

become due to Debtor under all contracts for the sale or lease of goods or the
performance of services (whether or not earned by performance) or in connection
with any other transaction, now in existence or hereafter arising, including,
without limitation, all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.

            "Account Debtor" shall mean each Person obligated on an Account,
      Chattel Paper, or General Intangible.

            "Account Records" shall mean (a) all original copies of all
      documents, instruments, or other writings evidencing the Accounts, (b) all
      books, correspondence, credit or other files, records, ledger sheets or
      cards, invoices, and other papers relating to the Accounts, including,
      without limitation, all tapes, cards, computer tapes, computer discs,
      computer runs, record keeping systems, and other papers and documents
      relating to the Accounts, whether in the possession or under the control
      of Debtor or any computer bureau or agent from time to time acting for or
      on behalf of Debtor or otherwise, (c) all evidences of the filing of
      financing statements and the registration of other instruments in
      connection therewith and amendments, supplements, or other modifications
      thereto, notices to other creditors or secured parties, and certificates,
      acknowledgements, or other writings, including, without limitation, lien
      search reports, from filing or other registration offices, (d) all credit
      information, reports, and memoranda relating thereto, and (e) all other
      written or non-written forms of information related in any way to the
      foregoing or any Account.

            "Chattel Paper" shall mean all chattel paper (as such term is
      defined in Section 9-102(a)(11) of the UCC) of the Debtor.

            "Collateral" shall have the meaning assigned to it in Article II.

            "Commodity Hedge Agreement" shall mean any agreement, device or
      arrangement entered into by one Person with another Person providing for
      payments which are related to fluctuations in the price of petroleum (or
      any fraction thereof), natural gas, or natural gas liquids (including, but
      not limited to, swaps, caps, collars, options, puts, calls, futures and
      forward contracts).

            "General Intangibles" shall mean all general intangibles (as such
      term is defined in Section 9-102(a)(42) of the UCC) of Debtor, including,
      without limitation, rights to the payment of money (other than Accounts),
      net profit interests, contracts, farmout agreements, licenses, and
      franchises (excluding licenses and franchises which prohibit the
      assignment or grant of a security interest by Debtor), federal income tax
      refunds, trade names, distributions on certificated securities (as defined
      in Section 8-102(a)(4) of the UCC) and uncertificated securities (as
      defined in ss.8-102(a)(14) of the UCC), computer programs and other
      computer software, inventions, designs, trade secrets, goodwill,
      proprietary rights, customer lists, supplier contracts, sale orders,
      correspondence, advertising materials, payments due in connection with any
      requisition, confiscation, condemnation, seizure or forfeiture of any
      property, reversionary interests in

                                     -2-
<PAGE>

      pension and profit-sharing plans and reversionary, beneficial and residual
      interests in trusts, credits with and other claims against any Person,
      together with any collateral for any of the foregoing and the rights under
      any security agreement granting a security interest in such collateral.

            "Indemnitees" shall mean the Secured Party and its shareholders,
      officers, directors, employees, agents, attorneys-in-fact, and affiliates.

            "Proceeds" shall mean proceeds (as such term is defined in Section
      9-102(65) of the UCC).

            "Rate Management Transaction" shall mean any transaction (including
      an agreement with respect thereto) now existing or hereafter entered into
      between Debtor and Secured Party which is a rate swap, basis swap, forward
      rate transaction, commodity swap, commodity option, equity or equity index
      swap, equity or equity index option, bond option, interest rate option,
      foreign exchange transaction, cap transaction, floor transaction, collar
      transaction, forward transaction, currency swap transaction,
      cross-currency rate swap transaction, currency option or any other similar
      transaction (including any option with respect to any of these
      transactions) or any combination thereof, whether linked to on or more
      interest rates, foreign currencies, commodity prices, equity prices or
      other financial measures.

            "Secured Obligations" shall mean the Obligations.

            "UCC" shall mean the Uniform Commercial Code as in effect from time
      to time in the State of Texas.

      1.4 Undefined Financial Accounting Terms. Undefined financial accounting
terms used in this Agreement shall have the meanings assigned to such terms
according to GAAP.

      1.5 References. The words "hereby," "herein," "hereinabove,"
"hereinafter," "hereinbelow," "hereof," "hereunder," and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular Article, Section, or provision of this Agreement. References in
this Agreement to Articles, Sections, or Exhibits are to such Articles,
Sections, or Exhibits of this Agreement unless otherwise specified.

      1.6 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.

      1.7 Number and Gender. Whenever the context requires, reference herein
made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Words denoting
sex shall be construed to include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative. Definitions of terms defined

                                     -3-
<PAGE>

in the singular or plural shall be equally applicable to the plural or singular,
as the case may be, unless otherwise indicated.

                                   ARTICLE II

                           GRANT OF SECURITY INTEREST

      As security for the prompt and complete payment and performance in full of
all Secured Obligations, Debtor hereby assigns and transfers for the purpose of
security and pledges to the Secured Party and grants to the Secured Party a
security interest in and continuing lien on all right, title, and interest of
Debtor in, to, and under the following, in each case, whether now owned or
existing or hereafter acquired or arising, and wherever located (all of which is
herein collectively called the "Collateral"):

      (a)   all Accounts;

      (b)   all Account Records;

      (c)   all Chattel Paper;

      (d)   all General Intangibles;

      (e)   all Commodity Hedge Agreements;

      (f)   all Rate Management Transactions; and

      (g)   all accessions and additions to any or all of the foregoing, all
            substitutions and replacements for any or all of the foregoing, and
            all Proceeds and products of any or all of the foregoing.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      Debtor, to the extent that such Debtor is the owner of such collateral,
hereby represents and warrants to the Secured Party, which representations and
warranties shall survive execution and delivery of this Agreement, as follows:

      3.1 Validity, Perfection and Priority. The security interests in the
Collateral granted to the Secured Party hereunder constitute valid and
continuing security interests in Collateral. Assuming the accomplishment of
recording and filing financing statements, in accordance with applicable laws
prior to the intervention of rights of other Persons, (such financing
statements) naming Debtor as "debtor" and the Secured Party as "secured party"
and describing the Collateral, the security interests granted to the Secured
Party hereunder will constitute valid first-priority perfected security
interests in all Collateral with respect to which a security interest can be
perfected by the filing of a financing statement, subject only to Permitted
Liens.

      3.2 No Liens; Other Financing Statements. (a) Except for the Lien granted
to the Secured Party hereunder and Permitted Liens, Debtor owns each item of the
Collateral free and

                                     -4-
<PAGE>

clear of any and all Liens, rights, or claims of all other Persons, and Debtor
shall defend the Collateral against all claims and demands of all Persons at any
time claiming the same or any interest therein adverse to the Secured Party.

            (b) No financing statement or other evidence of Lien covering or
purporting to cover any of the Collateral is on file in any public office other
than (i) financing statements in favor of the Secured Party, (ii) financing
statements for which proper termination statements have been delivered to the
Secured Party for filing, and (iii) financing statements filed in connection
with Permitted Liens.

      3.3 Location of Debtor and Collateral. The chief executive office of the
Debtor is 9821 Katy Freeway, Suite 1050, Houston, Texas 77024. The primary
copies of the Account Records are located at, and all Accounts and General
Intangibles are maintained at, and controlled and directed (including, without
limitation, for general accounting purposes) from, such chief executive office.

