<SUBMISSION>
<ACCESSION-NUMBER>0000950134-07-015056
<TYPE>S-1
<PUBLIC-DOCUMENT-COUNT>21
<FILING-DATE>20070712
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>Approach Resources Inc
<CIK>0001405073
<IRS-NUMBER>510424817
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>S-1
<ACT>33
<FILE-NUMBER>333-144512
<FILM-NUMBER>07976522
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>6300 RIDGLEA PLACE
<STREET2>SUITE 1107
<CITY>FORT WORTH
<STATE>TX
<ZIP>76116
<PHONE>8179899000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>6300 RIDGLEA PLACE
<STREET2>SUITE 1107
<CITY>FORT WORTH
<STATE>TX
<ZIP>76116
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>S-1
<SEQUENCE>1
<FILENAME>d47789sv1.htm
<DESCRIPTION>FORM S-1
<TEXT>
<HTML>
<HEAD>
<TITLE>sv1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 94%; margin-left: 3%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B>As filed with the Securities and Exchange Commission on
    July&#160;12, 2007</B>
</DIV>

<DIV align="right" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B>Registration
    No.&#160;333-&#160;&#160;&#160;&#160;&#160;&#160;</B>
</DIV>

<CENTER style="font-size: 1pt; width: 100%; border-bottom: 2pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=0 -->

<CENTER style="font-size: 1pt; width: 100%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=0 -->

<DIV style="margin-top: 4pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 14pt">UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 12pt">Washington,&#160;D.C.
    20549</FONT></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 15%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=84 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 18pt"><FONT style="white-space: nowrap">Form&#160;S-1</FONT></FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 12pt">REGISTRATION STATEMENT UNDER
    THE SECURITIES ACT OF 1933</FONT></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 15%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=84 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 24pt">Approach Resources
    Inc.</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">(Exact name of registrant as
    specified in its charter)</FONT></I>
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="34%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="32%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="32%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
</TR>
<TR valign="bottom">
<TD nowrap align="center" valign="top">
    <B><FONT style="font-size: 10pt">Delaware</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="top">
    <B><FONT style="font-size: 10pt">1311</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="top">
    <B><FONT style="font-size: 10pt">51-0424817</FONT></B>
</TD>
</TR>
<TR valign="bottom">
<TD align="center" valign="top">
    <I><FONT style="font-size: 8pt">(State or other jurisdiction
    of<BR>
    incorporation or organization)</FONT></I>
</TD>
<TD>
&nbsp;
</TD>
<TD align="center" valign="top">
    <I><FONT style="font-size: 8pt">(Primary Standard Industrial<BR>
    Classification Code Number)</FONT></I>
</TD>
<TD>
&nbsp;
</TD>
<TD align="center" valign="top">
    <I><FONT style="font-size: 8pt">(I.R.S. Employer<BR>
    Identification Number)</FONT></I><FONT style="font-size: 8pt">
    </FONT>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 15%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=84 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">6300 Ridglea Place,
    Suite&#160;1107</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">Fort&#160;Worth, Texas
    76116</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">(817)&#160;989-9000</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">(Address, including zip code,
    and telephone number, including</FONT></I>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">area code, of registrant&#146;s
    principal executive offices)</FONT></I>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">J. Ross Craft</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">President and Chief Executive
    Officer</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">6300 Ridglea Place,
    Suite&#160;1107</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">Fort&#160;Worth, Texas
    76116</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">(817)&#160;989-9000</FONT></B>
</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">(Name, address, including zip
    code, and telephone number, including area code, of agent for
    service)</FONT></I>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 15%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=84 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><I>Copies to:</I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="50%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="49%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
</TR>
<TR valign="bottom">
<TD align="center" valign="top">
    <B><FONT style="font-size: 9pt">Joe Dannenmaier<BR>
    Thompson &#038; Knight LLP<BR>
    1700 Pacific Avenue, Suite&#160;3300<BR>
    Dallas, Texas 75201<BR>
    (214)&#160;969-1700</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD align="center" valign="top">
    <B><FONT style="font-size: 9pt">Gerald S.
    Tanenbaum,&#160;Esq.<BR>
    Cahill Gordon &#038; Reindel LLP<BR>
    80 Pine Street<BR>
    New York, New York 10005<BR>
    (212) 701-3000 </FONT></B>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 15%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=84 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 8pt">As soon as practicable after
    this Registration Statement is declared effective.<BR>
    </FONT></B><FONT style="font-size: 8pt">(Approximate date of
    commencement of proposed sale to the public)
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If any securities being registered on this form are to be
    offered on a delayed or continuous basis pursuant to
    Rule&#160;415 under the Securities Act of 1933, as amended (the
    &#147;Securities Act&#148;), check the following
    box.&#160;&#160;<FONT face="Wingdings">&#111;
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If this form is filed to register additional securities for an
    offering pursuant to Rule&#160;462(b) under the Securities Act,
    check the following box and list the Securities Act registration
    statement number of the earlier effective registration statement
    for the same offering.&#160;&#160;<FONT face="Wingdings">&#111;
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If this form is a post-effective amendment filed pursuant to
    Rule&#160;462(c) under the Securities Act, check the following
    box and list the Securities Act registration statement number of
    the earlier effective registration statement for the same
    offering.&#160;&#160;<FONT face="Wingdings">&#111;
    </FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If this form is a post-effective amendment filed pursuant to
    Rule&#160;462(d) under the Securities Act, check the following
    box and list the Securities Act registration statement number of
    the earlier effective registration statement for the same
    offering.&#160;&#160;<FONT face="Wingdings">&#111;
    </FONT>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 15%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=84 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 9pt">CALCULATION OF REGISTRATION
    FEE</FONT></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="68%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutterleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutterright -->
    <TD width="14%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutterleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutterright -->
    <TD width="14%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom" style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-right: 1px solid #000000; padding-right: 2pt; border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom" style="border-top: 3px double #000000">
    <B><FONT style="font-family: Arial, Helvetica">Proposed
    maximum<BR>
    </FONT></B>
</TD>
<TD style="border-right: 1px solid #000000; padding-right: 2pt; border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom" style="border-top: 3px double #000000">
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD style="border-right: 1px solid #000000; padding-right: 2pt">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">aggregate
    offering<BR>
    </FONT></B>
</TD>
<TD style="border-right: 1px solid #000000; padding-right: 2pt">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Amount of<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Title of each
    class of Securities to be registered</FONT></B>
</TD>
<TD style="border-right: 1px solid #000000; padding-right: 2pt">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">price(1)(2)</FONT></B>
</TD>
<TD style="border-right: 1px solid #000000; padding-right: 2pt">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">registration
    fee</FONT></B>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top" style="border-top: 1px solid #000000">
<DIV style="text-indent: -9pt; margin-left: 9pt">
    <FONT style="font-size: 9pt">Common stock, par value $0.01 per
    share
    </FONT>
</DIV>
</TD>
<TD style="border-right: 1px solid #000000; padding-right: 2pt; border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom" style="border-top: 1px solid #000000">
    <FONT style="font-size: 9pt">$132,250,000
    </FONT>
</TD>
<TD style="border-right: 1px solid #000000; padding-right: 2pt; border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom" style="border-top: 1px solid #000000">
    <FONT style="font-size: 9pt">$4,061
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom" style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom" style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD style="border-top: 3px double #000000">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom" style="border-top: 3px double #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Estimated solely for the purpose of
    calculating the registration fee under Rule&#160;457(o) under
    the Securities Act.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>



<TR>
    <TD valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Includes common stock issuable upon
    exercise of the underwriters&#146; option to purchase additional
    shares of common stock.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 15%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=84 -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B>The registrant hereby amends this registration statement on
    such date or dates as may be necessary to delay its effective
    date until the registrant shall file a further amendment which
    specifically states that this registration statement shall
    thereafter become effective in accordance with Section&#160;8(a)
    of the Securities Act or until this registration statement shall
    become effective on such date as the Commission, acting pursuant
    to said Section&#160;8(a), may determine.</B>
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<CENTER style="font-size: 1pt; width: 100%; border-bottom: 1pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=0 -->

<CENTER style="font-size: 1pt; width: 100%; border-bottom: 2pt solid #000000"></CENTER><!-- callerid=999 iwidth=540 length=0 -->

<P align="left" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

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

<DIV style="width: 94%; margin-left: 3%"><!-- BEGIN LOGICAL PAGE -->

<TABLE style="color: #FF0000" width="100%" border="1" cellpadding="5"><TR><TD>
<B><FONT style="font-size: 10pt; font-family: Arial, Helvetica; color: #A32638">The
information in this preliminary prospectus is not complete and
may be changed. We and the selling stockholder may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell and it is not
soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.<BR>
</FONT></B>
</TD></TR></TABLE>

<DIV style="margin-top: 1pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 11pt; color: #A32638">Subject to
    completion, dated July&#160;12, 2007</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 11pt">Prospectus</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><I><FONT style="font-size: 18pt">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares</FONT></I></B>
</DIV>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 24pt">Approach Resources
    Inc.</FONT></B>
</DIV>

<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><I><FONT style="font-size: 18pt">Common stock</FONT></I></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Approach Resources Inc. is
    selling&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock, and the selling stockholder identified in this
    prospectus is selling an
    additional&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares.
    We will not receive any of the proceeds from the sale of the
    shares by the selling stockholder. This is the initial public
    offering of our common stock. The estimated initial public
    offering price is between $&#160;&#160;&#160;&#160;&#160; and
    $&#160;&#160;&#160;&#160;&#160; per share.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Prior to this offering, there has been no public market for our
    common stock. We intend to apply to have our common stock listed
    on the NASDAQ Global Market under the symbol &#147;AREX.&#148;
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="67%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="14%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="14%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=299 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Per
    share</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Total</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=299 length=0 -->
</TD>
</TR>
<TR style="line-height: 8pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="line-height: 8pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <FONT style="font-size: 10pt">Initial public offering price
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">$&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 8pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Underwriting discount
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">$
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">$
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 8pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Proceeds to Approach Resources
    Inc., before expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">$
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">$
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 8pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Proceeds to selling stockholder,
    before expenses(1)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">$
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">$
    </FONT>
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" valign="top">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Expenses associated with the
    offering, other than underwriting discounts, will be paid by us.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We and the selling stockholder have granted the underwriters an
    option for a period of 30&#160;days to purchase up
    to&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    additional shares of our common stock from us and up
    to&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    additional shares of our common stock from the selling
    stockholder on the same terms and conditions set forth above to
    cover over-allotments, if any.
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B>Investing in our common stock involves a high degree of risk.
    See &#147;Risk factors&#148; beginning on page&#160;13.</B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B>Neither the Securities and Exchange Commission nor any state
    securities commission has approved or disapproved of these
    securities or passed upon the adequacy or accuracy of this
    prospectus. Any representation to the contrary is a criminal
    offense.</B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The underwriters expect to deliver the shares of common stock to
    investors
    on&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007.
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">    <B><FONT style="font-size: 16pt; font-family: Arial, Helvetica">JPMorgan</FONT></B></TD>
    <TD nowrap align="right">    <B><FONT style="font-size: 16pt; font-family: Arial, Helvetica">A.G.
    Edwards</FONT></B></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">    <I><FONT style="font-family: Arial, Helvetica">Book running
    manager</FONT></I></TD>
    <TD nowrap align="right">    <I><FONT style="font-family: Arial, Helvetica">Joint lead
    manager</FONT></I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <FONT style="font-size: 11pt">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007
    </FONT>
</DIV>

<P align="left" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: times new roman">

<img src="d47789d4778910.gif" alt="(Approach Resources Areas of operations graphic)">

</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Table of
    contents</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="97%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadright -->
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#101'><FONT style="font-size: 10pt">Prospectus
    summary</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#102'><FONT style="font-size: 10pt">Risk
    factors</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">13
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#103'><FONT style="font-size: 10pt">Cautionary
    statement regarding forward-looking statements</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">31
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#104'><FONT style="font-size: 10pt">Use of
    proceeds</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">33
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#105'><FONT style="font-size: 10pt">Dividend
    policy</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">33
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#106'><FONT style="font-size: 10pt">Capitalization</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">34
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#107'><FONT style="font-size: 10pt">Dilution</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">35
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#108'><FONT style="font-size: 10pt">Unaudited combined
    pro forma financial data</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">37
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#112'><FONT style="font-size: 10pt">Selected historical
    combined financial data</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">45
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#109'><FONT style="font-size: 10pt">Management&#146;s
    discussion and analysis of financial condition and results of
    operations</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">49
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#110'><FONT style="font-size: 10pt">Business</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">64
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#111'><FONT style="font-size: 10pt">Management</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">80
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#113'><FONT style="font-size: 10pt">Security ownership
    of certain beneficial owners and management</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">99
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#114'><FONT style="font-size: 10pt">Certain
    relationships and related party transactions</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">100
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#115'><FONT style="font-size: 10pt">Selling
    stockholder</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">105
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#116'><FONT style="font-size: 10pt">Description of
    capital stock</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">106
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#117'><FONT style="font-size: 10pt">Shares eligible for
    future sale</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">110
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#118'><FONT style="font-size: 10pt">Material United
    States federal income and estate tax considerations for
    <FONT style="white-space: nowrap">non-United</FONT>
    States holders</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">113
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#119'><FONT style="font-size: 10pt">Underwriting</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">117
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#120'><FONT style="font-size: 10pt">Legal
    matters</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">120
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#121'><FONT style="font-size: 10pt">Experts</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">120
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#122'><FONT style="font-size: 10pt">Where you can find
    more information</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">121
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#123'><FONT style="font-size: 10pt">Glossary of
    selected oil and gas terms</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">122
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <A HREF='#124'><FONT style="font-size: 10pt">Index to financial
    statements of Approach Resources Inc. and affiliated
    entities</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-1
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv3w1.htm">Restated Certificate of Incorporation</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv3w2.htm">Restated Bylaws</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w2.htm">Contribution Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w3.htm">Employment Agreement - J. Ross Craft</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w4.htm">Employment Agreement - Steven P. Smart</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w5.htm">Employment Agreement - Glenn W. Reed</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w6.htm">2007 Stock Incentive Plan</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w7.htm">Convertible Promissory Note - Yorktown Energy Parnters VII, L.P.</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w8.htm">Convertible Promissory Note - Lubar Equity Fund, LLC</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w9.htm">$100,000,000 Revolving Amended and Restated Credit Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w10.htm">Amendment to Amended and Restated Credit Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w12.htm">Form of Option Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv10w13.htm">Restricted Stock Award Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv21w1.htm">List of Subsidiaries</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv23w1.htm">Consent of Hein & Associates LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv23w2.htm">Consent of DeGolyer & MacNaughton</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d47789exv23w3.htm">Consent of Cawley, Gillespie & Associates, Inc</A></FONT></TD></TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    You should rely only on the information contained in this
    prospectus. We have not authorized anyone to provide you with
    information different from that contained in this prospectus. We
    are offering to sell, and seeking offers to buy, shares of our
    common stock only in jurisdictions where offers and sales are
    permitted. The information contained in this prospectus is
    accurate only as of the date of this prospectus, regardless of
    the time of delivery of this prospectus or of any sale of our
    common stock.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    No action is being taken in any jurisdiction outside the United
    States to permit a public offering of the common stock or
    possession or distribution of this prospectus in that
    jurisdiction. Persons who come into possession of this
    prospectus in jurisdictions outside the United States are
    required to inform themselves about and to observe any
    restrictions as to this offering and the distribution of this
    prospectus applicable to those jurisdictions.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    i
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The market data and certain other statistical information used
    throughout this prospectus are based on independent industry
    publications, governmental publications, reports by market
    research firms or other independent sources. Some data are also
    based on our good faith estimates. Although we believe these
    third-party sources are reliable, we have not independently
    verified the information and cannot guarantee its accuracy and
    completeness.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The numbers contained in this prospectus relating to our gross
    and net leasehold acreage have been rounded to the nearest
    thousand acres.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have filed an application for registration of a service mark
    for &#147;Approach Resources Inc.&#148; Other products, services
    and company names mentioned in this prospectus are the service
    marks/trademarks of their respective owners.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    ii
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->
<A name='101'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Prospectus
    summary</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>This summary highlights information contained elsewhere in
    this prospectus. Because this section is only a summary, it does
    not contain all of the information that may be important to you
    or that you should consider before making an investment
    decision. For a more complete understanding of this offering, we
    encourage you to read this entire prospectus, including the
    information contained under the heading &#147;Risk
    factors.&#148; You should read the following summary together
    with the more detailed information, pro forma financial
    information and combined financial information and the notes
    thereto included elsewhere in this prospectus. In this
    prospectus, unless the context otherwise requires, the terms
    &#147;Approach Resources,&#148; &#147;Approach,&#148;
    &#147;we,&#148; &#147;us&#148; and &#147;our&#148; refer to the
    combined operations of Approach Resources Inc. and Approach
    Oil&#160;&#038; Gas Inc. and their respective subsidiaries on a
    pro forma basis after giving effect to the acquisition by
    Approach Resources Inc. from Neo Canyon Exploration, L.P. of the
    30% working interest in the Ozona Northeast field that Approach
    does not already own, which we refer to as the Neo Canyon
    interest.</I>
</DIV>

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.</FONT></B>
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Overview</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are an independent energy company engaged in the exploration,
    development, exploitation, production and acquisition of
    unconventional natural gas and oil properties. Our principal
    operations are located in the Ozona Northeast field in West
    Texas, where we originally acquired approximately
    28,000&#160;gross (27,000 net) acres of leasehold interests in
    2004. Since that time, through a series of strategic leasehold
    acquisitions, we have increased our West Texas acreage to
    67,000&#160;gross (52,000 net) acres located in the Ozona
    Northeast field and our nearby Cinco Terry project. Our
    management team has extensive experience finding and exploiting
    unconventional reservoirs, particularly tight gas sands like
    Ozona Northeast, by applying advanced completion, fracturing and
    drilling techniques. Substantially all of our growth has been
    through our own drilling efforts. Since 2004, we have added
    approximately 149&#160;Bcfe of proved gas and oil reserves from
    unconventional reservoir formations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    At December&#160;31, 2006, all of our proved reserves and
    production were located in West Texas and substantially all of
    those reserves and production were located in the Ozona
    Northeast field. As of such date, we owned working interests in
    241&#160;gross (226 net) producing wells with an average net
    production of approximately 22&#160;MMcfe/d for the month of
    December 2006. At December&#160;31, 2006, our total proved gas
    and oil reserves were approximately 149&#160;Bcfe with a reserve
    life index of approximately 19&#160;years. Our proved reserves
    are 94% gas and 51% proved developed. As the operator of
    substantially all of our proved reserves, we have a high degree
    of control over capital expenditures and other operating
    matters. As of December&#160;31, 2006, we had identified a total
    of 795 drilling locations, of which 668 were located in the
    Ozona Northeast field and 127 in our Cinco Terry project.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our growth efforts are focused primarily on finding and
    developing natural gas reserves in known tight gas sands and
    shale areas onshore in the United States. Since May 2006, we
    have acquired leasehold interests covering 74,000&#160;gross
    (44,000 net) acres in Western Kentucky and 90,000&#160;gross
    (81,000 net) acres in Northern New Mexico. In total we have
    assembled leasehold interests of 231,000&#160;gross (177,000
    net) acres in our three operating areas&#160;&#151; West Texas
</DIV>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    1
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (Wolfcamp, Canyon Sands and Ellenburger), Western Kentucky (New
    Albany Shale) and Northern New Mexico (Mancos Shale).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth a summary of our estimated proved
    reserves and net average production attributable to our
    principal areas of operation as of December&#160;31, 2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="56%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=240 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Estimated proved
    reserves</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Proved<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Net average <BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Total<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">developed<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">PV-10(1)<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">production<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(Bcfe)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(Bcfe)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(millions)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(MMcfe/d)</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=240 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Ozona Northeast
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    147.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    74.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    175.7
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21.9
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Cinco Terry
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4.2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.3
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Western Kentucky
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Northern New Mexico
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    148.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    75.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    179.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22.2
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt"><FONT style="white-space: nowrap">PV-10</FONT>
    is a non-GAAP financial measure and generally differs from the
    standardized measure of discounted future net cash flows, the
    most directly comparable GAAP financial measure, because it does
    not include the effects of income taxes on future net revenues.
    See &#147;Selected historical combined financial
    data&#151;Reconciliation of non-GAAP financial measures&#148;
    for our definition of
    <FONT style="white-space: nowrap">PV-10</FONT> and a
    reconciliation of
    <FONT style="white-space: nowrap">PV-10</FONT> to the
    standardized measure of discounted future net cash flows. Our
    calculation of
    <FONT style="white-space: nowrap">PV-10</FONT> set
    forth in this table is based on gas and oil and condensate
    prices actually received by us on December&#160;31, 2006, held
    flat for the life of the reserves. The weighted average price
    over the life of the Ozona Northeast reserves was $6.55 per Mcf
    of gas and $58.05 per Bbl of oil. The weighted average price
    over the life of the Cinco Terry reserves was $5.65 per Mcf of
    gas and $58.05 per Bbl of oil.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth a summary of our net acreage
    leasehold and estimated capital budget attributable to our
    principal areas of operation as of May&#160;31, 2007, as well as
    identified drilling locations as of December&#160;31, 2006. We
    currently anticipate drilling 60&#160;wells in 2007, at an
    estimated total cost of $44.9&#160;million.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="31%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="19" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=115 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Identified<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Capital
    budget(2)</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Net acreage
    leasehold</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">drilling<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2008<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Developed</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Undeveloped</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Total</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">locations(1)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(millions)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(millions)</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="19" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=115 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Ozona Northeast
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    27,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    44,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    668
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34.3
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    50.5
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Cinco Terry
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    127
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4.1
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Western Kentucky
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    44,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    44,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.6
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Northern New Mexico
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4.5
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="17" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="17" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    149,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    177,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    795
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    44.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    65.7
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="19" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="19" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Identified drilling locations
    represent total gross locations specifically identified by
    management as an estimate of our future multi-year drilling
    inventory on existing acreage. Of the total locations shown in
    the table, 203 are classified as proved. As of May&#160;31,
    2007, we had completed drilling 17 locations shown in the table,
    including 15 proved undeveloped locations. Our actual drilling
    activities may change depending on gas and oil prices, the
    availability of capital, costs, drilling results, regulatory
    approvals and other factors. See &#147;Risk factors&#151;Risks
    related to our business.&#148;
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">An additional $4.4&#160;million and
    $800,000 for 2007 and 2008, respectively, budgeted for lease
    acquisition, geophysical and geologic costs is not reflected
    here.
    </FONT></TD>
</TR>

</TABLE>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    2
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Areas of
    operation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">West
    Texas</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Ozona
    Northeast field (Canyon Sands)</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Ozona Northeast field, in Crockett and Schleicher counties,
    Texas, is our largest operating area on the basis of proved
    reserves and production. The Canyon Sands of the Val Verde Basin
    in West Texas are located in a prolific tight gas reservoir with
    more than 11,800 total productive wells and cumulative
    historical production of more than 3.8&#160;Tcfe over more than
    50&#160;years. In 2004, we began operations in the field through
    a farmout arrangement and have increased our total acreage
    position to 45,000&#160;gross (44,000 net) acres. Beginning with
    our first well in February 2004, through December&#160;31, 2006,
    we have drilled 237 successful wells out of 250 total wells
    drilled, which is a 95% success rate. As of December&#160;31,
    2006, we had 237 producing wells with proved reserves of
    147&#160;Bcfe. From 2004 through 2006, as a result of our own
    drilling efforts, we achieved a compound annual production
    growth rate of over 100%. We have identified 668&#160;additional
    drilling locations in the field, and we estimate that completed
    costs per location currently are approximately $770,000, based
    on current markets for drilling services and equipment.
    Additionally, we own and operate 65&#160;miles of gas gathering
    lines in the area that transport our gas to several regional
    pipeline systems.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Cinco Terry
    project (Wolfcamp, Canyon Sands and Ellenburger)</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Since late 2005, we have leased and acquired options to lease
    22,000&#160;gross (8,000 net) acres five miles west of the Ozona
    Northeast field to evaluate the Wolfcamp, Canyon and Ellenburger
    formations. As of May&#160;31, 2007, we had drilled and
    completed three Canyon wells and one Ellenburger well at a total
    cost of $5.9&#160;million gross and $3.0&#160;million net. As of
    December&#160;31, 2006, we had proved reserves in the Cinco
    Terry project of 1.8&#160;Bcfe. Wolfcamp wells in this area have
    demonstrated significant commercial production, and we are
    evaluating the formation for possible horizontal completions.
    Based upon data collected in the process of drilling the Canyon
    and Ellenburger wells, we believe we could achieve additional
    success in the shallower Wolfcamp formation. We own and operate
    seven miles of gas gathering lines in the area that transport
    our gas to several regional pipeline systems.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Western
    Kentucky</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Boomerang
    prospect (New Albany Shale)</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our Boomerang prospect is a 74,000&#160;gross (44,000 net)
    acre&#160;New Albany Shale play located in Western Kentucky in
    an under-explored area of the Illinois Basin. We believe the
    attributes of the New Albany Shale in the Boomerang prospect
    make it a promising resource play, particularly with the
    introduction of horizontal drilling technology. In the first
    quarter of 2007, we drilled three vertical test wells. We have
    contracted to have core samples from these three wells analyzed.
    We expect to begin the horizontal completion of these three test
    wells in the third quarter of 2007. After evaluating the results
    of our initial drilling and completion activities, we will
    determine our development program in this prospect.
</DIV>
</DIV><!-- End box 1 -->

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    <BR>
    3
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Northern New
    Mexico</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">El Vado East
    prospect (Mancos Shale)</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our El Vado East prospect is a 90,000&#160;gross (81,000 net)
    acre&#160;Mancos Shale play located in the Chama Basin in
    Northern New Mexico in close proximity to several highly
    productive fields, including the West and East Puerto Chiquito
    fields and the Boulder field, which collectively have produced
    in excess of 18&#160;MMBoe of oil. Although our primary
    objective in the El Vado East prospect is the Mancos Shale,
    finding commercial production in the Dakota, Morrison, Todilto
    and Entrada formations is a secondary objective. We expect that
    in the third quarter of 2007 we will spud the first of four
    vertical test wells to be identified and drilled in the El Vado
    East prospect. Depending on the initial results of these wells,
    we may elect to shoot
    <FONT style="white-space: nowrap">3-D</FONT> seismic
    over a portion of this prospect at locations which have yet to
    be identified.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Strategy</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our strategy is to increase stockholder value by profitably
    growing our reserves, production, cash flow and earnings using a
    balanced program of (1)&#160;developing existing properties,
    (2)&#160;exploring and exploiting undeveloped properties,
    (3)&#160;completing strategic acquisitions and
    (4)&#160;maintaining financial flexibility. The following are
    key elements of our strategy:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Continue to develop our existing West Texas properties.
    </I>We intend to develop further the significant remaining
    potential of our West Texas properties, where we have identified
    795&#160;drilling locations. From 2004 through 2006, we drilled
    257 wells in our West Texas fields, making us one of the top ten
    most active drillers in West Texas and the second most active
    driller in the Canyon Sands during that time period.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Pursue unconventional gas and oil
    opportunities.</I>&#160;With our Boomerang and El Vado East
    prospects, we have 164,000&#160;gross acres of unexplored shale
    gas and oil inventory to explore and produce. We seek to add
    proved reserves and production from these properties through the
    application of advanced technologies, including horizontal
    drilling and advanced completion techniques.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Acquire strategic assets.</I>&#160;We continually review
    opportunities to acquire producing properties, undeveloped
    acreage and drilling prospects. We focus particularly on
    opportunities where we believe our reservoir management and
    operational expertise in unconventional gas and oil properties
    will enhance value and performance. We remain focused on
    unconventional resource opportunities, but also look at
    conventional opportunities based on individual project economics.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Operate our properties as a low cost producer.</I>&#160;We
    strive to minimize our operating costs by concentrating our
    assets within geographic areas where we can consolidate
    operating control and thus create operating efficiencies. We are
    the operator of substantially all of our producing properties
    and plan to continue to operate substantially all of our
    producing properties in the future. Operating control allows us
    to better manage timing and risk as well as the cost of
    exploration and development, drilling and ongoing operations.
</TD>
</TR>

</TABLE>
</DIV><!-- End box 1 -->

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    <BR>
    4
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Competitive
    strengths</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We believe our historical success is, and future performance
    will be, directly related to the following combination of
    strengths that enable us to implement our strategy:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Experienced executive and technical team with significant
    employee ownership</I>. The members of our executive and
    technical team (including our Chief Executive Officer) have an
    average of more than 26&#160;years of experience in the oil and
    gas industry and significant experience in building and managing
    independent oil and gas companies. The majority of our executive
    and technical team have spent their entire careers developing
    unconventional gas and oil properties. Our team has a proven
    record of analyzing complex structural and stratigraphic
    formations using
    <FONT style="white-space: nowrap">3-D</FONT> seismic
    and geological techniques, producing and optimizing gas
    reservoirs and drilling and completing unconventional gas
    reservoirs. Our management team and employees will own
    approximately&#160;&#160;&#160;&#160;&#160;% of our common stock
    after this offering, aligning their objectives with those of our
    stockholders.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Low risk, multi-year drilling inventory.</I>&#160;We have
    identified 795 drillable, low to moderate risk locations on our
    West Texas properties, providing us with approximately
    10&#160;years of drilling inventory at our current drilling
    rate. Our technical team&#146;s ability to locate and execute on
    repeatable low-risk drilling opportunities in our large and
    productive West Texas acreage holdings has helped us to achieve
    a drilling success rate of 94% since our inception.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Stable producing asset base.</I>&#160;We own an operated
    asset base comprising of long-lived reserves. Approximately 94%
    of our reserves are gas, and all of our proved reserves are
    located in West Texas. These properties should produce stable
    cash flows to fund our development, exploitation and exploration
    opportunities.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Large acreage positions.</I>&#160;We are a significant
    acreage holder in each of our three primary operating areas with
    an aggregate leasehold position of 231,000&#160;gross (177,000
    net) acres. We believe we have assembled a portfolio of
    properties, both in prolific producing gas and oil fields and in
    under-explored reservoirs, that would be difficult to replicate.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Operated asset base.</I>&#160;We operate substantially all of
    our estimated reserves. By maintaining operating control, we are
    able to more effectively control our expenses, capital
    allocation and the timing and method of exploitation and
    development of our properties.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Low cost structure.</I>&#160;Our reserve potential in our
    operating areas, our technical expertise and our high rate of
    drilling success have allowed us to achieve relatively low
    finding and development costs. Since our inception and through
    December&#160;31, 2006, we have invested approximately
    $200&#160;million to drill and complete 241&#160;wells in our
    West Texas operating areas, achieving an average finding and
    development cost of $1.38 per Mcfe. See
    &#147;Business&#151;Historical finding and development
    costs.&#147; During the same time period, our lease operating
    costs, including production taxes, averaged $0.91 per Mcfe.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Financial flexibility.</I>&#160;Upon the completion of this
    offering, we expect to have approximately
    $&#160;&#160;&#160;&#160;&#160;&#160;million in cash, no
    long-term debt and at least
    $&#160;&#160;&#160;&#160;&#160;&#160;million available for
    borrowings under our revolving credit facility, providing us
    with significant financial flexibility to pursue our business
    strategy.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Control of gathering infrastructure and gas
    marketing.</I>&#160;We own and operate approximately
    72&#160;miles of gas gathering lines in West Texas. Owning and
    operating this infrastructure allows
</TD>
</TR>

</TABLE>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    5
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD></TD>
    <TD align="left">
    us to maintain greater control of our gathering pressures and to
    minimize down time associated with the system.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Risk
    factors</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    There are a number of risks that could limit our competitive
    strengths or ability to successfully implement our business
    strategies, including the speculative nature of gas and oil
    exploration, competition, volatile gas and oil prices and the
    other risks described in this prospectus. In addition, while we
    may implement our business strategies, the benefits derived from
    such implementation may be mitigated, in whole or in part, if we
    suffer from one or more of the risks described in &#147;Risk
    factors.&#148;
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Our
    structure</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Approach Resources Inc. was formed as a Delaware corporation in
    September 2002. Our operations are currently conducted by two
    separate entities under common control, Approach Resources Inc.
    and Approach Oil&#160;&#038; Gas Inc. Pursuant to a contribution
    agreement, the operations of Approach Oil&#160;&#038; Gas Inc.
    will be combined under Approach Resources Inc., and we also will
    acquire the Neo Canyon interest immediately prior to the closing
    of this offering. For more information about our restructuring
    and our acquisition of the Neo Canyon interest, please read
    &#147;Certain relationships and related party
    transactions&#151;The contribution agreement.&#148;
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Our executive
    offices</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our principal executive offices are located at 6300 Ridglea
    Place, Suite&#160;1107, Fort&#160;Worth, Texas 76116. Our
    telephone number is
    <FONT style="white-space: nowrap">(817)&#160;989-9000.</FONT>
</DIV>
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    <BR>
    6
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">The
    offering</FONT></B>
</DIV>

<DIV style="margin-top: 4pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="36%"></TD>
    <TD width="1%"></TD>
    <TD width="63%"></TD>
</TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
    Common stock offered by us</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
    Common stock offered by the selling stockholder</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
    Common stock to be outstanding after this offering</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
    Use of proceeds</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
    We expect to receive net proceeds from the sale of shares
    offered by us, after deducting estimated offering expenses and
    underwriting discounts, of approximately
    $&#160;&#160;&#160;&#160;&#160;&#160;million, based on an
    assumed offering price of $&#160;&#160;&#160;&#160;&#160; per
    share (the mid-point of the price range set forth on the front
    cover of this prospectus). We intend to use the net proceeds of
    this offering to repay approximately
    $&#160;&#160;&#160;&#160;&#160;&#160;million outstanding under
    our revolving credit facility, to
    repurchase&#160;&#160;&#160;&#160;&#160;&#160;shares of our
    common stock held by Neo Canyon Exploration, L.P. at a purchase
    price of
    $&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;million
    and the remainder for general corporate purposes, including
    exploration and development activities, gas and oil reserve and
    leasehold acquisitions in the ordinary course of business and
    for working capital. We will not receive any proceeds from the
    sale of shares of our common stock by the selling stockholder.
    See &#147;Use of proceeds.&#148;</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
    Dividend policy</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
    We do not anticipate paying any cash dividends on our common
    stock. See &#147;Dividend policy.&#148;</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
    Risk factors</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
    For a discussion of factors you should consider in making an
    investment, see &#147;Risk factors.&#148;</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
    Proposed NASDAQ Global Market symbol</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
    &#147;AREX&#148;</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
    Other information about this prospectus</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
    Unless specifically stated otherwise, the information in this
    prospectus:</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    &#149;&#160;is adjusted to reflect
    a&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    for&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    stock split of our shares of common stock to be effected in the
    form of a stock dividend concurrent with the consummation of
    this offering;</DIV>
</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    &#149;&#160;assumes no exercise of the underwriters&#146; option
    to purchase additional shares of our common stock to cover
    over-allotments, if any; and</DIV>
</TD>
</TR>

<TR style="line-height: 4pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">
<DIV style="text-indent: -2%; margin-left: 2%">
</DIV>
</TD>
    <TD></TD>
    <TD valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    &#149;&#160;assumes an initial public offering price of
    $&#160;&#160;&#160;&#160;&#160;, which is the mid-point of the
    range set forth on the front cover of this prospectus.</DIV>
</TD>
</TR>