      3.4 Accounts. (a) Each Account (i) is and will be, in all material
respects, the genuine, legal, valid, and binding obligation of the Account
Debtor in respect thereof, representing an unsatisfied obligation of such
Account Debtor, (ii) is and will be, in all material respects, enforceable in
accordance with its terms, (iii) is not and will not be subject to any setoffs,
defenses, taxes, counterclaims (except (A) with respect to refunds, returns, and
allowances in the ordinary course of business, and (B) to the extent that such
Account may not yet have been earned by performance), and (iv) is and will be,
in all material respects, in compliance with all applicable laws, whether
federal, state, local, or foreign.

            (b) No Accounts which are evidenced by Chattel Paper require the
consent of the Account Debtor in respect thereof in connection with their
assignment hereunder.

      3.5 Tradenames; Prior Names. Debtor has not conducted business under any
name other than its current name during the last five years.

                                   ARTICLE IV

                                    COVENANTS

      Debtor covenants and agrees with the Secured Party that from and after the
date of this Agreement:

      4.1 Further Assurances. At any time and from time to time, upon the
request of the Secured Party, and at the sole expense of Debtor, Debtor will
promptly and duly execute and deliver any and all such further instruments,
endorsements, powers of attorney, and other documents, make such filings, give
such notices, and take such further action as the Secured Party may reasonably
deem desirable in obtaining the full benefits of this Agreement and the rights,
remedies, and powers herein granted, including, without limitation, the
following:

            (a) the filing of financing statements, in form acceptable to the
      Secured Party under the Uniform Commercial Code in effect in any
      jurisdiction with respect to the liens and security interests granted
      hereby;

                                     -5-
<PAGE>

            (b) the performance of all searches of public records deemed
      necessary by the Secured Party to establish and determine the priority of
      the security interests of the Secured Party or to determine the presence
      or priority of other secured parties; and

            (c) the furnishing to the Secured Party from time to time of reports
      and schedules in connection with the Collateral as required pursuant to
      the Credit Agreement, all in reasonable detail and in form reasonably
      satisfactory to the Secured Party.

      4.2 Change of Chief Executive Office. Debtor will not move its chief
executive office except to such new location as Debtor may establish in
accordance with the last sentence of this Section. The originals of all Account
Records and General Intangibles will be kept at such chief executive office or
at the locations referred to in Section 3.3, or at such new locations as Debtor
may establish in accordance with the last sentence of this Section. All
Accounts, Account Records, and General Intangibles of Debtor will be maintained
at and controlled and directed (including, without limitation, for general
accounting purposes) from the locations referred to in Section 3.3 or such new
locations as the Debtor may establish in accordance with the last sentence of
this Section. With respect to any new location, promptly upon the request of the
Secured Party, Debtor shall take all such action as the Secured Party may
request to maintain the security interest of the Secured Party in the Collateral
granted hereby at all times fully perfected with the same or better priority and
in full force and effect. Debtor shall not establish a new location for its
chief executive office or such activities (or move any such activities from the
locations referred to in Section 3.3) until it shall have given to the Secured
Party not less than ten days' prior written notice of its intention to do so,
clearly describing such new location and providing such other information in
connection therewith as the Secured Party may reasonably request.

      4.3 Change of Name or Limited Partnership Structure. Debtor shall not
change its name or limited partnership structure or conduct business under any
name other than its current name without giving notice thereof to the Secured
Party within ten days thereafter, clearly describing such new name, or limited
liability company structure or such new tradename and providing such other
information in connection therewith as the Secured Party may reasonably request.
With respect to such new name, limited partnership company structure, or
tradename, promptly upon the request of the Secured Party, Debtor shall take all
such action as the Secured Party may reasonably request to maintain the security
interest of the Secured Party in the Collateral granted hereby at all times
fully perfected with the same or better priority and in full force and effect.

      4.4 Maintain Records and Accounts. Debtor will keep and maintain, or cause
to be kept and maintained, at its own cost and expense satisfactory and complete
records of the Collateral, including, but not limited to, the originals of all
documentation with respect to all Accounts and General Intangibles and records
of all payments received and all credits granted on the Accounts, all
merchandise returned, and all other dealings therewith.

      4.5 Right of Inspection. The Secured Party shall upon reasonable notice to
Debtor have full and free access during normal business hours of Debtor to all
the books,

                                     -6-
<PAGE>

correspondence, and records of Debtor; and the Secured Party and its
representatives may examine the same, take extracts therefrom, and make
photocopies thereof.

      4.6 Possession of Collateral. The Secured Party shall be deemed to have
possession of any of the Collateral in transit to it or set apart for it.
Otherwise the Collateral shall remain in Debtor's constructive possession and
control at all times, at Debtor's risk of loss, and shall (except for sales
permitted by Section 6.4 of the Credit Agreement) be kept at the locations
represented in Section 3.3.

      4.7 Financing Statement Filings; Notifications. Debtor recognizes that
financing statements pertaining to the Collateral have been or will be filed
with the offices of the Secretary of State for the States listed in Exhibit A
hereto. Debtor will immediately notify the Secured Party of any condition or
event that may change the proper location for the filing of any financing
statement or other public notice or recording for the purpose of perfecting a
security interest in the Collateral. Without limiting the generality of the
foregoing, Debtor will (a) ten days prior to taking such action, notify the
Secured Party of any change to a jurisdiction other than as represented in
Section 3.3 hereof, (i) in the location of Debtor's chief place of business,
(ii) in the location of the office where Debtor keeps its records concerning the
Accounts and the General Intangibles and the original of all the Accounts
Records, or (iii) in the "location" of Debtor within the meaning of Section
9-307 of the UCC, and (b) within ten days after taking such action, notify
Secured Party of any change in Debtor's name. In any notice furnished pursuant
to this Section, Debtor will expressly state that the notice is required by this
Agreement and contains facts that will or may require additional filings of
financing statements or other notices for the purpose of continuing perfection
of the Secured Party's security interest in the Collateral.

                                   ARTICLE V

                                    ACCOUNTS

      5.1 Debtor Remains Liable under Accounts. Anything herein to the contrary
notwithstanding (including, without limitation, the grant of any rights to the
Secured Party), Debtor shall remain liable under each of the Accounts to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder, all in accordance with the terms of any agreement giving rise to
each such Account. The Secured Party shall have no obligation or liability under
any Account (or any agreement giving rise thereto) by reason of or arising out
of this Agreement or the receipt by the Secured Party of any payment relating to
such Account pursuant hereto, nor shall the Secured Party be obligated in any
manner to perform any of the obligations of Debtor under or pursuant to any
Account (or any agreement giving rise thereto), to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or as
to the sufficiency of any performance by any party under any Account (or any
agreement giving rise thereto), to present or file any claim, to take any action
to enforce any performance, or to collect the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.

      5.2 Collections on Accounts. Prior to the occurrence of an Event of
Default, the Secured Party hereby authorizes Debtor to collect the Accounts. At
any time following and during the continuance of any Event of Default, the
Secured Party may curtail or terminate said

                                     -7-
<PAGE>

authority at any time and itself, or by its agents, collect all Accounts, and
any payments of Accounts collected by Debtor shall be held by Debtor in trust
for the Secured Party, segregated from other funds of Debtor. All Proceeds,
while held by the Secured Party (or by Debtor in trust for the Secured Party)
shall continue to be Collateral securing all of the Secured Obligations and
shall not constitute payment thereof until applied as hereinafter provided.