</TABLE>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    7
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Summary combined
    historical and combined<BR>
    pro forma financial data</FONT></B>
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth our summary historical combined
    and combined pro forma financial and operating data as of the
    dates and for the periods shown. Our operations are currently
    conducted by two separate operating entities under common
    control, Approach Resources Inc. and Approach Oil&#160;&#038;
    Gas Inc. Pursuant to a contribution agreement, the operations of
    Approach Oil&#160;&#038; Gas Inc. will be combined under
    Approach Resources Inc., and we also will acquire the Neo Canyon
    interest immediately prior to the closing of this offering. The
    amounts for each historical annual period presented below were
    derived from the audited combined financial statements of
    Approach Resources Inc. and Approach Oil&#160;&#038; Gas Inc.
    included in this prospectus. The combined pro forma financial
    information gives effect to our acquisition of the Neo Canyon
    interest. The combined pro forma balance sheet assumes that the
    acquisition of the Neo Canyon interest occurred as of
    March&#160;31, 2007, and the combined pro forma statements of
    operations for the year ended December&#160;31, 2006 and for the
    three months ended March&#160;31, 2007 assume that the
    acquisition of the Neo Canyon interest occurred on the first day
    of the respective period. The combined pro forma balance sheet
    and the combined pro forma statement of operations were derived
    by adjusting the historical combined financial statements of
    Approach Resources Inc. and Approach Oil&#160;&#038; Gas Inc.
    These adjustments are based on currently available information
    and certain estimates and assumptions, and, therefore, the
    actual effects of the acquisition of the Neo Canyon interest may
    differ from the effects reflected in the combined pro forma
    financial statements. However, management believes that the
    assumptions provide a reasonable basis for presenting the
    significant effects of this transaction as contemplated and that
    the pro forma adjustments give appropriate effect to those
    assumptions. The pro forma financial information is not
    necessarily indicative of the financial condition or results of
    operations of Approach Resources Inc. had the contribution and
    the acquisitions taken place on the assumed dates and should not
    be viewed as indicative of operations in the future. The
    following information should be read in conjunction with
    &#147;Capitalization,&#148; &#147;Management&#146;s discussion
    and analysis of financial condition and results of
    operations&#148; and the historical combined and combined pro
    forma financial statements included in this prospectus.
</DIV>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    8
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="34%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=06 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=07 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=08 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=08 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=08 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=08 type=hang1 -->
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="28" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=122 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Pro
    forma</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Year ended <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(in thousands,
    except shares and per<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="10" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">share
    data)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="29" valign="bottom">
    <DIV style="font-size: 1pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=450 length=0 -->
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 7pt">(unaudited</FONT></B>
</TD>
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 7pt">)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 7pt">(unaudited</FONT></B>
</TD>
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 7pt">)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 7pt">(unaudited</FONT></B>
</TD>
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 7pt">)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 7pt">(unaudited</FONT></B>
</TD>
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 7pt">)</FONT></B>
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt; z-index: 1; position: relative">
    <B><FONT style="font-size: 8pt">Statement of operations
    data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Revenues:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,682
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    40,339
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,894
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    15,680
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,547
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    72,452
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    15,349
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Overhead and services income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    131
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    408
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    514
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    122
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    133
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    175
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Total revenues
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,813
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    40,747
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53,408
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,802
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,680
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    72,627
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,381
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Expenses:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Lease operating expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    179
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,910
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,889
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    973
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    979
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,757
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,416
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Severance and production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    407
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,975
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,736
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    380
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    375
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,452
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    526
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Exploration
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,396
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    733
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,640
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    196
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,640
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Impairment of non-producing
    properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    558
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    558
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,074
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,067
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    750
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,646
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,646
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Accretion of discount on asset
    retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Depletion, depreciation and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,223
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,006
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14,541
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,281
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,088
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,055
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,737
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Total expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,280
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,696
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    25,304
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,580
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,714
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    35,406
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,951
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Operating income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (467
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,051
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,104
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,222
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,966
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    37,221
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,430
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Other:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Interest income (expense), net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    201
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (802
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,814
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (725
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (956
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,814
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (956
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,163
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,668
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,192
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,626
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,668
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,626
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Income (loss) before provision
    (benefit) for income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (266
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    19,086
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,958
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,689
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (616
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    42,075
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    848
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Provision (benefit) for income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,028
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,756
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,280
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (35
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,129
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    473
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Net income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (266
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    12,058
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    21,202
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10,409
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (581
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    26,946
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    375
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Earnings (loss) per share:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.14
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4.03
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    7.04
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3.49
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.19
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5.78
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.08
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.14
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4.03
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.84
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3.39
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.19
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5.67
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.08
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Weighted average shares outstanding:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,928,225
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,988,986
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,012,414
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,985,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,987,411
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,663,022
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,580,211
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,928,225
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,988,986
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,101,180
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,069,945
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,987,411
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,751,788
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,693,441
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">Statement of cash flow
    data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Net cash provided (used) by:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Operating activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,527
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    40,304
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,110
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    12,616
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,687
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Investing activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (26,859
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (71,939
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (59,189
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (24,578
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,717
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Financing activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,474
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,199
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    26,771
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,918
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,493
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt; z-index: 1; position: relative">
    <B><FONT style="font-size: 8pt">Other financial data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">EBITDAX(1)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,152
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,791
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    44,877
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    13,699
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,677
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    61,508
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,790
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="color: #000000; background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt; z-index: 1; position: relative">
    <FONT style="font-size: 8pt">Capital expenditures
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    25,313
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    73,485
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    59,189
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,578
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,717
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="29" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="29" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">See &#147;Selected historical
    combined financial data&#151;Reconciliation of non-GAAP
    financial measures&#148; for a reconciliation of our net income
    (loss) to EBITDAX.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    9
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="39%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=08 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=08 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=08 type=body -->
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="22" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=156 length=0 -->
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Pro forma<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Pro
    forma</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">as
    adjusted(1)</FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">As of<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">As of<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">As of
    December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">As of
    March&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="22" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=156 length=0 -->
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">Balance sheet data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Cash and cash equivalents
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,656
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,219
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,911
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,175
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,374
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,374
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Other current assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,458
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,305
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    13,200
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,660
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,776
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,776
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Property and equipment, net,
    successful efforts method
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,223
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    88,803
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    132,112
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    109,904
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    138,123
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    207,586
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Other assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,565
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    89
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    86
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    101
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    119
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    119
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="20" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="20" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Total assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,902
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    108,416
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,309
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    127,840
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,392
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    219,855
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="20" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="20" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Current liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    9,827
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    32,746
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    15,421
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    26,811
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,564
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,564
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Long-term debt
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    29,425
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    47,619
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    40,660
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,169
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,169
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Other long-term liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    99
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,555
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,697
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,562
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,669
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,732
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,876
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    39,690
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    69,572
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    48,807
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    68,990
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    138,390
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="20" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="20" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Total liabilities and
    stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,902
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    108,416
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,309
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    127,840
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,392
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    219,855
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="22" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="22" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">As adjusted for the consummation of
    the transactions described under &#147;Certain relationships and
    related party transactions&#151;The contribution
    agreement,&#148; our&#160;&#160;&#160;&#160;&#160;
    for&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    common stock split and the sale
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock in this offering at an assumed initial public
    offering price of $&#160;&#160;&#160;&#160;&#160; per share,
    after deducting underwriting discounts and estimated offering
    expenses payable by us and the application of the estimated net
    proceeds from this offering as set forth under &#147;Use of
    proceeds.&#148;
    </FONT></TD>
</TR>

</TABLE>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    10
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Summary oil and
    gas data</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Operating
    data</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table presents certain information with respect to
    the combined historical operating data for the years ended
    December&#160;31, 2004, 2005 and 2006 and for the three months
    ended March&#160;31, 2007 and combined pro forma operating data
    for the year ended December&#160;31, 2006 and the three months
    ended March&#160;31, 2007, after giving effect to our
    acquisition of the Neo Canyon interest:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="47%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="19" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=183 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Pro
    forma</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three <BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">months <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">months <BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Year ended <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="19" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=183 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Gross wells</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Drilled
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    54
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    120
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    83
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    83
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Completed
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    46
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    115
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Net wells</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Drilled
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    34.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    77.2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    55.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.3
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    79.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9.0
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Completed
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    29.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    74.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53.5
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    77.3
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8.0
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Net production data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Net volume (MMcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    908
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,012
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,744
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,357
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,580
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,910
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Average daily volume (MMcfe/d)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    18
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Average sales price (per
    Mcfe)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Average sales price<BR>
    (without hedge)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    8.63
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.92
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.92
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.91
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.91
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Average sales price<BR>
    (with hedge)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8.05
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7.84
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8.51
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7.56
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8.04
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Expenses (per Mcfe)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease operating
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.20
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.58
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.58
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.72
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.60
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.74
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.45
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.39
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.28
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.28
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.28
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.61
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.43
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.21
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.31
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.86
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Depreciation, depletion and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.35
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.60
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.16
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.30
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.47
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="19" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="19" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    11
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<DIV style="width: 100%; height: 9in; border-top: 1px solid #000000; padding-top: 12pt; border-right: 1px solid #000000; padding-right: 12pt; border-bottom: 1px solid #000000; padding-bottom: 12pt; border-left: 1px solid #000000; padding-left: 12pt"><!-- Begin box 1 -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Estimated reserve
    data</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The estimates in the table below of proved reserves as of
    December&#160;31, 2004 and 2005 are based on reserve reports
    prepared by our engineering staff and Cawley,
    Gillespie&#160;&#038; Associates, Inc. The estimates as of
    December&#160;31, 2006 are based on reserve reports prepared by
    our engineering staff and DeGolyer&#160;&#038; MacNaughton.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="59%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=251 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Pro
    forma(1)</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=251 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Estimated proved
    reserves</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Gas (Bcf)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    57.7
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    102.4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    98.7
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    139.8
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Oil (MMBbls)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.5
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: 0pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total proved reserves (Bcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    59.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    108.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    105.4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    148.8
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: 0pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total proved developed reserves
    (Bcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    49.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    75.8
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt"><FONT style="white-space: nowrap">PV-10</FONT>
    value (millions)(2)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Proved developed reserves
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    44.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    151.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    112.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    158.3
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Proved undeveloped reserves
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    56.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    97.4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21.6
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total
    <FONT style="white-space: nowrap">PV-10</FONT>
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    100.7
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    249.3
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    128.4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    179.9
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Gives effect to our acquisition of
    the Neo Canyon interest.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt"><FONT style="white-space: nowrap">PV-10</FONT>
    is a non-GAAP financial measure and generally differs from the
    standardized measure of discounted future net cash flows, the
    most directly comparable GAAP financial measure, because it does
    not include the effects of income taxes on future net revenues.
    See &#147;Selected historical combined financial
    data&#151;Reconciliation of non-GAAP financial measures&#148;
    for our definition of
    <FONT style="white-space: nowrap">PV-10</FONT> and a
    reconciliation of
    <FONT style="white-space: nowrap">PV-10</FONT> to the
    standardized measure of discounted future net cash flows. Our
    calculation of
    <FONT style="white-space: nowrap">PV-10</FONT> set
    forth in this table is based on gas and oil and condensate
    prices actually received by us on December&#160;31, 2006, held
    flat for the life of the reserves. The weighted average price
    over the life of the Ozona Northeast reserves was $6.55 per Mcf
    of gas and $58.05 per Bbl of oil. The weighted average price
    over the life of the Cinco Terry reserves was $5.65 per Mcf of
    gas and $58.05 per Bbl of oil.
    </FONT></TD>
</TR>

</TABLE>
</DIV><!-- End box 1 -->

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    12
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='102'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Risk
    factors</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>You should carefully consider the risk factors set forth
    below as well as the other information contained in this
    prospectus before investing in our common stock. Any of the
    following risks could materially and adversely affect our
    business, financial condition or results of operations. In such
    a case, you may lose all or part of your investment. The risks
    described below are not the only risks facing us. Additional
    risks and uncertainties not currently known to us or those we
    currently view to be immaterial may also materially adversely
    affect our business, financial condition or results of
    operations.</I>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Risks related to
    our business</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Gas and oil
    prices are volatile, and a decline in gas or oil prices could
    significantly affect our business, financial condition or
    results of operations and our ability to meet our capital
    expenditure requirements and financial
    commitments.</FONT></I></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our revenues, profitability and cash flow depend substantially
    upon the prices and demand for gas and oil. The markets for
    these commodities are volatile, and even relatively modest drops
    in prices can affect significantly our financial results and
    impede our growth. Prices for gas and oil fluctuate widely in
    response to relatively minor changes in the supply and demand
    for gas and oil, market uncertainty and a variety of additional
    factors beyond our control, such as:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    domestic and foreign supply of gas and oil;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    price and quantity of foreign imports;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    commodity processing, gathering and transportation availability
    and the availability of refining capacity;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    domestic and foreign governmental regulations;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    political conditions in or affecting other gas producing and oil
    producing countries, including the current conflicts in the
    Middle East and conditions in South America and Russia;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the ability of the members of the Organization of Petroleum
    Exporting Countries to agree to and maintain oil price and
    production controls;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    weather conditions, including unseasonably warm winter weather;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    technological advances affecting gas and oil consumption;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    overall United States and global economic conditions;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    price and availability of alternative fuels.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Further, gas prices and oil prices do not necessarily fluctuate
    in direct relationship to each other. Because more than 94% of
    our estimated proved reserves as of December&#160;31, 2006 were
    gas reserves, our financial results are more sensitive to
    movements in gas prices. In the past, the price of gas has been
    extremely volatile, and we expect this volatility to continue.
    For example, during the year ended December&#160;31, 2006, the
    NYMEX gas spot price ranged from a high of $9.90 per MMBtu to a
    low of $3.66 per MMBtu. The NYMEX gas spot price at
    December&#160;31, 2006 was $5.50 per MMBtu. At May&#160;1, 2007,
    the NYMEX gas spot price was $7.64 per MMBtu.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    13
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The results of higher investment in the exploration for and
    production of gas and other factors may cause the price of gas
    to drop. Lower gas and oil prices may not only cause our
    revenues to decrease but also may reduce the amount of gas and
    oil that we can produce economically. Substantial decreases in
    gas and oil prices would render uneconomic some or all of our
    drilling locations. This may result in our having to make
    substantial downward adjustments to our estimated proved
    reserves and could have a material adverse effect on our
    financial condition, results of operations and cash flow.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Drilling and
    exploring for, and producing, gas and oil are high risk
    activities with many uncertainties that could adversely affect
    our business, financial condition or results of
    operations.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Drilling and exploration are the main methods we use to replace
    our reserves. However, drilling and exploration operations may
    not result in any increases in reserves for various reasons.
    Exploration activities involve numerous risks, including the
    risk that no commercially productive gas or oil reservoirs will
    be discovered. In addition, the future cost and timing of
    drilling, completing and producing wells is often uncertain.
    Furthermore, drilling operations may be curtailed, delayed or
    canceled as a result of a variety of factors, including:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    lack of acceptable prospective acreage;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    inadequate capital resources;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    unexpected drilling conditions, pressure or irregularities in
    formations, equipment failures or accidents;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    adverse weather conditions, including tornados;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    unavailability or high cost of drilling rigs, equipment or labor;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    reductions in gas and oil prices;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    limitations in the market for gas and oil;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    surface access restrictions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    title problems;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    compliance with governmental regulations;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    mechanical difficulties.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our decisions to purchase, explore, develop and exploit
    prospects or properties depend in part on data obtained through
    geophysical and geological analyses, production data and
    engineering studies, the results of which are often uncertain.
    Even when used and properly interpreted,
    <FONT style="white-space: nowrap">3-D</FONT> seismic
    data and visualization techniques only assist geoscientists and
    geologists in identifying subsurface structures and hydrocarbon
    indicators. They do not allow the interpreter to know
    conclusively if hydrocarbons are present or producible
    economically. In addition, the use of
    <FONT style="white-space: nowrap">3-D&#160;seismic</FONT>
    and other advanced technologies require greater predrilling
    expenditures than traditional drilling strategies.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In addition, higher gas and oil prices generally increase the
    demand for drilling rigs, equipment and crews and can lead to
    shortages of, and increasing costs for, such drilling equipment,
    services and personnel. Such shortages could restrict our
    ability to drill the wells and conduct the operations that we
    currently have planned. Any delay in the drilling of new wells
    or
</DIV>

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    <BR>
    14
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    significant increase in drilling costs could adversely affect
    our ability to increase our reserves and production and reduce
    our revenues.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Currently, the
    vast majority of our producing properties are located in two
    counties in Texas, and our proved reserves are primarily
    attributable to one field in that area, making us vulnerable to
    risks associated with having our production concentrated in a
    small area.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The vast majority of our producing properties are geographically
    concentrated in two counties in Texas, and our proved reserves
    are primarily attributable to one field in that area. As a
    result of this concentration, we may be disproportionately
    exposed to the impact of delays or interruptions of production
    from these wells caused by significant governmental regulation,
    transportation capacity constraints, curtailments of production,
    natural disasters, interruption of transportation of gas
    produced from the wells in these basins or other events that
    impact these areas.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Certain of our
    undeveloped leasehold acreage is subject to leases and options
    that may expire in the near future.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As of December&#160;31, 2006, we held mineral leases in each of
    our areas of operations that are still within their original
    lease term and are not currently held by production. Unless we
    establish commercial production on the properties subject to
    these leases, most of these leases will expire between 2008 and
    2015. Options covering approximately 12,000&#160;gross acres in
    our Cinco Terry project are scheduled to expire before
    June&#160;1, 2008. If these leases or options expire, we will
    lose our right to develop the related properties.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Identified
    drilling locations that we decide to drill may not yield gas or
    oil in commercially viable quantities and are susceptible to
    uncertainties that could materially alter the occurrence or
    timing of their drilling.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our drilling locations are in various stages of evaluation,
    ranging from locations that are ready to be drilled to locations
    that will require substantial additional evaluation and
    interpretation. There is no way to predict in advance of
    drilling and testing whether any particular drilling location
    will yield gas or oil in sufficient quantities to recover
    drilling or completion costs or to be economically viable. The
    use of seismic data and other technologies and the study of
    producing fields in the same area will not enable us to know
    conclusively before drilling whether gas or oil will be present
    or, if present, whether gas or oil will be present in commercial
    quantities. The analysis that we perform may not be useful in
    predicting the characteristics and potential reserves associated
    with our drilling locations. As a result, we may not find
    commercially viable quantities of gas and oil.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our drilling locations represent a significant part of our
    growth strategy. Our ability to drill and develop these
    locations depends on a number of factors, including gas and oil
    prices, costs, the availability of capital, seasonal conditions,
    regulatory approvals and drilling results. Because of these
    uncertainties, we do not know when the unproved drilling
    locations we have identified will be drilled or if they will
    ever be drilled or if we will be able to produce gas or oil from
    these or any proved drilling locations. As such, our actual
    drilling activities may be materially different from those
    presently identified, which could adversely affect our business,
    results of operations or financial condition.
</DIV>

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    <BR>
    15
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Unless we
    replace our gas and oil reserves, our reserves and production
    will decline.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our future gas and oil production depends on our success in
    finding or acquiring additional reserves. If we fail to replace
    reserves through drilling or acquisitions, our level of
    production and cash flows will be affected adversely. In
    general, production from gas and oil properties declines as
    reserves are depleted, with the rate of decline depending on
    reservoir characteristics. Our total proved reserves will
    decline as reserves are produced unless we conduct other
    successful exploration and development activities or acquire
    properties containing proved reserves, or both. Our ability to
    make the necessary capital investment to maintain or expand our
    asset base of gas and oil reserves would be impaired to the
    extent cash flow from operations is reduced and external sources
    of capital become limited or unavailable. We may not be
    successful in exploring for, developing or acquiring additional
    reserves.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Our actual
    production, revenues and expenditures related to our reserves
    are likely to differ from our estimates of our proved reserves.
    We may experience production that is less than estimated and
    drilling costs that are greater than estimated in our reserve
    reports. These differences may be material.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The proved gas and oil reserve information included in this
    prospectus represents estimates. Petroleum engineering is a
    subjective process of estimating underground accumulations of
    gas and oil that cannot be measured in an exact manner.
    Estimates of economically recoverable gas and oil reserves and
    of future net cash flows necessarily depend upon a number of
    variable factors and assumptions, including:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    historical production from the area compared with production
    from other similar producing areas;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the assumed effects of regulations by governmental agencies;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    assumptions concerning future gas and oil prices;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    assumptions concerning future operating costs, severance and
    excise taxes, development costs and workover and remedial costs.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Because all reserve estimates are to some degree subjective,
    each of the following items may differ materially from those
    assumed in estimating proved reserves:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the quantities of gas and oil that are ultimately recovered;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the production and operating costs incurred;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the amount and timing of future development
    expenditures;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    future gas and oil prices.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As of December&#160;31, 2006, approximately 49% of our proved
    reserves were proved undeveloped. Estimates of proved
    undeveloped reserves are even less reliable than estimates of
    proved developed reserves.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Furthermore, different reserve engineers may make different
    estimates of reserves and cash flows based on the same available
    data. Our actual production, revenues and expenditures with
    respect to reserves will likely be different from estimates and
    the differences may be material. The discounted future net cash
    flows included in this prospectus should not be considered as
    the current market value of the estimated gas and oil reserves
    attributable to our properties. As
</DIV>

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    <BR>
    16
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    required by the Securities and Exchange Commission, or the SEC,
    the estimated discounted future net cash flows from proved
    reserves are generally based on prices and costs as of the date
    of the estimate, while actual future prices and costs may be
    materially higher or lower. Actual future net cash flows also
    will be affected by factors such as:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the amount and timing of actual production;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    supply and demand for gas and oil;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    increases or decreases in consumption;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    changes in governmental regulations or taxation.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In addition, the 10% discount factor, which is required by the
    SEC to be used to calculate discounted future net cash flows for
    reporting purposes, is not necessarily the most appropriate
    discount factor based on interest rates in effect from time to
    time and risks associated with us or the oil and gas industry in
    general.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    You should not assume that the present value of future net
    revenues from our proved reserves referred to in this prospectus
    is the current market value of our estimated gas and oil
    reserves. In accordance with SEC requirements, we generally base
    the estimated discounted future net cash flows from our proved
    reserves on prices and costs on the date of the estimate. Actual
    future prices and costs may differ materially from those used in
    the present value estimate. If gas prices decline by $1.00 per
    Mcf, then our
    <FONT style="white-space: nowrap">PV-10</FONT> as of
    December&#160;31, 2006 would decrease from $179.9&#160;million
    to $110.1&#160;million.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">We will
    require additional capital to fund our future activities. If we
    fail to obtain additional capital, we may not be able to
    implement fully our business plan, which could lead to a decline
    in reserves.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We depend on our ability to obtain financing beyond our cash
    flow from operations. Historically, we have financed our
    business plan and operations primarily with internally generated
    cash flows, borrowings under our revolving credit facility and
    issuances of common stock. We also require capital to fund our
    capital budget, which is expected to be approximately
    $49.3&#160;million for 2007. As of December&#160;31, 2006,
    approximately 49% of our total estimated proved reserves were
    undeveloped. Recovery of such reserves will require significant
    capital expenditures and successful drilling operations. We will
    be required to meet our needs from our internally generated cash
    flows, debt financings and equity financings.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If our revenues decrease as a result of lower commodity prices,
    operating difficulties, declines in reserves or for any other
    reason, we may have limited ability to obtain the capital
    necessary to sustain our operations at current levels. We may,
    from time to time, need to seek additional financing. Our
    revolving credit facility contains covenants restricting our
    ability to incur additional indebtedness without lender consent.
    There can be no assurance that our bank lenders will provide
    this consent or as to the availability or terms of any
    additional financing. If we incur additional debt, the related
    risks that we now face could intensify.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Even if additional capital is needed, we may not be able to
    obtain debt or equity financing on terms favorable to us, or at
    all. If cash generated by operations and available under our
    revolving credit facility is not sufficient to meet our capital
    requirements, the failure to obtain additional financing could
    result in a curtailment of our operations relating to
    exploration and
</DIV>