                                   ARTICLE VI

                                POWER OF ATTORNEY

      6.1 Appointment as Attorney-in-Fact. Debtor hereby irrevocably constitutes
and appoints the Secured Party and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact, with full irrevocable
power and authority in the place and stead of Debtor and in the name of Debtor
or in its own name, from time to time in the discretion of the Secured Party,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, Debtor hereby gives the
Secured Party the power and right, on behalf of Debtor, without notice to or
assent by the Debtor, to do the following:

            (a) in the case of any Account, at any time when the authority of
      Debtor to collect the Accounts has been curtailed or terminated pursuant
      hereto, or in the case of any other Collateral, at any time when any Event
      of Default shall have occurred and be continuing, in the name of Debtor or
      its own name, or otherwise, to take possession of and indorse and collect
      any checks, drafts, notes, acceptances, or other instruments for the
      payment of moneys due under, or with respect to, any Collateral; in the
      name of Debtor or otherwise to direct any party liable for any payment
      under any of the Collateral to make payment of any and all moneys due or
      to become due thereunder directly to the Secured Party or as the Secured
      Party shall direct; to ask or demand for, collect, receive payment of, and
      receipt for, any and all moneys, claims, and other amounts due or to
      become due at any time in respect of or arising out of any Collateral;

            (b) at any time when an Event of Default shall have occurred and be
      continuing, to prepare, sign, and file financing statements and amendments
      thereto in the name of Debtor;

            (c) at any time when an Event of Default shall have occurred and be
      continuing, to take or cause to be taken all actions necessary to perform
      or comply or cause performance or compliance with the terms of this
      Agreement, including, without limitation, actions to pay or discharge
      taxes and Liens levied or placed on or threatened against the Collateral,
      to effect any repairs or obtain any insurance called for by the terms of
      this Agreement, and to pay all or any part of the premiums therefor and
      the costs thereof;

            (d) upon the occurrence and during the continuance of any Event of
      Default, (i) to sign and indorse any invoices, freight or express bills,
      bills of lading, storage or warehouse receipts, drafts against debtor,
      assignments,

                                     -8-
<PAGE>

      verifications, notices, and other documents in connection with any of the
      Collateral, (ii) to commence and prosecute any suits, actions, or
      proceedings at law or in equity in any court of competent jurisdiction to
      collect the Collateral or any portion thereof and to enforce any other
      right in respect of any Collateral, (iii) to defend any suit, action, or
      proceeding brought against Debtor with respect to any Collateral, (iv) to
      settle, compromise, or adjust any suit, action, or proceeding described in
      the preceding clause and, in connection therewith, to give such discharges
      or releases as the Secured Party may deem appropriate, and (v) generally,
      to sell or transfer and make any agreement with respect to or otherwise
      deal with any of the Collateral as fully and completely as though the
      Secured Party were the absolute owner thereof for all purposes, and to do,
      at the option of the Secured Party and the expense of Debtor, at any time,
      or from time to time, all acts and things which the Secured Party deems
      necessary to protect, preserve, or realize upon the Collateral and the
      Liens of the Secured Party thereon and to effect the intent of this
      Agreement, all as fully and effectively as Debtor might do; and

            (e) at any time when an Event of Default shall have occurred and be
      continuing, to execute, in connection with any foreclosure, any
      endorsements, assignments, or other instruments of conveyance or transfer
      with respect to the Collateral.

      Debtor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable so long as any Obligation remains outstanding
or any Commitment exists. Debtor hereby acknowledges and agrees that in acting
pursuant to this power-of-attorney the Secured Party shall be acting in its own
interest and shall have no fiduciary duties to the Debtor, and Debtor hereby
waives any claims to the rights of a beneficiary of a fiduciary relationship
hereunder.

      6.2 No Duty on the Part of Secured Party. The powers conferred on the
Secured Party hereunder are solely to protect the interests of the Secured Party
in the Collateral and shall not impose any duty upon the Secured Party to
exercise any such powers. The Secured Party shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and, except for its own gross negligence, neither it nor any of its officers,
directors, employees, or agents shall be responsible to the Debtor for any act
or failure to act hereunder.

                                  ARTICLE VII

                          REMEDIES; RIGHTS UPON DEFAULT

      7.1 Rights and Remedies Generally. If an Event of Default shall occur and
be continuing, then and in every such case, the Secured Party shall have all the
rights of a secured party under the UCC, all rights now or hereafter existing
under all other applicable laws, and, subject to any mandatory requirements of
applicable law then in effect, all rights set forth in this Agreement and the
other Loan Documents. No enumeration of rights in this Section or elsewhere in
this Agreement or in any other Loan Document or other agreement shall be deemed
to in any way limit the rights of the Secured Party as described in this
Section.

                                     -9-
<PAGE>

      7.2 Proceeds. If an Event of Default shall occur and be continuing, in
addition to the rights of the Secured Party specified with respect to the
payment of Accounts, (a) all Proceeds received by Debtor consisting of cash,
checks, and other near-cash items shall be held by Debtor in trust for the
Secured Party, segregated from other funds of Debtor, and shall forthwith upon
receipt by Debtor, be turned over to the Secured Party, in the same form
received by Debtor (appropriately indorsed or assigned by the Debtor to the
order of the Secured Party or in such other manner as shall be satisfactory to
the Secured Party), and (b) any and all such Proceeds received by the Secured
Party (whether from Debtor or otherwise), or any part thereof, shall be applied
by the Secured Party as provided in Section 7.10 hereof.

      7.3 Collection of Accounts. If an Event of Default shall occur and be
continuing:

            (a) the Secured Party may instruct the obligor or obligors on any
      obligation owing or purporting to be owed to Debtor constituting the
      Collateral (including, without limitation, the Accounts) to make any
      payment required by the terms of such obligation directly to the Secured
      Party;

            (b) the Secured Party shall have the right from time to time to
      modify (including, without limitation, to extend the time for payment or
      arrange for payment in installments) or waive rights under any such
      obligation and to compromise or settle counterclaims or setoffs with the
      obligor under any such obligation; and

            (c) any and all of such proceeds of such collections paid to the
      Secured Party, or any part thereof, (after deduction of the Secured
      Party's expenses of collection, including, without limitation, reasonable
      attorneys' fees and disbursements), shall be applied by the Secured Party
      as provided in Section 7.10 hereof.

      7.4 Disposition of Collateral. If an Event of Default shall occur and be
continuing:

            (a) the Secured Party may direct Debtor to sell, assign, or
      otherwise liquidate or dispose of all or from time to time any portion of
      the Collateral, and Debtor shall do so, and the Secured Party may take
      possession of the Proceeds of such Collateral. The Secured Party may
      direct Debtor to direct that all Proceeds of such Collateral be paid
      directly to the Secured Party or may permit the Proceeds of such
      Collateral to be paid to Debtor and all such Proceeds consisting of cash,
      checks, or near-cash items shall be held by Debtor in trust for the
      Secured Party, segregated from other funds of Debtor in a separate deposit
      account containing only Proceeds and shall forthwith upon receipt by
      Debtor, be turned over to the Secured Party, in the same form received by
      Debtor (appropriately indorsed or assigned by Debtor to the order of the
      Secured Party or in such other manner as shall be satisfactory to the
      Secured Party); and

            (b) any and all such Proceeds received by the Secured Party (whether
      from Debtor or otherwise), shall be applied by the Secured Party as
      provided in Section 7.10 hereof.