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    <BR>
    17
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    development of our projects, which in turn could lead to a
    possible loss of properties and a decline in our gas reserves.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Our bank
    lenders can limit our borrowing capabilities, which may
    materially impact our operations.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    At March&#160;31, 2007, outstanding borrowings under our
    revolving credit facility totaled approximately
    $52.2&#160;million. We intend to use a portion of the proceeds
    from this offering to repay the outstanding balance under our
    revolving credit facility. The borrowing base limitation under
    our revolving credit facility is redetermined semi-annually.
    Redeterminations are based upon information contained in an
    engineering report prepared by an independent petroleum
    engineering firm, including, without limitation, commodity
    prices and reserve levels. In addition, as is typical in the oil
    and gas industry, our bank lenders have substantial flexibility
    to reduce our borrowing base on the basis of subjective factors.
    Upon a redetermination, we could be required to repay a portion
    of our outstanding borrowings, including the total face amounts
    of all outstanding letters of credit and the amount of all
    unpaid reimbursement obligations, to the extent such amounts
    exceed the redetermined borrowing base. We may not have
    sufficient funds to make such required repayment, which could
    result in a default under the terms of the revolving credit
    facility and an acceleration of the loan. We intend to finance
    our development, acquisition and exploration activities with
    cash flow from operations, borrowings under our revolving credit
    facility and other financing activities. In addition, we may
    significantly alter our capitalization to make future
    acquisitions or develop our properties. These changes in
    capitalization may significantly increase our level of debt. If
    we incur additional debt for these or other purposes, the
    related risks that we now face could intensify. A higher level
    of debt also increases the risk that we may default on our debt
    obligations. Our ability to meet our debt obligations and to
    reduce our level of debt depends on our future performance which
    will be affected by general economic conditions and financial,
    business and other factors. Many of these factors are beyond our
    control. Our level of debt affects our operations in several
    important ways, including the following:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    a portion of our cash flow from operations is used to pay
    interest on borrowings;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the covenants contained in the agreements governing our debt
    limit our ability to borrow additional funds, pay dividends,
    dispose of assets or issue shares of preferred stock and
    otherwise may affect our flexibility in planning for, and
    reacting to, changes in business conditions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    a high level of debt may impair our ability to obtain additional
    financing in the future for working capital, capital
    expenditures, acquisitions or general corporate purposes;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    a leveraged financial position would make us more vulnerable to
    economic downturns and could limit our ability to withstand
    competitive pressures; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    any debt that we incur under our revolving credit facility will
    be at variable rates which makes us vulnerable to increases in
    interest rates.
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    18
</DIV><!-- END LOGICAL PAGE -->
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">The
    unavailability or high cost of drilling rigs, equipment,
    supplies, personnel and oilfield services could adversely affect
    our ability to execute our exploration and development plans on
    a timely basis and within our budget.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our industry is cyclical, and from time to time there is a
    shortage of drilling rigs, equipment, supplies and qualified
    personnel. During these periods, the costs and delivery times of
    rigs, equipment and supplies are substantially greater. As a
    result of historically strong prices of gas, the demand for
    oilfield and drilling services has risen, and the costs of these
    services are increasing. For example, average day rates for land
    based rigs have increased substantially during the last two
    years. We are particularly sensitive to higher rig costs and
    drilling rig availability, as we presently have two rigs under
    contract, one of which is on a well-to-well basis. If the
    unavailability or high cost of drilling rigs, equipment,
    supplies or qualified personnel were particularly severe in the
    areas where we operate, we could be materially and adversely
    affected.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Competition in
    the oil and gas industry is intense, and many of our competitors
    have resources that are greater than ours.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We operate in a highly competitive environment for acquiring
    prospects and productive properties, marketing gas and oil and
    securing equipment and trained personnel. Many of our
    competitors are major and large independent oil and gas
    companies that possess and employ financial, technical and
    personnel resources substantially greater than ours. Those
    companies may be able to develop and acquire more prospects and
    productive properties than our financial or personnel resources
    permit. Our ability to acquire additional prospects and discover
    reserves in the future will depend on our ability to evaluate
    and select suitable properties and consummate transactions in a
    highly competitive environment. Also, there is substantial
    competition for capital available for investment in the oil and
    gas industry. Larger competitors may be better able to withstand
    sustained periods of unsuccessful drilling and absorb the burden
    of changes in laws and regulations more easily than we can,
    which would adversely affect our competitive position. We may
    not be able to compete successfully in the future in acquiring
    prospective reserves, developing reserves, marketing
    hydrocarbons, attracting and retaining quality personnel and
    raising additional capital.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Our customer
    base is concentrated, and the loss of our key customer could
    therefore adversely affect our financial results.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In 2006, Ozona Pipeline Energy Company, which we refer to as
    Ozona Pipeline, accounted for approximately 89.6% of our total
    gas and oil sales excluding realized hedge settlements. To the
    extent that Ozona Pipeline reduces its purchases in gas or oil
    or defaults on its obligations to us, we would be adversely
    affected unless we were able to make comparably favorable
    arrangements with other customers. Ozona Pipeline&#146;s default
    or non-performance could be caused by factors beyond our
    control. A default could occur as a result of circumstances
    relating directly to the customer, or due to circumstances
    related to other market participants with which the customer has
    a direct or indirect relationship.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    19
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">We depend on
    our management team and other key personnel. Accordingly, the
    loss of any of these individuals could adversely affect our
    business, financial condition and the results of operations and
    future growth.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our success largely depends on the skills, experience and
    efforts of our management team and other key personnel. The loss
    of the services of one or more members of our senior management
    team or of our other employees with critical skills needed to
    operate our business could have a negative effect on our
    business, financial condition, results of operations and future
    growth. We have entered into employment agreements with J. Ross
    Craft, our President and Chief Executive Officer, Steven P.
    Smart, our Executive Vice President and Chief Financial Officer
    and Glenn W. Reed, our Senior Vice President&#151;Operations.
    See &#147;Executive compensation&#151;Other
    benefits&#151;Employment agreements and other
    arrangements.&#148; If any of these officers or other key
    personnel resign or become unable to continue in their present
    roles and are not adequately replaced, our business operations
    could be materially adversely affected. Our ability to manage
    our growth, if any, will require us to continue to train,
    motivate and manage our employees and to attract, motivate and
    retain additional qualified personnel. Competition for these
    types of personnel is intense, and we may not be successful in
    attracting, assimilating and retaining the personnel required to
    grow and operate our business profitably.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">We are subject
    to complex governmental laws and regulations that may adversely
    affect the cost, manner or feasibility of doing
    business.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our operations and facilities are subject to extensive federal,
    state and local laws and regulations relating to the exploration
    for, and the development, production and transportation of, gas
    and oil, and operating safety, and protection of the
    environment, including those relating to air emissions,
    wastewater discharges, land use, storage and disposal of wastes
    and remediation of contaminated soil and groundwater. Future
    laws or regulations, any adverse changes in the interpretation
    of existing laws and regulations or our failure to comply with
    existing legal requirements may harm our business, results of
    operations and financial condition. We may encounter reductions
    in reserves or be required to make large and unanticipated
    capital expenditures to comply with governmental laws and
    regulations, such as:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    price control;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    taxation;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    lease permit restrictions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    drilling bonds and other financial responsibility requirements,
    such as plug and abandonment bonds;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    spacing of wells;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    unitization and pooling of properties;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    safety precautions;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    permitting requirements.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Under these laws and regulations, we could be liable for:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    personal injuries;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    property and natural resource damages;
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    20
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    well reclamation costs, soil and groundwater remediation
    costs;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    governmental sanctions, such as fines and penalties.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our operations could be significantly delayed or curtailed, and
    our cost of operations could significantly increase as a result
    of environmental safety and other regulatory requirements or
    restrictions. We are unable to predict the ultimate cost of
    compliance with these requirements or their effect on our
    operations. We may be unable to obtain all necessary licenses,
    permits, approvals and certificates for proposed projects.
    Intricate and changing environmental and other regulatory
    requirements may require substantial expenditures to obtain and
    maintain permits. If a project is unable to function as planned,
    for example, due to costly or changing requirements or local
    opposition, it may create expensive delays, extended periods of
    non-operation or significant loss of value in a project. See
    &#147;Business&#151;Regulation.&#148;
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Operating
    hazards, natural disasters or other interruptions of our
    operations could result in potential liabilities, which may not
    be fully covered by our insurance.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The oil and gas business involves certain operating hazards such
    as:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    well blowouts;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    cratering;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    explosions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    uncontrollable flows of gas, oil or well fluids;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    fires;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    pollution;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    releases of toxic gas.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The occurrence of one of the above may result in injury, loss of
    life, suspension of operations, environmental damage and
    remediation
    <FONT style="white-space: nowrap">and/or</FONT>
    governmental investigations and penalties.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In addition, our operations in Texas are especially susceptible
    to damage from natural disasters such as tornados and involve
    increased risks of personal injury, property damage and
    marketing interruptions. Any of these operating hazards could
    cause serious injuries, fatalities or property damage, which
    could expose us to liabilities. The payment of any of these
    liabilities could reduce, or even eliminate, the funds available
    for exploration, development, exploitation and acquisition, or
    could result in a loss of our properties. Consistent with
    insurance coverage generally available to the industry, our
    insurance policies provide limited coverage for losses or
    liabilities relating to pollution, with broader coverage for
    sudden and accidental occurrences. Our insurance might be
    inadequate to cover our liabilities. The insurance market in
    general and the energy insurance market in particular have been
    difficult markets over the past several years. Insurance costs
    are expected to continue to increase over the next few years and
    we may decrease coverage and retain more risk to mitigate future
    cost increases. If we incur substantial liability and the
    damages are not covered by insurance or are in excess of policy
    limits, or if we incur liability at a time when we are not able
    to obtain liability insurance, then our business, results of
    operations and financial condition could be materially adversely
    affected.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    21
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Our results
    are subject to quarterly and seasonal
    fluctuations.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our quarterly operating results have fluctuated in the past and
    could be negatively impacted in the future as a result of a
    number of factors, including:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    seasonal variations in gas and oil prices;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    variations in levels of production;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the completion of exploration and production projects.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Market
    conditions or transportation impediments may hinder our access
    to gas and oil markets or delay our production.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Market conditions, the unavailability of satisfactory gas and
    oil processing and transportation may hinder our access to gas
    and oil markets or delay our production. Although currently we
    control the pipeline operations for a majority of our production
    in the Ozona Northeast field, we do not have such control in
    other areas in which we expect to conduct operations. The
    availability of a ready market for our gas and oil production
    depends on a number of factors, including the demand for and
    supply of gas and oil and the proximity of reserves to pipelines
    or trucking and terminal facilities. In addition, the amount of
    gas and oil that can be produced and sold is subject to
    curtailment in certain circumstances, such as pipeline
    interruptions due to scheduled and unscheduled maintenance,
    excessive pressure, physical damage to the gathering or
    transportation system or lack of contracted capacity on such
    systems. The curtailments arising from these and similar
    circumstances may last from a few days to several months, and in
    many cases we are provided with limited, if any, notice as to
    when these circumstances will arise and their duration. As a
    result, we may not be able to sell, or may have to transport by
    more expensive means, the gas and oil production from wells or
    we may be required to shut in gas wells or delay initial
    production until the necessary gathering and transportation
    systems are available. Any significant curtailment in gathering
    system or pipeline capacity, or significant delay in
    construction of necessary gathering and transportation
    facilities, could adversely affect our business, financial
    condition or results of operations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Environmental
    liabilities may expose us to significant costs and
    liabilities.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    There is inherent risk of incurring significant environmental
    costs and liabilities in our gas and oil operations due to the
    handling of petroleum hydrocarbons and generated wastes, the
    occurrence of air emissions and water discharges from
    work-related activities and the legacy of pollution from
    historical industry operations and waste disposal practices. We
    may incur joint and several or strict liability under these
    environmental laws and regulations in connection with spills,
    leaks or releases of petroleum hydrocarbons and wastes on, under
    or from our properties and facilities, many of which have been
    used for exploration, production or development activities for
    many years, oftentimes by third parties not under our control.
    Private parties, including the owners of properties upon which
    we conduct drilling and production activities as well as
    facilities where our petroleum hydrocarbons or wastes are taken
    for reclamation or disposal, may also have the right to pursue
    legal actions to enforce compliance as well as to seek damages
    for non-compliance with environmental laws and regulations or
    for personal injury or property damage. In addition, changes in
    environmental laws and regulations occur frequently, and any
    such changes that result in more stringent and costly waste
    handling, storage, transport, disposal or remediation
    requirements could have a material adverse effect on
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    22
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    our production or our operations or financial position. We may
    not be able to recover some or any of these costs from
    insurance. See &#147;Business&#151;Regulation&#151;Environmental
    regulations.&#148;
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Our growth
    strategy could fail or present unanticipated problems for our
    business in the future, which could adversely affect our ability
    to make acquisitions or realize anticipated benefits of those
    acquisitions.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our growth strategy may include acquiring oil and gas businesses
    and properties. We may not be able to identify suitable
    acquisition opportunities or finance and complete any particular
    acquisition successfully.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Furthermore, acquisitions involve a number of risks and
    challenges, including:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    diversion of management&#146;s attention;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the need to integrate acquired operations;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    potential loss of key employees of the acquired companies;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    potential lack of operating experience in a geographic market of
    the acquired business;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    an increase in our expenses and working capital requirements.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Any of these factors could adversely affect our ability to
    achieve anticipated levels of cash flows from the acquired
    businesses or realize other anticipated benefits of those
    acquisitions.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">We engage in
    hedging transactions which involve risks that can harm our
    business.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    To manage our exposure to price risks in the marketing of our
    gas and oil production, we enter into gas and oil price hedging
    agreements. While intended to reduce the effects of volatile oil
    and gas prices, such transactions may limit our potential gains
    and increase our potential losses if gas and oil prices were to
    rise substantially over the price established by the hedge. In
    addition, such transactions may expose us to the risk of loss in
    certain circumstances, including instances in which our
    production is less than expected, there is a widening of price
    differentials between delivery points for our production and the
    delivery point assumed in the hedge arrangement or the
    counterparties to the hedging agreements fail to perform under
    the contracts.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">The
    requirements of complying with the Securities Exchange Act of
    1934&#160;may strain our resources and distract
    management.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As a public company we will be subject to the reporting
    requirements of the Securities Exchange Act of 1934, referred to
    as the Exchange Act, and the Sarbanes Oxley Act of 2002 and
    related rules of the SEC. In addition, the NASDAQ Global Market
    regulates corporate governance practices of public companies.
    These requirements may place a strain on our systems and
    resources as we will be required to carry out activities we have
    not conducted previously, and we will incur significant legal,
    accounting and other expenses that we did not incur in the past.
    The Exchange Act requires that we file annual, quarterly and
    current reports with respect to our business and financial
    condition. The Sarbanes Oxley Act of 2002 requires that we
    maintain effective disclosure controls and procedures, corporate
    governance standards and internal controls over financial
    reporting. For example, under Section&#160;404 of the Sarbanes
    Oxley Act, for our annual report on
    <FONT style="white-space: nowrap">Form&#160;10-K</FONT>
    for the year ending December&#160;31, 2008, we will need to
    document and test our internal control procedures, our
    management will need to assess and
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    23
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    report on our internal control over financial reporting and our
    independent accountants will need to issue an opinion on the
    effectiveness of those controls. If we identify any issues in
    complying with those requirements (for example, if we or our
    independent auditors identify a material weakness or significant
    deficiency in our internal control over financial reporting), we
    could incur additional costs rectifying those issues, and the
    existence of those issues could adversely affect us, our
    reputation or investor perceptions of us. We also expect that it
    could be difficult and will be significantly more expensive to
    obtain directors&#146; and officers&#146; liability insurance,
    and we may be required to accept reduced policy limits and
    coverage or incur substantially higher costs to obtain the same
    or similar coverage. As a result, it may be more difficult for
    us to attract and retain qualified persons to serve on our board
    of directors or as executive officers. Advocacy efforts by
    stockholders and third parties also may prompt even more changes
    in governance and reporting requirements. We cannot predict or
    estimate the amount of additional costs we may incur or the
    timing of such costs. Additionally, in connection with these
    heightened duties, significant resources and management
    oversight will be required as we may need to devote additional
    time and personnel to legal, financial and accounting activities
    to ensure our ongoing compliance with public company reporting
    requirements. The effort to prepare for these obligations may
    divert management&#146;s attention from other business concerns,
    which could have a material adverse affect on our business,
    financial condition, results of operations or cash flow.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Failure by us
    to achieve and maintain effective internal control over
    financial reporting in accordance with the rules of the SEC
    could harm our business and operating results and/or result in a
    loss of investor confidence in our financial reports, which
    could in turn have a material adverse effect on our business and
    stock price.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Under current rules of the SEC, we will be required to document
    and test our internal control over financial reporting so that
    our management can certify as to the effectiveness of our
    internal control over financial reporting and our independent
    registered public accounting firm can render an opinion on the
    effectiveness of our internal control over financial reporting.
    We are in the process of documenting our internal control
    systems to allow management to evaluate and report on, and our
    independent auditors to audit, our internal control over
    financial reporting. Once the documentation is complete, we will
    be performing the system and process evaluation and testing (and
    any necessary remediation) required to comply with the
    management certification and auditor attestation requirements of
    Section&#160;404 of the Sarbanes Oxley Act of 2002. We will be
    required to comply with Section&#160;404 for the year ending
    December&#160;31, 2008. However, we cannot be certain as to the
    timing of completion of our evaluation, testing and remediation
    actions or the impact of the same on our operations.
    Furthermore, upon completion of this process, we may identify
    control deficiencies of varying degrees of severity under
    applicable SEC and Public Company Accounting Oversight Board
    rules and regulations that remain unremediated. As a public
    company, we will be required to report, among other things,
    control deficiencies that constitute a &#147;material
    weakness&#148; or changes in internal controls that, or that are
    reasonably likely to, materially affect internal control over
    financial reporting. A &#147;material weakness&#148; is a
    significant deficiency or combination of significant
    deficiencies that results in a reasonable likelihood that a
    material misstatement of the annual or interim consolidated
    financial statements will not be prevented or detected. If we
    fail to implement the requirements of Section&#160;404 in a
    timely manner, we might be subject to sanctions or investigation
    by regulatory authorities such as the SEC. In addition, failure
    to comply with Section&#160;404 or the report by us of a
    material weakness may cause investors to lose confidence in our
    consolidated financial statements, and our stock price may be
    adversely
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    24
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    affected as a result. If we fail to remedy any material
    weakness, our consolidated financial statements may be
    inaccurate, we may face restricted access to the capital markets
    and our stock price may be adversely affected.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">We have three
    affiliated stockholders with a controlling interest in our
    company, whose interests may differ from your interests and who
    will be able to determine the outcome of matters voted upon by
    our stockholders.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Yorktown Energy Partners&#160;V, L.P., Yorktown Energy Partners
    VI, L.P. and Yorktown Energy Partners VII, L.P., or
    collectively, Yorktown, which are under common management, own
    approximately&#160;&#160;&#160;&#160;&#160;% of our outstanding
    common stock. After giving effect to this offering, Yorktown
    will continue to beneficially own
    approximately&#160;&#160;&#160;&#160;&#160;% of our outstanding
    common stock in the aggregate (&#160;&#160;&#160;&#160;&#160;%
    if the underwriters&#146; over-allotment option is exercised in
    full). In addition, one Yorktown representative serves on our
    board of directors, and our officers will beneficially own or
    control approximately&#160;&#160;&#160;&#160;&#160;% of our
    common stock outstanding (&#160;&#160;&#160;&#160;&#160;% if the
    underwriters&#146; over-allotment option is exercised in full).
    See &#147;Security ownership of certain beneficial owners and
    management.&#148; As a result of this ownership, Yorktown will
    have the ability to control the vote in any election of
    directors. Yorktown also will have control over our decisions to
    enter into significant corporate transactions and, in its
    capacity as our majority stockholder, will have the ability to
    prevent any transactions that it does not believe are in
    Yorktown&#146;s best interest. As a result, Yorktown will be
    able to control, directly or indirectly and subject to
    applicable law, all matters affecting us, including the
    following:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    any determination with respect to our business direction and
    policies, including the appointment and removal of officers;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    any determinations with respect to mergers, business
    combinations or dispositions of assets;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our capital structure;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    compensation, option programs and other human resources policy
    decisions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    changes to other agreements that may adversely affect
    us;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the payment, or nonpayment, of dividends on our common stock.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Yorktown also may have an interest in pursuing transactions
    that, in their judgment, enhance the value of their respective
    equity investments in our company, even though those
    transactions may involve risks to you as a minority stockholder.
    In addition, circumstances could arise under which their
    interests could be in conflict with the interests of our other
    stockholders or you, a minority stockholder. Also, Yorktown and
    their affiliates have and may in the future make significant
    investments in other companies, some of which may be
    competitors. Yorktown and its affiliates are not obligated to
    advise us of any investment or business opportunities of which
    they are aware, and they are not restricted or prohibited from
    competing with us.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">We have
    renounced any interest in specified business opportunities, and
    certain members of our board of directors and certain of our
    stockholders generally have no obligation to offer us those
    opportunities.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In accordance with Delaware law, we have renounced any interest
    or expectancy in any business opportunity, transaction or other
    matter in which our non-employee directors and certain of our
    stockholders, each referred to as a Designated Party,
    participates or desires to participate in
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    25
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    that involves any aspect of the exploration and production
    business in the oil and industry. If any such business
    opportunity is presented to a Designated Person who also serves
    as a member of our board of directors, the Designated Party has
    no obligation to communicate or offer that opportunity to us,
    and the Designated Party may pursue the opportunity as he sees
    fit, unless:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    it was presented to the Designated Party solely in that
    person&#146;s capacity as a director of our company and with
    respect to which, at the time of such presentment, no other
    Designated Party has independently received notice of or
    otherwise identified the business opportunity;&#160;or
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the opportunity was identified by the Designated Party solely
    through the disclosure of information by or on behalf of us.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    For a more complete discussion of this agreement, please read
    &#147;Certain relationships and related party
    transactions&#151;Business opportunities renunciation.&#148; As
    a result of this renunciation, our non-employee directors should
    not be deemed to be breaching any fiduciary duty to us if they
    or their affiliates or associates pursue opportunities as
    described above and our future competitive position and growth
    potential could be adversely affected.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Severe weather
    could have a material adverse impact on our
    business.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our business could be materially and adversely affected by
    severe weather. Repercussions of severe weather conditions may
    include:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    curtailment of services;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    weather-related damage to drilling rigs, resulting in suspension
    of operations;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    weather-related damage to our facilities;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    inability to deliver materials to jobsites in accordance with
    contract schedules;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    loss of productivity.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">A terrorist
    attack or armed conflict could harm our business.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Terrorist activities, anti-terrorist efforts and other armed
    conflict involving the United States may adversely affect the
    United States and global economies and could prevent us from
    meeting our financial and other obligations. If any of these
    events occur or escalate, the resulting political instability
    and societal disruption could reduce overall demand for gas and
    oil, potentially putting downward pressure on demand for our
    services and causing a reduction in our revenue. Gas and oil
    related facilities could be direct targets for terrorist
    attacks, and our operations could be adversely impacted if
    significant infrastructure or facilities we use for the
    production, transportation or marketing of our gas and oil
    production are destroyed or damaged. Costs for insurance and
    other security may increase as a result of these threats, and
    some insurance coverage may become difficult to obtain, if
    available at all.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    26
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Risks related to
    this offering</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">There has been
    no public market for our common stock, and our stock price may
    fluctuate significantly.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    There is currently no public market for our common stock, and an
    active trading market may not develop or be sustained after the
    sale of all of the shares covered by this prospectus. The market
    price of our common stock could fluctuate significantly as a
    result of:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our operating and financial performance and prospects;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    quarterly variations in the rate of growth of our financial
    indicators, such as net income per share, net income and
    revenues;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    changes in revenue or earnings estimates or publication of
    research reports by analysts about us or the exploration and
    production industry;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    liquidity and registering our common stock for public resale;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    actual or unanticipated variations in our reserve estimates and
    quarterly operating results;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    changes in gas and oil prices;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    speculation in the press or investment community;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    sales of our common stock by our stockholders;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    increases in our cost of capital;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    changes in applicable laws or regulations, court rulings and
    enforcement and legal actions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    changes in market valuations of similar companies;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    adverse market reaction to any increased indebtedness we incur
    in the future;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    additions or departures of key management personnel;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    actions by our stockholders;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    general market and economic conditions, including the occurrence
    of events or trends affecting the price of gas;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    domestic and international economic, legal and regulatory
    factors unrelated to our performance.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If a trading market develops for our common stock, stock markets
    in general experience volatility that often is unrelated to the
    operating performance of particular companies. These broad
    market fluctuations may adversely affect the trading price of
    our common stock.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">We do not
    anticipate paying any dividends on our common stock in the
    foreseeable future.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We do not expect to declare or pay any cash or other dividends
    in the foreseeable future on our common stock, as we intend to
    use cash flow generated by operations to expand our business.
    Our revolving credit facility will restrict our ability to pay
    cash dividends on our common stock, and we may also enter into
    credit agreements or other borrowing arrangements in the future
    that restrict or limit our ability to pay cash dividends on our
    common stock.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    27
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Certain
    stockholders&#146; shares are restricted from immediate resale
    but may be sold into the market in the near future. This could
    cause the market price of our common stock to drop
    significantly.</FONT></I></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    After this offering, we will have
    outstanding&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock. Of these shares,
    the&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    we and the selling stockholder are selling in this offering,
    or&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    if the underwriters exercise their over-allotment option in
    full, will be freely tradeable without restriction under the
    Securities Act except for any shares purchased by one of our
    &#147;affiliates&#148; as defined in Rule&#160;144 under the
    Securities Act. A total
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares,
    or&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    if the underwriters exercise their over-allotment option in
    full, will be &#147;restricted securities&#148; (within the
    meaning of Rule&#160;144 under the Securities Act) or subject to
    <FONT style="white-space: nowrap">lock-up</FONT>
    arrangements. In connection with this offering, we, our
    executive officers and directors and the other holders of our
    common stock (including the selling stockholder) have agreed
    that, during the period beginning from the date of this
    prospectus and continuing to and including the day 180&#160;days
    after the date of this prospectus, neither we nor any of them
    will, directly or indirectly, offer, sell, offer to sell,
    contract to sell or otherwise dispose of any shares of our
    common stock without the prior written consent of
    J.P.&#160;Morgan Securities Inc., on behalf of the underwriters,
    except in limited circumstances. See &#147;Underwriting&#148;
    for a description of these
    <FONT style="white-space: nowrap">lock-up</FONT>
    arrangements. An aggregate
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    of these shares will become available for resale in the public
    market as shown in the chart below.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="17%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="80%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="3" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=75 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Number
    of shares</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Date
    of eligibility for resale into public market</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="3" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=75 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">No less than 180&#160;days after
    the date of this prospectus<BR>
    (in accordance with lock-up agreements with the underwriters).
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Between 181 and 365&#160;days
    after the date of this prospectus due to the requirements of the
    federal securities laws.
    </FONT>
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="3" valign="top">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="3" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Sales of a substantial number of shares of our common stock in
    the public markets following this offering by any of our
    existing stockholders (or persons to whom our existing
    stockholders may distribute shares of our common stock), or the
    perception that such sales might occur, could have a material
    adverse effect on the price of our common stock or could impair
    our ability to obtain capital through an offering of equity
    securities.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As soon as practicable after this offering, we intend to file
    one or more registration statements with the SEC on
    <FONT style="white-space: nowrap">Form&#160;S-8</FONT>
    providing for the registration
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of our common stock issued or reserved for issuance under our
    stock incentive plan. Subject to the exercise of unexercised
    options or the expiration or waiver of vesting conditions for
    restricted stock and the expiration of
    <FONT style="white-space: nowrap">lock-ups</FONT> we
    and certain of our stockholders have entered into, shares
    registered under these registration statements on
    <FONT style="white-space: nowrap">Form&#160;S-8</FONT>
    will be available for resale immediately in the public market
    without restriction.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">You may
    experience dilution of your ownership interests due to the
    future issuance of additional shares of our common
    stock.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We may in the future issue our previously authorized and
    unissued securities, resulting in the dilution of the ownership
    interests of our present stockholders and purchasers of common
    stock offered hereby. We are currently authorized to issue
    90&#160;million shares of common stock and 10&#160;million
    shares of preferred stock with preferences and rights as
    determined by our board of directors. The potential issuance of
    such additional shares of common stock may create downward
    pressure on the trading price of our common stock. We may also
    issue additional
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    28
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    shares of our common stock or other securities that are
    convertible into or exercisable for common stock in connection
    with the hiring of personnel, future acquisitions, future public
    offerings or private placements of our securities for capital
    raising purposes, or for other business purposes.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">If equity
    research analysts do not publish research or reports about our
    business or if they issue unfavorable commentary or downgrade
    our common stock, the price of our common stock could
    decline.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The trading market for our common stock may rely in part on the
    research and reports that equity research analysts publish about
    us and our business. We do not control the opinions of these
    analysts. The price of our stock could decline if one or more
    equity analysts downgrade our stock or if those analysts issue
    other unfavorable commentary or cease publishing reports about
    us or our business.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">The
    availability of shares for sale in the future could reduce the
    market price of our common stock.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In the future, we may issue securities to raise cash for
    acquisitions. We may also acquire interests in outside companies
    by using a combination of cash and our common stock or just our
    common stock. We may also issue securities convertible into our
    common stock. Any of these events may dilute your ownership
    interest in our company and have an adverse impact on the price
    of our common stock.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In addition, sales of a substantial amount of our common stock
    in the public market, or the perception that these sales may
    occur, could reduce the market price of our common stock. This
    could also impair our ability to raise additional capital
    through the sale of our securities.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Certain
    provisions of Delaware law, our restated certificate of
    incorporation and our restated bylaws could hinder, delay or
    prevent a change in control of our company, which could
    adversely affect the price of our common stock.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Certain provisions of Delaware law, our restated certificate of
    incorporation and our restated bylaws have the effect of
    discouraging, delaying or preventing transactions that involve
    an actual or threatened change in control of our company.
    Delaware law imposes restrictions on mergers and other business
    combinations between us and any holder of 15% or more of our
    outstanding common stock. In addition, our restated certificate
    of incorporation and restated bylaws include the following
    provisions:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Written consent of stockholders.</I>&#160;Our restated
    certificate of incorporation and restated bylaws provide that
    any action required or permitted to be taken by our stockholders
    must be taken at a duly called meeting of stockholders and not
    by written consent.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Call of special meetings of stockholders.</I>&#160;Our
    restated bylaws provide that special meetings of stockholders
    may be called at any time only by our board of directors,
    chairman or Chief Executive Officer and not the stockholders.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Classified board of directors.</I>&#160;Our board of
    directors will be divided into three classes with staggered
    terms of office of three years each. The classification and
    staggered terms of office of our directors make it more
    difficult for a third party to gain control of our board of
    directors. At least two annual meetings of stockholders, instead
    of one, generally would be required to effect a change in a
    majority of the board of directors.
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    29
</DIV><!-- END LOGICAL PAGE -->
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Removal of directors.</I>&#160;Under our restated certificate
    of incorporation, a director may be removed only for cause and
    only by the affirmative vote of at least 67% of the voting power
    of the outstanding shares of our capital stock.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Number of directors, board vacancies, term of
    office.</I>&#160;Our restated certificate of incorporation and
    our restated bylaws provide that only the board of directors may
    set the number of directors. We have elected to be subject to
    certain provisions of Delaware law which vest in the board of
    directors the exclusive right, by the affirmative vote of a
    majority of the remaining directors, to fill vacancies on the
    board even if the remaining directors do not constitute a
    quorum. When effective, these provisions of Delaware law, which
    are applicable even if other provisions of Delaware law or the
    charter or bylaws provide to the contrary, also provide that any
    director elected to fill a vacancy shall hold office for the
    remainder of the full term of the class of directors in which
    the vacancy occurred, rather than the next annual meeting of
    stockholders as would otherwise be the case, and until his or
    her successor is elected and qualifies.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Advance notice provisions for stockholder nominations and
    proposals</I>. Our restated bylaws require advance written
    notice for stockholders to nominate persons for election as
    directors at, or to bring other business before, any meeting of
    stockholders. This bylaw provision limits the ability of
    stockholders to make nominations of persons for election as
    directors or to introduce other proposals unless we are notified
    in a timely manner prior to the meeting.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Amending the bylaws.</I>&#160;Our restated certificate of
    incorporation permits our board of directors to adopt, alter or
    repeal any provision of the restated bylaws or to make new
    bylaws. Our restated certificate of incorporation also provides
    that our restated bylaws may be amended by the affirmative vote
    of the holders of at least 67% of the voting power of the
    outstanding shares of our capital stock.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Authorized but unissued shares.</I>&#160;Under our restated
    certificate of incorporation, our board of directors has
    authority to cause the issuance of preferred stock from time to
    time in one or more series and to establish the terms,
    preferences and rights of any such series of preferred stock,
    all without approval of our stockholders. Nothing in our
    restated certificate of incorporation precludes future issuances
    without stockholder approval of the authorized but unissued
    shares of our common stock.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    See &#147;Description of capital stock&#151;Anti-takeover
    effects of provisions of Delaware law, our restated certificate
    of incorporation and restated bylaws.&#148; Any one or more of
    these factors could have the effect of delaying or preventing a
    change in control or the removal of management, and deterring
    potential acquirers from making an offer to our stockholders,
    even if that event potentially would be favorable to the
    interests of our stockholders.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Purchasers of
    common stock in this offering will experience immediate and
    substantial dilution of $&#160;&#160;&#160;&#160;&#160; per
    share.</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Based on an assumed initial public offering price of
    $&#160;&#160;&#160;&#160;&#160; per share, purchasers of our
    common stock in this offering will experience an immediate and
    substantial dilution of $&#160;&#160;&#160;&#160;&#160; per
    share in the as adjusted pro forma net tangible book value per
    share of common stock from the initial public offering price,
    and our pro forma as adjusted net tangible book value as of
    December&#160;31, 2006 after giving effect to this offering
    would be $&#160;&#160;&#160;&#160;&#160; per share. See
    &#147;Dilution.&#148;
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    30
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='103'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Cautionary
    statement regarding <BR>
    forward-looking statements</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Various statements in this prospectus, including those that
    express a belief, expectation or intention, as well as those
    that are not statements of historical fact, are forward-looking
    statements. The forward-looking statements may include
    projections and estimates concerning the timing and success of
    specific projects and our future reserves, production, revenues,
    income and capital spending. When we use the words
    &#147;believe,&#148; &#147;intend,&#148; &#147;expect,&#148;
    &#147;may,&#148; &#147;should,&#148; &#147;anticipate,&#148;
    &#147;could,&#148; &#147;estimate,&#148; &#147;plan,&#148;
    &#147;predict,&#148; &#147;project&#148; or their negatives,
    other similar expressions or the statements that include those
    words, it usually is a forward-looking statement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The forward-looking statements contained in this prospectus are
    largely based on our expectations, which reflect estimates and
    assumptions made by our management. These estimates and
    assumptions reflect our best judgment based on currently known
    market conditions and other factors. Although we believe such
    estimates and assumptions to be reasonable, they are inherently
    uncertain and involve a number of risks and uncertainties that
    are beyond our control. In addition, management&#146;s
    assumptions about future events may prove to be inaccurate.
    Management cautions all readers that the forward-looking
    statements contained in this prospectus are not guarantees of
    future performance, and we cannot assure any reader that such
    statements will be realized or the forward-looking events and
    circumstances will occur. Actual results may differ materially
    from those anticipated or implied in the forward-looking
    statements due to the factors listed in the &#147;Risk
    factors&#148; section and elsewhere in this prospectus. All
    forward-looking statements speak only as of the date of this
    prospectus. We do not intend to publicly update or revise any
    forward-looking statements as a result of new information,
    future events or otherwise. These cautionary statements qualify
    all forward-looking statements attributable to us, or persons
    acting on our behalf. The risks, contingencies and uncertainties
    relate to, among other matters, the following:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our business strategy;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    estimated quantities of gas and oil reserves;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    technology;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our financial position;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our cash flow and liquidity;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    declines in the prices we receive for our gas and oil affecting
    our operating results and cash flow;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    economic slowdowns that can adversely affect consumption of gas
    and oil by businesses and consumers;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    uncertainties in estimating our gas and oil reserves;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    replacing our gas and oil reserves;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    uncertainties in exploring for and producing gas and oil;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our inability to obtain additional financing necessary to fund
    our operations and capital expenditures and to meet our other
    obligations;
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    31
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    availability of drilling and production equipment and field
    service providers;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    disruptions to, capacity constraints in or other limitations on
    the pipeline systems which deliver our gas and other processing
    and transportation considerations;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    competition in the oil and gas industry;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    marketing of gas and oil;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    exploitation or property acquisitions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our inability to retain and attract key personnel;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the effects of government regulation and permitting and other
    legal requirements;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    costs associated with perfecting title for mineral rights in
    some of our properties;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    plans, objectives, expectations and intentions contained in this
    prospectus that are not historical; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    other factors discussed under &#147;Risk factors.&#148;
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    32
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='104'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Use of
    proceeds</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We estimate that the net proceeds to us from the sale of common
    stock in this offering will be approximately
    $&#160;&#160;&#160;&#160;&#160;&#160;million (or
    $&#160;&#160;&#160;&#160;&#160;&#160;million if the underwriters
    exercise their over-allotment option in full), in each case
    based on an offering price of $&#160;&#160;&#160;&#160;&#160;
    per share, the mid-point of the estimated price range shown on
    the front cover of this prospectus, and after deducting the
    underwriting discounts and the estimated offering expenses of
    $&#160;&#160;&#160;&#160;&#160;&#160;payable by us. Each dollar
    increase (decrease) in the per share offering price will
    increase (decrease) the amount of net proceeds we receive from
    this offering by $&#160;&#160;&#160;&#160;&#160;&#160;.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We intend to use the net proceeds of this offering to repay
    approximately $&#160;&#160;&#160;&#160;&#160;&#160;million
    outstanding under our revolving credit facility, to
    repurchase&#160;&#160;&#160;&#160;&#160;shares of our common
    stock held by Neo Canyon Exploration, L.P. at a purchase price
    of $&#160;&#160;&#160;&#160;&#160;&#160;million and the
    remainder for general corporate purposes, including exploration
    and development activities, gas and oil reserves and leasehold
    acquisitions in the ordinary course of business and for working
    capital.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    At March&#160;31, 2007, outstanding borrowings under our
    revolving credit facility totaled approximately
    $52.2&#160;million with an interest rate of 7.02%. We incurred
    the debt under our revolving credit facility principally to meet
    our capital expenditure requirements and other working capital
    needs. We will have no outstanding borrowings under our
    revolving credit facility after the closing of this offering,
    leaving us with approximately
    $&#160;&#160;&#160;&#160;&#160;&#160;million available for
    future borrowings under such revolving credit facility. See
    &#147;Management&#146;s discussion and analysis of financial
    condition and results of operations&#151;Credit facility&#148;
    for a description of our revolving credit facility.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We will not receive any proceeds from the sale of shares of
    common stock by the selling stockholder.
</DIV>
<A name='105'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Dividend
    policy</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We do not expect to pay any cash or other dividends in the
    foreseeable future on our common stock, as we intend to reinvest
    cash flow generated by operations in our business. Our revolving
    credit facility currently restricts our ability to pay cash
    dividends on our common stock, and we may also enter into credit
    agreements or other borrowing arrangements in the future that
    restrict or limit our ability to pay cash dividends on our
    common stock.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    33
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='106'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Capitalization</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth our cash and cash equivalents and
    capitalization as of March&#160;31,&#160;2007:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    on an actual historical basis;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    on a pro forma basis, reflecting the consummation of the
    transactions described under &#147;Certain relationships and
    related party transactions&#151;The contribution agreement&#148;
    and our
    for&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    common stock split; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    on a pro forma as adjusted basis, reflecting the consummation of
    the transactions described under &#147;Certain relationships and
    related party transactions&#151;The contribution
    agreement,&#148;
    our&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    for&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    common stock split and the sale
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock in this offering at an assumed initial public
    offering price of $&#160;&#160;&#160;&#160;&#160; per share,
    after deducting underwriting discounts and estimated offering
    expenses payable by us and the application of the estimated net
    proceeds from this offering as set forth under &#147;Use of
    proceeds.&#148;
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="64%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=283 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">As of
    March&#160;31, 2007</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Pro forma<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Actual</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Pro
    forma</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">as
    adjusted</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=283 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Cash and cash equivalents
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,374
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Long-term debt
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,169
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Stockholders&#146; equity:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Preferred stock, $0.01 par value,
    10,000,000 shares authorized, no shares issued and outstanding
    actual, no shares issued and outstanding pro forma, no shares
    issued and outstanding pro forma as adjusted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Common stock, $0.01 par value,
    90,000,000&#160;shares authorized, 3,002,085&#160;shares issued
    and outstanding
    actual,&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    issued and outstanding pro
    forma,&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    issued and outstanding pro forma as adjusted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Additional paid-in capital
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    38,883
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Retained earnings
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,077
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    68,990
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total capitalization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    121,159
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="10" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="10" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    34
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='107'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Dilution</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Purchasers of common stock in this offering will experience
    immediate and substantial dilution in the net tangible book
    value per share of the common stock for accounting purposes. Net
    tangible book value per share is determined by dividing our
    tangible net worth (tangible assets less total liabilities) by
    the total number of outstanding shares of common stock. At
    March&#160;31, 2007, after giving effect to the transactions
    described under &#147;Certain relationships and related party
    transactions&#151;The contribution agreement&#148; and
    our&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    for&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    common stock split, the pro forma net tangible book value per
    share of our common stock was $&#160;&#160;&#160;&#160;&#160;,
    or $&#160;&#160;&#160;&#160;&#160; per share of common stock.
    After giving effect to the sale
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock in this offering and assuming the receipt of the
    estimated net proceeds, after deducting the underwriters&#146;
    discounts and estimated offering expenses, our pro forma as
    adjusted net tangible book value at March&#160;31, 2007 would
    have been approximately $&#160;&#160;&#160;&#160;&#160;, or
    $&#160;&#160;&#160;&#160;&#160; per share. This represents an
    immediate and substantial increase in the pro forma as adjusted
    net tangible book value of $&#160;&#160;&#160;&#160;&#160; per
    share to existing stockholders and an immediate dilution of
    $&#160;&#160;&#160;&#160;&#160; per share to new investors
    purchasing common stock in this offering, resulting from the
    difference between the initial public offering price and the pro
    forma as adjusted net tangible book value after this offering.
    The following table illustrates the per share dilution to new
    investors purchasing common stock in this offering:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="85%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="7" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=201 iwidth=454 length=0 -->
</DIV>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Assumed initial public offering
    price per share(1)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#160;&#160;&#160;&#160;&#160;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Adjusted net tangible book value
    per share at March&#160;31, 2007(2)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#160;&#160;&#160;&#160;&#160;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Increase per share attributable to
    new public investors(3)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">As adjusted net tangible book
    value per share after this offering(3)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Dilution in as adjusted net
    tangible book value per share to new investors
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="7" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Before deduction of underwriting
    discounts and estimated offering expenses.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Net tangible book value is defined
    as stockholders&#146; equity less intangible assets.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(3)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Takes in to account underwriting
    discounts and commissions and estimated offering expenses.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    A $1.00 increase (decrease) in the assumed public offering price
    of $&#160;&#160;&#160;&#160;&#160; would increase (decrease) our
    as adjusted net tangible book value per share after this
    offering by $&#160;&#160;&#160;&#160;&#160; per share and the
    dilution in net tangible book value to new investors by
    $&#160;&#160;&#160;&#160;&#160; per share, assuming the number
    of shares offered by us, as set forth on the cover of this
    preliminary prospectus, remains the same and after deducting
    estimated underwriting discounts and estimated offering expenses
    payable by us.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    35
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth, on the pro forma as adjusted
    basis set forth above as of March&#160;31, 2007, the total
    number of shares of common stock owned by existing stockholders
    and to be owned by new investors, the total consideration paid
    and the average price per share paid by our existing
    stockholders and to be paid by new investors in this offering
    calculated before deduction of estimated underwriting discounts:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="48%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="16" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=196 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Shares
    purchased</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Total
    consideration</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Average price<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Percent</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Amount</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Percent</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">per
    share</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="16" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=196 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Existing stockholders(1)(2)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">New investors(3)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100%
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100%
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="16" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="16" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Reflects ownership of shares to be
    sold by selling stockholder prior to this offering.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">With respect to our executive
    officers, directors and 10%-or-greater stockholders, the number
    of shares of common stock purchased from us, the total
    consideration paid to us and the average price per share paid by
    all of those affiliated persons, are as follows:
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 7pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="62%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
</TR>
<TR style="font-size: 6pt" valign="bottom" align="center">
<TD colspan="16" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=252 length=0 -->
</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Shares
    purchased</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Total
    consideration</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Average price<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Percent</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Amount</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Percent</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">per
    share</FONT></B>
</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom" align="center">
<TD colspan="16" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=252 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 7pt">Affiliated persons
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="16" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="16" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(3)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Excludes shares being sold by the
    selling stockholder.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If the underwriters&#146; over-allotment option to purchase
    additional shares is exercised in full, the number of shares
    held by new investors will be increased
    to&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    or
    approximately&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    of the total number of shares of common stock outstanding
    immediately following this offering.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The preceding tables
    exclude&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock subject to options outstanding as of
    March&#160;31, 2007, which have a weighted average exercise
    price of $&#160;&#160;&#160;&#160;&#160; per share. As of
    March&#160;31, 2007, options to
    purchase&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of our common stock were currently exercisable. If these options
    were exercised at the average exercise price, the additional
    dilution per share to new investors would be
    $&#160;&#160;&#160;&#160;&#160;.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007, there
    were&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of our common stock outstanding held by stockholders. Sales by
    the selling stockholder in this offering will reduce the number
    of shares of common stock held by existing stockholders
    to&#160;&#160;&#160;&#160;&#160; or
    approximately&#160;&#160;&#160;&#160;&#160;% of the total number
    of shares of common stock outstanding after this offering and
    will increase the number of shares of common stock held by new
    investors
    by&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    to approximately&#160;&#160;&#160;&#160;&#160;% of the total
    number of shares of common stock outstanding after this offering.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    36
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='108'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Unaudited
    combined pro forma financial data</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following combined pro forma financial information gives
    effect to the following transactions:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    The issuance of 1,413,081&#160;shares of Approach Resources Inc.
    common stock to Neo Canyon Exploration, L.P. for its 30% working
    interest in the Ozona Northeast field that Approach does not
    already own; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    The issuance of 329,719&#160;shares of Approach Resources Inc.
    common stock in exchange for 150,000&#160;shares of Approach
    Oil&#160;&#038; Gas Inc. common stock, representing all of the
    issued and outstanding shares of Approach Oil&#160;&#038; Gas
    Inc. common stock.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our operations are currently conducted by two separate operating
    entities under common control: Approach Resources Inc. and
    Approach Oil&#160;&#038; Gas Inc. Pursuant to a contribution
    agreement, the operations of Approach Oil&#160;&#038; Gas Inc.
    will be combined under Approach Resources Inc., and we will also
    acquire the Neo Canyon interest immediately prior to the closing
    of this offering.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The combined pro forma balance sheet as of March&#160;31, 2007
    is based on our unaudited combined balance sheet as of
    March&#160;31, 2007, appearing elsewhere in this prospectus, and
    gives effect to the transactions described above as if they
    occurred on March&#160;31, 2007.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The combined pro forma statement of operations for the three
    months ended March&#160;31, 2007 is based on our unaudited
    combined statement of operations for the three months ended
    March&#160;31, 2007 and the unaudited Historical Summary of
    Revenues and Direct Operating Expenses of Properties to be
    Acquired by Approach Resources Inc. for the three months ended
    March&#160;31, 2007, both of which appear elsewhere in this
    prospectus, and gives effect to the transactions described above
    as if they occurred on January&#160;1, 2007.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The combined pro forma statement of operations for the year
    ended December&#160;31, 2006 is based on our audited combined
    statement of operations for the year ended December&#160;31,
    2006, and the audited Historical Summary of Revenues and Direct
    Operating Expenses of Properties to be Acquired by Approach
    Resources Inc. for the year ended December&#160;31, 2006, both
    of which appear elsewhere in this prospectus, and gives effect
    to the transactions described above as if they occurred on
    January&#160;1, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The unaudited combined pro forma financial statements presented
    herein have been included as required by the rules of the
    Securities and Exchange Commission and are provided for
    comparative purposes only. These unaudited combined pro forma
    financial statements should be read in conjunction with our
    historical combined financial statements and related notes for
    the periods presented.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The unaudited combined pro forma financial statements presented
    herein are based upon assumptions and include adjustments as
    explained in the notes to the unaudited combined pro forma
    financial statements, and the actual recording of the
    transactions could differ. The unaudited combined pro forma
    financial statements presented herein are not necessarily
    indicative of the financial results that would have occurred had
    the transactions described above occurred on the dates indicated
    and should not be viewed as indicative of operations in the
    future. However, management believes that the assumptions used
    provide a reasonable basis for presenting the significant
    effects of the transactions discussed above and that the pro
    forma adjustments give appropriate effect to those assumptions.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    37
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. <BR>
    Unaudited combined pro forma balance sheet<BR>
    March&#160;31, 2007</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="60%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=263 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Resources Inc.<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Pro forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">pro forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">adjustments</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="13" valign="bottom">
    <DIV style="font-size: 1pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=455 length=0 -->
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">Assets</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Current assets:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Cash and cash equivalents
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,374
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,374
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accounts receivable:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Joint interest owners
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,461
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,461
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Prepaid expenses and other current
    assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    852
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    852
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Total current assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12,150
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12,150
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Property and equipment:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Oil and gas properties, using the
    successful efforts method of accounting
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    164,726
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    69,463
</TD>
<TD nowrap align="left" valign="bottom">
    (a)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    234,189
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Furniture, fixtures and equipment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    256
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    256
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Less accumulated depreciation,
    depletion and amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (26,859
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (26,859
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Net property and equipment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    138,123
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    69,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    207,586
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Other assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    119
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    119
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Total assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,392
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    69,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    219,855
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Liabilities and stockholders&#146;
    equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Current liabilities:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accounts payable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,065
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,065
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Oil and gas payables
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,407
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,407
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accrued liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    971
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    971
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Unrealized loss on commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    121
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    121
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Total current liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,564
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,564
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Non-current liabilities:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Long-term debt
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,169
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,169
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Deferred income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,514
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,514
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Asset retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    155
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    63
</TD>
<TD nowrap align="left" valign="bottom">
    (a)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    218
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Total liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81,402
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    63
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81,465
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Stockholders&#146; equity:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Common stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14
</TD>
<TD nowrap align="left" valign="bottom">
    (a)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2
</TD>
<TD nowrap align="left" valign="bottom">
    (b)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    46
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Additional paid-in capital
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    38,883
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    69,386
</TD>
<TD nowrap align="left" valign="bottom">
    (a)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (2
</TD>
<TD nowrap align="left" valign="bottom">
    )(b)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    108,267
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Retained earnings
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,077
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,077
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Total stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    68,990
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    69,400
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    138,390
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total liabilities and
    stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,392
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    69,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    219,855
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="13" valign="bottom">
<DIV style="text-indent: -9pt; margin-left: 9pt">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=455 length=0 --><FONT style="font-size: 9pt">
    </FONT>
</DIV>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying
    notes.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    38
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.<BR>
    Unaudited combined pro forma statement of operations<BR>
    Three months ended March&#160;31, 2007</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="46%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="4%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="15" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=191 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Resources Inc.<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Neo Canyon<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    thousands, except shares and per share<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">historical
    <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Pro
    forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">pro
    forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">data)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">adjustments</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="16" valign="bottom">
    <DIV style="font-size: 2pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=454 length=0 -->
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revenues:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,547
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,802
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    15,349
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Overhead and services income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    133
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (101
</TD>
<TD nowrap align="left" valign="bottom">
    )(c)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total revenues
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,680
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,802
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (101
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,381
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Expenses:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease operating
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    979
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    437
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,416
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Severance and production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    375
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    151
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    526
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Exploration
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,646
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,646
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Accretion of discount on asset
    retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Depreciation, depletion and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,088
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,649
</TD>
<TD nowrap align="left" valign="bottom">
    (d)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,737
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,714
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    588
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,649
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,951
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Operating income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,966
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,214
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,750
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,430
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Other income (expense):
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Interest expense, net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (956
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (956
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,626
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,626
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total other income (expense)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (5,582
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (5,582
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Income (loss) before provision
    (benefit) for income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (616
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,214
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,750
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    848
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Provision (benefit) for income
    taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (35
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    508
</TD>
<TD nowrap align="left" valign="bottom">
    (e)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    473
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Net income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (581
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,214
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (2,258
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    375
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Earnings (loss) per share:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.19
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.08
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD 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>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.19
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.08
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD 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>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Weighted average shares
    outstanding:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,987,411
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,592,800
</TD>
<TD nowrap align="left" valign="bottom">
    (g)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,580,211
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,987,411
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,706,030
</TD>
<TD nowrap align="left" valign="bottom">
    (h)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,693,441
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="16" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=454 length=0 --><FONT style="font-size: 10pt">
    </FONT>
</DIV>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying
    notes.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    39
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.<BR>
    Unaudited combined pro forma statement of operations<BR>
    Year ended December&#160;31, 2006</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="47%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="15" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=196 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Resources Inc.<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Neo Canyon<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Pro forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">pro forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    thousands, except shares and per share data)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">adjustments</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="16" valign="bottom">
    <DIV style="font-size: 1pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=454 length=0 -->
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revenues:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,894
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    19,558
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    72,452
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Overhead and services income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    514
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (339
</TD>
<TD nowrap align="left" valign="bottom">
    )(c)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    175
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total revenues
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53,408
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    19,558
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (339
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    72,627
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Expenses:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease operating
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,889
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,868
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,757
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Severance and production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,736
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    716
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,452
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Exploration
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,640
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,640
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Impairment of non-producing
    properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    558
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    558
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Accretion of discount on asset
    retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4
</TD>
<TD nowrap align="left" valign="bottom">
    (f)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Depreciation, depletion and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14,541
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,514
</TD>
<TD nowrap align="left" valign="bottom">
    (d)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,055
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    25,304
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,584
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,518
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    35,406
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Operating income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,104
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,974
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (7,857
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    37,221
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Other income (expense):
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Interest expense, net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,814
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,814
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,668
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,668
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total other income (expense)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,854
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,854
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Income before provision for income
    taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,958
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,974
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (7,857
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    42,075
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Provision for income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,756
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,373
</TD>
<TD nowrap align="left" valign="bottom">
    (e)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,129
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Net income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    21,202
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    16,974
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (11,230
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    26,946
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Earnings per share:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    7.04
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5.78
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD 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>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.84
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5.67
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD 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>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Weighted average shares
    outstanding:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,012,414
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,650,608
</TD>
<TD nowrap align="left" valign="bottom">
    (i)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,663,022
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,101,180
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,650,608
</TD>
<TD nowrap align="left" valign="bottom">
    (i)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,751,788
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="16" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=454 length=0 --><FONT style="font-size: 10pt">
    </FONT>
</DIV>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying
    notes.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    40
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.<BR>
    Notes to unaudited combined pro forma<BR>
    financial statements</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The accompanying unaudited combined pro forma balance sheet at
    March&#160;31, 2007 assumes that the acquisition of the Neo
    Canyon interest occurred as of March&#160;31, 2007. The
    unaudited combined pro forma statement of operations for the
    year ended December&#160;31, 2006 and the three months ended
    March&#160;31, 2007 assume the acquisition occurred as of
    January&#160;1, 2006 and January&#160;1, 2007, respectively. The
    following adjustments have been made to the accompanying pro
    forma statements:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (a)&#160;</TD>
    <TD align="left">
    To record the acquisition of the Neo Canyon interest for
    $69.4&#160;million by the issuance of 1,413,081&#160;shares of
    Approach Resources Inc. common stock at March&#160;31, 2007, and
    the assumption of related asset retirement obligations at that
    date. The issuance of 1,413,081&#160;shares of common stock is
    subject to adjustment based on a potential split of Approach
    Resources Inc. common stock. The following is a summary of the
    purchase price and its allocation (in&#160;thousands):
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="90%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="4" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=201 iwidth=434 length=0 -->
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Purchase price:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Issuance of 1,413,081&#160;shares
    of Approach Resources Inc. common stock valued at $49.11 per
    share
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    69,400
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Plus: assumption of asset
    retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    63
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total purchase price
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    69,463
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Allocation:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Leasehold costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    750
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease and well equipment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    18,572
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Intangible drilling costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    50,141
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    69,463
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (b)&#160;
</TD>
    <TD align="left">    To record the issuance of 329,719&#160;shares of Approach
    Resources Inc. common stock in exchange for 150,000&#160;shares
    of Approach Oil&#160;&#038; Gas Inc. common stock.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (c)&#160;
</TD>
    <TD align="left">    To eliminate operating overhead recoveries by Approach from Neo
    Canyon.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (d)&#160;
</TD>
    <TD align="left">    To adjust annual depletion and depreciation expense for the Neo
    Canyon interest based on the acquisition price valued at
    $69.5&#160;million. The pro forma adjustment is based on the
    production and reserve information summarized under Pro Forma
    Supplementary Financial Information for Oil and Gas Producing
    Activities (Unaudited) below.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (e)&#160;
</TD>
    <TD align="left">    To record additional provision for income tax related to the
    acquisition of the Neo&#160;Canyon interest based on an
    effective income tax rate of 34.66%.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (f)&#160;
</TD>
    <TD align="left">    To record additional accretion of discount on asset retirement
    obligations related to the obligations assumed in the
    acquisition of the Neo&#160;Canyon interest. The pro forma
    amount for the three months ended March&#160;31, 2007 is
    inconsequential.
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    41
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (g)&#160;</TD>
    <TD align="left">
    To adjust the weighted average shares outstanding for the
    issuance of shares to Neo&#160;Canyon in exchange for the
    interest acquired as well as shares issued to stockholders of
    Approach Oil&#160;&#038; Gas Inc. The pro forma adjustment
    comprises the following:
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="88%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="5" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=201 iwidth=434 length=0 -->
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Issuance of shares for the
    acquisition of Neo&#160;Canyon interest
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,413,081
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Issuance of shares for the
    Approach Oil&#160;&#038; Gas Inc. combination
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    329,719
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Purchase of Approach
    Oil&#160;&#038; Gas Inc. common shares
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (150,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,592,800
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (h)&#160;</TD>
    <TD align="left">
    To adjust the weighted average shares outstanding for the items
    discussed in (f)&#160;and to record the dilutive impact of
    restricted shares and stock options outstanding that would have
    been anti-dilutive based on Approach Resources Inc. historical
    amounts. The pro forma adjustment comprises the following:
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="88%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="5" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=201 iwidth=434 length=0 -->
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Issuance of shares for the
    acquisition of Neo&#160;Canyon interest
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,413,081
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Issuance of shares for the
    Approach Oil&#160;&#038; Gas Inc. combination
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    329,719
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Purchase of Approach
    Oil&#160;&#038; Gas Inc. common shares
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (150,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Dilutive impact of non-vested
    restricted stock grants
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21,250
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Dilutive impact of stock options
    outstanding, treasury method
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    91,980
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,706,030
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    (i)&#160;</TD>
    <TD align="left">
    To adjust the weighted average shares outstanding for the
    issuance of shares to Neo&#160;Canyon in exchange for the
    interest acquired as well as shares issued to stockholders of
    Approach Oil&#160;&#038; Gas Inc. The pro forma adjustment
    comprises the following:
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="88%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="5" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=201 iwidth=434 length=0 -->
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Issuance of shares for the
    acquisition of Neo&#160;Canyon interest
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,413,081
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Issuance of shares for the
    Approach Oil&#160;&#038; Gas Inc. combination
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    329,719
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Purchase of Approach
    Oil&#160;&#038; Gas Inc. common shares (represents the weighted
    average shares outstanding of Approach Oil&#160;&#038; Gas Inc.
    for the year ended December&#160;31, 2006)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (92,192
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,650,608
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    42
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Pro forma
    supplementary financial information for oil and gas producing
    activities (unaudited)</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following tables present certain unaudited pro forma
    information concerning Approach&#146;s proved oil and gas
    reserves giving effect to the acquisition of the Neo&#160;Canyon
    interest as if it had occurred on January&#160;1, 2006. There
    are numerous uncertainties inherent in estimating the quantities
    of proved reserves and projecting future rates of production and
    timing of development expenditures. The following reserve data
    represent estimates only and should not be construed as being
    exact. The proved oil and gas reserve information for Approach
    and Neo&#160;Canyon is as of December&#160;31, 2006 and reflects
    prices and costs as of those dates.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="50%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="20%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=217 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Neo&#160;Canyon<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined
    historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">pro forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Reserves&#151;Crude
    oil &#038; natural gas liquids (MBbls)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=217 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Reserves at beginning of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,086
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    467
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,553
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Extensions and discoveries
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    339
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    61
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    400
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revisions of previous estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (226
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (105
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (331
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (77
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (32
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (109
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Reserves at end of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,122
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    391
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,513
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Proved developed producing
    reserves at end of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    496
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    170
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    666
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="50%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="20%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=217 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Neo&#160;Canyon<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined
    historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">pro forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Reserves&#151;Natural
    gas (MMcf):</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=217 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Reserves at beginning of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    102,405
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    42,899
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    145,304
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Extensions and discoveries
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,655
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,421
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,076
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revisions of previous estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (13,121
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (5,526
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (18,647
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (6,282
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (2,645
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8,927
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Reserves at end of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    98,657
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    41,149
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    139,806
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Proved developed producing
    reserves at end of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    51,004
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21,400
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    72,404
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    43
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Standardized
    measure of discounted future cash flows (in
    thousands):</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="49%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="20%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=210 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Neo&#160;Canyon<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined
    historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">pro forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="13" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <DIV style="font-size: 1pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=453 length=0 -->
</DIV>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future cash inflows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    709,184
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    292,399
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,001,583
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future production costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (198,023
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (81,784
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (279,807
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future development costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (108,451
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (45,957
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (154,408
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (109,784
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,647
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (111,431
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future net cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    292,926
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    163,011
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    455,937
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">10% annual discount
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (215,049
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (112,306
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (327,355
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Standardized measure of discounted
    future net cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    77,877
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    50,705
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    128,582
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Changes in
    standardized measure of discounted future cash flows
    (in&#160;thousands):</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="50%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="20%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=215 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Neo&#160;Canyon<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined
    historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">pro forma<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">amounts</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="13" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <DIV style="font-size: 1pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=453 length=0 -->
</DIV>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance at beginning of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    146,439
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    109,078
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    255,517
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net changes in prices and
    production costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (106,246
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (56,734
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (162,980
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net changes in future development
    costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (43,229
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,707
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (52,936
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Sales of oil and gas produced, net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (40,852
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (16,974
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (57,826
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net change due to extensions,
    discoveries and improved recovery techniques
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,418
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,265
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    38,683
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revisions of previous quantity
    estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (22,112
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,314
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (31,426
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Previously estimated development
    costs incurred
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,108
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,332
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    74,440
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net change in income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,303
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (726
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    51,577
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Accretion of discount
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,546
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,136
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21,682
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Other
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,498
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,651
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8,149
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance at end of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    77,877
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    50,705
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    128,582
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    44
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='112'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Selected
    historical combined financial data</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth our selected historical combined
    financial data as of the dates and for the periods shown. Our
    operations are currently conducted in two separate entities
    under common control, Approach Resources Inc. and Approach
    Oil&#160;&#038; Gas Inc. Pursuant to a contribution agreement,
    the operations of Approach Oil&#160;&#038; Gas Inc. will be
    combined under Approach Resources Inc., and we will also acquire
    the Neo Canyon interest immediately prior to the closing of this
    offering. The historical financial data for the year ended
    December&#160;31, 2002 has been derived from our unaudited
    financial statements, which are not included in this prospectus.
    The historical financial data for the year ended
    December&#160;31, 2003 have been derived from our audited
    financial statements, which are not included in this prospectus.
    The historical combined financial data for the years ended
    December&#160;31, 2004, 2005 and 2006 and for the three months
    ended March&#160;31, 2006 and 2007 have been derived from the
    combined financial statements of Approach Resources Inc. and
    Approach Oil&#160;&#038; Gas Inc. included in this prospectus.
    The following information should be read in conjunction with
    &#147;Capitalization,&#148; &#147;Management&#146;s discussion
    and analysis of financial condition and results of
    operations&#148; and the historical combined and combined pro
    forma financial statements included in this prospectus.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    45
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="43%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=06 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=07 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=08 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=08 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=08 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=08 type=hang1 -->
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="28" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=176 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">September&#160;13,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2002 to<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">ended
    March&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2004<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2005<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2002<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2003<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(in thousands,
    except per share data)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="28" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=176 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">Statement of operations
    data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Revenues:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,682
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    40,339
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,894
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    15,680
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,547
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Overhead and services income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    133
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    131
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    408
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    514
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    122
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    133
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Total revenues
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    133
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,813
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    40,747
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53,408
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,802
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,680
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Expenses:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Lease operating expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    179
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,910
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,889
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    973
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    979
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Severance and production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    407
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,975
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,736
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    380
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    375
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Exploration
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    442
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,396
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    733
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,640
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    196
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Impairment of non-producing
    properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    558
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    539
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,535
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,074
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,067
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    750
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,646
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Accretion of discount on asset
    retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Depletion, depreciation and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,223
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,006
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14,541
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,281
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,088
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Total expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    541
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,986
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,280
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,696
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    25,304
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,580
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,714
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Operating income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (408
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,986
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (467
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,051
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,104
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,222
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,966
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Other:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Interest income (expense), net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    59
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    201
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (802
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,814
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (725
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (956
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,163
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,668
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,192
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,626
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Income (loss) before provision for
    income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (409
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,927
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (266
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    19,086
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,958
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,689
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (616
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Provision (benefit) for income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,028
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,756
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,280
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (35
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Net income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (409
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (1,927
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (266
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    12,058
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    21,202
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10,409
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (581
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Earnings (loss) per share:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (3.44
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.14
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4.03
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    7.04
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3.49
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.19
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (3.44
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.14
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4.03
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.84
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3.39
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.19
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="27" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">Statement of cash flows
    data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Net cash provided (used) by:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Operating activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (258
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (2,391
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,527
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    40,304
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,110
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    12,616
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,687
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Investing activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (15
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (26,859
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (71,939
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (59,189
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (24,578
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,717
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Financing activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    282
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,898
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,474
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,199
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    26,771
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,918
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,493
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">Other financial data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">EBITDAX(1)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (406
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,535
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,152
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,791
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    44,877
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    13,699
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,677
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Capital expenditures
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    25,313
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    73,485
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    59,189
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,578
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,717
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="29" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="29" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">See &#147;&#151;Reconciliation of
    non-GAAP financial measures&#148; below for additional
    information.
    </FONT></TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    46
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="43%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=08 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=08 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=08 type=body -->
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="23" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=181 length=0 -->
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="15" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">As of December
    31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">As of
    March&#160;31,</FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2004<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2005<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2002<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2003<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="23" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=181 length=0 -->
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">Balance sheet data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Cash
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    21
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,513
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,656
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,219
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,911
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,175
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,374
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Other current assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    410
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,458
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,305
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    13,200
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,660
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,776
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Property and equipment, net,
    successful efforts method
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    92
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    35
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,223
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    88,803
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    132,112
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    109,904
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    138,123
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Other assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    29
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,565
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    89
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    86
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    101
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    119
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="21" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="21" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Total assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    142
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,958
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,902
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    108,416
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,309
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    127,840
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,392
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="21" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="21" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Current liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    499
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    86
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    9,827
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    32,746
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    15,421
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    26,811
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,564
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Long-term debt
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    29,425
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    47,619
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    40,660
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,169
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Other long-term liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    99
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,555
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,697
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,562
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,669
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Stockholders&#146; equity (deficit)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (357
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,872
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,876
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    39,690
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    69,572
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    48,807
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    68,990
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="21" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="21" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Total liabilities and
    stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    142
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,958
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,902
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    108,416
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,309
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    127,840
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,392
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="23" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="23" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Reconciliation of
    non-GAAP financial measures</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table shows our reconciliation of our
    <FONT style="white-space: nowrap">PV-10</FONT> to our
    standardized measure of discounted future net cash flows (the
    most directly comparable measure calculated and presented in
    accordance with generally accepted accounting principles, or
    GAAP). <FONT style="white-space: nowrap">PV-10</FONT>
    is our estimate of the present value of future net revenues from
    estimated proved gas reserves after deducting estimated
    production and ad valorem taxes, future capital costs and
    operating expenses, but before deducting any estimates of future
    income taxes. The estimated future net revenues are discounted
    at an annual rate of 10% to determine their &#147;present
    value.&#148; We believe
    <FONT style="white-space: nowrap">PV-10</FONT> to be
    an important measure for evaluating the relative significance of
    our gas and oil properties and that the presentation of the
    non-GAAP financial measure of
    <FONT style="white-space: nowrap">PV-10</FONT>
    provides useful information to investors because it is widely
    used by professional analysts and sophisticated investors in
    evaluating gas and oil companies. Because there are many unique
    factors that can impact an individual company when estimating
    the amount of future income taxes to be paid, we believe the use
    of a pre-tax measure is valuable for evaluating our company. We
    believe that most other companies in the oil and gas industry
    calculate
    <FONT style="white-space: nowrap">PV-10</FONT> on the
    same basis.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    47
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <FONT style="white-space: nowrap">PV-10</FONT> should
    not be considered as an alternative to the standardized measure
    of discounted future net cash flows as computed under GAAP.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="86%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=388 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">As of<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=388 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt"><FONT style="white-space: nowrap">PV-10</FONT>
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    179,865
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Less: Undiscounted income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (111,431
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Plus: 10% discount factor
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    60,148
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Discounted income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (51,283
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Standardized measure of discounted
    future net cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    128,582
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table reconciles our net income to EBITDAX.
    EBITDAX is defined as net income or loss excluding income tax,
    non-cash compensation, changes in fair value of commodity
    derivatives, exploration and other impairment costs,
    depreciation, depletion and amortization and interest expense.
    Although EBITDAX is not calculated in accordance with GAAP,
    management believes that it is a widely accepted financial
    indicator that provides additional information about our
    profitability, ability to meet our future requirements for debt
    service, capital expenditures and working capital. EBITDAX
    should not be considered in isolation or as a substitute for net
    income, operating income, net cash provided by operating
    activities or any other measure of financial performance
    presented in accordance with GAAP.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    While we have disclosed our EBITDAX to permit a more complete
    comparative analysis of our operating performance and debt
    servicing ability relative to other companies, investors should
    be cautioned that EBITDAX as reported by us may not be
    comparable in all instances to EBITDAX as reported by other
    companies. In addition, EBITDAX amounts may not be fully
    available for management&#146;s discretionary use, due to the
    requirements to conserve funds for capital expenditures, debt
    service or other commitments.
</DIV>

<DIV style="margin-top: 9pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="26%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=06 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=07 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=08 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=08 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=08 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=08 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=09 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=09 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=09 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=09 type=hang1 -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=10 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=10 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=10 type=body -->
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="35" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=94 length=0 -->
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">September&#160;13,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Pro
    forma</FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2002 to<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="13" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">ended
    March&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2004<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2005<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Year ended<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2002<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2003<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">combined<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">historical</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="35" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=94 length=0 -->
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Net income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (409
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (1,927
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (266
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    12,058
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    21,202
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10,409
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (581
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    26,946
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    375
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,028
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,756
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,280
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (35
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,129
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    473
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Non-cash compensation
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    34
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    34
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,163
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8,668
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (6,192
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,626
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8,668
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,626
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Exploration and impairment costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    442
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,396
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    734
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,198
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    196
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,198
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Depreciation, depletion and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,223
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,006
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14,541
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,281
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,088
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,055
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,737
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Interest expense (income)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (59
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (201
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    802
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,814
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    725
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    956
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,814
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    956
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="33" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="33" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">EBITDAX
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (406
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (1,535
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,152
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    32,791
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    44,877
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    13,699
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    8,677
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    61,508
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,790
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="35" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="35" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    48
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='109'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Management&#146;s
    discussion and analysis of financial<BR>
    condition and results of operations</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following discussion is intended to assist in understanding
    our results of operations and our financial condition. Our
    combined financial statements and the accompanying notes
    included elsewhere in this prospectus contain additional
    information that should be referred to when reviewing this
    material. Statements in this discussion may be forward-looking.
    These forward-looking statements involve risks and
    uncertainties, which could cause actual results to differ from
    those expressed.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Overview</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are an independent energy company engaged in the exploration,
    development, exploitation, production and acquisition of
    unconventional oil and gas properties onshore in the United
    States. We are focusing our growth efforts primarily on finding
    and developing natural gas reserves in known tight gas sands and
    shale areas and have assembled leasehold interests aggregating
    approximately 231,000&#160;gross (177,000&#160;net) acres. We
    expect to leverage our management team&#146;s proven track
    record of finding and exploiting unconventional reservoirs
    through application of advanced completion, fracturing and
    drilling techniques. As the operator of substantially all of our
    proved reserves, we have a high degree of control over capital
    expenditures and other operating matters.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We currently operate in three areas: West Texas (Wolfcamp,
    Canyon Sands and Ellenburger), Western Kentucky (New Albany
    Shale) and Northern New Mexico (Mancos Shale). As of
    December&#160;31, 2006, all of our proved reserves and
    production were located in our West Texas operating area and
    substantially all of those reserves and production were located
    in the Ozona Northeast field.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our financial results depend upon many factors, particularly the
    price of oil and gas. Commodity prices are affected by changes
    in market demand, which is impacted by overall economic
    activity, weather, pipeline capacity constraints, inventory
    storage levels, gas price differentials and other factors. As a
    result, we cannot accurately predict future oil and gas prices,
    and therefore, we cannot determine what effect increases or
    decreases will have on our capital program, production volumes
    and future revenues. In addition to production volumes and
    commodity prices, finding and developing sufficient amounts of
    oil and gas reserves at economical costs are critical to our
    long-term success. Future finding and development costs are
    subject to changes in the industry, including the costs of
    acquiring, drilling and completing our projects.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Higher oil and gas prices have led to higher demand for drilling
    rigs, operating personnel and field supplies and services and
    have caused increases in the costs of those goods and services.
    To date, the higher sales prices have more than offset the
    higher drilling and operating costs. Given the inherent
    volatility of gas prices, which are influenced by many factors
    beyond our control, we plan our activities and budget based on
    conservative sales price assumptions, which generally are lower
    than the average sales prices received. We focus our efforts on
    increasing gas reserves and production while controlling costs
    at a level that is appropriate for long-term operations. Our
    future cash flow from operations will depend on our ability to
    manage our overall cost structure.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Like all oil and gas production companies, we face the challenge
    of natural production declines. Oil and gas production from a
    given well naturally decreases over time. Additionally, our
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    49
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    reserves have a rapid initial decline. We attempt to overcome
    this natural decline by drilling to develop and identify
    additional reserves and by acquisitions. Our future growth will
    depend upon our ability to continue to add oil and gas reserves
    in excess of production at a reasonable cost. We will maintain
    our focus on the costs of adding reserves through drilling and
    acquisitions as well as the costs necessary to produce such
    reserves.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We also face the challenge of financing future acquisitions. We
    plan to use the proceeds of this offering to repay the
    $&#160;&#160;&#160;&#160;&#160;&#160;million of outstanding
    borrowings under our revolving credit facility plus accrued
    interest. At that point, we believe we will have adequate unused
    borrowing capacity under our revolving credit facility for
    possible acquisitions, temporary working capital needs and any
    expansion of our drilling program. Funding for future
    acquisitions also may require additional sources of financing,
    which may not be available.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our operations are currently conducted in two separate entities
    under common control, Approach Resources Inc. and Approach
    Oil&#160;&#038; Gas Inc. Pursuant to a contribution agreement,
    the operations of these two entities will be combined under
    Approach Resources Inc., and we will also acquire the Neo Canyon
    interest immediately before the closing of this offering.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Critical
    accounting policies and estimates</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The discussion and analysis of our financial condition and
    results of operations are based upon our combined financial
    statements, which have been prepared in accordance with
    accounting policies generally accepted in the United States. The
    preparation of our combined financial statements requires us to
    make estimates and assumptions that affect our reported results
    of operations and the amount of reported assets, liabilities and
    proved oil and gas reserves. Some accounting policies involve
    judgments and uncertainties to such an extent that there is
    reasonable likelihood that materially different amounts could
    have been reported under different conditions, or if different
    assumptions had been used. Actual results may differ from the
    estimates and assumptions used in the preparation of our
    combined financial statements. Described below are the most
    significant policies we apply in preparing our combined
    financial statements, some of which are subject to alternative
    treatments under GAAP. We also describe the most significant
    estimates and assumptions we make in applying these policies.
    See notes to the financial statements under the heading
    &#147;Summary of significant accounting policies&#148; for
    additional accounting policies and estimates by management.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Oil and gas
    activities</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Accounting for oil and gas activities is subject to special,
    unique rules. We use the successful efforts method for
    accounting for our oil and gas activities. The significant
    principles for this method are:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    geological and geophysical evaluation costs are expensed as
    incurred;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    dry holes for exploratory wells are expensed, and dry holes for
    developmental wells are capitalized; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    impairments of properties, if any, are based on the evaluation
    of the carrying value of properties against their fair value
    based upon pools of properties grouped by geographical and
    geological conformity.
</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    50
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD></TD>
    <TD align="left">
    Our engineering estimates of proved oil and gas reserves
    directly impact financial accounting estimates including
    depletion, depreciation and amortization expense, evaluation of
    impairment of properties and the calculation of plugging and
    abandonment liabilities. Proved oil and gas reserves are the
    estimated quantities of oil and gas that geological and
    engineering data demonstrate with reasonable certainty to be
    recoverable in future years from known reservoirs under
    period-end economic and operating conditions. The process of
    estimating quantities of proved reserves is very complex,
    requiring significant subjective decisions in the evaluation of
    all geological, engineering and economic data for each
    reservoir. The data for any reservoir may change substantially
    over time as a result of changing results from operational
    activity and results. Changes in commodity prices, operation
    costs and techniques may also affect the overall evaluation of
    reservoirs. A hypothetical 10% decline in our December&#160;31,
    2006 proved reserves volumes would have resulted in
    approximately $1.4&#160;million of additional depletion expense
    for the year ended December&#160;31, 2006.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our estimated proved reserves as of December&#160;31, 2006 were
    prepared by DeGolyer and MacNaughton.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Derivative
    instruments and hedging activities</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All derivative instruments are recorded on the balance sheet at
    fair value. Changes in the derivative&#146;s fair value are
    currently recognized in the statement of operations unless
    specific hedge accounting criteria are met. For qualifying
    cash-flow hedges, the gain or loss on the derivative is deferred
    in accumulated other comprehensive income (loss) to the extent
    the hedge is effective. The ineffective portion of the hedge is
    recognized immediately in the statement of operations. Gains and
    losses on hedging instruments included in cumulative other
    comprehensive income (loss) are reclassified to oil and gas
    sales revenue in the period that the related production is
    delivered. Derivative contracts that do not qualify for hedge
    accounting treatment are recorded as derivative assets and
    liabilities at fair value in the balance sheet, and the
    associated unrealized gains and losses are recorded as current
    income or expense in the statement of operations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Historically, we have not designated our derivative instruments
    as cash-flow hedges. We record our open derivative instruments
    at fair value on our combined balance sheets as either
    unrealized gains or losses on commodity derivatives. We record
    changes in such fair value in earnings on our combined
    statements of operations under the caption entitled &#147;change
    in fair value of commodity derivatives.&#148;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Although we have not designated our derivative instruments as
    cash-flow hedges, we use those instruments to reduce our
    exposure to fluctuations in commodity prices related to our oil
    and gas production. Accordingly, we record realized gains and
    losses under those instruments in oil and gas sales revenues on
    our combined statements of operations. For the years ended
    December&#160;31, 2005 and 2006, we recognized an unrealized
    loss of $4,163,098 and an unrealized gain of $8,668,095 from
    changes in the fair values of commodity derivatives,
    respectively. A 10% increase in the NYMEX floating prices would
    have resulted in a $2.0&#160;million decrease in the
    December&#160;31, 2006 fair value recorded on our balance sheet,
    and a corresponding increase to loss on commodity derivatives in
    our statement of operations.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    51
</DIV><!-- END LOGICAL PAGE -->
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Recent accounting
    pronouncements</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    On December&#160;16, 2004, the Financial Accounting Standards
    Board, or FASB, published Statement of Financial Accounting
    Standards No.&#160;123 (Revised 2004), <I>Share Based
    Payment</I>, or SFAS&#160;123(R). SFAS&#160;123(R) requires
    compensation cost related to share based payment transactions to
    be recognized in the financial statements. Share based payment
    transactions within the scope of SFAS&#160;123(R) include stock
    options, restricted stock plans, performance based awards, stock
    appreciation rights and employee share purchase plans. The
    provisions of SFAS&#160;123(R) were effective for us as of the
    first annual reporting period beginning after December&#160;15,
    2005. Accordingly, we implemented the revised standard on
    January&#160;1, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In March 2005, FASB issued FASB Interpretation No.&#160;47,
    <I>Accounting for Conditional Asset Retirement Obligations</I>,
    or FIN&#160;47. FIN&#160;47 clarifies the definition and
    treatment of conditional asset retirement obligations as
    discussed in FASB Statement No.&#160;143, <I>Accounting for
    Asset Retirement Obligations</I>. A conditional asset retirement
    obligation is defined as an asset retirement activity in which
    the timing
    <FONT style="white-space: nowrap">and/or</FONT>
    method of settlement are dependent on future events that may be
    outside our control. FIN&#160;47&#160;states that we must record
    a liability when incurred for conditional asset retirement
    obligations if the fair value of the obligation is reasonably
    estimable. This interpretation is intended to provide more
    information about long-lived assets, future cash outflows for
    these obligations and more consistent recognition of these
    liabilities. FIN&#160;47 is effective for fiscal years ending
    after December&#160;15, 2005. We do not believe that our
    financial position, results of operations or cash flows will be
    impacted by FIN&#160;47.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In June 2006, the FASB issued Interpretation No.&#160;48,
    <I>Accounting for Uncertainty in Income Taxes&#151;an
    Interpretation of FASB Statement No.&#160;109</I>, or
    FIN&#160;48. FIN&#160;48 clarifies the accounting for
    uncertainty in income taxes recognized in a company&#146;s
    financial statements and prescribes a recognition threshold and
    measurement attribute for the financial statement recognition
    and measurement of a tax position taken or expected to be taken
    in a tax return. We adopted FIN&#160;48 on January&#160;1, 2007
    and it did not have a material impact on our financial
    statements.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In September 2006, the FASB issued FAS&#160;No.&#160;157,
    <I>Fair Value Measurements</I>, or FAS&#160;157. FAS&#160;157
    defines fair value to measure assets and liabilities,
    establishes a framework for measuring fair value and requires
    additional disclosures about the use of fair value. FAS&#160;157
    is applicable whenever another accounting pronouncement requires
    or permits assets and liabilities to be measured at fair value.
    FAS&#160;157 does not expand or require any new fair value
    measures. FAS&#160;157 is effective for our fiscal year
    beginning January&#160;1, 2008. We are currently evaluating the
    impact that the adoption of FAS&#160;157 will have on our
    financial position or results of operations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Effects of
    inflation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Inflation in the United States has been relatively low in recent
    years and did not have a material impact on our results of
    operations for the years ended December&#160;31, 2004, 2005 or
    2006. Although the impact of inflation has been insignificant in
    recent years, it is still a factor in the United States economy
    and may increase the cost to acquire or replace property, plant
    and equipment. It may also increase the cost of labor or
    supplies. To the extent permitted by competition, regulation and
    our existing agreements, we have and will continue to pass along
    increased costs to our customers in the form of higher prices.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    52
</DIV><!-- END LOGICAL PAGE -->
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Stock based and
    other compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our 2007 Stock Incentive Plan allows grants of stock and options
    to management and key employees. Granting of awards may increase
    our general and administrative expenses subject to the size and
    timing of the grants.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Public company
    expenses</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We believe that our general and administrative expenses will
    increase in connection with the completion of this offering as a
    result of us operating as a public company. This increase will
    consist of legal and accounting fees and additional expenses
    associated with compliance with the Sarbanes Oxley Act of 2002
    and other regulations. We anticipate that our ongoing general
    and administrative expenses also will increase as a result of
    being a publicly traded company. This increase will be due
    primarily to the cost of accounting support services, filing
    annual and quarterly reports with the SEC, investor relations,
    directors&#146; fees, directors&#146; and officers&#146;
    insurance and registrar and transfer agent fees. As a result, we
    believe that our general and administrative expenses for future
    periods will increase significantly. Our consolidated financial
    statements following the completion of this offering will
    reflect the impact of these increased expenses and affect the
    comparability of our financial statements with periods before
    the completion of this offering.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Results of
    operations</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Three months
    ended March&#160;31, 2006 and 2007</FONT></I></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="83%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=370 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months
    ended<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=370 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net production (MMcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,837
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,357
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Average sales prices (per Mcfe)
    (before hedging)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    7.76
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.92
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Costs and expenses (in thousands):
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease operating expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    973
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    980
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    380
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    375
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Depreciation, depletion and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,281
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,088
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    750
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,646
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="7" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Oil and gas sales.</I>&#160;Oil and gas sales decreased
    $4.1&#160;million, or 26.4%, for the three months ended
    March&#160;31, 2007 to $11.6&#160;million from
    $15.7&#160;million for the three months ended March&#160;31,
    2006. The decrease in gas sales principally resulted from the
    natural decline in production of our tight gas sands in the
    Northeast Ozona field. Further, we had four rigs drilling in the
    second half of 2005 and the first half of 2006, which
    dramatically increased production in the first quarter of 2006
    from new wells placed in production compared to the use of only
    one rig in the latter part of 2006 and early 2007. Additionally,
    the average price for gas including the effects of hedging
    increased slightly by $0.11 per Mcfe, or 1.3%, from $8.40 per
    Mcfe for the three months ended March&#160;31, 2006 to $8.51 per
    Mcfe for the three months ended March&#160;31, 2007, which
    partially offset the production decline. Gas sales represented
    87.9% of the total oil and
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    53
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    gas sales for the three months ended March&#160;31, 2007
    compared to 90.1% for the three months ended March&#160;31, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Commodity derivative activities.</I>&#160;Realized gains from
    our commodity derivative activity increased our revenues
    $2.2&#160;million for the three months ended March&#160;31,
    2007. In comparison, our commodity derivative activity increased
    our revenues $1.4&#160;million for the three months ended
    March&#160;31, 2006. The increase resulted from the relative
    movement of the NYMEX gas prices in relation to the fixed
    notional pricing for the respective time periods.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Overhead and services income.</I>&#160;Overhead and services
    income for the three months ended March&#160;31, 2007 increased
    $11,000, or 9.5%, to $133,000 from $122,000 for the three months
    ended March&#160;31, 2006. This increase resulted from our
    continued development of the Ozona Northeast field.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Lease operating expense.</I>&#160;Our lease operating
    expenses increased $7,000, or 0.7%, for the three months ended
    March&#160;31, 2007 to $980,000 ($0.72 per Mcfe) from $973,000
    ($0.53 per Mcfe) for the three months ended March&#160;31, 2006.
    The primary factor in the slight increase in lease operating
    expense was an increase of approximately $100,000 in our
    estimated ad valorem taxes in the 2007 period, which partially
    was offset by the release later in 2006 of one of our seven
    rented compressors and an amine unit.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Severance and production taxes.</I>&#160;Our production taxes
    decreased $5,000, or 1.3%, for the three months ended
    March&#160;31, 2007 to $375,000 from $380,000 for the three
    months ended March&#160;31, 2006. The decrease in production
    taxes was a function of the reduced oil and gas sales in 2007,
    offset partly by the timing of severance tax refunds in the 2006
    period.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Depreciation, depletion and amortization
    (DD&#038;A).</I>&#160;Our DD&#038;A expense decreased $200,000,
    or 5.9%, to $3.1&#160;million for the three months ended
    March&#160;31, 2007 from $3.3&#160;million for the three months
    ended March&#160;31, 2006. Our DD&#038;A expense per Mcfe
    produced increased by $0.47, or 26.3%, to $2.26 per Mcfe for the
    three months ended March&#160;31, 2007, as compared to $1.79 per
    Mcfe for the three months ended March&#160;31, 2006. This
    increase was primarily attributable to our drilling of mostly
    proved undeveloped locations in the 2007 period, which were
    previously recorded in our prior year&#146;s reserves, which had
    the effect of increasing production but did not increase
    reserves to the same degree.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Exploration.</I>&#160;Our dry hole costs associated with
    exploratory drilling increased $427,000 to $623,000 for the
    three months ended March&#160;31, 2007 from $196,000 for the
    three months ended March&#160;31, 2006. The 2007 dry hole costs
    resulted from a mechanical failure in the drilling of a test
    well in our Boomerang prospect.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>General and administrative.</I>&#160;Our general and
    administrative expenses increased $895,000, or 119.3%, to
    $1.6&#160;million for the three months ended March&#160;31, 2007
    from $750,000 for the three months ended March&#160;31, 2006.
    The increase in general and administrative expense was
    principally due to bonus payments made in the first quarter of
    2007 to cover tax liabilities incurred by management in
    connection with the repayment of management notes in January
    2007. See &#147;Certain relationships and related party
    transactions&#151;Other related party transactions.&#148;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Interest income (expense), net.</I>&#160;Our interest expense
    increased $231,000, or 31.8%, to $956,000 for the three months
    ended March&#160;31, 2007 from $725,000 for the three months
    ended March&#160;31, 2006. This increase was a function of
    increased borrowings in 2006 to fund our development of the
    Ozona Northeast field and higher interest rates.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    54
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Income taxes.</I>&#160;Our provision (benefit) for income
    taxes decreased $5.3&#160;million, or 100.7%, to a benefit of
    $35,000 for the three months ended March&#160;31, 2007, from a
    provision of $5.3&#160;million for the three months ended
    March&#160;31, 2006. The decrease in income tax expense is
    consistent with the decrease in our income before income taxes.
    Our effective income tax rate for the three months ended
    March&#160;31, 2006 amounted to 33.7% compared with 5.7% for the
    three months ended March&#160;31, 2007. The decrease in the
    effective rate results primarily from changes in the valuation
    allowance provided against net operating loss carryovers for
    Approach Oil&#160;&#038; Gas Inc. We do not recognize a tax
    benefit for the net operating loss carryovers of Approach
    Oil&#160;&#038; Gas Inc. based on our assessment of the
    likelihood of Approach Oil&#160;&#038; Gas Inc. being able to
    utilize those carryovers to reduce future taxable income.
    Subsequent to the combination of Approach Oil&#160;&#038; Gas
    Inc. and Approach Resources Inc., we believe that the net
    operating loss carryovers of Approach Oil&#160;&#038; Gas Inc.
    will be available to offset our future taxable income, subject
    to certain limits.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Years ended
    December&#160;31, 2005 and 2006</FONT></I></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="82%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=364 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December&#160;31,</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=364 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net production (MMcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,012
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,744
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Average sales prices (per Mcfe)
    (before hedging)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    8.63
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.92
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Costs and expenses (in thousands):
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease operating expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,910
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,889
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,975
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,736
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Depreciation, depletion and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,006
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14,541
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,067
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,930
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="7" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Oil and gas sales.</I>&#160;Oil and gas sales increased
    $12.6&#160;million, or 31.1%, for the year ended
    December&#160;31, 2006 to $52.9&#160;million from
    $40.3&#160;million for the year ended December&#160;31, 2005.
    The increase in sales principally resulted from a 34.6% increase
    in production, as we drilled and completed 81&#160;gross (53.5
    net) wells in 2006. Additionally, the average price for gas
    before the effect of hedging decreased $1.71 per Mcfe, or 19.8%,
    from $8.63 per Mcfe in 2005 to $6.92 per Mcfe in 2006 as the
    2005 period included the effects of the spike in gas prices
    after Hurricane Katrina and Hurricane Rita. Gas sales
    represented 89.7% of the total oil and gas sales in 2006
    compared to 92.7% in 2005.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Commodity derivative activities.</I>&#160;Realized gains from
    our commodity derivative activity increased our revenues
    $6.2&#160;million for the year ended December&#160;31, 2006. In
    comparison, realized losses from our commodity derivative
    activity decreased our revenues $2.9&#160;million for the year
    ended December&#160;31, 2005. During the years ended
    December&#160;31, 2005 and 2006, we used gas swaps to mitigate
    commodity price risk. During 2005, commodity prices tended to be
    higher than the notional prices specified in our swap
    agreements, which resulted in a loss to us. In contrast, during
    2006, commodity prices tended to be lower than the prices
    specified in our swap agreements, which resulted in a gain to us.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    55
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Overhead and services income.</I>&#160;Overhead and services
    income increased $106,000, or 26.0%, for the year ended
    December&#160;31, 2006 to $514,000 from $408,000 for the year
    ended December&#160;31, 2005. This increase resulted from the
    addition of wells from our drilling program.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Lease operating expense.</I>&#160;Our lease operating
    expenses increased $1.0&#160;million, or 33.7%, for the year
    ended December&#160;31, 2006 to $3.9&#160;million from
    $2.9&#160;million for the year ended December&#160;31, 2005.
    This increase primarily was the result of a $765,000 increase in
    ad valorem taxes and from increased pumper costs of $200,000
    from the continued development of the Ozona Northeast properties.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Severance and production taxes.</I>&#160;Our production taxes
    decreased $239,000, or 12.1%, for the year ended
    December&#160;31, 2006 to $1.7&#160;million from
    $2.0&#160;million for the year ended December&#160;31, 2005. The
    decrease in production taxes is a function of increased oil and
    gas revenues that were more than offset by refunds received
    applicable to prior years.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Depreciation, depletion and amortization
    (DD&#038;A).</I>&#160;Our DD&#038;A expense increased
    $6.5&#160;million, or 81.6%, to $14.5&#160;million for the year
    ended December&#160;31, 2006 from $8.0&#160;million for the year
    ended December&#160;31, 2005. Our DD&#038;A expense per Mcfe
    produced increased by $0.56, or 35.0%, to $2.16 per Mcfe for the
    year ended December&#160;31, 2006, as compared to $1.60 per Mcfe
    for the year ended December&#160;31, 2005. This increase was
    primarily attributable to increased production and increased oil
    and gas property costs in 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Exploration.</I>&#160;Our dry hole costs associated with
    exploratory drilling increased $907,000 to $1.6&#160;million for
    the year ended December&#160;31, 2006 from $700,000 for the year
    ended December&#160;31, 2005. We had nominal charges for
    geological evaluation costs.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>General and administrative.</I>&#160;Our general and
    administrative expenses decreased $137,000, or 4.5%, to
    $2.9&#160;million for the year ended December&#160;31, 2006 from
    $3.1&#160;million for the year ended December&#160;31, 2005. The
    decrease in general and administrative expense was principally
    due to the accrual in 2005 of bonuses totaling approximately
    $800,000 that did not recur in 2006, offset by increases in 2006
    for professional fees, the number of employees and increases in
    their compensation and benefits.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Interest income (expense), net.</I>&#160;Our interest expense
    increased $3.0&#160;million, or 375%, to $3.8&#160;million for
    the year ended December&#160;31, 2006 from $802,000 for the year
    ended December&#160;31, 2005. This significant increase was a
    function of increased borrowings under our revolving credit
    facility and an increase in interest rates during 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Income taxes.</I>&#160;Income taxes increased
    $4.8&#160;million, or 67.3%, to $11.8&#160;million for the year
    ended December&#160;31, 2006 from $7.0&#160;million for the year
    ended December&#160;31, 2005. Income taxes increased consistent
    with our income before tax, offset by a decrease in our
    effective tax rates, which amounted to 36.8% and 35.7% for the
    years ended December&#160;31, 2005 and 2006, respectively. Our
    effective tax rate decreased due primarily to a change in the
    tax law in the State of Texas which changed the tax from 4.5% of
    net income to 1% of our &#147;margin,&#148; as defined in the
    new law. Based on this change in the Texas tax law, we reduced
    our deferred tax liability by approximately $1.1&#160;million
    for the year ended December&#160;31, 2006.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    56
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Years ended
    December&#160;31, 2004 and 2005</FONT></I></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="83%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=370 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December&#160;31,</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=370 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net production (MMcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    908
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,012
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Average sales prices (per Mcfe)
    (before hedging)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    8.63
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Costs and expenses (in thousands):
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease operating expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    179
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,910
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    406
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,975
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Depreciation, depletion and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,223
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,006
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,074
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,067
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="7" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Oil and gas sales.</I>&#160;Oil and gas sales increased
    $34.6&#160;million to $40.3&#160;million for the year ended
    December&#160;31, 2005 from $5.7&#160;million for the year ended
    December&#160;31, 2004. This increase in oil and gas sales
    principally resulted from the substantial increase in gas prices
    in the aftermath of Hurricane Katrina and Hurricane Rita in the
    third quarter of 2005 and our increased drilling activities in
    2005. We drilled 113 and completed 110 successful wells during
    the year ended December&#160;31, 2005 in the Ozona Northeast
    field in West Texas. In addition, our first few wells in the
    Ozona Northeast field were not completed and producing until May
    2004 and, therefore, the full year of production from these
    wells in 2005 further contributed to the increase in gas and oil
    production from 2004 to 2005.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Commodity derivative activities.</I>&#160;We had no commodity
    derivatives in place prior to 2005. Realized losses from our
    commodity derivative activity decreased our revenues
    $2.9&#160;million for the year ended December&#160;31, 2005.
    During the year ended December&#160;31, 2005, we used gas swaps
    to mitigate commodity price risk. During 2005, commodity prices
    tended to be higher than the notional prices specified in our
    swap agreements, which resulted in a loss to us.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Overhead and services income.</I>&#160;Overhead and services
    income increased $278,000 to $408,000 for the year ended
    December&#160;31, 2005 from $130,000 for the year ended
    December&#160;31, 2004. This increase was a result of the
    addition of wells from our drilling program.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Lease operating expense.</I>&#160;Lease operating expense
    increased $2.7&#160;million to $2.9&#160;million for the year
    ended December&#160;31, 2005 from $179,000 for the year ended
    December&#160;31, 2004. This increase was primarily attributable
    to our increased compression facility costs to handle the
    increase in gas produced.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Severance and production taxes.</I>&#160;Our production taxes
    increased $1.6&#160;million to $2.0&#160;million for the year
    ended December&#160;31, 2005 from $406,000 for the year ended
    December&#160;31, 2004. This increase was a function of
    increased production and increased pricing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Depreciation, depletion and amortization
    (DD&#038;A).</I>&#160;Our DD&#038;A expense increased
    $6.8&#160;million to $8.0&#160;million for the year ended
    December&#160;31, 2005 from $1.2&#160;million for the year ended
    December&#160;31, 2004. Our DD&#038;A expense per Mcfe produced
    increased by $0.25, or 18.5%, to $1.60 per Mcfe for the year
    ended December&#160;31, 2005, as compared to $1.35 per Mcfe for
    the year ended December&#160;31, 2004. This increase was
    primarily attributable to increased production and oil and gas
    property costs in 2005.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    57
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>General and administrative.</I>&#160;Our general and
    administrative expenses increased $1.0&#160;million, or 47.9%,
    to $3.1&#160;million for the year ended December&#160;31, 2005
    from $2.1&#160;million for the year ended December&#160;31,
    2004. This increase was largely due to the accrual of $800,000
    for bonuses in 2005.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Interest expense.</I>&#160;Our interest expense, net of
    interest income, increased $1.0&#160;million to $802,000 for the
    year ended December&#160;31, 2005 from interest income of
    $201,000 for the year ended December&#160;31, 2004. This
    increase was primarily attributable to the increase in the
    average amount borrowed under our revolving credit facility as a
    result of increased costs from our drilling program.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Income taxes.</I>&#160;Our income tax expense increased for
    the year ended December&#160;31, 2005 compared to 2004 as net
    income increased from 2004 to 2005. We recorded an accrual of
    $580,000 as an estimate of the current taxes due for 2005.
    Additionally, we recorded a deferred tax provision of
    $6.4&#160;million in 2005 largely due to the difference in
    depletion, depreciation and capitalization methods for oil and
    gas properties. No taxes were accrued for 2004 as we utilized
    net operating loss carryforwards to offset any potential
    liability.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Liquidity and
    capital resources</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    For the three months ended March&#160;31, 2007, the majority of
    our cash was generated from operating and financing activities.
    We used $4.5&#160;million of proceeds from borrowings and cash
    flow from operations of $5.7&#160;million to fund
    $9.7&#160;million of capital expenditures related to our
    drilling program activities. During the same three months in
    2006, we used $12.6&#160;million of cash flow from operations
    and $11.2&#160;million of proceeds from borrowings under our
    revolving credit facility and available cash to fund
    $24.6&#160;million for our drilling program and
    $1.3&#160;million to repurchase shares and options.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our primary sources of cash in 2006 were from financing and
    operating activities. Approximately $18.2&#160;million from
    borrowings under our revolving credit facility,
    $6.5&#160;million from the issuance of common stock,
    $3.5&#160;million from a loan from one of our stockholders and
    cash from operations were used to fund our drilling program and
    the acquisition of another working interest in the Ozona
    Northeast field.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    For the year ended December&#160;31, 2005, cash flow from
    operations of $40.3&#160;million, borrowings under our revolving
    credit facility of $29.3&#160;million and $3.0&#160;million from
    the issuance of common stock provided the funds to drill
    additional wells in the Ozona Northeast field.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    For the year ended December&#160;31, 2004, operating cash flow
    of $4.5&#160;million combined with $22.4&#160;million from the
    issuance of common stock funded our initial drilling activities
    in the Ozona Northeast field.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our cash flow from operations is driven by commodity prices and
    production volumes. Prices for oil and gas are driven by
    seasonal influences of weather, national and international
    economic and political environments and, increasingly, from
    heightened demand for hydrocarbons from emerging nations,
    particularly China and India. Our working capital is
    significantly influenced by changes in commodity prices and
    significant declines in prices could decrease our exploration
    and development expenditures. Cash flows from operations were
    primarily used to fund exploration and development of our
    mineral interests. Our cash flows from operations increased
    dramatically between 2004 and 2005 as we developed the Ozona
    Northeast field. In comparing
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    58
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    2005 and 2006, our cash flows from operations declined slightly
    due to a $6.2&#160;million decrease in working capital
    components partially offset by the increase in oil and gas sales
    in 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table summarizes our sources and uses of funds for
    the periods noted:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="47%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=06 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="20" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=195 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="10" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months
    ended<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="10" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="20" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=195 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Cash flows provided by operating
    activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,527
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    40,304
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,110
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    12,616
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,687
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Cash flows used in investing
    activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (26,859
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (71,939
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (59,189
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (24,578
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,717
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Cash flows provided by financing
    activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,474
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,199
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    26,771
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,918
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,493
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="19" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="19" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net increase (decrease) in cash
    and cash equivalents
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    142
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    564
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,692
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (2,044
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="21" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="21" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Operating
    activities</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    For the three months ended March&#160;31, 2007, our cash flow
    from operations was used for drilling activities. The
    $5.7&#160;million in cash flow generated in the first three
    months of 2007 decreased $6.9&#160;million from the first three
    months of 2006 due mostly to lower oil and gas sales and higher
    general and administrative expenses in the 2007 period.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Net cash provided by operating activities increased from
    $4.5&#160;million in 2004 to $40.3&#160;million in 2005 and to
    $34.1&#160;million in 2006. The increase in 2005 resulted from
    increased sales volumes from our successful drilling activities
    and increased commodity prices. In comparing 2005 and 2006, our
    cash flows from operations declined in part due to a
    $6.2&#160;million decrease in working capital components
    partially offset by the increase in oil and gas sales and net
    income in 2006 from our continued development of the Ozona
    Northeast field in West Texas.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Investing
    activities</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Of the cash flows used in investing activities in the first
    three months of 2007, $4.8&#160;million was for the continued
    development of the Ozona Northeast field, $1.8&#160;million for
    the drilling of the test wells in our Boomerang prospect,
    $2.7&#160;million for the acquisition of the El Vado East
    leasehold and $400,000 for wells in our Cinco Terry project. For
    the comparable period of 2006, $24.6&#160;million was for the
    drilling of Ozona Northeast wells.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The majority of our cash flows used in investing activities for
    2004 through 2006 have been used for the continued development
    of the Ozona Northeast field. In 2006, an additional
    $4.1&#160;million was used for undeveloped leaseholds in our
    Cinco Terry and Boomerang fields, and $3.4&#160;million was
    invested in the initial wells in our Cinco Terry project.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have established an exploratory and development budget of
    $47.9&#160;million and $66.0&#160;million for 2007 and 2008,
    respectively, after the completion of the acquisition of the Neo
    Canyon interest. Our budgets are established based on expected
    volumes to be produced and commodity prices.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    59
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Financing
    activities</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We borrowed $4.6&#160;million under our revolving credit
    facility in the first three months of 2007 as compared to
    $11.2&#160;million in the first three months of 2006. In
    addition, $1.3&#160;million was spent in the first three months
    of 2006 to purchase common stock and related options from a
    former employee.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    During 2006, we sold approximately $6.5&#160;million of common
    stock. These proceeds were primarily used to fund the
    acquisition of our Boomerang prospect and drilling costs for our
    Cinco Terry project.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In February 2007, we entered into an amended and restated
    $100&#160;million revolving credit facility with The Frost
    National Bank. As of December&#160;31, 2006, we had an
    outstanding balance under the previous facility of approximately
    $47.6&#160;million, with a borrowing base of $75&#160;million.
    The borrowing base is subject to adjustment twice each year. The
    assessment by the bank petroleum engineers is based on their
    evaluation of the future cash flows from proved oil and gas
    reserves using the bank&#146;s pricing parameters.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our goal is to actively manage our borrowings to help us
    maintain the flexibility to expand and invest, and to avoid the
    problems associated with highly leveraged companies of large
    interest costs and possible debt reductions restricting ongoing
    operations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We believe that cash flow from operations will finance
    substantially all of our anticipated drilling, exploration and
    capital needs and therefore, allow us to use our revolving
    credit facility for possible acquisitions, temporary working
    capital needs through 2008 and any expansion of our drilling
    program.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    60
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Future capital
    expenditures for 2007 and 2008</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table summarizes information regarding our
    historical 2006 and estimated 2007 and 2008 capital
    expenditures. The 2007 and 2008 estimates include the interest
    of Neo Canyon after completion of the acquisition of the 30%
    working interest in the Ozona Northeast field that we do not
    already own. We will be required to meet our needs from our
    internally generated cash flow, debt financings and equity
    financings. The estimated capital expenditures are subject to
    change depending upon a number of factors, including the results
    of our development and exploration efforts, the availability of
    sufficient capital resources to us and other participants for
    drilling prospects, economic and industry conditions at the time
    of drilling, including prevailing and anticipated prices for oil
    and gas and the availability of drilling rigs and crews, our
    financial results and the availability of leases on reasonable
    terms and our ability to obtain permits for the drilling
    locations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="66%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=286 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Historical<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Estimated</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">year ended<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Year ending<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2008</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=286 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Capital expenditures:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Ozona Northeast
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,108
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,300
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    50,500
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Cinco Terry
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,176
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,200
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,100
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Western Kentucky
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,873
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,600
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,600
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Northern New Mexico
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,800
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,500
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Geological, geophysical and other
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,400
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    800
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total capital expenditures
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    59,157
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    49,300
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    66,500
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="10" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="10" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Credit
    facility</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In February 2007, we entered into an amended and restated
    $100&#160;million revolving credit facility with The Frost
    National Bank. In June 2007, we extended the due date of any
    balance outstanding at maturity to July 2010. The availability
    of funds under our revolving credit facility is subject to a
    borrowing base which was initially set at, and currently is,
    $75&#160;million. The borrowing base will be redetermined every
    six months or, upon the election by us or the bank, one
    additional time each calendar year.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our revolving credit facility provides for interest on
    outstanding amounts to accrue at a rate calculated, at our
    option, at either (i)&#160;the adjusted base rate, or
    (ii)&#160;the London Interbank Offered Rate plus a margin which
    ranges from 1.25% to 2.0% per annum, as applicable, as amounts
    outstanding under our revolving credit facility increase as a
    percentage of the borrowing base. In addition, we pay an annual
    commitment fee of 0.375% of non-utilized borrowings available
    under our revolving credit facility.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are subject to a financial covenant requiring maintenance of
    a minimum modified ratio of current assets to current
    liabilities. In addition, we are subject to covenants
    restricting cash dividends and other restricted payments,
    transactions with affiliates, incurrence of other debt,
    consolidations and mergers, the level of operating leases,
    assets sales, investments in other entities and liens on
    properties.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    61
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Loans under our revolving credit facility are secured by first
    priority liens on substantially all of our West Texas assets
    including equity interests in our subsidiaries. All outstanding
    amounts under our revolving credit facility are due and payable
    in July 2010.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We anticipate that the proceeds to us from this offering will be
    used to pay off outstanding borrowings under our revolving
    credit facility. As of December&#160;31, 2006 and March&#160;31,
    2007, the outstanding balance under our revolving credit
    facility was $47.6&#160;million and $52.2&#160;million,
    respectively.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Contractual
    commitments</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have a lease for our current office space in Fort&#160;Worth,
    Texas, that expires in May 2009. Our obligation under this lease
    is approximately $119,000 per year. In April 2007, we signed a
    five-year lease for approximately 13,000&#160;square feet of
    space in Fort&#160;Worth, Texas. In November 2007, we will begin
    rent payments of approximately $20,000 per month, including
    common area expenses. We expect to sublet our current office
    space.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table summarizes these commitments as of
    May&#160;31, 2007 (in thousands):
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="46%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="16" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=188 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Less than<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">More than<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Contractual
    obligations</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Total</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">1&#160;year</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">1-3&#160;years</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">3-5&#160;years</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">5&#160;years</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="16" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=188 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Long-term debt
    obligations&#151;revolving credit facility
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,169
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,169
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Operating lease obligations(1)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,592
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    321
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    625
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    532
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    114
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Asset retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    155
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    155
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Employment agreements with
    executive officers and other key personnel(2)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,946
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    775
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,171
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    55,862
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,096
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,796
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,701
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    269
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="16" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="16" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Operating lease obligation is for
    office space.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">These agreements are automatically
    renewed for successive terms of one year unless employment is
    terminated at the end of the term by written notice given to the
    employee not less than 60&#160;days prior to the end of such
    term. Our maximum commitment under the employment agreements,
    which would apply if the employees covered by these agreements
    were all terminated without cause, is approximately $1,171,000
    at December&#160;31, 2007. See &#147;Executive
    compensation&#151;Other benefits&#151;Employment agreements and
    other arrangements.&#148;
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Off-balance sheet
    arrangements</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    From time to time, we enter into off-balance sheet arrangements
    and transactions that can give rise to off-balance sheet
    obligations. As of December&#160;31, 2006, the off-balance sheet
    arrangements and transactions that we have entered into include
    undrawn letters of credit, operating lease agreements and gas
    transportation commitments. We do not believe that these
    arrangements are reasonably likely to materially affect our
    liquidity or availability of, or requirements for, capital
    resources.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Quantitative and
    qualitative disclosure about market risk</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Some of the information below contains forward-looking
    statements. The primary objective of the following information
    is to provide forward-looking quantitative and qualitative
    information about our potential exposure to market risks. The
    term &#147;market risk&#148; refers to the risk of
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    62
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    loss arising from adverse changes in oil and gas prices, and
    other related factors. The disclosure is not meant to be a
    precise indicator of expected future losses, but rather an
    indicator of reasonably possible losses. This forward-looking
    information provides an indicator of how we view and manage our
    ongoing market risk exposures. Our market risk sensitive
    instruments were entered into for hedging and investment
    purposes, not for trading purposes.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Commodity price
    risk</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We enter into financial swaps and collars to hedge future oil
    and gas production to mitigate portions of the risk of market
    price fluctuations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    To designate a derivative as a cash flow hedge, we document at
    the hedge&#146;s inception our assessment as to whether the
    derivative will be highly effective in offsetting expected
    changes in cash flows from the item hedged. This assessment,
    which is updated at least quarterly, is generally based on the
    most recent relevant historical correlation between the
    derivative and the item hedged. The ineffective portion of the
    hedge, if any, is calculated as the difference between the
    change in fair value of the derivative and the estimated change
    in cash flows from the item hedged.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If, during a hedge&#146;s term, we determine the hedge is no
    longer highly effective, hedge accounting is prospectively
    discontinued and any remaining unrealized gains or losses on the
    effective portion of the derivative are reclassified to earnings
    when the underlying transaction occurs. If it is determined that
    the designated hedge transaction is not likely to occur, any
    unrealized gains or losses are recognized immediately in the
    consolidated statements of income as a derivative fair value
    gain or loss.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As of March&#160;31, 2007, we had two gas swaps in place for the
    remainder of 2007 for an average volume of 243,000&#160;MMBtu
    per month. One of the swaps provides for us to be paid a
    notional price averaging $8.48 as compared to the floating NYMEX
    price for that period. In addition, we have in place a WAHA
    basis swap of $1.02 per MMBtu for the remainder of 2007. At
    December&#160;31, 2006 and March&#160;31, 2007, the fair value
    of our open derivative contracts was an asset of approximately
    $4.5&#160;million and a liability of $121,312, respectively.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In May 2007, we entered into a gas collar for 2008 based on the
    NYMEX floating MMBtu price with a $7.50 floor and a $11.45
    ceiling. In addition, we entered into a WAHA basis swap for 2008
    for $0.69 per MMBtu. Both of these hedges were for an average
    volume of approximately 186,000&#160;MMBtu per month.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have reviewed the financial strength of our hedge
    counterparty and believe our credit risk to be minimal. Our
    hedge counterparty is a participant in our credit facility and
    the collateral for the outstanding borrowings under our
    revolving credit facility is used as collateral for our hedges.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    63
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='110'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Business</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Overview</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are an independent energy company engaged in the exploration,
    development, exploitation, production and acquisition of
    unconventional natural gas and oil properties. Our principal
    operations are located in the Ozona Northeast field in West
    Texas, where we originally acquired approximately 28,000 gross
    (27,000 net) acres of leasehold interests in 2004. Since that
    time, through a series of strategic leasehold acquisitions, we
    have increased our West Texas acreage to 67,000 gross (52,000
    net) acres located in the Ozona Northeast field and our nearby
    Cinco Terry project. Our management team has extensive
    experience finding and exploiting unconventional reservoirs,
    particularly tight gas sands like Ozona Northeast, by applying
    advanced completion, fracturing and drilling techniques.
    Substantially all of our growth has been through our own
    drilling efforts. Since 2004, we have added approximately 149
    Bcfe of proved gas and oil reserves from unconventional
    reservoir formations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    At December&#160;31, 2006, all of our proved reserves and
    production were located in our West Texas operating area and
    substantially all of those reserves and production were located
    in the Ozona Northeast field. As of such date, we owned working
    interests in 241 gross (226 net) producing wells with an average
    net production of approximately 22 MMcfe/d for the month of
    December&#160;2006. At December&#160;31, 2006, our estimated
    total proved gas and oil reserves were approximately 149 Bcfe
    with a reserve life index of approximately 19 years. Our proved
    reserves are 94% gas and 51% proved developed. As the operator
    of substantially all of our proved reserves, we have a high
    degree of control over capital expenditures and other operating
    matters.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As of December&#160;31, 2006, we had identified a total of 795
    drilling locations, of which 668 were located in the Ozona
    Northeast field and 127 in our Cinco Terry project. Of the
    total, 203 locations were classified as proved. The final
    determination of whether or not to drill any particular well,
    including those wells currently budgeted, will depend on a
    number of factors, including the results of our development and
    exploration efforts, the availability of sufficient capital
    resources to us and other participants for drilling prospects,
    economic and industry conditions at the time of drilling,
    including prevailing and anticipated prices for gas and oil and
    the availability of drilling rigs and crews, our financial
    results, the availability of leases on reasonable terms and our
    success in obtaining permits for potential drilling locations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our growth efforts are focused primarily on finding and
    developing natural gas reserves in known tight gas sands and
    shale areas onshore in the United States. Since May&#160;2006,
    we have acquired leasehold interests covering 74,000 gross
    (44,000 net) acres in Western Kentucky and 90,000 gross (81,000
    net) acres in Northern New Mexico. In total we have assembled
    leasehold interests of 231,000 gross (177,000 net) acres in our
    three operating areas&#160;&#151; West Texas (Wolfcamp, Canyon
    Sands and Ellenburger), Western Kentucky (New Albany Shale) and
    Northern New Mexico (Mancos Shale).
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Strategy</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our strategy is to increase stockholder value by profitably
    growing our reserves, production, cash flow and earnings using a
    balanced program of (1)&#160;developing existing properties,
</DIV>