                                     -10-
<PAGE>

      7.5 Debtor's Accounts. If an Event of Default shall occur and be
continuing, the Secured Party may liquidate any securities held in any accounts
of Debtor and apply the proceeds thereof and any other amounts held in any
accounts of Debtor as provided in Section 7.10 hereof.

      7.6 Possession of Collateral. If an Event of Default shall occur and be
continuing, (a) the Secured Party may, personally or by agents or attorneys,
immediately retake possession of the Collateral (including the originals of all
or any Accounts and Account Records) or any part thereof, from Debtor or any
other Person which then has possession of any part thereof with or without
notice or judicial process, and for that purpose may enter upon Debtor's
premises where any of the Collateral is located and remove the same and may make
reasonable use in connection with such removal of any and all services,
supplies, aids, and other facilities of Debtor, and (b) upon three days' notice
to Debtor, Debtor shall, at its own expense, assemble the Collateral, including,
without limitation, the originals of all Account Records (or from time to time
any portion thereof) and make it available to the Secured Party by delivery to
the Secured Party at any location designated by the Secured Party which is
reasonably convenient to both parties, whether at the premises of Debtor or the
Secured Party or elsewhere. Debtor shall, at its sole expense, store and keep
any Collateral so assembled at such place or places pending further action by
the Secured Party and while the Collateral shall be so stored and kept, provide
such guards and maintenance services as shall be reasonably necessary to protect
the same and to preserve and maintain the Collateral in good condition. Debtor's
obligation to so assemble and deliver the Collateral is of the essence of this
Agreement and, accordingly, upon application to a court of equity having
jurisdiction, the Secured Party shall be entitled to a decree requiring specific
performance by the Debtor of such obligation.

      7.7 Disposition of the Collateral. If an Event of Default shall occur and
be continuing, the Secured Party may sell, assign, lease, give an option or
options to purchase, or otherwise dispose of the Collateral (or contract to do
any of the foregoing) under one or more contracts or as an entirety, and, to the
extent permitted by applicable law, without the necessity of gathering at the
place of sale the property to be sold, at public or private sale or sales,
conducted by any officer, nominee or agent of, or auctioneer or attorney for the
Secured Party at any location of any third party conducting or otherwise
involved in such sale or any office of the Secured Party or elsewhere and in
general in such manner, at such time or times and upon such terms and conditions
and at such price as may be commercially reasonable, for cash or on credit or
for future delivery without assumption of any credit risk. Any of the Collateral
may be sold, leased, assigned, or options or contracts entered to do so, or
otherwise disposed of, in the condition in which the same existed when taken by
the Secured Party or after any overhaul or repair which may be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceeding shall be made upon not less than ten days' written notice to Debtor
specifying the time after which such disposition is to be made and the intended
sale price or other consideration therefor. Any such disposition which shall be
a public sale shall be made upon not less than ten days' written notice to
Debtor (which Debtor agrees to be commercially reasonable) specifying the time
and place of such sale and, in the absence of applicable requirements of law to
the contrary, shall be by public auction (which may, at the option or the
Secured Party, be subject to reserve), after publication of commercially
reasonable notice of such auction. To the extent permitted by applicable law,
the Secured Party may bid for and become the purchaser of the Collateral or any
item thereof, offered for sale in accordance with this

                                     -11-
<PAGE>

Section without accountability to Debtor (except to the extent of surplus money
received) as provided below. In the payment of the purchase price of the
Collateral, the purchaser shall be entitled to have credit on account of the
purchase price thereof of amounts owing to such purchaser on account of any of
the Secured Obligations and any such purchaser may deliver notes, claims for
interest, or claims for other payment with respect to such Secured Obligations
in lieu of cash up to the amount which would, upon distribution of the net
proceeds of such sale, be payable thereon. Such notes, if the amount payable
hereunder shall be less than the amount due thereon, shall be returned to the
holder thereof after being appropriately stamped to show partial payment.
Notwithstanding the foregoing, if the Collateral or any portion thereof is
perishable or threatens to decline speedily in value or is of a type customarily
sold in a recognized market only such notice as shall be reasonably practicable
shall be required.

      7.8 Recourse. Debtor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
satisfy the Secured Obligations. Debtor shall also be liable for all reasonable
expenses of the Secured Party incurred in connection with collecting such
deficiency, including, without limitation, the reasonable fees and disbursements
of any attorneys employed by the Secured Party to collect such deficiency.

      7.9 Expenses; Attorneys' Fees. Debtor shall reimburse the Secured Party
for all its reasonable expenses in connection with the exercise of its rights
and remedies hereunder, including, without limitation, reasonable attorneys'
fees and legal expenses incurred by the Secured Party.

      7.10 Application of Proceeds. The proceeds of any disposition of
Collateral shall be applied as follows:

            (a) to the payment of any and all reasonable expenses and fees
      (including attorneys' fees and disbursements) incurred by the Secured
      Party in connection with the exercise of its rights and remedies
      hereunder, including, without limitation, reasonable expenses and fees in
      connection with obtaining, taking possession of, removing, holding,
      insuring, repairing, preparing for sale or lease, storing and disposing of
      Collateral;

            (b) to the satisfaction of the Secured Obligations in such order as
      the Secured Party may elect; and

            (c) after the indefeasible payment in full in cash of all Secured
      Obligations, to Debtor or to whomever may lawfully be entitled to receive
      the same or as a court of competent jurisdiction may direct.

      7.11 Limitation on Duties Regarding Preservation of Collateral. The
Secured Party's sole duty with respect to the custody, safekeeping, and physical
preservation of the Collateral in its possession, under Section 9.207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Secured Party
deals with similar property for its own account. The Secured Party shall have no
obligation to take any steps to preserve rights against prior parties to any
Collateral. Except for matters constituting gross negligence, neither the
Secured Party nor any of its directors, officers, employees, or agents shall be
liable for failure to demand, collect, or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any

                                     -12-
<PAGE>

obligation to sell or otherwise dispose of any Collateral upon the request of
the Debtor or otherwise.

      7.12 Waiver of Claims. Except as otherwise provided in this Agreement,
Debtor hereby waives, to the extent permitted by applicable law, notice of and
judicial hearing in connection with the Secured Party's taking possession or the
Secured Party's disposition of any of the Collateral in accordance herewith,
including, without limitation, any and all prior notice and hearing for any
prejudgment remedy or remedies and any such right which the Debtor would
otherwise have under the constitution or any statute of the United States or any
state, and Debtor hereby further waives, to the extent permitted by law:

            (a) all damages occasioned by such taking of possession except any
      damages which are the direct result of the gross negligence of the Secured
      Party;

            (b) all other requirements as to the time, place, and terms of sale
      or other requirements with respect to the enforcement of the rights of the
      Secured Party hereunder;

            (c) demand of performance or other demand, notice of intent to
      demand or accelerate, notice of acceleration, presentment, protest,
      advertisement, or notice of any kind to or upon Debtor or any other
      Person, except as may be required by the Credit Agreement; and

            (d) all rights of redemption, appraisement, valuation, diligence,
      stay, extension, or moratorium now or hereafter in force under any
      applicable law in order to stay or delay the enforcement of this
      Agreement, including the absolute sale of the Collateral or any portion
      thereof, and Debtor, for itself and all who may claim under it, insofar as
      it or they now or hereafter lawfully may, hereby waives the benefit of all
      such laws.

      7.13 Discontinuance of Proceedings. In case the Secured Party shall have
instituted any proceeding to enforce any right, power, or remedy under this
Agreement by foreclosure, sale, entry, or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason, then and in every such case,
Debtor and the Secured Party shall be returned to their former positions and
rights hereunder with respect to the Collateral subject to the security interest
created under this Agreement, and all rights, remedies, and powers of the
Secured Party shall continue as if no such proceeding had been instituted.

                                  ARTICLE VIII

                                    INDEMNITY

      8.1 INDEMNITY. (a) DEBTOR AGREES TO INDEMNIFY, REIMBURSE, AND HOLD THE
INDEMNITEES HARMLESS FROM ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, CLAIMS, ACTIONS, JUDGMENTS, SUITS, REASONABLE COSTS, REASONABLE
EXPENSES, OR REASONABLE DISBURSEMENTS (INCLUDING REASONABLE ATTORNEYS' FEES AND
EXPENSES) (FOR THE PURPOSES OF THIS SECTION ALL OF THE

                                     -13-
<PAGE>

FOREGOING ARE COLLECTIVELY CALLED "EXPENSES") OF WHATSOEVER KIND OR NATURE WHICH
MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY ANY OF SUCH INDEMNITEES IN
ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE DOCUMENTS EXECUTED
IN CONNECTION HEREWITH OR IN ANY OTHER WAY CONNECTED WITH THE ADMINISTRATION OF
THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ENFORCEMENT OF ANY OF THE TERMS OF
OR THE PRESERVATION OF ANY RIGHTS HEREUNDER, INCLUDING, WITHOUT LIMITATION,
THOSE ARISING FROM THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF ANY
INDEMNITEE; PROVIDED THAT NO SUCH INDEMNITEE SHALL BE INDEMNIFIED PURSUANT TO
THIS SECTION FOR EXPENSES TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

            (b) Debtor agrees that upon written notice by any such Indemnitee of
any assertion that could give rise to an Expense, Debtor shall assume full
responsibility for the defense thereof. Without limiting the application of part
(a) of this Section, Debtor agrees to pay or reimburse such Indemnitee on demand
for any and all reasonable fees, costs, and expenses of whatever kind or nature
incurred in connection with the creation, preservation, or protection of the
Secured Party's Liens on, and security interests in, the Collateral, including,
without limitation, all reasonable fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payment, or
discharge of any taxes or Liens or security interests upon or in respect of the
Collateral, premiums for insurance with respect to the Collateral, all
reasonable expenses incurred in the custody, preservation, use, or operation of
the Collateral when Collateral is in the Secured Party's possession, and all
other reasonable fees, costs, and expenses in connection with protecting,
maintaining, or preserving the Collateral and the Secured Party's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits, or proceedings arising out of or relating to the
Collateral.

            (c) Without limiting the application of parts (a) or (b) of this
Section, Debtor agrees to pay, indemnify, and hold each Indemnitee harmless from
and against any Expenses which such Indemnitee may suffer, expend, or incur in
consequence of or growing out of any misrepresentation by any Debtor in this
Agreement or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement.

            (d) If and to the extent that the obligations of Debtor under this
Section are unenforceable for any reason, Debtor hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.

      8.2 Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Secured Obligations secured by the Collateral.
The indemnity obligations of the Debtor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment and
performance of the Secured Obligations and the termination of this Agreement.

                                     -14-
<PAGE>

                                   ARTICLE IX

                                  MISCELLANEOUS

      9.1 No Waiver; Remedies Cumulative. No failure or delay on the part of the
Secured Party in exercising any right, power, or privilege hereunder and no
course of dealing between any Debtor and the Secured Party shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. A waiver by the Secured Party
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Secured Party would otherwise have on any
future occasion. The rights and remedies herein expressly provided are
cumulative, may be exercised singly or concurrently and as often and in such
order as the Secured Party deems expedient, and are not exclusive of any rights
or remedies which the Secured Party would otherwise have whether by agreement or
now or hereafter existing under applicable law. No notice to or demand on Debtor
in any case shall entitle Debtor to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Secured Party to any other or further action in any circumstances without notice
or demand.

      9.2 Termination; Release. When the Secured Obligations have been
indefeasibly paid and performed in full and the Commitment has terminated, this
Agreement shall terminate, and the Secured Party, at the request and sole
expense of Debtor, will execute and deliver to Debtor the proper instruments
(including Uniform Commercial Code termination statements) acknowledging the
termination of this Agreement, and will duly assign, transfer, and deliver to
Debtor, without recourse, representation, or warranty of any kind whatsoever,
such of the Collateral as may be in possession of the Secured Party and has not
theretofore been disposed of, applied, or released.

      9.3 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.

      9.4 Marshalling. The Secured Party shall not be under any obligation to
marshall any assets in favor of Debtor or any other Person or against or in
payment of any or all of the Secured Obligations.

      9.5 Severability. In case any provision in or obligation under this
Agreement or the Secured Obligations shall be invalid, illegal, or unenforceable
in any jurisdiction, the validity, legality, and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.

      9.6 Financing Statement Filing. A photocopy or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in lieu
of the original to the extent permitted by applicable law.

      9.7 Notices and Other Communications. Except as to oral notices expressly
authorized herein, all notices, requests, and communications under this
Agreement shall be in

                                     -15-
<PAGE>

writing (including by telecopy). Unless otherwise expressly provided herein, any
such notice, request, or communication shall be deemed to have been duly given
or made when provided in accordance with the terms of the Credit Agreement.

      9.8 Parties in Interest. This Agreement shall be binding upon and inure to
the benefit of Debtor, the Secured Party, and their respective legal
representatives, successors, and assigns. No other Person shall have any right,
benefit, priority, or interest hereunder or as a result hereof or have standing
to require satisfaction of provisions hereof in accordance with their terms, and
any or all of such provisions may be freely waived in whole or in part by the
Secured Party at any time if the Secured Party in its sole discretion deems it
advisable to do so.

      9.9 Amendments. Neither this Agreement nor any provision hereof may be
amended, supplemented, modified, discharged, or terminated orally, but only by
an instrument in writing signed by the party against whom enforcement of the
amendment, supplement, modification, discharge, or termination is sought.

      9.10 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, BETWEEN THE PARTIES
HERETO RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

      9.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAWS).

      9.12 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH ANY DEBTOR IS A PARTY MAY BE
LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE SECURED PARTY, IN COURTS
HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. DEBTOR HEREBY SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS
COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE SECURED
PARTY IN ACCORDANCE WITH THIS SECTION.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

                                     -16-
<PAGE>

      IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.

                                           DEBTOR:

                                           F-W OIL EXPLORATION L.L.C.