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<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (2)&#160;exploring and exploiting undeveloped properties,
    (3)&#160;completing strategic acquisitions and
    (4)&#160;maintaining financial flexibility. The following are
    key elements of our strategy:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

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    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

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    <TD>    &#149;&#160;</TD>
    <TD align="left">
    <I>Continue to develop our existing West Texas properties</I>.
    We intend to develop further the significant remaining potential
    of our West Texas properties, where we have identified
    795&#160;drilling locations.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    We acquired our initial position in the Ozona Northeast field
    through a Farmout Agreement in January 2004. The agreement
    covered 28,000&#160;gross (27,000 net) acres. During 2005, we
    leased an additional 17,000&#160;gross (17,000 net) acres. We
    began our drilling program late in the first quarter of 2004 and
    by year-end we had drilled 54&#160;wells with an 85% success
    rate. In early 2005, in response to increased gas prices, we
    increased our drilling rig inventory from two rigs to four rigs
    and filed for optional
    <FONT style="white-space: nowrap">20-acre</FONT> down
    spacing with the Texas Railroad Commission. By the end of 2005,
    we had drilled another 120&#160;wells with a 96% success rate.
    During the first quarter of 2006, the Texas Railroad Commission
    granted the
    <FONT style="white-space: nowrap">20-acre</FONT> down
    spacing, which substantially increased our proved undeveloped
    inventory. During the first half of 2006, we elected not to
    renew two of our four drilling rig contracts due to increased
    rig pricing. By year-end 2006, we had drilled 79&#160;additional
    wells with a 97% success rate. We currently plan to continue to
    develop the Ozona Northeast field by drilling an additional
    43&#160;wells in 2007 and 64&#160;wells in 2008. We estimate
    that as of December&#160;31, 2006, we had 668 identified
    drilling locations in the Ozona Northeast field, 192 of which
    were proved.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    In January 2007 we implemented several changes to our drilling
    and completion techniques for our developmental Canyon wells in
    Ozona Northeast, where we have 688&#160;remaining drilling
    locations. Primarily, we streamlined our casing design and
    modified our stimulation process. We estimate that these changes
    have resulted in current drilling and completion cost savings of
    approximately $50,000 per well, based on current markets for
    drilling services and equipment.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    &#149;&#160;
</TD>
    <TD align="left">
    We believe our Cinco Terry project has significant potential
    reserves in both the (i)&#160;established Canyon and Ellenburger
    formations and (ii)&#160;shallower and less-explored Wolfcamp
    trend. During the second quarter of 2007, we recompleted one of
    our existing wells into the Wolfcamp formation and we plan to
    drill two Canyon/Ellenburger wells in the third quarter of 2007
    and two Canyon/Ellenburger wells in the fourth quarter of 2007.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

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    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Pursue unconventional gas and oil
    opportunities.</I>&#160;With our Boomerang and El Vado East
    prospects, we have 164,000&#160;gross acres of unexplored shale
    gas and oil inventory to explore and produce. We plan to extend
    our three Western Kentucky vertical test wells horizontally into
    the New Albany Shale in the third quarter of 2007 and drill four
    additional evaluation wells in the fourth quarter of 2007. We
    also plan to identify and drill up to four Mancos Shale wells in
    El Vado East by the end of this year. We intend to support our
    unconventional shale gas and oil exploration with cash flow from
    our long-lived tight gas properties in West Texas.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Acquire strategic assets.</I>&#160;We continually review
    opportunities to acquire producing properties, undeveloped
    acreage and drilling prospects. We focus particularly on
    opportunities where we believe our reservoir management and
    operational expertise in unconventional gas and oil properties
    will enhance value and performance. We remain focused on
    unconventional resource opportunities, but also look at
    conventional opportunities based on individual project
    economics. We may enter into hedging agreements in connection
    with future
</TD>
</TR>

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    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

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    <TD></TD>
    <TD align="left">
    acquisitions to protect our return on investment. Our management
    team members have gained significant acquisition experience
    during their careers with Approach and previous employers.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

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    <TD>    &#149;&#160;</TD>
    <TD align="left">
    <I>Operate our producing properties as a low-cost
    producer.</I>&#160;We strive to minimize our operating costs by
    concentrating our assets within geographic areas where we can
    consolidate operating control and thus capture operating
    efficiencies. We are the operator of substantially all of our
    producing properties and plan to continue to operate
    substantially all of our producing properties in the future.
    Operating control allows us to better manage timing and risk as
    well as the cost of exploration and development, drilling and
    ongoing operations. We believe that in the competitive market
    for drilling rigs it is advantageous to have the flexibility to
    control the length of rig commitments in order to secure service
    at the lowest cost.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Competitive
    strengths</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We believe our historical success is, and future performance
    will be, directly related to the following combination of
    strengths which enable us to implement our strategy:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
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    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Experienced executive and technical team with significant
    employee ownership</I>. The members of our executive and
    technical team (including our Chief Executive Officer) have an
    average of over 26&#160;years of experience in the oil and gas
    industry and significant experience in building and managing
    independent oil and gas companies. The majority of our executive
    and technical team have spent their entire careers developing
    unconventional gas and oil properties. Our technical team
    includes two geologists and three petroleum engineers with
    industry expertise in working with shallow to intermediate depth
    tight gas sand wells. Our team has a proven record of analyzing
    complex structural and stratigraphic formations using
    <FONT style="white-space: nowrap">3-D</FONT> seismic
    and geological expertise, producing and optimizing gas
    reservoirs and drilling and completing unconventional gas
    reservoirs. Further, our professionals have developed completion
    techniques that enhance initial production rates and ultimate
    reserve recoveries in mature tight gas fields. Our team was
    responsible for the introduction of
    CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB>
    foam fracs to West Texas Canyon Sands tight gas fields and
    certain areas of the Piceance Basin in Colorado in the late
    1980s. This same team has presented technical papers and
    delivered numerous industry presentations covering
    CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB>
    foam fracing on low pressure, water-sensitive tight gas
    reservoirs. Several of our directors also have significant
    experience in managing both public and private oil and gas
    companies. Our management team and employees will own
    approximately&#160;&#160;% of our common stock after this
    offering, aligning their objectives with those of our
    stockholders.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Low risk, multi-year drilling inventory.</I>&#160;We have
    identified 795 drillable, low to moderate risk locations on our
    West Texas properties, providing us with approximately
    10&#160;years of drilling inventory at our current drilling
    rate. Our technical team&#146;s ability to locate and execute on
    repeatable low-risk drilling opportunities in our large and
    productive West Texas acreage holdings has helped us to achieve
    a drilling success rate of 94% since our inception. In addition,
    our technical expertise also has allowed us to improve our
    production rates and ultimate hydrocarbon recoveries on our
    wells.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Stable producing asset base.</I>&#160;We own an operated
    asset base comprising long-lived reserves. Approximately 94% of
    our reserves are gas, and all of our proved reserves are located
    in West Texas. These properties should produce stable cash flows
    to fund our development, exploitation and exploration
    opportunities.
</TD>
</TR>

</TABLE>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

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    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Large acreage positions.</I>&#160;We are a significant
    acreage holder in each of our three primary operating areas with
    an aggregate leasehold position of 231,000&#160;gross (177,000
    net) acres. We believe we have assembled a portfolio of
    properties, both in prolific producing natural gas and oil
    fields and in under-explored reservoirs, that would be difficult
    to replicate.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Operated asset base.</I>&#160;We operate substantially all of
    our estimated reserves. By maintaining operating control, we are
    able to more effectively control our expenses, capital
    allocation and the timing and method of exploitation and
    development of our properties.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Low cost structure.</I>&#160;Our reserve potential in our
    operating areas, our technical expertise and high drilling
    success have allowed us to achieve relatively low finding and
    development costs. Since our inception and through
    December&#160;31, 2006, we have invested approximately
    $200&#160;million to drill and complete 241&#160;wells in our
    West Texas operating areas, achieving an average finding and
    development cost of $1.38 per Mcfe. See&#147;&#151;Historical
    finding and development costs.&#148; During the same time
    period, our lease operating costs, including production taxes,
    averaged $0.91 per Mcfe.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Financial flexibility.</I>&#160;Upon the completion of this
    offering, we expect to have approximately
    $&#160;&#160;&#160;&#160;&#160;&#160;million in cash, no
    long-term debt and at least
    $&#160;&#160;&#160;&#160;&#160;&#160;million available for
    borrowings under our revolving credit facility, providing us
    with significant financial flexibility to pursue our business
    strategy.
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    <I>Control of gathering infrastructure and gas
    marketing.</I>&#160;We own and operate approximately
    72&#160;miles of gas gathering lines in West Texas that collect
    and transport our production to multiple delivery points for
    several regional and interstate pipelines. Owning and operating
    this infrastructure allows us to maintain greater control of our
    gathering pressures and to minimize down time associated with
    the system. We intend to purchase or construct additional gas
    gathering assets as necessary to fully develop our tight gas and
    shale opportunities in West Texas, Western Kentucky and Northern
    New Mexico.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Areas of
    operation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">West
    Texas</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Wolfcamp Canyon Sands play is the predominant producer in
    Edwards, Sutton, Schleicher and Crockett Counties in West Texas.
    There have been over 11,800 Canyon Sands wells drilled to date.
    Major canyon fields located in this area are Sawyer Canyon,
    Ozona Canyon, Ozona Northeast Proper Canyon, Davidson Ranch
    Canyon, Henderson Canyon and Ozona Northeast Canyon. To date,
    the combined production from these fields is over 3.8&#160;Tcfe.
    The Canyon Sands are a tight sand and siltstone reservoir that
    requires large fracture stimulation. The large independent
    companies currently active in the Canyon Sands play include
    Anadarko Petroleum Corp., Dominion Resources Inc. and Encore
    Acquisition Company along with several smaller companies,
    including Approach.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Ozona
    Northeast field (Canyon Sands)</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Ozona Northeast field, in Crockett and Schleicher counties,
    Texas, is our largest operating area on the basis of proved
    reserves and production. The Ozona Northeast field is one of the
    top 100&#160;gas fields in the United&#160;States in both
    reserves and production. In 2004, we entered the field through a
    farmout arrangement and have since increased our total acreage
    position to 45,000&#160;gross (44,000 net) acres. In February
    2004, we drilled our first well, and, as of
</DIV>