                                           By: Jim R. Brock
                                               ----------------------
                                               Jim R. Brock
                                               President and CFO

                                     -17-
<PAGE>

                                           SECURED PARTY:

                                           GUARANTY BANK, FSB

                                           By: Arthur R. Gralla
                                               ----------------------
                                               Arthur R. Gralla, Jr.
                                               Managing Director

                                     -18-
<PAGE>

                                    EXHIBIT A

Section 3.1: FILING LOCATIONS

             Secretary of State of Delaware

                                       A-i
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26.2
<SEQUENCE>9
<FILENAME>d22569exv10w26w2.txt
<DESCRIPTION>RATIFICATION OF AND AMENDMENT TO ACT OF MORTGAGE AND SECURITY AGREEMENT
<TEXT>
<PAGE>
                                                                 EXHIBIT 10.26.2


                        RATIFICATION OF AND AMENDMENT TO
                     ACT OF MORTGAGE AND SECURITY AGREEMENT

      This instrument, dated effective as of the 28th day of December, 2004, is
by F-W OIL EXPLORATION L.L.C., a Delaware limited liability company (herein,
"Mortgagor"), whose Taxpayer Identification Number is 76-0688905, the address
for which for all purposes hereof is 9821 Katy Freeway, Suite 1050, Houston,
Texas 77024, and GUARANTY BANK, FSB, a Federal savings bank, as Agent for the
Lenders identified in the Credit Agreement as defined below, and the mailing
address for which is 333 Clay Street, Suite 4400, Houston, Texas 77002-4103
(herein "Mortgagee").

                              W I T N E S S E T H:

      WHEREAS, Mortgagor has heretofore executed certain security instruments
more particularly described in Exhibit A attached hereto and incorporated herein
for all purposes by this reference (the "Security Instruments," whether one or
more); and

      WHEREAS, the Security Instruments were executed and delivered to secure
the payment or performance of certain indebtedness and other obligations of
Mortgagor, as more fully described in said instruments (the "Secured
Indebtedness"); and

      WHEREAS, pursuant to the Credit Agreement by and between Mortgagor and
Mortgagee, dated effective as of December 28, 2004 (as amended, restated, or
supplemented from time to time, the "Credit Agreement"), the parties desire to
amend the Security Instruments as described below;

      NOW, THEREFORE, in consideration of the foregoing, the benefits to be
derived by Mortgagor and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Mortgagor, the parties hereto
agree as follows, with capitalized terms used but not defined herein having
meanings assigned to such terms in the Credit Agreement:

            1.    AMENDMENTS.

                  (a) AMENDMENT OF CREDIT AGREEMENT. All references to the
      Credit Agreement in the Security Instruments are hereby amended to refer
      to the Credit Agreement as defined above.

                  (b) AMENDMENT OF SECURED INDEBTEDNESS. The Secured
      Indebtedness as defined in the Security Instruments is hereby amended to
      delete Section 3.1.A and to substitute therefor the following:

            A. The Obligations, including, without limitation, (a) the
      indebtedness evidenced by the Credit Agreement, and (b) the Promissory
      Note executed by Mortgagor to the order of the Lender pursuant to the
      Credit Agreement in the aggregate face amount of up to $50,000,000,
      bearing interest and payable as therein provided or as provided in the
      Credit Agreement.

            2. WARRANTIES, REPRESENTATIONS, AND COVENANTS. The warranties,
      representations and covenants of Mortgagor contained in the Security

<PAGE>

      Instruments are hereby remade by Mortgagor to Mortgagee and are in full
      force and effect as of the date hereof.

            3. REAFFIRMATION OF SECURITY INSTRUMENTS. To secure the Secured
      Indebtedness, Mortgagor has granted, bargained, sold, mortgaged, assigned,
      transferred and conveyed, and by these presents does grant, bargain, sell,
      mortgage, assign, transfer and convey, unto the Mortgagee, and grants to
      Mortgagee a security interest in, all of Mortgagor's right, title and
      interest, whether now owned or hereafter acquired, in and to the
      Encumbered Property, including, without limitation, the oil, gas and
      mineral interests described in Exhibit B and personalty associated
      therewith.

            4. MISCELLANEOUS. This instrument shall be considered as an
      amendment to and ratification of the Security Instruments, and the
      Security Instruments, as herein expressly amended, are hereby ratified,
      approved and confirmed in every respect. All liens created, extended or
      renewed by the Security Instruments are hereby extended, renewed and
      carried forward by this instrument and incorporated herein. All references
      to the Security Instruments in any documents heretofore or hereafter
      executed shall be deemed to refer to the Security Instruments as amended
      by this instrument.

      For the convenience of the parties, this instrument may be executed in
multiple counterparts. Each of the counterparts hereof so executed shall for all
purposes be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.

      IN WITNESS WHEREOF, Mortgagor and Mortgagee have executed this instrument
on the dates of their respective acknowledgments below but effective as of the
date first above written.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     -2-
<PAGE>

      THUS SIGNED in multiple originals in my office in Houston, Harris County,
Texas, by the person who appears above my signature below in the presence of the
undersigned competent witnesses who have signed their names hereto with the said
appearer, and me, Notary, on the 28th day of December, 2004, after due reading
of the whole.

WITNESSES TO SIGNATURE OF MORTGAGOR:  MORTGAGOR

/s/ James F. Gilbert                  F-W OIL EXPLORATION L.L.C.
- ---------------------------------
(Signature)

                                      By: Jim R. Brock
/s/ James F. Gilbert                      --------------------------------------
- ---------------------------------         Jim R. Brock
(Printed Name)                            President and CFO
                                          Taxpayer Identification No. 76-0688905
/s/ Glinda B. Collins
- ---------------------------------
(Signature)

/s/ Glinda B. Collins
- ---------------------------------
(Printed Name)

                   Mary Phares
                   -------------------------------------------
                   Notary Public in and for the State of Texas

                              [NOTARY PUBLIC LOGO]

                                  MARY PHARES
                         Notary Public, State of Texas
                             My Commission Expires
                               September 16, 2005


                                     -3-
<PAGE>

         THUS SIGNED in multiple originals in my office in Houston, Harris
County, Texas, by the person who appears above my signature below in the
presence of the undersigned competent witnesses who have signed their names
hereto with the said appearer, and me, Notary, on the 28th day of December,
2004, after due reading of the whole.

WITNESSES TO SIGNATURE OF MORTGAGEE:  MORTGAGEE

/s/ Jonathan Gregory                  GUARANTY BANK, FSB, AGENT
- ------------------------------------
(Signature)

Jonathan Gregory                      By: Arthur R. Gralla
- ------------------------------------      -----------------------
(Printed Name)                            Arthur R. Gralla, Jr.,
                                          Managing Director
                                          Taxpayer Identification No. 74-2511478
/s/ William J. Tom
- ------------------------------------
(Signature)

William J. Tom
- ------------------------------------
(Printed Name)

                   Kim Link
                   -------------------------------------------
                   Notary Public in and for the State of Texas

                              [NOTARY PUBLIC LOGO]

                                    KIM LINK
                                 Notary Public
                                 STATE OF TEXAS
                            My Comm. Exp. 09-03-2007

                                     -4-
<PAGE>

                                    EXHIBIT A
                                       TO
                        RATIFICATION OF AND AMENDMENT TO
                     ACT OF MORTGAGE AND SECURITY AGREEMENT

                              SECURITY INSTRUMENTS

1.    Act of Mortgage and Security Agreement dated September 22, 2003, by F-W
      Oil Exploration L.L.C. to Guaranty Bank, FSB, Agent, filed and recorded as
      follows:

      JURISDICTION                      FILING DATA

      LOUISIANA

          Plaquemines Parish            Filed December 8, 2003, under Clerk's
                                        Entry No. 03008556, MOB 385, Page 443
          Minerals Management Service   Filed January 12, 2004, under OCS Filing
                                        Number G21142

2.    UCC-3 Financing Statement Amendment from F-W Oil Exploration L.L.C. to
      Guaranty Bank, FSB, as Agent (relating to Act of Mortgage), filed and
      recorded as follows:

      JURISDICTION                     FILING DATA

      DELAWARE

         Secretary of State            Filed January 9, 2004, as Financing
                                       Statement No. 40069445, amending Initial
                                       Financing Statement No. 32562083 filed
                                       October 2, 2003

                                       A-i
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26.3
<SEQUENCE>10
<FILENAME>d22569exv10w26w3.txt
<DESCRIPTION>RATIFICATION OF AND AMENDMENT TO MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT
<TEXT>
<PAGE>
                                                                 EXHIBIT 10.26.3


                   RATIFICATION OF AND AMENDMENT TO MORTGAGE,
                       DEED OF TRUST, SECURITY AGREEMENT,
                     FINANCING STATEMENT, FIXTURE FILING AND
                            ASSIGNMENT OF PRODUCTION

      This instrument, dated effective as of the 28th day of December, 2004, is
by F-W OIL EXPLORATION L.L.C., a Delaware limited liability company (herein
"Mortgagor"), whose Taxpayer Identification Number is 76-0688905, the address
for which for all purposes hereof is 9821 Katy Freeway, Suite 1050, Houston,
Texas 77024, and GUARANTY BANK, FSB, a Federal savings bank, as Agent for the
Lenders identified in the Credit Agreement as defined below, the mailing address
for which is 333 Clay Street, Suite 4400, Houston, Texas 77002-4400 (herein
"Mortgagee").

                              W I T N E S S E T H:

      WHEREAS, Mortgagor has heretofore executed certain security instruments
more particularly described in Exhibit A attached hereto and incorporated herein
for all purposes by this reference (the "Security Instruments," whether one or
more); and

      WHEREAS, the Security Instruments were executed and delivered to secure
the payment or performance of certain indebtedness and other obligations of
Mortgagor, as more fully described in said instruments (the "Indebtedness"); and

      WHEREAS, pursuant to the Credit Agreement by and between Mortgagor and
Mortgagee, dated effective as of December 28, 2004 (as amended, restated, or
supplemented from time to time, the "Credit Agreement"), the parties desire to
amend the Security Instruments as described below;

      NOW, THEREFORE, in consideration of the foregoing, the benefits to be
derived by Mortgagor and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Mortgagor, the parties hereto
agree as follows, with capitalized terms used but not defined herein having
meanings assigned to such terms in the Credit Agreement:

      1. AMENDMENTS.

            (a) AMENDMENT OF CREDIT AGREEMENT. All references to the Credit
Agreement in the Security Instruments are hereby amended to refer to the Credit
Agreement as defined above.

            (b) SUBSTITUTION OF SPECIFIC EVIDENCE OF INDEBTEDNESS. The Security
Instruments are hereby amended to delete Section 2.1 and to substitute therefor
the following:

            2.1 Specific Obligations. The Obligations, including, without
      limitation, the indebtedness evidenced by (a) the Credit Agreement and (b)
      the Promissory Note executed by Mortgagor to the order of the respective
      Lenders pursuant to the Credit Agreement in the aggregate face amount of
      up to

<PAGE>

      $50,000,000.00, bearing interest and payable as provided therein or as
      provided in the Credit Agreement (the "Note").

      2. WARRANTIES, REPRESENTATIONS, AND COVENANTS. The warranties,
representations and covenants of Mortgagor contained in the Security Instruments
are hereby remade by Mortgagor to Mortgagee and are in full force and effect as
of the date hereof.

      3. REAFFIRMATION OF SECURITY INSTRUMENTS. To secure the Indebtedness,
Mortgagor has granted, bargained, sold, mortgaged, assigned, transferred and
conveyed, and by these presents does grant, bargain, sell, mortgage, assign,
transfer and convey, unto the Trustee named in the Security Instruments as
amended herein, for the benefit of Mortgagee, and grants to Mortgagee a security
interest in, all of Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to the Mortgaged Property.

      TO HAVE AND TO HOLD the Mortgaged Property, together with the rights,
privileges and appurtenances now or hereafter at any time before the release of
the Security Instruments in anywise belonging or appertaining thereto, unto said
Trustee, as Trustee forever, IN TRUST, NEVERTHELESS, for the benefit of
Mortgagee, to secure the payment of the Indebtedness and the performance of the
agreements and covenants of Mortgagor herein and in the Security Instruments.

      4. MISCELLANEOUS. This instrument shall be considered as an amendment to
and ratification of the Security Instruments, and the Security Instruments, as
herein expressly amended, are hereby ratified, approved and confirmed in every
respect. All liens created, extended or renewed by the Security Instruments are
hereby extended, renewed and carried forward by this instrument and incorporated
herein. All references to the Security Instruments in any documents heretofore
or hereafter executed shall be deemed to refer to the Security Instruments as
amended by this instrument.

      For the convenience of the parties, this instrument may be executed in
multiple counterparts. Each of the counterparts hereof so executed shall for all
purposes be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     -2-
<PAGE>

      IN WITNESS WHEREOF, Mortgagor and Mortgagee have executed this instrument
on the dates of their respective acknowledgments below but effective as of the
date first above written.

                            MORTGAGOR:

                            F-W OIL EXPLORATION L.L.C.

                            By:/s/ Jim R. Brock
                               ------------------------------------------------
                                  Jim R. Brock
                                  President and CFO
                                  Taxpayer Identification No. 76-0688905

                            MORTGAGEE:

                            GUARANTY BANK, FSB, Agent

                            By:/s/ Arthur R. Gralla
                               ------------------------------------------------
                                  Arthur R. Gralla, Jr.
                                  Managing Director
                                  Taxpayer Identification No. 74-2511478

                                     -3-
<PAGE>

THE STATE OF TEXAS            Section
                              Section
COUNTY  OF  HARRIS            Section

      BEFORE ME, the undersigned authority, on this day personally appeared JIM
R. BROCK, President and CFO of F-W OIL EXPLORATION L.L.C., a Delaware limited
liability company, and known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed, as the act and deed of such
limited liability company, and in the capacity therein stated.

      GIVEN UNDER MY HAND AND SEAL OF OFFICE this 28 day of December, 2004.

     [NOTARY PUBLIC LOGO]
                                                /s/ Mary Phares
         MARY PHARES                            --------------------
Notary Public, State of Texas                   NOTARY PUBLIC in and for
    My Commission Expires                       the State of Texas
      September 16, 2005

THE STATE OF TEXAS            Section
                              Section
COUNTY OF HARRIS              Section

      BEFORE ME, the undersigned authority, on this day personally appeared
ARTHUR R. GRALLA, JR., Managing Director of GUARANTY BANK, FSB, a Federal
savings bank, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, as the act and deed of such
banking association, and in the capacity therein stated.

      GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____ day of December, 2004.