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    December&#160;31, 2006, we had 237 producing wells with proved
    reserves of 147&#160;Bcfe. During that period we have achieved
    an average compound annual production growth rate of over 100%
    as a result of our own drilling efforts. We have identified 668
    additional drilling locations in the field, and we estimate that
    completed costs per location currently are approximately
    $770,000, based on current markets for drilling services and
    equipment.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Cinco Terry
    project (Wolfcamp, Canyon Sands and Ellenburger)</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Since late 2005, we have leased and acquired options to lease
    22,000&#160;gross (8,000 net) acres five miles west of our Ozona
    Northeast field in order to evaluate the Wolfcamp, Canyon and
    Ellenburger formations. As of May&#160;31, 2007, we had drilled
    and completed three Canyon wells and one Ellenburger well at a
    total cost of $5.9&#160;million gross and $3.0&#160;million net.
    Proved reserves in the Cinco Terry project are estimated to be
    1.8&#160;Bcfe at December&#160;31, 2006. Wolfcamp wells in this
    area have demonstrated significant commercial production, and we
    are evaluating the formation for possible horizontal
    completions. Based upon data collected in the process of
    drilling the Canyon and Ellenburger wells, we believe additional
    success could be achieved in the shallower Wolfcamp formation.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Ozona pipeline
    system</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We own and operate 72&#160;miles of gas gathering lines for the
    Ozona Northeast and Cinco Terry production that transport our
    gas to a custody transfer point. We rent all compression
    equipment, which minimizes our overall cost to add or remove
    compression depending on field requirements. Owning and
    operating the gathering systems allows us to maintain control of
    our gathering pressures as well as minimizing down time
    associated with the system. Our system delivers into Ozona
    Pipeline Energy Company and Duke Energy Corp.&#146;s pipeline
    system.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Western
    Kentucky</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">Boomerang
    prospect (New Albany Shale)</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our Boomerang prospect is a 74,000&#160;gross (44,000 net) acre
    New Albany Shale play located in Western Kentucky in an
    under-explored area of the Illinois Basin. The New Albany Shale
    produces both biogenic and thermogenic gas from fractured
    reservoirs across a wide area in Illinois and Indiana.
    Thermogenic gas fields have been successfully developed in
    Kentucky, most notably in the Appalachian Basin part of Eastern
    Kentucky. Renewed interest in the Illinois Basin shale gas play
    has resulted in recent activity by several independent operators.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We believe the attributes of the New Albany Shale in our
    Boomerang prospect make it a promising resource play,
    particularly with the introduction of horizontal drilling
    technology. In the first quarter of 2007, we drilled the last of
    three vertical test wells. We have contracted to have core
    samples from these three wells analyzed for their geological,
    petrophysical, geomechanical, geochemical and production
    properties. We expect to begin the horizontal completion of
    these three test wells in the third quarter of 2007. After
    evaluating the results of our initial drilling and completion
    activities, we will determine our development program in the
    Boomerang prospect.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    68
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Northern New
    Mexico</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><I><FONT style="font-family: Arial, Helvetica">El Vado East
    prospect (Mancos Shale)</FONT></I></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our El Vado East prospect is a 90,000&#160;gross (81,000 net)
    acre Mancos Shale play located in the Chama Basin in Northern
    New Mexico in proximity to several highly productive fields,
    including the West and East Puerto Chiquito fields and the
    Boulder field. The West Puerto Chiquito Field has produced over
    17&#160;MMBbls, the East Puerto Chiquito Field has produced over
    4&#160;MMBbls and the Boulder Field has produced approximately
    1.8&#160;MMBbls. Other producing Mancos Shale fields in the
    San&#160;Juan Basin include the Gavilan and Verde Fields. The
    Mancos Shale is a thick, organic-rich Upper Cretaceous marine
    shale. We believe considerable exploration and development
    potential exists for this play.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Although our primary objective in the El Vado East prospect is
    the Mancos Shale, the possibility of finding commercial
    production in the Dakota, Morrison, Todilto and Entrada
    formations is a secondary objective. We anticipate spudding our
    initial test well in the El Vado East, which we expect to be the
    first of four vertical test wells, in the third quarter of 2007.
    Depending on the initial results of these wells, we may elect to
    shoot <FONT style="white-space: nowrap">3-D</FONT>
    seismic over a portion of this prospect at locations which have
    yet to be identified.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Estimated proved
    reserves</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As of December&#160;31, 2006, all of our proved reserves and
    production were located in our West Texas operating area and
    substantially all of those reserves and production were located
    in the Ozona Northeast field. The following table sets forth a
    summary of our estimated proved reserves and estimated average
    daily net production for the month ended December&#160;31, 2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="33%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=08 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=08 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=08 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=09 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=09 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=09 type=body -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="25" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=112 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Production for
    the month ended<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="14" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Estimated proved
    reserves at December&#160;31, 2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,
    2006</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Percent<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Identified<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Net<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Developed<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Undeveloped<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Total <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">of total<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">PV-10(1)<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">drilling<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">average<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Percent<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(Bcfe)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(Bcfe)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(Bcfe)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">reserves</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(millions)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">locations(2)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">MMcfe/d</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">of
    total</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="25" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=112 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Ozona Northeast
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    74.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    72.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    147.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    99%
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    175.7
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    668
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    99%
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Cinco Terry
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1%
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4.2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    127
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.3
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1%
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    75.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    73.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    148.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100%
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    179.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    795
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22.2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100%
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="25" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="25" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt"><FONT style="white-space: nowrap">PV-10</FONT>
    is a non-GAAP financial measure and generally differs from
    standardized measure of discounted future net cash flows, the
    most directly comparable GAAP financial measure, because it does
    not include the effects of income taxes on future net revenues.
    See &#147;Selected historical combined financial
    data&#151;Reconciliation of non-GAAP financial measures&#148;
    for our definition of
    <FONT style="white-space: nowrap">PV-10</FONT> and a
    reconciliation of
    <FONT style="white-space: nowrap">PV-10</FONT> to the
    standardized measure of discounted future net cash flows. Our
    calculation of
    <FONT style="white-space: nowrap">PV-10</FONT> set
    forth in this table is based on gas and oil and condensate
    prices actually received by us on December&#160;31, 2006, held
    flat for the life of the reserves. The weighted average price
    over the life of the Ozona Northeast reserves was $6.55 per Mcf
    of gas and $58.05 per Bbl of oil. The weighted average price
    over the life of the Cinco Terry reserves was $5.65 per Mcf of
    gas and $58.05 per Bbl of oil.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Represents total gross drilling
    locations identified by management as of December&#160;31, 2006.
    Of the total, 203 locations are classified as proved. The final
    determination with respect to the drilling of any well,
    including those currently budgeted, will depend on a number of
    factors, including the results of our development and
    exploration efforts, the availability of sufficient capital
    resources to us and other participants for drilling prospects,
    economic and industry conditions at the time of drilling,
    including prevailing and anticipated prices for gas and oil and
    the availability of drilling rigs and crews, our financial
    results and the availability of leases on reasonable terms and
    permitting for the potential drilling locations.
    </FONT></TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    69
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Operating
    data</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table presents certain information with respect to
    our historical operating data for the years ended
    December&#160;31, 2004, 2005 and 2006 and for the three months
    ended March&#160;31, 2007 and combined pro forma operating data
    for the year ended December&#160;31, 2006 and the three months
    ended March&#160;31, 2007, after giving effect to our
    acquisition of the Neo Canyon interest:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="43%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="19" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=176 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Pro
    forma</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">months <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Year <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">months <BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year&#160;ended&#160;December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="19" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=176 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">Gross wells</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Drilled
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    54
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    120
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    83
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    83
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Completed
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    46
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    115
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">Net wells</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Drilled
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    34.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    77.2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    55.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.3
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    79.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9.0
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Completed
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    29.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    74.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53.5
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    77.3
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8.0
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">Net production data</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Net volume (MMcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    908
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,012
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,744
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,357
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,580
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,910
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Average daily volume (MMcfe/d)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    18
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">Average sales price (per
    Mcfe)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Average sales price (without hedge)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    8.63
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.92
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.92
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.91
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.91
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Average sales price (with hedge)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8.05
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7.84
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8.51
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7.56
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8.04
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">Expenses (per Mcfe)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Lease operating
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.20
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.58
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.58
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.72
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.60
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.74
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.45
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.39
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.28
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.28
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.28
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.61
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.43
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.21
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.31
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.86
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Depreciation, depletion and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.35
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.60
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.16
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.26
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.30
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.47
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="19" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="19" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    70
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The estimates in the table below of proved reserves as of
    December&#160;31, 2006 are based on a reserve report prepared by
    us and audited by DeGolyer&#160;&#038; MacNaughton.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="71%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=315 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">As of<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Pro
    forma</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006(1)</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=315 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Estimated proved reserves
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Gas (Bcf)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    98.7
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    139.8
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Oil (MMBbls)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.5
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total proved reserves (Bcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    105.4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    148.8
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total proved developed reserves
    (Bcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    75.8
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt"><FONT style="white-space: nowrap">PV-10</FONT>
    (millions)(2)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Proved developed reserves
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    112.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    158.3
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Proved undeveloped reserves
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21.6
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total
    <FONT style="white-space: nowrap">PV-10</FONT> value
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    128.4
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    179.9
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="7" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Gives effect to our acquisition of
    the Neo Canyon interest.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt"><FONT style="white-space: nowrap">PV-10</FONT>
    is a non-GAAP financial measure and generally differs from
    standardized measure of discounted future net cash flows, the
    most directly comparable GAAP financial measure, because it does
    not include the effects of income taxes on future net revenues.
    See &#147;Selected historical combined financial
    data&#151;Reconciliation of non-GAAP financial measures&#148;
    for our definition of
    <FONT style="white-space: nowrap">PV-10</FONT> and a
    reconciliation of
    <FONT style="white-space: nowrap">PV-10</FONT> to the
    standardized measure of discounted future net cash flows. Our
    calculation of
    <FONT style="white-space: nowrap">PV-10</FONT> set
    forth in this table is based on gas and oil and condensate
    prices actually received by us on December&#160;31, 2006, held
    flat for the life of the reserves. The weighted average price
    over the life of the Ozona Northeast reserves was $6.55 per Mcf
    of gas and $58.05 per Bbl of oil. The weighted average price
    over the life of the Cinco Terry reserves was $5.65 per Mcf of
    gas and $58.05 per Bbl of oil.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Development and
    exploration projects</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table summarizes our historical 2006 and our
    estimated 2007 and 2008 capital expenditures. The estimated 2007
    and 2008 capital expenditures shown are preliminary full year
    estimates. The estimated capital expenditures are subject to
    change depending upon a number of factors, including
    availability of capital, drilling results, oil and gas prices,
    costs of drilling and completion and availability of drilling
    rigs, equipment and labor.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="51%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=212 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Historical(1)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Estimated(2)</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Year ended<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">ended <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Year ending<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    thousands)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2008</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=212 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Capital expenditures:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Ozona Northeast
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,108
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,793
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    34,300
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    50,500
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Cinco Terry
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,176
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    374
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,200
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,100
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Western Kentucky
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,873
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,858
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,600
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,600
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Northern New Mexico
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,660
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,800
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,500
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Geological, geophysical and other
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    31
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,400
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    800
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total capital expenditures
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    59,157
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    9,716
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    49,300
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    66,500
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    71
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Historical amounts here include
    actual amounts incurred to the interest of Approach Resources
    Inc. and Approach Oil&#160;&#038; Gas Inc.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Estimated capital expenditures for
    2007 and 2008 include the acquisition of the Neo Canyon interest
    in combination with the interest of Approach Resources Inc. and
    Approach Oil&#160;&#038; Gas Inc. as if the Neo Canyon interest
    were acquired on January&#160;1, 2007.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Historical
    finding and development costs</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    From our inception in September 2002 to December&#160;31, 2006,
    our acquisition, finding and development costs have averaged
    $1.38 per Mcfe. The cost of finding and developing reserves is
    calculated by taking the sum of the cost incurred for
    exploration, development and acquisition for the period, and
    dividing such amount by the total proved reserve additions for
    the period. The calculation does not include estimated future
    development costs for proved undeveloped reserves, which at
    December&#160;31, 2006 totaled $108.5&#160;million. Management
    believes that this information is useful to an investor in
    evaluating Approach because it measures the efficiency of a
    company in adding proved reserves as compared to others in the
    industry.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="65%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="32%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">September 13,
    2002 (inception) through<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">($ in thousands,
    unless otherwise indicated)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,
    2006</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="4" align="center" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=294 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <B><FONT style="font-size: 10pt">All in average F&#038;D
    cost:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Proved properties acquisition costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,948
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Unproved properties acquisition
    costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,992
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Exploration costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,285
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Development costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    140,153
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 30pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    163,378
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">Reserve purchases, extensions,
    discoveries and revisions (Mmcfe)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    118,053
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 20pt">
    <FONT style="font-size: 10pt">F&#038;D cost per Mcfe
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1.38
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Markets and
    customers</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The revenues generated by our operations are highly dependent
    upon the prices of, and demand for, gas and oil. The price we
    receive for our gas and oil production depends on numerous
    factors beyond our control, including seasonality, the
    conditions of the United States economy, particularly in the
    manufacturing sector, political conditions in other oil and gas
    producing countries, the extent of domestic production and
    imports of gas and oil, the proximity and capacity of gas
    pipelines and other transportation facilities, demand for oil
    and gas, the marketing of competitive fuels and the effects of
    state and federal regulation. The oil and gas industry also
    competes with other industries in supplying the energy and fuel
    requirements of industrial, commercial and individual consumers.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    During the year ended December&#160;31, 2006, Ozona Pipeline was
    our most significant purchaser, accounting for approximately
    89.6% of our total 2006 gas and oil sales excluding realized
    hedge settlements.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    72
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Productive
    wells</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth the number of productive gas and
    oil wells in which we owned a working interest at
    December&#160;31, 2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="86%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="4%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="2%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=385 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Gross</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Net</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=385 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Gas
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    239
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    227
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Oil
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    241
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    228
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="7" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Acreage</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth certain information with respect
    to our developed and undeveloped acreage as of May&#160;31, 2007.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="43%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="19" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=166 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Developed</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Undeveloped</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Total</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Gross</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Net</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Gross</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Net</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Gross</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Net</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="19" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=166 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Ozona Northeast
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    27,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    45,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    44,000
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Cinco Terry
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    20,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,000
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Western Kentucky (Boomerang)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    74,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    44,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    74,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    44,000
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Northern New Mexico <BR>
    (El Vado East)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    90,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    90,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81,000
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="17" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="17" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    201,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    149,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    231,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    177,000
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="19" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="19" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Drilling
    activity</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth information on our drilling
    activity during the periods indicated. The information should
    not be considered indicative of future performance, nor should
    it be
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    73
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    assumed that there is necessarily any correlation between the
    number of productive wells drilled, quantities of reserves found
    or economic value.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="40%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=08 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=08 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=08 type=body -->
    <TD width="4%">&nbsp;</TD>	<!-- colindex=09 type=gutter -->
    <TD width="2%" align="right">&nbsp;</TD>	<!-- colindex=09 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=09 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="25" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=162 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="17" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months
    ended<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,
    2007</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Gross</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Net</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Gross</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Net</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Gross</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Net</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Gross</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Net</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="25" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=162 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Development:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Productive
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    46.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    42.2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    115.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    106.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    77.3
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9.0
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Non-productive
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Exploratory:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Productive
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    0.5
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.6
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Non-productive
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">Total:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Productive
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    46.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    42.2
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    116.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    107.1
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    83.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    78.9
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9.0
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Non-productive
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.8
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6.0
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="25" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="25" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Hedging
    activity</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Derivative
    instruments and hedging activities</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We enter into financial swaps and collars to hedge future gas
    and oil production to mitigate portions of the risk of market
    price fluctuations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All derivative instruments are recorded on the balance sheet at
    fair value. Changes in the derivative&#146;s fair value are
    currently recognized in the statement of operations unless
    specific hedge accounting criteria are met. For qualifying
    cash-flow hedges, the gain or loss on the derivative is deferred
    in accumulated other comprehensive income (loss) to the extent
    the hedge is effective. The ineffective portion of the hedge is
    recognized immediately in the statement of operations. Gains and
    losses on hedging instruments included in cumulative other
    comprehensive income (loss) are reclassified to oil and gas
    sales revenue in the period that the related production is
    delivered. Derivative contracts that do not qualify for hedge
    accounting treatment are recorded as derivative assets and
    liabilities at fair value in the balance sheet, and the
    associated unrealized gains and losses are recorded as current
    income or expense in the statement of operations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Historically, we have not designated our derivative instruments
    as cash-flow hedges. We record our open derivative instruments
    at fair value on our combined balance sheets as either
    unrealized gains or losses on commodity derivatives. We record
    changes in such fair value in earnings on our combined
    statements of operations under the caption entitled &#147;change
    in fair value of commodity derivatives.&#148;
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Title to
    properties</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our properties are subject to customary royalty interests, liens
    incident to operating agreements, liens for current taxes and
    other burdens, including other mineral encumbrances and
</DIV>

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    <BR>
    74
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<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    restrictions. We do not believe that any of these burdens
    materially interfere with our use of the properties in the
    operation of our business.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We believe that we have generally satisfactory title to or
    rights in all of our producing properties. As is customary in
    the oil and gas industry, we make a general investigation of
    title at the time we acquire undeveloped properties. We receive
    title opinions of counsel before we commence drilling
    operations. We believe that we have satisfactory title to all of
    our other assets. Although title to our properties is subject to
    encumbrances in certain cases, we believe that none of these
    burdens will materially detract from the value of our properties
    or from our interest therein or will materially interfere with
    our use of the properties in the operation of our business.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Competition</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The oil and gas industry is highly competitive, and we compete
    with a substantial number of other companies that have greater
    resources. Many of these companies explore for, produce and
    market oil and gas, carry on refining operations and market the
    resultant products on a worldwide basis. The primary areas in
    which we encounter substantial competition are in locating and
    acquiring desirable leasehold acreage for our drilling and
    development operations, locating and acquiring attractive
    producing oil and gas properties, and obtaining purchasers and
    transporters of the oil and gas we produce. There is also
    competition between producers of oil and gas and other
    industries producing alternative energy and fuel. Furthermore,
    competitive conditions may be substantially affected by various
    forms of energy legislation
    <FONT style="white-space: nowrap">and/or</FONT>
    regulation considered from time to time by the United States
    government. However, it is not possible to predict the nature of
    any such legislation or regulation that may ultimately be
    adopted or its effects upon our future operations. Such laws and
    regulations may, however, substantially increase the costs of
    exploring for, developing or producing gas and oil and may
    prevent or delay the commencement or continuation of a given
    operation. The effect of these risks cannot be accurately
    predicted.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Regulation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The oil and gas industry in the United States is subject to
    extensive regulation by federal, state and local authorities. At
    the federal level, various federal rules, regulations and
    procedures apply, including those issued by the United States
    Department of Interior as noted above, and the United States
    Department of Transportation (Office of Pipeline Safety). At the
    state and local level, various agencies and commissions regulate
    drilling, production and midstream activities. These federal,
    state and local authorities have various permitting, licensing
    and bonding requirements. Various remedies are available for
    enforcement of these federal, state and local rules, regulations
    and procedures, including fines, penalties, revocation of
    permits and licenses, actions affecting the value of leases,
    wells or other assets, and suspension of production. As a
    result, there can be no assurance that we will not incur
    liability for fines and penalties or otherwise subject us to the
    various remedies as are available to these federal, state and
    local authorities. However, we believe that we are currently in
    material compliance with these federal, state and local rules,
    regulations and procedures.
</DIV>

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    <BR>
    75
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<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Transportation
    and sale of gas</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Federal Energy Regulation&#160;Commission, or FERC,
    regulates interstate gas pipeline transportation rates and
    service conditions. Although the FERC does not regulate gas
    producers such as us, the agency&#146;s actions are intended to
    foster increased competition within all phases of the gas
    industry. To date, the FERC&#146;s pro-competition policies have
    not materially affected our business or operations. It is
    unclear what impact, if any, future rules or increased
    competition within the gas industry will have on our gas sales
    efforts.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The FERC or other federal or state regulatory agencies may
    consider additional proposals or proceedings that might affect
    the gas industry. In addition, new legislation may affect the
    industries and markets in which we operate. We cannot predict
    when or if these proposals will become effective or any effect
    they may have on our operations. We do not believe, however,
    that any of these proposals will affect us any differently than
    other gas producers with which we compete.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Regulation of
    production</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Oil and gas production is regulated under a wide range of
    federal and state statutes, rules, orders and regulations. State
    and federal statutes and regulations require permits for
    drilling operations, drilling bonds 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 gas
    properties, the establishment of maximum rates of production
    from oil and gas wells and the regulation of the spacing,
    plugging and abandonment of wells. Also, each state generally
    imposes an ad valorem, production or severance tax with respect
    to production and sale of oil, gas and gas liquids within its
    jurisdiction.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Environmental
    regulations</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The exploration for and development of oil and gas and the
    drilling and operation of wells, fields and gathering systems
    are subject to extensive federal, state and local laws and
    regulations governing environmental protection as well as
    discharge of materials into the environment. These laws and
    regulations may, among other things:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    require the acquisition of various permits before drilling
    commences;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    require the installation of expensive pollution control
    equipment;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    restrict the types, quantities and concentration of various
    substances that can be released into the environment in
    connection with oil and gas drilling production, transportation
    and processing activities;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    suspend, limit or prohibit construction, drilling and other
    activities in certain lands lying within wilderness, wetlands
    and other protected areas; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    require remedial measures to mitigate and remediate pollution
    from historical and ongoing operations, such as the closure of
    waste pits and plugging of abandoned wells.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    These laws, rules and regulations may also restrict the rate of
    oil and gas production below the rate that would otherwise be
    possible. The regulatory burden on the oil and gas industry
    increases the cost of doing business in the industry and
    consequently affects profitability.
</DIV>

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    <BR>
    76
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Governmental authorities have the power to enforce compliance
    with environmental laws, regulations and permits, and violations
    are subject to injunction, as well as administrative, civil and
    criminal penalties. The effects of existing and future laws and
    regulations could have a material adverse impact on our
    business, financial condition and results of operations. While
    we believe that we are in substantial compliance with existing
    environmental laws and regulations and that continued compliance
    with current requirements would not have a material adverse
    effect on us, there is no assurance that this will continue in
    the future.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following is a summary of some of the existing laws, rules
    and regulations to which our business operations are subject.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Comprehensive
    Environmental Response, Compensation and Liability Act</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Comprehensive Environmental Response, Compensation and
    Liability Act of 1980, or CERCLA, also known as the Superfund
    law, imposes strict, and under certain circumstances, joint and
    several liability, on classes of persons who are considered to
    be responsible for the release of a hazardous substance into the
    environment. These persons include the owner or operator of the
    site where the release occurred, and anyone who disposed or
    arranged for the disposal of a hazardous substance released at
    the site. Under CERCLA, such persons may be subject to strict,
    joint and several liabilities for the costs of cleaning up the
    hazardous substances that have been released into the
    environment, for damages to natural resources and for the costs
    of certain health studies. In addition, 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. While we
    generate materials in the course of our operations that may be
    regulated as hazardous substances, we have not received
    notification that we may be potentially responsible for cleanup
    costs under CERCLA.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Waste
    handling</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Resource Conservation and Recovery Act, or RCRA, and
    comparable state statutes, regulate the generation,
    transportation, treatment, storage, disposal and cleanup of
    hazardous and non-hazardous wastes. Under the auspices of the
    Federal Environmental Protection Agency, or EPA, the individual
    states administer some or all of the provisions of RCRA,
    sometimes in conjunction with their own, more stringent
    requirements. Drilling fluids, produced waters and most of the
    other wastes associated with the exploration, development,
    exploitation and production of oil or gas are currently
    regulated under RCRA&#146;s non-hazardous waste provisions.
    However, it is possible that certain oil and gas exploration and
    production wastes now classified as non-hazardous could be
    classified as hazardous wastes in the future. Any such change
    could result in an increase in our operating expenses, which
    could have a material adverse effect on our results of
    operations and financial position.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We currently own or lease, and have in the past owned or leased,
    properties that for many years have been used for oil and gas
    exploration, production and development activities. Although we
    used operating and disposal practices that were standard in the
    industry at the time, petroleum hydrocarbons or wastes may have
    been disposed of or released on, under or from the properties
    owned or leased by us or on, under or from other locations where
    such wastes have been taken for disposal. In addition, some of
    these properties have been operated by third parties whose
    treatment and disposal or release of petroleum hydrocarbons and
    wastes was not under our control. These properties and the
    materials disposed or released on, at, under or from them may be
    subject to CERCLA, RCRA and analogous state laws. Under such
    laws, we could be
</DIV>

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    <BR>
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<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    required to remove or remediate previously disposed wastes or
    contamination, or to perform remedial activities to prevent
    future contamination.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Air
    emissions</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The federal Clean Air Act and comparable state laws regulate
    emissions of various air pollutants through air emissions
    permitting programs and the imposition of other requirements. In
    addition, the EPA has developed, and continues to develop,
    stringent regulations governing emissions of hazardous and toxic
    air pollutants at specified sources. These regulatory programs
    may require us to obtain permits before commencing construction
    on a new source of air emissions and may require us to reduce
    emissions at existing facilities. As a result, we may be
    required to incur increased capital and operating costs.
    Additionally, federal and state regulatory agencies can impose
    administrative, civil and criminal penalties for non-compliance
    with air permits or other requirements of the federal Clean Air
    Act and analogous state laws and regulations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Water
    discharges</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Federal Water Pollution Control Act, also known as the Clean
    Water Act, and analogous state laws, impose restrictions and
    strict controls with respect to the discharge of pollutants,
    including spills and leaks of oil and other substances into
    regulated waters, including wetlands. The discharge of
    pollutants into regulated waters is prohibited, except in
    accordance with the terms of a permit issued by the EPA or an
    analogous state agency. Federal and state regulatory agencies
    can impose administrative, civil and criminal penalties for
    non-compliance with discharge permits or other requirements of
    the Clean Water Act and analogous state laws and regulations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Other laws and
    regulations</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In February 2005, the Kyoto Protocol to the United Nations
    Framework Convention on Climate Change entered into force.
    Pursuant to the Protocol, adopting countries are required to
    implement national programs to reduce emissions of certain
    gases, generally referred to as greenhouse gases, which are
    suspected of contributing to global warming. The United States
    is not currently a participant in the Protocol. However,
    Congress has enacted legislation directed at reducing greenhouse
    gas emissions and the EPA may be required to regulate greenhouse
    gas emissions, and many states have already adopted legislation
    or undertaken regulatory initiatives addressing greenhouse gas
    emissions from various sources. The oil and gas exploration and
    production industry is a direct source of certain greenhouse gas
    emissions, namely carbon dioxide and methane, and future
    restrictions on such emissions would likely adversely impact our
    future operations, results of operations and financial
    condition. At this time, although it is not possible to
    accurately estimate how potential future laws or regulations
    addressing greenhouse gas emissions would impact our business,
    passage of such laws or regulation affecting areas in which we
    conduct business could have an adverse effect on our operations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Employees</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    At May&#160;31, 2007, we had 16&#160;full-time employees. None
    of our employees is represented by a labor union or covered by
    any collective bargaining agreement. We believe that our
    relations with our employees are satisfactory.
</DIV>

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    <BR>
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Legal
    proceedings</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    From time to time, we are subject to legal proceedings and
    claims that arise in the ordinary course of business. Like other
    gas and oil producers and marketers, our operations are subject
    to extensive and rapidly changing federal and state
    environmental, health and safety and other laws and regulations
    governing air emissions, wastewater discharges, and solid and
    hazardous waste management activities.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As of the date of this prospectus, we are not aware of any
    pending or overtly threatened legal actions that we believe,
    based on our experience to date, would have a material adverse
    impact on our business, financial position or results of
    operations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Insurance
    matters</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As is common in the oil and gas industry, we will not insure
    fully against all risks associated with our business either
    because such insurance is not available or because premium costs
    are considered prohibitive. A loss not fully covered by
    insurance could have a materially adverse effect on our
    financial position or results of operations.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    79
</DIV><!-- END LOGICAL PAGE -->
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='111'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Management</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Executive
    officers and directors</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth the names, ages and positions of
    our executive officers and directors as of May&#160;31, 2007.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="27%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="65%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="6" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=109 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Name</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Age</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Position(s)
    held</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="6" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=109 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">J. Ross Craft
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    50
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">President, Chief Executive Officer
    and Class&#160;III Director
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Steven P. Smart
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    52
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Executive Vice President and Chief
    Financial Officer
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">J. Curtis Henderson
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    44
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Executive Vice President and
    General Counsel
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Glenn W. Reed
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    55
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Senior Vice
    President&#151;Operations
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Ralph P. Manoushagian
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    56
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Senior Vice President&#151;Land
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Bryan H. Lawrence
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    64
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Chairman, Class&#160;III Director
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">James H. Brandi
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    59
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Class&#160;II Director
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">James C. Crain
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    59
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <FONT style="font-size: 10pt">Class&#160;II Director
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Sheldon B. Lubar
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    78
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Class I Director
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Christopher J. Whyte
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    50
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="bottom">
    <FONT style="font-size: 10pt">Class I Director
    </FONT>
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="6" align="left" valign="top">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="6" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>J. Ross Craft </I>has been our President and Chief Executive
    Officer since our inception in September 2002. Before Approach,
    Mr.&#160;Craft co-founded Athanor Resources Inc., an
    international exploration and production company with operations
    in the United States and Tunisia, in 1998 and was its Executive
    Vice President from 1998 until its merger with Nuevo Energy
    Company in September 2002. From 1988 to 1997, Mr.&#160;Craft
    served in various positions with American Cometra Inc., an
    independent exploration and production company with operations
    in the United States, including Vice President&#151;Operations
    from 1995 to 1997. American Cometra was sold in two parts, to
    Range Resources in 1995 and Pioneer Natural Resources in 1997.
    Mr.&#160;Craft has 27&#160;years of experience the oil and gas
    industry. Mr.&#160;Craft, who holds a B.S. in Petroleum
    Engineering from Texas A&#038;M University, is a registered
    Professional Engineer licensed in the State of Texas. In
    addition to membership in the Society of Petroleum Engineers,
    Mr.&#160;Craft is also a member of the Texas Oil and Gas
    Association and Independent Petroleum Association of America.
    Mr.&#160;Craft has served on the board of the Fort&#160;Worth
    chapter of the Society of Petroleum Engineers as well as on the
    board of the Fort&#160;Worth Petroleum Engineers Club where his
    last position was President. Mr.&#160;Craft is the
    <FONT style="white-space: nowrap">brother-in-law</FONT>
    of J. Curtis Henderson, our Executive Vice President and General
    Counsel.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Steven P. Smart </I>has been our Treasurer since our
    inception in September 2002. Mr.&#160;Smart was named Vice
    President&#151;Finance in August 2005, and Executive Vice
    President and Chief Financial Officer in June 2007. From 2000 to
    2002, Mr.&#160;Smart was Controller and Treasurer of Prize
    Energy Corp., a public exploration and production company. From
    1998 to 2000, Mr.&#160;Smart was a Senior Manager in the Energy
    Industry group at Arthur Andersen LLP. Prior to 2000,
    Mr.&#160;Smart served in senior executive financial positions
    with several public and private oil and gas companies, including
    Magnum Hunter Resources Inc. and Saxon Oil Co. Mr.&#160;Smart
    began his career in public accounting with Deloitte&#160;&#038;
    Touche (formerly Touche Ross). Mr.&#160;Smart has more than
    30&#160;years of experience in both public and private companies
    in the oil and gas industry. Mr.&#160;Smart, who holds a B.B.A.
    in Accounting from Angelo State University, is a Certified
    Public Accountant with an active license.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    80
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>J. Curtis Henderson </I>joined us in February 2007 as
    Executive Vice President and General Counsel. From 2005 to 2007,
    Mr.&#160;Henderson served as President and Chief Executive
    Officer of Coterie Capital Partners, Ltd., a private equity
    partnership in Dallas, Texas. From 1998 to 2005,
    Mr.&#160;Henderson served as General Counsel of Nucentrix
    Broadband Networks, Inc., a public broadband wireless
    telecommunications company based in Dallas. While he was at
    Nucentrix, Mr.&#160;Henderson oversaw the sale of that company
    to an affiliate of Nextel Communications Inc. under
    Section&#160;363 of the United States Bankruptcy Code in 2004.
    Mr.&#160;Henderson has over 19&#160;years experience in public
    and private securities, mergers and acquisitions, corporate
    finance and regulatory affairs. Mr.&#160;Henderson holds a B.A.
    in Political Science from Austin College and a J.D. from
    Washington and Lee University School of Law. Mr.&#160;Henderson
    is the
    <FONT style="white-space: nowrap">brother-in-law</FONT>
    of J. Ross Craft, our Chief Executive Officer and President.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Glenn W. Reed </I>has been our Senior Vice
    President&#151;Operations since June 2007. Mr.&#160;Reed served
    as our Vice President&#151;Operations from our inception in
    September 2002 to June 2007. Mr.&#160;Reed was Manager of
    Operations for Athanor Resources Inc. from 1999 to 2002, where
    he was responsible for petroleum engineering and operations
    before Athanor was sold to Nuevo Energy Company in September
    2002. From 1988 to 1999, Mr.&#160;Reed supervised operations for
    American Cometra. Mr.&#160;Reed, who holds a B.S. in Petroleum
    Engineering from Texas Tech University, is a registered
    Professional Engineer licensed in Texas and has 28&#160;years of
    experience in the oil and gas industry.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Ralph P. Manoushagian </I>has been our Senior Vice
    President&#151;Land since June 2007. Mr.&#160;Manoushagian
    joined us in 2004 as Land Manager. In 2003,
    Mr.&#160;Manoushagian worked as an independent landman. From
    2001 to 2003, Mr.&#160;Manoushagian was the President of Hudco
    Fuels, a privately owned fuel distributorship.
    Mr.&#160;Manoushagian has been an active landman and oil and gas
    operator for 30&#160;years. Mr.&#160;Manoushagian, who holds a
    B.B.A. in Finance from the University of North Texas, has been a
    Certified Professional Landman since 1988. Mr.&#160;Manoushagian
    is a director of the First Financial Bank of Southlake, Texas.
    He previously served as a director and Vice President of the
    Texas Independent Producers and Royalty Owners and as a director
    of the Texas Alliance of Energy Producers.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Bryan H. Lawrence </I>has been a member of our board of
    directors since 2002. Mr.&#160;Lawrence is a founder and Senior
    Manager of Yorktown Partners LLC, the manager of the Yorktown
    group of investment partnerships, which make investments in
    companies in the energy industry. The Yorktown partnerships were
    formerly affiliated with the investment firm of Dillon,
    Read&#160;&#038; Co. Inc., where Mr.&#160;Lawrence had been
    employed since 1966, serving as a Managing Director until the
    merger of Dillon Read with SBC Warburg in September 1997.
    Mr.&#160;Lawrence also serves as a director of Crosstex Energy,
    Inc. and Crosstex Energy GP, LLC, midstream natural gas
    companies; Hallador Petroleum Company, an independent company
    engaged in the production of coal and the exploration and
    production of oil and natural gas; the general partner of Star
    Gas Partners, L.P., a home heating oil distributor and services
    provider; Winstar Resources, a public Canadian oil and gas
    company; Ellora Energy Inc., an independent oil and gas company;
    and certain non-public companies in the energy industry in which
    Yorktown partnerships hold equity interests. Mr.&#160;Lawrence
    is a graduate of Hamilton College and also has an M.B.A. from
    Columbia University.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>James H. Brandi </I>joined us as a director in June 2007.
    Since November 2005, Mr.&#160;Brandi has been a partner at Hill
    Street Capital, a private investment and financial advisory
    firm. From 2000 until November 2005, Mr.&#160;Brandi was a
    Managing Director at UBS Securities, LLC, where he was the
    Deputy Global Head of the Energy and Power Group. Prior to 2000,
    Mr.&#160;Brandi was a Managing Director at Dillon,
    Read&#160;&#038; Co. Inc. and later its successor firm, UBS
    Warburg, concentrating on
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    81
</DIV><!-- END LOGICAL PAGE -->
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    transactions in the energy and consumer goods areas.
    Mr.&#160;Brandi serves on the boards of Energy East Corporation,
    a utility holding company, and Armstrong Land Company, LLC, a
    coal reserves owning company. Mr.&#160;Brandi is a trustee of
    The Kenyon Review and a former trustee of Kenyon College.
    Mr.&#160;Brandi holds a B.A. in History from Yale University and
    an M.B.A. from Harvard Business School and attended Columbia Law
    School as a Harlan Fiske Stone Scholar.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>James C. Crain </I>joined us as a director in June 2007.
    Mr.&#160;Crain has been involved in the energy industry for over
    30&#160;years, both as an attorney and as an executive officer.
    Since 1984, Mr.&#160;Crain has been an officer of Marsh
    Operating Company, an investment management company focusing on
    energy investing, including his current position of President
    which he has held since 1989. Mr.&#160;Crain has served as
    general partner of Valmora Partners, L.P., a private investment
    partnership that invests in the oil and gas sector, among
    others, since 1997. Prior to joining Marsh in 1984,
    Mr.&#160;Crain was a partner in the law firm of
    Jenkens&#160;&#038; Gilchrist, where he headed the firm&#146;s
    energy section. Mr.&#160;Crain currently is a director of
    Crosstex Energy, Inc. and Crosstex Energy GP, LLC, midstream
    natural gas companies, and GeoMet, Inc., a coalbed methane
    natural gas exploration and production company. Mr.&#160;Crain
    holds a B.B.A., an M.P.A. and a J.D. from the University of
    Texas at Austin.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Sheldon B. Lubar </I>joined us as a director in June 2007.
    Mr.&#160;Lubar has been Chairman of the Board of
    Lubar&#160;&#038; Co. Incorporated, a private investment and
    venture capital firm he founded, since 1977. He was Chairman of
    the Board of Christiana Companies, Inc., a logistics and
    manufacturing company, from 1987 until its merger with
    Weatherford International in 1995. Mr.&#160;Lubar is currently a
    director of Crosstex Energy, Inc. and Crosstex Energy GP, LLC,
    midstream natural gas companies; Weatherford International,
    Inc., an energy services company; Ellora Energy Inc., an
    independent oil and gas company; and the general partner of Star
    Gas Partners, L.P., a home heating oil distributor and services
    provider. Mr.&#160;Lubar previously held governmental
    appointments under three United States Presidents, including
    Commissioner of the White House Conference on Small Business
    from 1979 to 1980 under President Carter, Assistant Secretary,
    Housing Production and Mortgage Credit, Department of Housing
    and Urban Development, Commissioner of the Federal Housing
    Administration and Director of the Federal National Mortgage
    Association from 1973 to 1974 under Presidents Nixon and Ford.
    Mr.&#160;Lubar is a past president of the Board of Regents of
    the University of Wisconsin System. Mr.&#160;Lubar holds a B.S.
    in Business Administration and a J.D. from the University of
    Wisconsin&#151;Madison. Mr.&#160;Lubar was awarded an honorary
    Doctor of Commercial Science degree from the University of
    Wisconsin&#151;Milwaukee.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Christopher J. Whyte </I>has been a member of our board of
    directors since June 2007. Mr.&#160;Whyte has been President,
    Chief Executive Officer and a director of PetroSantander Inc.,
    an affiliate of Yorktown Partners LLC which owns and operates
    oil and gas production in Colombia, Kansas and Brazil, since
    1995. Mr.&#160;Whyte holds a B.A. from the University of
    Pittsburgh.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Board of
    directors; committees of the board</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our board of directors currently consists of six directors,
    Messrs.&#160;Brandi, Craft, Crain, Lawrence, Lubar and Whyte.
    Our restated certificate of incorporation and restated bylaws
    provide for a classified board of directors consisting of three
    classes of directors, each serving staggered three-year terms.
    As a result, stockholders will elect a portion of our board of
    directors each year. Class&#160;I directors&#146; terms will
    expire at the annual meeting of stockholders to be held in 2008,
    Class&#160;II directors&#146; terms will expire at the annual
    meeting of stockholders to be held in 2009 and Class&#160;III
    directors&#146; terms will expire at the annual meeting of
    stockholders to be held in 2010. Presently, the Class&#160;I
    directors are Messrs.&#160;Lubar and Whyte, the Class&#160;II
    directors are
</DIV>

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    <BR>
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Messrs.&#160;Brandi and Crain and the Class&#160;III directors
    are Messrs.&#160;Craft and Lawrence. At each annual meeting of
    stockholders held after the initial classification, the
    successors to directors whose terms will then expire will be
    elected to serve from the time of election until the third
    annual meeting following election. The division of our board of
    directors into three classes with staggered terms may delay or
    prevent a change of our management or a change in control. See
    &#147;Description of capital stock&#151;Anti-takeover effects of
    provisions of Delaware Law, our restated certificate of
    incorporation and restated bylaws&#151;Classified board.&#148;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In addition, our restated bylaws provide that the authorized
    number of directors, which shall constitute the whole board of
    directors, may be changed by resolution duly adopted by our
    board of directors. Any additional directorships resulting from
    an increase in the number of directors will be distributed among
    the three classes so that, to the extent possible, any
    newly-created directorships shall be added to those classes
    whose terms of office are to expire at the latest dates
    following such increase. Vacancies and newly-created
    directorships may be filled by the affirmative vote of a
    majority of our directors then in office, even if less than a
    quorum.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our board of directors has established an Audit Committee and a
    Compensation and Nominating Committee. As a controlled company
    as defined by the NASDAQ Marketplace Rules, we are not required
    to have separate compensation and nominating committees.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Messrs.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    and&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    serve on the Audit Committee of our board of directors. Each of
    Messrs.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;and&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    is &#147;independent&#148; under the listing standards of
    National Association of Securities Dealers, Inc. and SEC rules.
    In addition, our board of directors has determined that
    Mr.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    is an &#147;audit committee financial expert,&#148; as defined
    under the rules of the SEC. The Audit Committee recommends to
    our board of directors the independent public accountants to
    audit our financial statements and oversees the annual audit.
    The Committee also approves any other services provided by
    public accounting firms. The Audit Committee provides assistance
    to our board of directors in fulfilling its oversight
    responsibility to the stockholders, the investment community and
    others relating to the integrity of our financial statements,
    our compliance with legal and regulatory requirements, the
    independent auditor&#146;s qualifications and independence and
    the performance of our internal audit function, as applicable.
    The Committee oversees our system of disclosure controls and
    procedures and system of internal controls regarding financial,
    accounting, legal compliance and ethics that management and our
    board of directors have established. In doing so, it is the
    responsibility of the Committee to maintain free and open
    communication between the Committee and our independent
    auditors, the internal accounting function and our management.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Messrs.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;and&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    serve on the Compensation and Nominating Committee of our board
    of directors. This Committee nominates candidates to serve on
    our board of directors and approves director compensation. The
    Committee is also responsible for monitoring a process to assess
    board effectiveness, developing and implementing our corporate
    governance guidelines and taking a leadership role in shaping
    our corporate governance. See &#147;Executive
    compensation&#151;Our Compensation and Nominating
    Committee&#148; for a description of the additional duties of
    the Compensation and Nominating Committee.
</DIV>

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    <BR>
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Indemnification</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our restated certificate of incorporation and restated bylaws
    provide indemnification rights to the members of our board of
    directors. Additionally, we will enter into separate
    indemnification agreements with the members of our board of
    directors to provide additional indemnification benefits,
    including the right to receive in advance reimbursements for
    expenses incurred in connection with a defense for which the
    director is entitled to indemnification.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Compensation
    committee interlocks and insider participation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    None of our executive officers serves as a member of the board
    of directors or compensation committee of any entity that has
    one or more of its executive officers serving as a member of our
    board of directors or Compensation and Nominating Committee.
</DIV>

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    <BR>
    84
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Executive
    compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Compensation
    discussion and analysis</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    This compensation discussion describes the material elements of
    compensation awarded to, earned by or paid to our Chief
    Executive Officer, Chief Financial Officer and our three other
    most highly compensated executive officers, each as named in the
    tables below. We refer to all of these officers as &#147;named
    executive officers.&#148; While this compensation discussion
    focuses primarily on the information contained in the following
    tables and related footnotes, as well as the narrative relating
    to the last completed fiscal year, we also describe compensation
    actions taken before or after the last completed fiscal year to
    the extent that such discussion enhances the understanding of
    our executive compensation disclosure.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We believe our success depends on the continued contributions of
    our named executive officers. Our executive compensation
    programs are designed with the philosophy of attracting,
    motivating and retaining experienced and qualified executive
    officers and directors with compensation that is consistent with
    comparable public companies and that recognizes individual merit
    and overall business results. Our policies are also intended to
    support the attainment of our strategic objectives by tying the
    interests of our executive officers with those of our
    stockholders through operational and financial performance goals
    and equity-based compensation.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The principal elements of our executive compensation programs
    are base salary, annual cash incentives, long-term equity
    incentives in the form of stock options and stock awards, as
    well as other benefits and perquisites. The other benefits and
    perquisites provided to our executive officers consist of life,
    disability and health insurance benefits, a qualified 401(k)
    savings plan, paid vacation and holidays, automobile allowances
    and reimbursement for certain club membership dues, cell phone
    expenses, professional association dues and fees, and continuing
    professional educational programs. Our salary and benefits are
    intended to be competitive with similarly situated companies and
    our objective is to position the aggregate of these elements at
    a level that is commensurate with our size and sustained
    performance.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Our Compensation
    and Nominating Committee</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Compensation and Nominating Committee of our board of
    directors is responsible for the approval, evaluation and
    oversight of all of our compensation plans, policies and
    programs. The primary purpose of the Compensation and Nominating
    Committee is to assist our board of directors in establishing
    and implementing our compensation policies and monitoring our
    compliance with such policies. The members of our Compensation
    and Nominating Committee
    are&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    (chairman)
    and&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    each of whom is an independent director in accordance with the
    NASDAQ Marketplace rules. From time to time, the Compensation
    and Nominating Committee may, whenever it deems appropriate,
    form and delegate authority to various subcommittees to the
    extent authorized by the Compensation and Nominating Committee.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Mr.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    as chairman of the Committee, is responsible for selecting the
    time and place of meetings and the agendas therefor.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The function of the Compensation and Nominating Committee is
    more fully described in its charter, which our board of
    directors adopted, effective as
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007. The Compensation and Nominating Committee reviews and
    assesses, on an annual basis, the adequacy of the charter and
    recommends any proposed changes to our board of directors for
    approval.
</DIV>

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    <BR>
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Acting on behalf of the board of directors, the responsibilities
    of the Compensation and Nominating Committee include the
    following:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    reviewing and making recommendations to our board of directors
    with respect to our general compensation policies;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    reviewing and approving our goals and objectives relating to the
    compensation of our executive officers, evaluating such
    officers&#146; performance in light of these goals and
    recommending compensation levels to our board of directors based
    on these evaluations;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    reviewing market data to assess our position with respect to the
    compensation of our executive officers in order to ensure we are
    competitive with comparable public companies;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    administering our stock option and restricted stock plans or
    other similar plans including selecting to whom grants under any
    such plans are made and determining the terms and type of any
    such grant;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    recommending to our board of directors the adoption of
    amendments to any of our plans and modifying or canceling any
    existing grants under such plans;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    reviewing the sufficiency of the shares available for grant
    under any of our plans based on our goals for hiring, bonus and
    retention grants and assessing our competitive position with
    respect to the level of our equity compensation, vesting
    schedules and other terms with comparable public companies; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    preparing the &#147;Report of the Compensation and Nominating
    Committee&#148; to be included in our proxy statement.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Compensation
    program objectives</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The objectives of our executive compensation programs are as
    follows:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    attract and retain talented and experienced executives;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    motivate and reward executives whose knowledge, skills and
    performance are critical to our success;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    align the interests of our executive officers and stockholders
    by motivating executive officers to increase stockholder value
    and rewarding executive officers when stockholder value
    increases;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    provide a competitive compensation package that is weighted
    heavily towards pay for performance, and in which total
    compensation is primarily determined by company and individual
    results and the creation of stockholder value;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    insure fairness among the executive management team by
    recognizing the contributions each executive makes to our
    success;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    foster a shared commitment among executives by coordinating
    their company and individual goals; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    compensate our executives accordingly to meet our long-term
    objectives.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Compensation and Nominating Committee will evaluate the
    objectives of our executive compensation programs on a regular
    basis. In determining the objectives of our executive
</DIV>

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    <BR>
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    compensation programs, the Compensation and Nominating Committee
    will examine the appropriate matching of compensation to
    performance as an individual and as an executive group. The
    Compensation and Nominating Committee is responsible for
    comparative analysis of our executive compensation plan against
    others in the industry to insure that the executive compensation
    plans are competitive.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Compensation and Nominating Committee is responsible for
    reviewing and making recommendations to our board of directors
    regarding our executive compensation programs. These programs
    will be implemented to achieve the objectives to be established
    by the Compensation and Nominating Committee for compensating
    our executive officers. The Compensation and Nominating
    Committee will review our executive compensation programs on an
    annual basis to determine if such programs are effective in
    achieving the objectives established by the Compensation and
    Nominating Committee. Compensation objectives will be
    established based upon various measurements of profitability,
    share value enhancement and specific transaction conclusion,
    both as individuals and as a management group.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    To assist management and the Compensation and Nominating
    Committee in assessing and determining compensation packages,
    the Compensation and Nominating Committee may engage
    compensation consultants or consider relevant market
    compensation data prepared by such consultants based upon the
    specific needs of the Compensation and Nominating Committee. The
    Compensation and Nominating Committee will contract with any
    consultants directly and will control and direct the work to be
    performed.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Compensation and Nominating Committee will meet outside the
    presence of all of our executive officers to consider the
    appropriate compensation for our Chief Executive Officer. For
    all other named executive officers, the Compensation and
    Nominating Committee will meet outside the presence of all
    executive officers, except our Chief Executive Officer. Our
    Chief Executive Officer will annually review the performance of
    each named executive officer with the Compensation and
    Nominating Committee and will make recommendations to the
    Compensation and Nominating Committee with respect to the
    appropriate base salary, payments to be made under our annual
    cash incentive plan and the grant of long-term equity incentive
    awards. Based in part on these recommendations from our Chief
    Executive Officer and the other considerations discussed below,
    the Compensation and Nominating Committee will approve the
    annual compensation package of each of our executive officers,
    other than our Chief Executive Officer. The Compensation and
    Nominating Committee will analyze the performance of our Chief
    Executive Officer and determine the base salary, payments to be
    made under our annual cash incentive plan and the grant of
    long-term equity incentive awards. Input or suggestions
    applicable to group or individual compensation from other
    executive officers will be solicited by the Compensation and
    Nominating Committee.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Compensation for each executive officer will be determined by
    the Compensation and Nominating Committee by evaluating such
    officer&#146;s performance, our performance and the
    officer&#146;s impact on our performance. Based upon these
    evaluations, the Compensation and Nominating Committee will
    determine the compensation for each of our executive officers,
    consistent with the objectives established by the Compensation
    and Nominating Committee.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Compensation and Nominating Committee intends to establish
    specific performance targets that our executive officers must
    achieve in order to receive certain types of compensation,
    including annual bonuses, base pay increases and performance
    awards under our 2007 Stock Incentive Plan, referred to as our
    2007 Plan, which is an amendment and restatement of our 2003
    Stock Option Plan, referred to as our prior plan. The
    performance targets to be established
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    87
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    will be designed to serve as accurate indicators of the
    executive officers&#146; impact on our operational success and
    provide specific standards that motivate the officers to perform
    in our best interest and in our stockholders best interests.
    These targets are expected to include performance measures that
    increase the value of the company, such as: net income, EBITDAX,
    reserve growth and specific major tasks that need to be
    accomplished to insure the financial health of the company. Each
    officer&#146;s individual goals will be set based upon those
    activities that they can control.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our Compensation and Nominating Committee has not adopted any
    formal or informal policies or guidelines for allocating
    compensation between long-term and currently paid out
    compensation, between cash and non-cash compensation or among
    different forms of non-cash compensation.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Our executive
    compensation programs</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Overall, we intend for our executive compensation programs to be
    consistent with the objectives and principals set forth above.
    The basic elements of our executive compensation programs are
    summarized in the table below, followed by a more detailed
    discussion of each compensation program.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="36%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="30%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="30%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=156 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Element</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Characteristics</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Purpose</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=156 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Base salary
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Competitive to industry
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Attract and retain
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Incentive bonus
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Based upon performance
    individually and as an executive group
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">To motivate enhanced share value,
    short and long term financial growth and stability of the company
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Stock incentive plan awards
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Based upon performance
    individually and as an executive group
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">To retain and motivate our
    executives over a longer term
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Retirement savings opportunity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Competitive to industry
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Enhance overall compensation
    package
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Health and welfare benefits
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Competitive to industry
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Attract and retain
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Other perquisites
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Competitive to industry
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Attract, retain and motivate
    </FONT>
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" valign="top">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All pay elements are cash-based except for the stock incentive
    program, which is an equity-based award. We expect to consider
    market pay practices and practices of industry peers in
    determining the overall amounts to be paid. Compensation
    opportunities for our executive officers, including our named
    executive officers, are designed to be competitive with peer
    companies. We believe that a substantial portion of each named
    executive officer&#146;s compensation should be in performance
    based pay.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In determining whether to increase or decrease compensation to
    our executive officers, including our named executive officers,
    we intend to take into account annually the changes (if any) in
    the market pay levels based on our industry peers, the
    contributions made by the executive officer, the performance of
    the executive officer, the increases or decreases in
    responsibilities and roles of the executive officer, the
    business needs of the executive officer, the transferability of
    managerial skills to another employer, the relevance of the
    executive officer&#146;s experience to
</DIV>

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    <BR>
    88
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    other potential employers and the ability of the executive
    officer to assume a more significant role with another
    organization.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In general, compensation or amounts realized by executives from
    prior compensation from us, such as gains from previously
    awarded stock options or options awards, will not be taken into
    account in setting other elements of compensation, such as base
    pay, incentive bonuses or awards of stock options under our
    long-term equity incentive program. With respect to new
    executive officers, we take into account their prior base salary
    and annual cash incentives, as well as the contributions
    expected to be made by the new executive officer, the business
    needs and the role of the executive officer with us. We believe
    that our executive officers should be fairly compensated each
    year relative to market pay levels of our industry peers and the
    internal pay levels of our executive officers.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Annual cash
    compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    To attract and retain executives with the ability and the
    experience necessary to lead us and deliver strong performance
    to our stockholders, we provide a competitive total compensation
    package. Base salaries are intended to be competitive with our
    industry peers, while total compensation is intended to exceed
    that of our industry peers, considering individual performance
    and experience, to ensure that each executive is appropriately
    compensated.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Base
    salary</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We intend to review salary ranges and individual salaries for
    our executive officers annually. We establish the base salary
    for each executive officer based on consideration of pay levels
    of our industry peers and internal factors, such as the
    individual&#146;s performance and experience, and the pay of
    others on the executive team.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We consider market pay levels among individuals in comparable
    positions with transferable skills within the oil and gas
    industry and comparable companies in general industry. When
    establishing the base salary of any executive officer, we also
    consider business requirements for certain skills, individual
    experience and contributions, the roles and responsibilities of
    the executive and other factors. We believe competitive base
    salary is necessary to attract and retain an executive
    management team with the appropriate abilities and experience
    required to lead us.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The base salaries paid to our named executive officers are set
    forth below in the Summary Compensation Table. See
    &#147;&#151;Summary of compensation.&#148;
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Annual incentive
    bonuses</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We provide the opportunity for our named executive officers and
    other executives to earn an annual cash incentive award. We
    provide this opportunity to attract and retain an appropriate
    caliber of talent for the position and to motivate executives to
    achieve our annual business goals. We plan to review annual cash
    incentive awards for our named executive officers and other
    executives annually in January or February to determine award
    payments for the last completed fiscal year, as well as to
    establish award opportunities for the current fiscal year. The
    Compensation and Nominating Committee or the board of directors
    may exercise discretion and take into account individual
    performance in determining the awards.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    No incentive bonuses were paid in 2006. In 2007, the named
    executive officers received bonuses to cover out-of-pocket taxes
    incurred in 2007 as a result of the sale of their respective
    shares of
</DIV>

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    <BR>
    89
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    our common stock to us as repayment of their respective
    management notes, as follows: J. Ross Craft&#151;$356,282;
    Steven P. Smart&#151;$72,814, Glenn W. Reed&#151;$86,851; and
    Ralph P. Manoushagian &#151;$72,301. See &#147;Certain
    relationships and related party transactions&#151;Other related
    party transactions.&#148; In 2007, our board approved a bonus
    pool of $1.0&#160;million payable one-half upon the filing of
    the registration statement of which this prospectus is a part,
    and one-half upon this registration statement being declared
    effective, as follows: J. Ross Craft&#151;$275,000; Steven P.
    Smart&#151;$182,500; J. Curtis Henderson&#151;$182,500; Glenn W.
    Reed&#151;$120,000; Ralph P. Manoushagian&#151;$120,000; and
    other key employees&#151;$120,000. Beginning in 2008, we intend
    to establish individual performance goals for our executives.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Stock incentive
    compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We plan to award long-term equity incentive grants to executive
    officers, including the named executive officers, as part of our
    total compensation package, under our 2007 Plan.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The 2007 Plan allows for the grant of stock options, stock
    appreciation rights, restricted stock, restricted stock units,
    unrestricted stock awards and other incentive awards. The
    primary purpose of the 2007 Plan is to enhance our ability to
    attract and retain highly qualified officers, directors, key
    employees and other persons, and to motivate such persons to
    continue in our service and to expend maximum effort to improve
    our business results and earnings, by providing to such persons
    an opportunity to acquire or increase a direct proprietary
    interest in our operations and future success.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    After the closing of this offering, the Compensation and
    Nominating Committee will administer the 2007 Plan and in doing
    so, the Compensation and Nominating Committee will select
    participants to receive awards, determine the types of awards
    and the terms and conditions of the awards and interpret the
    provisions of the 2007 Plan.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Other
    benefits</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Retirement
    savings opportunity</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All employees may participate in our 401(k) Retirement Savings
    Plan, or the 401(k) Plan, established in 2003. Each employee may
    make before tax contributions of up to 25% of their base salary,
    subject to the current Internal Revenue Service limits. We
    provide this 401(k) Plan to help our employees save a portion of
    their cash compensation for retirement in a tax efficient
    manner. We match contributions made by our employees to the
    401(k) Plan 100% up to 3% of an employee&#146;s base salary and
    50% from 3% to 5% of an employee&#146;s base salary. We do not
    provide an option for our employees to invest in our stock in
    the 401(k) plan.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Health and
    welfare benefits</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All full-time employees, including our named executive officers,
    may participate in our health and welfare benefit programs,
    including medical, dental and vision care coverage, disability
    insurance and life insurance.
</DIV>

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    <BR>
    90
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Other items of
    compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Other items of compensation for our named executive officers and
    key employees may include automobile allowances, reimbursement
    for certain club membership dues, cell phone expenses,
    professional association dues and fees and continuing
    professional educational programs.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Employment
    agreements and other arrangements</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have entered into employment agreements with each of
    Messrs.&#160;Craft, Reed and Smart. These employment agreements
    have an initial term of two years but are automatically extended
    for successive one-year terms unless either party gives written
    notice within 60&#160;days prior to the end of the term to the
    other party that such party desires not to renew the employment
    agreement. The employment agreements provide for a minimum
    annual base salary of $210,000 for Mr.&#160;Craft, $190,000 for
    Mr.&#160;Smart and $165,000 for Mr.&#160;Reed. In 2007, our
    board approved an increase in Mr.&#160;Craft&#146;s annual base
    salary to $270,000 and Mr.&#160;Smart&#146;s annual base salary
    to $225,000, effective upon the filing of the registration
    statement of which this prospectus is a part, and an increase in
    Mr.&#160;Reed&#146;s annual base salary to $185,000. In
    addition, each of Messrs.&#160;Craft, Reed and Smart are
    eligible to participate in any annual bonus plan applicable to
    the executive and approved by the board of directors or the
    Compensation and Nominating Committee, in amounts to be
    determined by the Compensation and Nominating Committee, based
    on criteria established by the Compensation and Nominating
    Committee. During the period of employment under these
    agreements, each of the employees is entitled to additional
    benefits, including reimbursement of business and entertainment
    expense, paid vacation and participation in other company
    benefits, plans or programs that may be available to other
    executive employees of our company.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If any of Mr.&#160;Craft, Mr.&#160;Reed or Mr.&#160;Smart is
    terminated for cause, we will be obligated to pay such named
    executive officer his base salary then in effect through the
    date of his termination, prorated for any partial period of
    employment, and we shall have no further obligations to such
    named executive officer under his respective employment
    agreement. &#147;Cause&#148; means any of the following: the
    willful and continue failure of the named executive officer
    substantially to perform his duties under the employment
    agreement (other than any such failure resulting from such
    employee becoming disabled); the willful engaging by the named
    executive officer in misconduct that is materially injurious to
    us; any misconduct in the course and scope of the named
    executive officer&#146;s employment, including but not limited
    to dishonesty, disloyalty, disorderly conduct, insubordination,
    harassment of other employees or third parties, abuse of alcohol
    or controlled substances or other violations of our rules; or
    any material violation of such named executive officer&#146;s
    employment agreement or a voting and stockholders&#146;
    agreement (which agreement will terminate immediately prior to
    the closing of this offering).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If the employment of Mr.&#160;Craft or Mr.&#160;Reed is
    involuntarily terminated without cause, Mr.&#160;Craft or
    Mr.&#160;Reed, as appropriate, is entitled to continue to
    receive his base salary plus benefits for a period of
    24&#160;months from the date of termination. If
    Mr.&#160;Craft&#146;s involuntary termination occurs during a
    change of control period, he will be deemed to have been
    terminated without cause. Additionally, Mr.&#160;Craft may
    terminate his employment for good reason, which will include our
    failure to perform under his employment agreement. If
    Mr.&#160;Craft terminates his employment for good reason, he is
    entitled to a lump sum cash payment equal to 50% of his current
    base salary within 20&#160;days of his termination, a lump sum
    cash payment equal to 150% of his current based salary within
    90&#160;days of his termination and continuation of all
    applicable benefits for an additional year following his
    termination. If Mr.&#160;Smart&#146;s employment is
    involuntarily terminated
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    91
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    without cause, Mr.&#160;Smart is entitled to continue to receive
    his base salary plus benefits for a period of six months from
    the date of termination.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In addition, each of these employment agreements contain
    provisions that prohibit, with certain limitations,
    Messrs.&#160;Craft, Reed and Smart from competing with us;
    soliciting any of our customers, vendors or acquisition
    candidates; or soliciting or hiring any of our employees or
    inducing any of them to terminate their employment with us. This
    non-competition restriction with respect to Mr.&#160;Craft
    continues for a period of (i)&#160;one year following
    termination of employment if Mr.&#160;Craft voluntarily resigns
    other than on account of a change of control, or his employment
    is terminated with or without cause or (ii)&#160;six months if
    Mr.&#160;Craft terminates his employment for good reason other
    than a change of control. This non-competition restriction with
    respect to Mr.&#160;Reed continues for a period of one year
    following termination of employment if Mr.&#160;Reed voluntarily
    resigns other than on account of a change of control, or his
    employment is terminated with or without cause. This
    non-competition restriction with respect to Mr.&#160;Smart
    continues for a period of six months following termination of
    employment if Mr.&#160;Smart voluntarily resigns other than on
    account of a change of control, or his employment is terminated
    with or without cause. If any of Messrs.&#160;Craft, Reed or
    Smart is terminated on account of a change of control, this
    non-competition restriction will not apply post-termination.
    This offering will not constitute a change of control under
    these agreements.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Stock ownership
    guidelines</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Stock ownership guidelines have not been implemented by the
    Compensation and Nominating Committee for our executive
    officers. Until recently, our common stock was subject to a
    stockholders agreement that limited a stockholder&#146;s ability
    to transfer stock. We will continue to periodically review best
    practices and reevaluate our position with respect to stock
    ownership guidelines.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Tax deductibility
    of executive compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Limitations on deductibility of compensation may occur under
    Section&#160;162(m) of the Internal Revenue Code, which
    generally limits the tax deductibility of compensation paid by a
    public company to its Chief Executive Officer and certain other
    highly compensated executive officers to $1&#160;million in the
    year the compensation becomes taxable to the executive officer.
    There is an exception to the limit on deductibility for
    performance based compensation that meets certain requirements.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Although deductibility of compensation is preferred, tax
    deductibility is not a primary objective of our compensation
    programs. We believe that achieving our compensation objectives
    set forth above is more important than the benefit of tax
    deductibility and we reserve the right to maintain flexibility
    in how we compensate our executive officers that may result in
    limiting the deductibility of amounts of compensation from time
    to time.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Conclusion</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We believe the compensation we have provided to each of our
    executive officers is reasonable and appropriate to facilitate
    the achievement of our operational objectives. The compensation
    programs and policies that we have designed effectively
    incentivize our executive officers on both a short-term and
    long-term basis to perform at a level necessary to achieve these
    objectives. The various elements of compensation combine to
    align the best interests of our
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    92
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    executive officers with the best interests of our stockholders
    and our best interests in order to maximize stockholder value.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Summary of
    compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table shows information concerning the annual
    compensation for services provided to us by our Chief Executive
    Officer, our Chief Financial Officer and our two other most
    highly compensated executive officers during 2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="31%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="14%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=08 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=08 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=08 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="23" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=122 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Stock <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Option <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">All other<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Name
    and principal positions</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Year</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Salary</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Bonus</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">awards</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">awards</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">compensation(1)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Total</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="23" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=122 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">J. Ross Craft<BR>
    President and Chief Executive Officer
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    2006
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    210,000
</TD>
<TD nowrap align="left" valign="top">
    (2)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    29,899
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    239,899
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Steven P. Smart<BR>
    Executive Vice President and Chief Financial Officer
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    2006
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    165,000
</TD>
<TD nowrap align="left" valign="top">
    (3)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    21,763
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    186,763
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Glenn W. Reed<BR>
    Senior Vice President&#151; Operations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    2006
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    165,000
</TD>
<TD nowrap align="left" valign="top">
    (4)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    19,204
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    184,204
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Ralph P. Manoushagian<BR>
    Senior Vice President&#151;Land
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    2006
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    127,000
</TD>
<TD nowrap align="left" valign="top">
    (5)
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    185
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    127,185
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="23" valign="top">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="23" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">All other compensation reported for
    Mr.&#160;Craft represents a $15,800 matching contribution by our
    company to our 401(k) plan, $8,400 in automobile allowance, $855
    relating to cell phone expenses, $2,230 relating to club
    membership dues, $420 relating professional licenses and fees,
    $750 for life insurance premiums and $1,444 relating to
    continuing professional educational programs. All other
    compensation reported for Mr.&#160;Smart represents a $12,200
    matching contribution by our company to our 401(k) plan, $6,000
    in automobile allowance, $710 relating to cell phone expenses,
    $1,119 relating to professional licenses and fees and $1,734 for
    continuing professional educations programs. All other
    compensation reported for Mr.&#160;Reed represents a $7,000
    matching contribution by our company to our 401(k) plan, $8,400
    in automobile allowance, $1,875 relating to cell phone expenses,
    $38 relating to professional licenses and fees, $496 for life
    insurance premiums and $1,395 for continuing professional
    educations programs. All other compensation reported for
    Mr.&#160;Manoushagian represents $185 relating to professional
    licenses and fees.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">In June 2007, the board approved an
    increase in Mr.&#160;Craft&#146;s annual base salary to $270,000
    effective upon the filing of the registration statement of which
    this prospectus forms a part.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(3)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">In the first quarter of 2007, the
    board increased Mr.&#160;Smart&#146;s annual base salary to
    $190,000. In June 2007, the board approved an increase in
    Mr.&#160;Smart&#146;s annual base salary to $225,000 effective
    upon the filing of the registration statement of which this
    prospectus forms a part.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(4)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">In June 2007, the board approved an
    increase in Mr.&#160;Reed&#146;s annual base salary to $185,000.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(5)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">In June 2007, the board approved an
    increase in Mr.&#160;Manoushagian&#146;s annual base salary to
    $160,000.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In February 2007, we hired J. Curtis Henderson to serve as our
    Executive Vice President, and General Counsel at an annual base
    salary of $190,000. In June 2007, the board approved an increase
    in Mr.&#160;Henderson&#146;s annual base salary to $225,000
    effective upon the filing of the registration statement of which
    this prospectus forms a part. In connection with his employment,
    Mr.&#160;Henderson was awarded 21,250&#160;shares of our common
    stock as restricted stock, one-third of which will vest upon the
    closing of this offering, one-third of which will vest upon the
    one-year anniversary of the closing of this offering, and
    one-third of which will vest upon the two-year anniversary of
    the closing of this offering.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Grants of
    plan-based awards</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    During 2006, we did not make any awards under any plan to our
    named executive officers.
</DIV>

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    <BR>
    93
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In June 2007, our board authorized the grant of stock awards
    under the 2007 Plan covering 100,000&#160;shares of common stock
    (pre-split) to our named executive officers and a member of our
    technical team, which grants will become effective upon the
    closing of this offering. These stock awards were granted as
    follows: J. Ross Craft&#160;&#151; 30,000&#160;shares; Steven P.
    Smart&#160;&#151; 20,000&#160;shares, J. Curtis
    Henderson&#160;&#151; 20,000&#160;shares; Glenn W.
    Reed&#160;&#151; 10,000&#160;shares; Ralph P.
    Manoushagian&#160;&#151; 10,000&#160;shares; and a technical
    team member&#160;&#151; 10,000&#160;shares. As a related matter,
    our board also approved special bonuses to cover out-of-pocket
    taxes that will be incurred as a result of the receipt by these
    executives of stock awards.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Discussion of
    summary compensation and plan-based awards tables</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our executive compensation policies and practices, pursuant to
    which the compensation set forth in the Summary Compensation
    Table and the grants of Plan Based Awards table was paid or
    awarded, are described above under &#147;&#151;Compensation
    discussion and analysis.&#148; A summary of certain material
    terms of our compensation plans and arrangements is set forth
    below.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Description of
    the 2007 Plan</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The 2007 Plan allows for the grant of stock options, stock
    appreciation rights, restricted stock, restricted stock units,
    performance awards, unrestricted stock awards and other
    incentive awards. The primary purpose of the 2007 Plan is to
    enhance our ability to attract and retain highly qualified
    officers, directors, key employees and other persons, and to
    motivate these persons to continue in our service and to expend
    maximum effort to improve our business results and earnings, by
    providing to these persons an opportunity to acquire or increase
    a direct proprietary interest in our operations and future
    success. We have reserved 10% of our outstanding shares of
    common stock for grant of awards under the 2007 Plan (which will
    be adjusted each year to remain at 10% of outstanding shares of
    our common stock), plus all shares of common stock that remain
    available for grant of awards under the prior plan, plus shares
    of common stock subject to outstanding awards under the prior
    plan that later cease to be subject to those awards for any
    reason other than those awards having been exercised. In
    addition, there are 115,385&#160;shares of common stock
    (pre-split) subject to outstanding options under the prior plan
    that may be issued under the 2007 Plan.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Administration.</I>&#160;The 2007 Plan provides for
    administration by the board of directors or compensation
    committee of the board of directors or another committee of the
    board of directors designated by the board of directors. Subject
    to the terms of the 2007 Plan, the board or the committee may
    select participants to receive awards, determine the types of
    awards and terms and conditions of awards and interpret
    provisions of the 2007 Plan. Currently, the 2007 Plan is
    administered by the board of directors but we expect that the
    Compensation and Nominating Committee will administer the 2007
    Plan after the closing of this offering.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Common stock reserved for issuance under the 2007
    Plan.</I>&#160;Our common stock issued or to be issued under the
    2007 Plan consists of authorized but unissued shares. If an
    award granted under the 2007 Plan expires, is forfeited or
    becomes unexercisable for any reason without having been
    exercised in full, the undelivered shares of common stock which
    were subject to the award shall become available for future
    awards under the 2007 Plan.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The maximum number of shares of common stock that may be subject
    to incentive stock options granted under the 2007 Plan is
    1,100,000. The maximum number of shares of common stock that may
    be subject to all awards granted to any one participant each
    fiscal year is
</DIV>

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    <BR>
    94
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    330,000&#160;shares. The maximum number of shares of common
    stock that may be subject to nonqualified stock options and
    stock appreciation rights granted to any one participant during
    a fiscal year is 330,000. The maximum amount that may be paid in
    cash pursuant to performance awards granted to a participant
    that are intended to satisfy the qualified performance-based
    compensation exception to Section&#160;162(m) of the Internal
    Revenue Code is $5,000,000 for each fiscal year during the
    applicable performance period.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Adjustments for stock dividends and similar
    events.</I>&#160;We may make appropriate adjustments in
    outstanding awards and the number of shares available for
    issuance under the 2007 Plan, including the individual
    limitations on awards, to reflect recapitalizations,
    reclassifications, stock spits, reverse splits, stock dividends
    and other similar events.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Eligibility.</I>&#160;Awards may be made under the 2007 Plan
    to our employees, directors and consultants, including any
    employee who is an officer or director, and to any other person
    who, in the opinion of the committee, is in a position to make a
    significant contribution our success.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Amendment or termination of the 2007 Plan.</I>&#160;Our board
    of directors may amend, suspend or terminate the 2007 Plan at
    any time and for any reason. The 2007 Plan shall terminate in
    any event ten years after the date of its approval by the
    stockholders. Amendments to the 2007 Plan will be submitted for
    stockholder approval if an amendment increases the maximum
    number of shares available under the 2007 Plan (except as
    otherwise allowable under the 2007 Plan), changes the
    designation or class of persons eligible to receive awards under
    the 2007 Plan, or if required by applicable law or by applicable
    stock exchange listing requirements. Amendments to limit the
    scope of the 2007 Plan or to comply with statutory or regulatory
    requirements do not require stockholder approval.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Options.</I>&#160;The 2007 Plan permits the granting of
    options to purchase shares of common stock intended to qualify
    as incentive stock options under the Internal Revenue Code and
    stock options that do not qualify as incentive stock options.
    The exercise price of each stock option may not be less than
    100% of the fair market value of the common stock on the date of
    grant. In the case of certain 10% stockholders who receive
    incentive stock options, the exercise price may not be less than
    110% of the fair market value of the common stock on the date of
    grant. An exception to these requirements is made for options
    that we grant in substitution for options held by employees of
    companies that we acquire. In such a case, the exercise price is
    adjusted to preserve the economic value of the employee&#146;s
    stock option from his or her former employer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The term of each stock option is fixed at the time of grant and
    may not exceed 10&#160;years from the date of grant. The
    committee determines at what time or times each option may be
    exercised and the period of time, if any, after retirement,
    death, disability or termination of employment during which
    options may be exercised. Options may be made exercisable in
    installments. The exercisability of options may be accelerated
    by the committee.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In general, a participant may pay the exercise price of an
    option in cash or in cash equivalents, by tendering shares of
    common stock having an aggregate fair market value at the time
    of exercise equal to the total exercise price, by surrendering a
    sufficient portion of the shares with respect to which the
    option is exercised having an aggregate fair market value at the
    time of exercise equal to the total exercise price, or in a
    combination of these forms.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Stock options granted under the 2007 Plan may not be sold,
    transferred, pledged or assigned other than by will or under
    applicable laws of descent and distribution. However, we may
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    95
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    permit in an award agreement the limited transfers of
    non-qualified options for the benefit of the family members of
    the optionees.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Other awards.</I>&#160;The 2007 Plan permits the granting of
    the following additional types of awards:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    shares of unrestricted stock, which are shares of common stock
    issued at no cost or for a purchase price and are free from any
    transferability and forfeiture restrictions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    shares of restricted stock, which are shares of common stock
    subject to transferability restrictions and a substantial risk
    of forfeiture;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    restricted stock units, which constitute a promise to transfer
    common stock or an equivalent value in cash in the future;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    dividend equivalent rights with respect to restricted stock
    units, which are rights entitling the recipient to receive
    either payments or credits of cash or additional restricted
    stock units equal in amount to the dividends that would be paid
    on the common stock subject to the restricted stock units;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    stock appreciation rights, which are rights to receive a number
    of shares or, in the discretion of the committee, an amount in
    cash or a combination of shares and cash, based on the increase
    in the fair market value of the shares underlying the rights
    during a specified period of time;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    performance awards, ultimately payable in common stock or cash
    (or a combination), as determined by the committee. Performance
    awards are conditioned upon the level of achievement of one or
    more stated performance goals over a specified performance
    period that is not shorter than one year. An award agreement
    will specify the amount, or a formula for determining the
    amount, that may be earned under the performance award, the
    performance criteria and level of achievement versus the
    performance criteria that will determine the amount payable
    under the performance award, and the performance period over
    which performance is measured. Awards to individuals who are
    covered employees under Section&#160;162(m) of the Internal
    Revenue Code, or who are likely to be covered in the future, may
    be designed to qualify as performance-based compensation under
    Section&#160;162(m) of the Internal Revenue Code to the extent
    that the committee so designates;&#160;and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    other incentive awards, which may be payable in common stock,
    cash or other property as determined by the committee.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The committee establishes the terms and conditions of awards.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Change of Control.</I>&#160;In the event of a &#147;Change of
    Control&#148; (as defined in the 2007 Plan), the vesting of all
    awards will be accelerated and any performance criteria will be
    deemed to be achieved to the maximum extent possible. If there
    is a Change of Control and we are not the surviving corporation
    (or we survive only as a subsidiary of another corporation),
    unless the committee determines otherwise, awards will be
    replaced with similar awards of the surviving corporation (or
    parent of the surviving corporation). The committee may require
    the surrender to us by selected participants of some or all of
    the outstanding awards held by such participants, at which time
    we will cancel those awards and cause to be paid to each
    affected participant a certain amount of cash per share, as
    specified in the 2007 Plan.
</DIV>