                                              /s/ Kim Link
                                              --------------------
                                              NOTARY PUBLIC in and for
                                              the State of Texas

                                               [NOTARY PUBLIC LOGO]

                                                      KIM LINK
                                                   Notary Public,
                                                   STATE OF TEXAS
                                              My Comm. Exp. 09-03-2007

                                      -4-




















<PAGE>

                                    EXHIBIT A
                                       TO
                   RATIFICATION OF AND AMENDMENT TO MORTGAGE,
                       DEED OF TRUST, SECURITY AGREEMENT,
                     FINANCING STATEMENT, FIXTURE FILING AND
                            ASSIGNMENT OF PRODUCTION

1.    Mortgage, Deed of Trust, Security Agreement, Financing Statement and
      Assignment of Production dated effective September 22, 2003, from F-W Oil
      Exploration L.L.C. to Arthur R. Gralla, Jr., Trustee for the benefit of
      Guaranty Bank, FSB, Agent, filed and recorded as follows:

JURISDICTION                               FILING DATA

TEXAS

Aransas County         Filed November 17, 2003, as Instrument No. 260083

Fort Bend County       Filed October 2, 2003, as Instrument No.
                       2003139498, Official Public Records; re-filed
                       (because of deficient notary) November 26, 2003,
                       as Instrument No. 2003165638

Kenedy County          Filed October 6, 2003, under Clerk's Entry No.
                       7730, in Volume 28, Page 287, Official Records;
                       re-filed (because of deficient notary) November
                       17, 2003, under Clerk's Entry No. 7788, in Volume
                       28, Page 225

2.    UCC-1 Financing Statement from F-W Oil Exploration L.L.C. to Guaranty
      Bank, FSB, as Agent, filed and recorded as follows:

      JURISDICTION            FILING DATA

      DELAWARE

<PAGE>

Secretary of State            Filed October 2, 2003, as Financing Statement No.
                              32562083

                                     -2-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>11
<FILENAME>d22569exv21.txt
<DESCRIPTION>SUBSIDIARIES
<TEXT>
<PAGE>

                                                                      EXHIBIT 21

                                  Subsidiaries

PrimeEnergy Management Corporation, a New York corporation 100% owned by
Corporation

Prime Operating Company, a Texas corporation 100% owned by PrimeEnergy
Corporation

Eastern Oil Well Service Company, a West Virginia corporation 100% owned by
PrimeEnergy Corporation

Southwest Oilfield Construction Company, an Oklahoma corporation, 100% owned by
PrimeEnergy Corporation

E O W S Midland Company, a Texas corporation, 100% owned by PrimeEnergy
Corporation

F-W Oil Exploration L.L.C., a Delaware limited liability company 60% owned by
PrimeEnergy Corporation
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>12
<FILENAME>d22569exv23.htm
<DESCRIPTION>CONSENT OF RYDER SCOTT & CO LP
<TEXT>
<HTML>
<HEAD>
<TITLE>exv23</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;23</B>



<P align="center" style="font-size: 10pt">[LETTER HEAD OF RYDER SCOTT Company L.P.]



<P align="right" style="font-size: 10pt"><B>FAX (303)&nbsp;623-4258</B>



<P align="center" style="font-size: 10pt">CONSENT OF RYDER SCOTT COMPANY. L.P.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consent to the use on the form 10-K of PrimeEnergy Corporation of our reserve report
and all schedules, exhibits, and attachments thereto incorporated by reference of Form 10-K and to
any reference made to us on Form 10-K as a result of such incorporation

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Very Truly Yours,</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Ryder Scott Company. L.P.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">RYDER SCOTT COMPANY. L.P.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Denver, Colorado<BR>
March&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,2005



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>13
<FILENAME>d22569exv31w1.htm
<DESCRIPTION>CERTIFICATION OF CEO PURSUANT TO RULE 13(A)-14(A)/15D-14(A)
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="right" style="font-size: 10pt">EXHIBIT 31.1



<P align="center" style="font-size: 10pt">CERTIFICATIONS



<P align="left" style="font-size: 10pt">I, Charles E. Drimal, Jr., certify that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.&nbsp;&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-K of PrimeEnergy Corporation;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.&nbsp;&nbsp;</TD>
    <TD>Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.&nbsp;&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-14 and
15d-14) for the registrant and have:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)&nbsp;&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)&nbsp;&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure controls and
procedures as of a date within 90&nbsp;days prior to the filling date of this annual report
(the &#147;Evaluation Date&#148;); and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)&nbsp;&nbsp;</TD>
    <TD>Presented in this annual report our conclusion about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">5.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most
recent evaluation, to the registrant&#146;s auditors and the audit committee of the registrant&#146;s
board of directors (or persons performing the equivalent functions):</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)&nbsp;&nbsp;</TD>
    <TD>All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant&#146;s ability to record, process, summarize and
report financial data and have identified for the registrant&#146;s auditors and material
weaknesses in internal controls; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)&nbsp;&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant&#146;s internal controls; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">6.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officers and I have indicated in this annual report
whether there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;31, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Charles E. Drimal Jr.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade color="#000000">
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Charles E. Drimal Jr</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PrimeEnergy Management Corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing General Partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>14
<FILENAME>d22569exv31w2.htm
<DESCRIPTION>CERTIFICATION OF CFO PURSUANT TO RULE 13(A)-14(A)/15D-14(A)
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt">EXHIBIT 31.2



<P align="center" style="font-size: 10pt">CERTIFICATIONS



<P align="left" style="font-size: 10pt">I, Beverly A. Cummings, certify that:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.&nbsp;&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-K of PrimeEnergy Corporation;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.&nbsp;&nbsp;</TD>
    <TD>Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.&nbsp;&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-14 and
15d-14) for the registrant and have:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.&nbsp;&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Designed such disclosure controls and procedures, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.&nbsp;&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Evaluated the effectiveness of the registrant&#146;s disclosure controls and
procedures as of a date within 90&nbsp;days prior to the filling date of this annual report
(the &#147;Evaluation Date&#148;); and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.&nbsp;&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Presented in this annual report our conclusion about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">5.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most
recent evaluation, to the registrant&#146;s auditors and the audit committee of the registrant&#146;s
board of directors (or persons performing the equivalent functions):</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.&nbsp;&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant&#146;s ability to record, process, summarize and
report financial data and have identified for the registrant&#146;s auditors and material
weaknesses in internal controls; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.&nbsp;&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant&#146;s internal controls; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">6.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officers and I have indicated in this annual report
whether there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;31, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Beverly A. Cummings</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade color="#000000">
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Beverly A Cummings</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PrimeEnergy Management Corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing General Partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>15
<FILENAME>d22569exv32w1.htm
<DESCRIPTION>CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">EXHIBIT 32.1



<P align="center" style="font-size: 10pt">CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



<P align="left" style="font-size: 10pt">In connection with the annual report of PrimeEnergy Corporation (the &#147;Company&#148;) on Form&nbsp;10-K for
the period ending December&nbsp;31, 2004, as filed with the Securities and Exchange Commission on the
date hereof (the &#147;Report&#148;), I, Charles E. Drimal Jr., Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002, that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(1)&nbsp;&nbsp;</TD>
    <TD>The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(2)&nbsp;&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Charles E. Drimal Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Executive Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">March&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>16
<FILENAME>d22569exv32w2.htm
<DESCRIPTION>CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">EXHIBIT 32.2



<P align="center" style="font-size: 10pt">CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



<P align="left" style="font-size: 10pt">In connection with the annual report of PrimeEnergy Corporation (the &#147;Company&#148;) on Form&nbsp;10-K for
the period ending December&nbsp;31, 2004, as filed with the Securities and Exchange Commission on the
date hereof (the &#147;Report&#148;), I, Beverly A. Cummings, Chief Financial Officer of the Company certify,
pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of
2002, that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(1)&nbsp;&nbsp;</TD>
    <TD>The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(2)&nbsp;&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Beverly A. Cummings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade color="#000000">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Financial Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">March&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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