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    <BR>
    96
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Outstanding
    equity awards at fiscal year-end</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table summarizes the number of securities
    underlying outstanding plan awards for each named executive
    officer as of December&#160;31, 2006. This table contains
    historical numbers and does not reflect the effect of
    our&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    for&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    stock split, effected in the form of a stock dividend, which
    will occur immediately prior to the closing of this offering.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="51%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="16%">&nbsp;</TD>	<!-- colindex=05 type=maindata -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="12" nowrap align="center" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=212 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="10" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Option
    awards</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Number of <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">securities
    underlying <BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Option<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Option<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">unexercised
    options</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">exercise<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">expiration<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Name</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Exercisable</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Unexercisable</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">price</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">date</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="12" nowrap align="center" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=212 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">J. Ross Craft<BR>
    President and <BR>
    Chief Executive Officer
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    50,964
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    10.00
</TD>
<TD>
&nbsp;
</TD>
<TD align="right" valign="top">
    <FONT style="font-size: 10pt">August 16, 2014
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Steven P. Smart<BR>
    Executive Vice President and Chief Financial Officer
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    9,615
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    10.00
</TD>
<TD>
&nbsp;
</TD>
<TD align="right" valign="top">
    <FONT style="font-size: 10pt">August 16, 2014
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Glenn W. Reed<BR>
    Senior Vice President&#151;Operations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    11,538
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    10.00
</TD>
<TD>
&nbsp;
</TD>
<TD align="right" valign="top">
    <FONT style="font-size: 10pt">August 16, 2014
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Ralph P. Manoushagian<BR>
    Senior Vice President&#151;Land
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    9,615
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    10.00
</TD>
<TD>
&nbsp;
</TD>
<TD align="right" valign="top">
    <FONT style="font-size: 10pt">August 16, 2014
    </FONT>
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="12" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="12" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Option
    exercises</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our named executive officers did not exercise any stock options
    in 2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Pension
    benefits</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We do not have any plan that provides for payments or other
    benefits at, following or in connection with retirement, other
    than our 401(k) plan.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Non-qualified
    deferred compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We do not have any plan that provides for the deferral of
    compensation on a basis that is not tax qualified.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Director
    compensation</FONT></B>
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Historically, our directors have not received any compensation
    for serving on our board, although we did reimburse directors
    for expenses incurred in connection with attendance at meetings
    of the board of directors. Following this offering, each
    non-employee member of our board of directors will receive
    compensation for service on our board of directors and
    committees thereof. Following this offering, non-employee and
    non-Yorktown directors will receive $85,000 per year in shares
    of our common stock or cash, at the election of each director,
    plus meeting expenses of $1,000 per board and $500 per committee
    meeting. The chairman of the Audit Committee will receive $7,500
    per year and the chairs of the Compensation and Nominating
    Committee will receive $3,500 per year.
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Employee directors will not receive compensation for service on
    our board of directors. All directors will be reimbursed for
    reasonable out-of-pocket expenses incurred in attending
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    97
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    meetings of the board or committees and for other reasonable
    expenses incurred in connection with service on the board and
    any committee.
</DIV>

<DIV style="margin-top: 16pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Potential
    payments upon termination or change in control</FONT></B>
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have employment agreements with certain of our named
    executive officers. Under the terms of the agreements, these
    officers receive an annual base salary and are eligible to
    participate in an annual bonus plan, to be administered by our
    board of directors or otherwise by the Compensation and
    Nominating Committee. If any of Mr.&#160;Craft, Mr.&#160;Reed or
    Mr.&#160;Smart is terminated for cause, we will be obligated to
    pay such named executive officer his base salary then in effect
    through the date of termination, prorated for any partial period
    of employment, and we shall have no further obligations to such
    named executive officer under his respective employment
    agreement.
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The employment agreement of Messrs.&#160;Craft and Reed also
    provide that if such officer is terminated by us without cause,
    he will be entitled to continue to receive his respective base
    salary plus applicable benefits for a period of 24&#160;months
    from the date of termination. Mr.&#160;Craft&#146;s employment
    agreement provides that his termination during a change of
    control period will be deemed a termination without cause.
    Mr.&#160;Smart&#146;s employment agreement provides that if he
    is terminated by us without cause, he will be entitled to
    continue to receive his base salary plus applicable benefits for
    a period of six months from the date of termination.
    Additionally, Mr.&#160;Craft&#146;s employment agreement
    provides that if he terminates his employment for good reason,
    he will be entitled to receive severance compensation consisting
    of a 50% base salary lump sum payment within 20&#160;days of
    termination and a 150% base salary lump sum payment within
    90&#160;days of termination.
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If Mr.&#160;Craft, Mr.&#160;Reed or Mr.&#160;Smart had been
    terminated without cause on December&#160;31, 2006, the
    approximate value of the severance benefits, assuming two weeks
    of accrued unused vacation time, under the employment agreement
    of each such named executive would have been as follows:
    Mr.&#160;Craft $429,000, Mr.&#160;Reed $337,000 and
    Mr.&#160;Smart $89,000.
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    For more information about these agreements, please read
    &#147;&#151;Executive compensation&#151;Other
    benefits&#151;Employment agreements and other
    arrangements.&#148; We are not obligated to make any cash
    payments to any other named executive officer if their
    employment is terminated by us or by the executive. No severance
    benefits are provided for any of the named executive officers in
    the event of death or disability.
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Pursuant to the terms of a restricted stock award agreement
    between the company and Mr.&#160;Henderson, our Executive Vice
    President and General Counsel, in the event of a change of
    control of the company (as defined in such award agreement), all
    unvested shares of restricted stock held by Mr.&#160;Henderson
    will fully vest.
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    This offering will not constitute a change in control of the
    company under these agreements.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    98
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='113'>
<DIV style="margin-top: 24pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Security
    ownership of certain beneficial owners <BR>
    and management</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth certain information regarding the
    beneficial ownership of Approach Resources Inc. common stock as
    of June&#160;30, 2007, giving effect to the transactions
    contemplated by the contribution agreement, for:
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (i)&#160;each person who, to our knowledge, beneficially owns
    more than 5% of our common stock;
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (ii)&#160;each of our directors and executive officers;&#160;and
</DIV>

<DIV style="margin-top: 8pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (iii)&#160;all of our executive officers and directors as a
    group, before our initial public offering and after the
    completion of our initial public offering.
</DIV>

<DIV style="margin-top: 16pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="63%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=270 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Shares&#160;of&#160;Approach<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Shares&#160;of&#160;Approach<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">common stock<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">common stock<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">beneficially
    owned<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">beneficially
    owned<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">prior to
    offering(1)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">after
    offering(2)</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Name
    and address of beneficial owner</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Percent</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Percent</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=270 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">J. Ross Craft(3)(4)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
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</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Steven P. Smart(3)(4)
    </FONT>
</DIV>
</TD>
<TD>
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</TD>
<TD nowrap align="right" valign="bottom">
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<TD nowrap align="left" valign="bottom">
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</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">J. Curtis Henderson(3)
    </FONT>
</DIV>
</TD>
<TD>
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</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Glenn W. Reed(3)(4)
    </FONT>
</DIV>
</TD>
<TD>
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</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Ralph P. Manoushagian(3)(4)
    </FONT>
</DIV>
</TD>
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</TR>
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<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Bryan H. Lawrence(5)(6)
    </FONT>
</DIV>
</TD>
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<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">James H. Brandi(7)
    </FONT>
</DIV>
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</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">James C. Crain(8)
    </FONT>
</DIV>
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<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Sheldon B. Lubar(9)(10)
    </FONT>
</DIV>
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<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Christopher J. Whyte(11)
    </FONT>
</DIV>
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<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Yorktown Energy Partners&#160;V,
    L.P.(5)
    </FONT>
</DIV>
</TD>
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</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Yorktown Energy Partners VI,
    L.P.(5)
    </FONT>
</DIV>
</TD>
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</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Yorktown Energy Partners VII,
    L.P.(5)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
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<TD nowrap align="left" valign="bottom">
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</TD>
<TD nowrap align="right" valign="bottom">
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<TD nowrap align="left" valign="bottom">
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</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Lubar Equity Fund, LLC(9)
    </FONT>
</DIV>
</TD>
<TD>
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</TD>
<TD nowrap align="right" valign="bottom">
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<TD nowrap align="left" valign="bottom">
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<TD nowrap align="right" valign="bottom">
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<TD nowrap align="left" valign="bottom">
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</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Neo Canyon Exploration, L.P.(12)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
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<TD nowrap align="left" valign="bottom">
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<TD nowrap align="right" valign="bottom">
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<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">All officers and directors as a
    group (10&#160;persons)(4)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
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<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">*&#160;
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Less than one percent.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Unless otherwise indicated, all
    shares of stock are held directly with sole voting and
    investment power.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">For purposes of calculating the
    percent of the class outstanding held by each owner shown above
    with a right to acquire additional shares, the total number of
    shares excludes the shares which all other persons have the
    right to acquire within 60&#160;days after the date of this
    prospectus, pursuant to the exercise of outstanding stock
    options and warrants.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(3)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Has a principal business address of
    <FONT style="white-space: nowrap">c/o&#160;Approach</FONT>
    Resources Inc., 6300 Ridglea Place, Suite&#160;1107,
    Fort&#160;Worth, Texas 76116.
    </FONT></TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    99
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(4)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">The number of shares beneficially
    owned includes the following shares that are subject to options
    that are currently exercisable or will become exercisable within
    60&#160;days of the date of this prospectus:
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 7pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="88%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=380 length=0 -->
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Shares subject
    <BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Name of
    beneficial owner</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">to
    options</FONT></B>
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=380 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -7pt; margin-left: 7pt">
    <FONT style="font-size: 7pt">J.&#160;Ross Craft
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -7pt; margin-left: 7pt">
    <FONT style="font-size: 7pt">Steven P. Smart
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -7pt; margin-left: 7pt">
    <FONT style="font-size: 7pt">Glenn W. Reed
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -7pt; margin-left: 7pt">
    <FONT style="font-size: 7pt">Ralph P. Manoushagian
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(5)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Has a principal business address of
    410 Park Avenue,
    19<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>&#160;floor,
    New York, New York 10022.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(6)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Includes attribution of shares held
    by Yorktown Energy Partners&#160;V, L.P., Yorktown Energy
    Partners VI, L.P. and Yorktown Energy Partners VII, L.P.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(7)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Has a principal business address of
    126 East 56th Street, New York, New York 10022.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(8)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Has a principal business address of
    300 Crescent Court, Suite&#160;900, Dallas, Texas 75201.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(9)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Has a principal business address of
    700&#160;N.&#160;Water Street, Suite&#160;1200, Milwaukee,
    Wisconsin 53202.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(10)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Includes attribution of shares held
    by Lubar Equity Fund, LLC.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(11)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Has a principal business address of
    6363 Woodway, Suite&#160;350, Houston, Texas 77057.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(12)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Has a principal business address of
    325 North St. Paul, Suite&#160;4300, Dallas, Texas 75201.
    </FONT></TD>
</TR>

</TABLE>
<A name='114'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Certain
    relationships and related party transactions</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">The contribution
    agreement</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Immediately prior to the closing of this offering, Approach
    Resources Inc. will acquire all of the outstanding capital stock
    of Approach Oil&#160;&#038; Gas Inc. and will acquire the 30%
    working interest in the Ozona Northeast field that Approach
    Resources Inc. does not already own from Neo&#160;Canyon
    Exploration, L.P. Upon the closing of the transactions
    contemplated by the contribution agreement, Neo Canyon
    Exploration, L.P. and each of the stockholders of Approach
    Oil&#160;&#038; Gas Inc. will receive shares of stock in
    Approach Resources Inc. in exchange for their respective
    contributions. In addition, we have agreed to include up
    to&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of stock in the registration statement of which this prospectus
    is a part on behalf of the selling stockholder.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Convertible
    notes</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    On June&#160;25, 2007, Yorktown Energy Partners VII, L.P. and
    Lubar Equity Fund, LLC loaned an aggregate of $20,000,000 to
    Approach Oil&#160;&#038; Gas Inc. under two convertible
    promissory notes of $10,000,000 each. These notes bear interest
    at a rate of 7.00% per annum and mature on June&#160;25, 2010.
    These notes are convertible at the election of the lender into
    shares of equity securities of Approach Oil&#160;&#038; Gas Inc.
    upon the occurrence of certain events and automatically, and
    without further action required by any person, convert into
    shares of our common stock upon the consummation of this
    offering. The number of shares of our common stock to be issued
    upon the automatic conversion of these notes will be equal to
    the quotient obtained by dividing (a)&#160;the outstanding
    principal and accrued interest on each respective note by
    (b)&#160;the initial public offering price per share, less any
    underwriting discount per share for the shares of our common
    stock that are issued in this offering. The shares of our common
    stock issued to Yorktown Energy Partners VII, L.P. and Lubar
    Equity Fund, LLC upon such automatic conversion will be entitled
    to the same registration rights as those provided to certain
    holders of our common stock in connection with the contribution
    agreement. The total principal and interest
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    100
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    owed under these notes as of June&#160;30, 2007 was $20,023,014,
    consisting of $10,011,507 owed to each of Yorktown Energy
    Partners VII, L.P. and Lubar Equity Fund, LLC. Yorktown Energy
    Partners VII, L.P. is an affiliate of the Yorktown entities, and
    Lubar Equity Fund, LLC is an affiliate of Sheldon B. Lubar, who
    serves as a member of our board of directors.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Employment and
    indemnification agreements</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have entered into employment agreements with certain of our
    executive officers. See &#147;Management&#151;Executive
    compensation&#151;Other benefits&#151;Employment agreements and
    other arrangements&#148; for a detailed description of these
    agreements. Additionally, we will enter into indemnification
    agreements with our officers and the members of our board of
    directors.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Indemnification
    of directors and officers</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Section&#160;145 of the Delaware General Corporation Law, or the
    DGCL, permits indemnification of officers, directors and other
    corporate agents under specific circumstances and subject to
    specific limitations. Our restated certificate of incorporation
    and restated bylaws provide that we will indemnify our directors
    and officers to the full extent permitted by the DGCL, including
    in circumstances in which indemnification is otherwise
    discretionary under Delaware law.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We will enter into indemnity agreements with our directors and
    executive officers that provide the maximum indemnity allowed to
    directors and executive officers by Section&#160;145 of the
    DGCL, as well as certain additional procedural protections. The
    indemnity agreements provide that directors are and will be
    indemnified to the fullest extent not prohibited by law against
    all expenses (including attorneys&#146; fees) and settlement
    amounts paid or incurred by them in any action or proceeding as
    our directors or executive officers, including any action on
    account of their services as executive officers or directors of
    any other company or enterprise when they are serving in such
    capacities at our request, and including any action by us or in
    our right. In addition, the indemnity agreements provide for
    reimbursement of expenses incurred in conjunction with being a
    witness in any proceeding to which the indemnitee is not a
    party. We are required to pay in advance of a final disposition
    of a proceeding or claim the expenses incurred by the indemnitee
    no later than ten days after our receipt of an undertaking by or
    on behalf of the indemnitee to repay the amount of the expenses
    to the extent that it is ultimately determined that the
    indemnitee is not entitled to be indemnified by us. The
    indemnity agreements also provide the indemnitee with remedies
    in the event that we do not fulfill our obligations under the
    indemnity agreements.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Section&#160;102(b)(7) of the DGCL permits a corporation to
    provide in its certificate of incorporation that a director of
    the corporation will not be personally liable to the corporation
    or its stockholders for monetary damages for breach of fiduciary
    duty as a director, except for liability (i)&#160;for any breach
    of the director&#146;s duty of loyalty to the corporation or its
    stockholders, (ii)&#160;for acts or omissions not in good faith
    or which involve intentional misconduct or a knowing violation
    of law, (iii)&#160;for payments of unlawful dividends or
    unlawful stock repurchases or redemptions or (iv)&#160;for any
    transaction from which the director derived an improper personal
    benefit. Our certificate of incorporation provides for that
    limitation of liability.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We will maintain policies of insurance under which our directors
    and officers are insured, within the limits and subject to the
    limitations of the policies, against specific expenses in
    connection with the defense of, and specific liabilities which
    might be imposed as a result of, actions, suits or proceedings
    to which they are parties by reason of being or having been
    directors or officers.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    101
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Business
    opportunities renunciation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All of our non-employee directors and certain of our
    stockholders may from time to time have investments in other
    exploration and production companies that may compete with us.
    Section&#160;122(17) of the DGCL permits a Delaware corporation,
    such as Approach Resources Inc., to renounce in its certificate
    of incorporation or by action of its board of directors any
    interest or expectancy of the corporation in certain
    opportunities, effectively eliminating the ambiguity in a
    Delaware corporation&#146;s ability to do so in advance arising
    out of prior Delaware case law. Under corporate law concepts of
    fiduciary duty, officers and directors generally have a duty to
    disclose to us opportunities that are related to our business
    and are generally prohibited from pursuing those opportunities
    unless we determine that we are not going to pursue them. Our
    restated certificate of incorporation and our Business
    Opportunities Agreement provide that so long as any of the
    parties to the Business Opportunities Agreement, which we refer
    to as &#147;Designated Parties,&#148; is serving as a member of
    our board of directors, we renounce any interest or expectancy
    in any business opportunity, transaction or other matter in and
    that involves any aspect of the oil and gas exploration,
    exploitation, development and production other than:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    any business opportunity that is brought to the attention of a
    Designated Party solely in such person&#146;s capacity as a
    director of our company and with respect to which, at the time
    of such presentment, no other Designated Party has independently
    received notice or otherwise identified such opportunity;&#160;or
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    any business opportunity that is identified by a Designated
    Party solely through the disclosure of information by or on
    behalf of us.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Thus, for example, a Designated Party may pursue opportunities
    in the oil and gas exploration and production industry for their
    own account. Our restated certificate of incorporation provides
    that the Designated Parties have no obligation to offer such
    opportunities to us.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Pursuant to this Business Opportunities Agreement approved by
    our board of directors, each of the Designated Parties will not
    have a duty to inform us of a business opportunity that he
    becomes aware of so long as he did not become aware of the
    opportunity solely as a consequence of serving as a member of
    our board of directors. Furthermore, the Designated Parties will
    each be permitted to pursue that opportunity even if it is
    competitive with our business. This business opportunities
    agreement does not prohibit us from pursuing any business
    opportunity to which we have renounced any interest or
    expectancy. It will provide the Designated Parties and their
    respective affiliates with some certainty that opportunities
    that they independently pursue will not be required to be first
    offered to us.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Registration
    rights agreement</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In connection with the contribution agreement and certain other
    transactions, we will enter into a registration rights agreement
    with our existing stockholders, pursuant to which we will grant
    certain demand and &#147;piggyback&#148; registration rights.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Under the registration rights agreement, each of Yorktown Energy
    Partners&#160;V, L.P., Yorktown Energy Partners VI, L.P. and
    Yorktown Energy Partners VII, L.P. and the members of our
    management team will have the right to require us to file a
    registration statement for the public sale of all of the shares
    of common stock owned by it or them any time after six months
    following the date the SEC declares the registration statement
    of which this prospectus forms a part effective. In addition, if
    we sell any shares of our common stock in a registered
</DIV>

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    <BR>
    102
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    underwritten offering, each of our existing stockholders will
    have the right to include his or its shares in that offering.
    The underwriters of any such offering will have the right to
    limit the number of shares to be included in such sale.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We will pay all expenses relating to any demand or piggyback
    registration, except for underwriters&#146; or brokers&#146;
    commission or discounts. The securities covered by the
    registration rights agreement will no longer be registrable
    under the registration rights agreement if they have been sold
    to the public either pursuant to a registration statement or
    under Rule&#160;144 promulgated under the Securities Act.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Other related
    party transactions</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In connection with the formation of Approach Resources Inc. and
    subsequent financing transactions, approximately
    415,385&#160;shares of our common stock were issued to certain
    of our executive officers and other key members of management in
    exchange for notes receivable. The notes issued by our executive
    officers and other key members of management, including J. Ross
    Craft, Steven P. Smart, Glenn W. Reed and Ralph P. Manoushagian,
    were full recourse, earned interest at an annual rate of 6.00%,
    and matured upon the earlier of (i)&#160;December&#160;31, 2008
    or, (ii)&#160;if earlier, the date upon which the Company or any
    successor to the Company registers any class of its securities
    under Section&#160;12 of the Securities Exchange Act of 1934, is
    required to file periodic reports under Section&#160;15(d) of
    the 1934&#160;Act, or files a registration statement under the
    Securities Act of 1933, as amended. The note holders repaid
    these notes with interest in January 2007 by selling us an
    aggregate of 84,550&#160;shares of our common stock in
    satisfaction of the management holders&#146; aggregate
    outstanding indebtedness of $4,184,324. The note holders
    received bonuses to cover out-of-pocket taxes incurred in 2007
    as a result of the sale of their respective shares of our common
    stock to us as repayment for their respective management notes.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    On May&#160;10, 2006, we acquired interests in oil and gas
    properties in Western Kentucky from Hallador Petroleum Company
    for approximately $3.3&#160;million in cash. Hallador Petroleum
    Company was owned 32% by Yorktown Energy Partners VI, L.P., an
    affiliate of the Yorktown entities, at the time of the
    acquisition. The valuation of the New Albany Shale oil and gas
    interests held by Hallador Petroleum Company was determined by
    arms-length negotiations between us and Hallador. At the time of
    the acquisition, Mr.&#160;Lawrence was a member of the board of
    directors of Hallador and a member of our board of directors.
    Under the terms of this agreement, 60&#160;days after we drilled
    three exploratory gas wells, Hallador had the option to purchase
    a one-third working interest in the project by paying one-third
    of the land costs expended by us. In October 2006, Hallador sold
    one-half of its rights under this option to T.H. McElvain
    Oil&#160;&#038; Gas Limited Partnership, an unaffiliated third
    party. Drilling began in December 2006. Hallador and McElvain
    jointly exercised the option in April 2007, leaving
    Hallador&#146;s net ownership in the project at one-sixth.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Procedures for
    review and approval of related person transactions</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Before the effective date of the registration statement of which
    this prospectus forms a part, we plan to adopt a written code of
    conduct. Under this written code of conduct, our executive
    officers and directors will not be permitted to enter into any
    transactions with us without the approval of either our audit
    committee or our board of directors. In approving or rejecting
    such proposed transactions, the audit committee or board of
    directors, as applicable, will consider the relevant facts and
    circumstances available and deemed relevant to the audit
    committee or
</DIV>

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    <BR>
    103
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    board of directors, as applicable, including the risks, costs,
    benefits to the company, the terms of the transactions, the
    availability of other sources for comparable services or
    products and, if applicable, the impact on a director&#146;s
    independence. Our audit committee
    <FONT style="white-space: nowrap">and/or</FONT> board
    of directors will approve only those transactions that, in light
    of known circumstances, are in, or are not inconsistent with,
    our best interests, as our audit committee or board of directors
    determines in the good faith exercise of its discretion. We will
    designate a compliance officer to generally oversee compliance
    with our code of conduct.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All of the transactions described above were entered into before
    the adoption of our code of conduct. Instead, their approvals
    are as described herein. The contribution agreement and related
    transactions were unanimously approved by our board of
    directors. The convertible notes were unanimously approved by
    our board of directors. The employment agreements, director and
    officer indemnification agreements and the business
    opportunities agreements were unanimously approved by our board
    of directors. The registration rights agreement was unanimously
    approved by our board of directors. The Ozona Pipeline and
    Hallador transactions were unanimously approved by our board of
    directors.
</DIV>

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    <BR>
    104
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='115'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Selling
    stockholder</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth certain information with respect
    to the ownership by the selling stockholder of our common stock
    as
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007 and as adjusted to give effect to this offering. To our
    knowledge, the selling stockholder will have sole voting and
    investment power as to the shares shown. The selling stockholder
    is not a director, officer or employee of ours or an affiliate
    of such person.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="31%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="14%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="19" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=118 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Shares<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">owned prior<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Number of<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Number of<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Shares owned<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">to
    offering(2)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">shares being<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">shares being<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">after
    offering(3)(4)</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Name
    of selling stockholder(1)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Percent</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">offered(3)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">redeemed
    by us</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Percent</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="19" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=118 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Neo Canyon Exploration, L.P.&#160;
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="19" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="19" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(1)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Ownership is determined in
    accordance with
    <FONT style="white-space: nowrap">Rule&#160;13d-3</FONT>
    under the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(2)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Based upon an aggregate
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    to be outstanding following the consummation of the transactions
    described under &#147;Certain relationships and related party
    transactions&#151;The contribution agreement.&#148;
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(3)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Assumes no exercise of the
    underwriters&#146; over-allotment option.
    </FONT></TD>
</TR>

<TR style="line-height: 3pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR>
    <TD align="right" valign="top">
    <FONT style="font-size: 8pt">(4)
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">Based upon an aggregate
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    to be outstanding following the consummation of the transactions
    described under &#147;Certain relationships and related party
    transactions&#151;The contribution agreement,&#148; the
    automatic conversion of notes described under &#147;Certain
    relationships and related party transactions&#151;Convertible
    notes,&#148;
    our&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    for&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    common stock split and this offering.
    </FONT></TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    105
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='116'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Description of
    capital stock</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>The following description is based on relevant portions of
    the DGCL and on our restated certificate of incorporation and
    restated bylaws. This summary is not necessarily complete, and
    we refer you to the DGCL, and our restated certificate of
    incorporation and restated bylaws for a more detailed
    description of the provisions summarized below.</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our authorized capital stock consists of 90,000,000&#160;shares
    of common stock, $0.01&#160;par value per share, and
    10,000,000&#160;shares of preferred stock, par value $0.01 per
    share. Under Delaware law, our stockholders shall not be
    personally liable for our debts or obligations except as they
    may be liable by reason of their own conduct or acts.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Common
    stock</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have a total
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of our common stock outstanding. Additionally, options to
    purchase&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock are currently outstanding and have been granted
    to certain members of our management and employees
    and&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    have been reserved for future grants. We have reserved 10% of
    our outstanding shares of common stock for grant of awards under
    the 2007 Plan (which shall be adjusted each year to remain at
    10% of the outstanding shares of our common stock), plus all
    shares of common stock that remain available for grant of awards
    under the prior plan, plus shares of common stock subject to
    outstanding awards under the prior plan that later cease to be
    subject to those awards for any reason other than those awards
    having been exercised. Upon completion of this offering, we will
    have&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock outstanding, or shares if the underwriters
    exercise their over-allotment option in full.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Holders of our common or restricted stock are entitled to one
    vote for each share held on all matters submitted to a vote of
    our stockholders. Because holders of common stock do not have
    cumulative voting rights, the holders of a majority of the
    shares of common stock can elect all of the members of the board
    of directors standing for election.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Holders of our common stock are entitled to receive dividends
    if, as and when such dividends are declared by our board of
    directors out of assets legally available therefor after payment
    of dividends required to be paid on shares of preferred stock,
    if any. Upon our dissolution, liquidation or winding up, and
    subject to any prior rights of outstanding preferred stock, the
    holders of our common stock will be entitled to share pro rata
    in the distribution of all our assets available for distribution
    to our stockholders after satisfaction of our debts and other
    liabilities and the payment of the liquidation preference of any
    preferred stock that may be outstanding. There are no redemption
    or sinking fund provisions applicable to the common stock. All
    outstanding shares of common stock are fully paid and
    nonassessable. The holders of our common stock have no
    preemptive, conversion, redemption or other subscription rights.
    The rights, preferences and privileges of holders of common
    stock are subject to, and may be adversely affected by, the
    rights of holders of shares of any series of preferred stock
    that we may designate and issue in the future.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Preferred
    stock</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Subject to the provisions of our restated certificate of
    incorporation and limitations prescribed by law, our board of
    directors is authorized, without further stockholder approval,
    to establish and to issue from time to time one or more classes
    or series of preferred stock, par value
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    106
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    $0.01&#160;per share, covering up to an aggregate of
    10,000,000&#160;shares of preferred stock. Each class or series
    of preferred stock will cover the number of shares and will have
    preferences, voting powers, qualifications and special or
    relative rights or privileges as is determined by the board of
    directors, which may include, among others, dividend rights,
    liquidation preferences, voting rights, conversion rights,
    preemptive rights and redemption rights.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The rights of the holders of common stock will be subject to the
    rights of holders of any preferred stock issued in the future.
    The issuance of preferred stock could adversely affect the
    voting power of holders of common stock and reduce the
    likelihood that common stockholders will receive dividend
    payments and payments upon liquidation. The issuance of
    preferred stock could also have the effect of decreasing the
    market price of the common stock and could delay, deter or
    prevent a change in control of our company.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The existence of authorized but unissued shares of preferred
    stock could have anti-takeover effects because we could issue
    preferred stock with special dividend or voting rights that
    could discourage potential bidders. For example, a business
    combination could be impeded by the issuance of a series of
    preferred stock containing class voting rights that would enable
    the holder or holders of such series to block any such
    transaction. Alternatively, a business combination could be
    facilitated by the issuance of a series of preferred stock
    having sufficient voting rights to provide a required percentage
    vote of our stockholders. In addition, under some circumstances,
    the issuance of preferred stock could adversely affect the
    voting power and other rights of the holders of common stock and
    could also affect the likelihood that holders of our common
    stock will receive dividend payments and payments on
    liquidation. Although prior to issuing any series of preferred
    stock our board of directors will be required to make a
    determination as to whether the issuance is in the best interest
    of our stockholders, our board of directors could act in a
    manner that would discourage an acquisition attempt or other
    transaction that some, or a majority, of our stockholders might
    believe to be in their best interests or in which our
    stockholders might receive a premium for their stock over
    prevailing market prices of such stock. Our board of directors
    does not at present intend to seek stockholder approval prior to
    any issuance of currently authorized preferred stock, unless
    otherwise required by law or applicable stock exchange
    requirements.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Registration
    rights agreement</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In connection with the contribution transaction and certain
    other transactions, we entered into a registration rights
    agreement with certain holders of our common stock prior to this
    offering. See &#147;Certain relationships and related party
    transactions&#151;Registration rights agreement.&#148;
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Anti-takeover
    effects of provisions of Delaware law, our restated certificate
    of incorporation and restated bylaws</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    A number of provisions in our restated certificate of
    incorporation, our restated bylaws and the DGCL may make it more
    difficult to acquire control of us. These provisions could
    deprive our stockholders of opportunities to realize a premium
    on the shares of common stock owned by them. In addition, these
    provisions may adversely affect the prevailing market price of
    our common stock. These provisions are intended to:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;</TD>
    <TD align="left">
    enhance the likelihood of continuity and stability in the
    composition of the board of directors and in the policies
    formulated by the board of directors;
</TD>
</TR>

</TABLE>

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    <BR>
    107
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    discourage transactions which may involve an actual or
    threatened change in control of us;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    discourage tactics that may be involved in proxy fights; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    encourage persons seeking to acquire control of our company to
    consult first with the board of directors to negotiate the terms
    of any proposed business combination or offer.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Written consent of stockholders.</I>&#160;Our restated
    certificate of incorporation and restated bylaws provide that
    any action required or permitted to be taken by our stockholders
    must be taken at a duly called meeting of stockholders and not
    by written consent.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Call of special stockholder meetings.</I>&#160;Our restated
    bylaws provide that stockholders are not permitted to call
    special meetings of stockholders. Only our board of directors,
    chairman or Chief Executive Officer is permitted to call a
    meeting of stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Amending the bylaws.</I>&#160;Our restated certificate of
    incorporation permits our board of directors to adopt, alter or
    repeal any provision of the restated bylaws or to make new
    bylaws. Our restated certificate of incorporation also provides
    that our restated bylaws may be amended by the affirmative vote
    of at least 67% of the voting power of the outstanding shares of
    our capital stock.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Classified board.</I>&#160;Our restated certificate of
    incorporation provides that our board of directors is divided
    into three classes of directors, with the classes to be as
    nearly equal in number as possible. As a result, approximately
    one-third of our board of directors will be elected each year.
    The classification of directors has the effect of making it more
    difficult for stockholders to change the composition of our
    board of directors. Our restated certificate of incorporation
    and restated bylaws provide that the number of directors will be
    fixed from time to time pursuant to a resolution adopted by the
    board of directors.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Advance notice procedures for stockholder proposals and
    director nominations.</I>&#160;Our restated bylaws provide that
    stockholders seeking to bring business before an annual meeting
    of stockholders, or to nominate candidates for election as
    directors at an annual meeting of stockholders, must provide
    timely notice thereof in writing. To be timely, a
    stockholder&#146;s notice generally must be delivered to or
    mailed and received at our principal executive offices not less
    than 90 and no more than 120 calendar days before the first
    anniversary of the date on which we first mailed our proxy
    materials for the preceding year&#146;s annual meeting of
    stockholders. In addition, our restated bylaws specify
    requirements for the form and content of a stockholder&#146;s
    notice. These provisions may preclude stockholders from bringing
    matters before an annual meeting of stockholders or from making
    nominations for directors at an annual meeting of stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Filling board of directors vacancies; removal.</I>&#160;Our
    restated certificate of incorporation provides that vacancies
    and newly created directorships resulting from any increase in
    the authorized number of directors may be filled by the
    affirmative vote of a majority of our directors then in office,
    though less than a quorum. Each director will hold office until
    his or her successor is elected and qualified, or until the
    director&#146;s earlier death, resignation, retirement or
    removal from office. Any director may resign at any time upon
    written notice to us. Our restated certificate of incorporation
    provides, in accordance with the DGCL, that the stockholders may
    remove directors only for cause and by the affirmative vote of
    at least 67% of the voting power of all of the then-outstanding
    shares of our common stock. We believe that the removal of
    directors by the stockholders only for cause, together with the
    classification of the board of
</DIV>

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    <BR>
    108
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    directors, will promote continuity and stability in our
    management and policies and that this continuity and stability
    will facilitate long-range planning.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>No cumulative voting.</I>&#160;The DGCL provides that
    stockholders are not entitled to use cumulative voting in the
    election of directors unless our restated certificate of
    incorporation provides otherwise. Under cumulative voting, a
    majority stockholder holding a sufficient percentage of a class
    of shares may be able to ensure the election of one or more
    directors. Our restated certificate of incorporation expressly
    precludes cumulative voting.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Authorized but unissued shares.</I>&#160;Our restated
    certificate of incorporation provides that the authorized but
    unissued shares of preferred stock are available for future
    issuance without stockholder approval. These additional shares
    may be utilized for a variety of corporate purposes, including
    future public offerings to raise additional capital, corporate
    acquisitions and employee benefit plans. The existence of
    authorized but unissued shares of common stock and preferred
    stock could discourage an attempt to obtain control of us by
    means of a proxy contest, tender offer, merger or otherwise.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Delaware Business Combination Statute.</I>&#160;We are
    subject to Section&#160;203 of the DGCL regulating corporate
    takeovers. This section prevents a Delaware corporation from
    engaging in a business combination which includes a merger or
    sale of more than 10% of the corporation&#146;s assets with a
    stockholder who owns 15% or more of the corporation&#146;s
    outstanding voting stock, as well as affiliates and associates
    of any of those persons. That prohibition extends for three
    years following the date that stockholder acquired that amount
    of stock unless:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the transaction in which that stockholder acquired the stock is
    approved by the board of directors prior to that date;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    upon completion of the transaction that resulted in the
    acquisition of the stock, the stockholder owned at least 85% of
    the voting stock of the corporation outstanding at the time the
    transaction commenced, excluding those shares owned by various
    employee benefit plans or persons who are directors and also
    officers; or
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    on or after the date the stockholder acquired the stock, the
    business combination is approved by the board of directors and
    authorized at an annual or special meeting of stockholders by
    the affirmative vote of at least two-thirds of the outstanding
    voting stock that is not owned by the stockholder.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Stockholders may, by adopting an amendment to our restated
    certificate of incorporation or our restated bylaws, elect for
    the corporation not to be governed by Section&#160;203 of the
    DGCL. Such amendment shall not become effective until
    12&#160;months after the date it is adopted or applies to a
    stockholder. Neither our restated certificate of incorporation
    or restated bylaws exempt us from the restrictions imposed under
    Section&#160;203. It is anticipated that the provisions of
    Section&#160;203 may encourage companies interested in acquiring
    us to negotiate in advance with our board of directors.
    Section&#160;203 will not apply to a business combination
    between us and Yorktown or a Yorktown affiliate because Yorktown
    held more than 15% of our stock prior to the effective date of
    our restated certificate of incorporation.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Limitation of liability of directors and officers;
    indemnification.</I>&#160;Our restated certificate of
    incorporation provides that to the fullest extent permitted by
    Delaware law, as that law may be amended and supplemented from
    time to time, our directors shall not be personally liable to us
    or our stockholders for monetary damages for breach of fiduciary
    duty as a director, except for liability (i)&#160;for any breach
    of the director&#146;s duty of loyalty to the company or our
    stockholders,
</DIV>

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    <BR>
    109
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (ii)&#160;for acts or omissions not in good faith or which
    involve intentional misconduct, fraud or a knowing violation of
    law, (iii)&#160;the payment of dividends in violation of
    Section&#160;174 of the DGCL, or (iv)&#160;for any transaction
    from which the director derived any improper personal benefit.
    The effect of the provision of our restated certificate of
    incorporation is to eliminate the rights of the company and our
    stockholders (through stockholders&#146; derivative suits on our
    behalf) to recover monetary damages against a director for
    breach of the fiduciary duty of care as a director (including
    breaches resulting from negligent behavior) except in the
    situations described in clauses&#160;(i) through
    (iv)&#160;above. Our restated bylaws also set forth certain
    indemnification provisions and provide for the advancement of
    expenses incurred by a director in defending a claim by reason
    of the fact that he was one of our directors (or was serving as
    a director or officer of another entity at our request),
    provided that the director agrees to repay the amounts advanced
    if the director is not entitled to be indemnified by us under
    the provisions of the DGCL. The indemnification provisions of
    our restated certificate of incorporation may reduce the
    likelihood of derivative litigation against directors and may
    discourage or deter stockholders or management from bringing a
    lawsuit against directors for breaches of their fiduciary
    duties, even though an action, if successful, otherwise might
    have benefited us and our stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The right to indemnification and advancement of expenses are not
    exclusive of any other rights to indemnification our directors
    or officers may be entitled to under any agreement, vote of
    stockholders or disinterested directors or otherwise. We intend
    to enter into indemnification agreements with each of our
    directors and some of our officers pursuant to which we agree to
    indemnify the director or officer against expenses, judgments,
    fines or amounts paid in settlement incurred by the director or
    officer and arising in his capacity as a director, officer,
    employee
    <FONT style="white-space: nowrap">and/or</FONT> agent
    of the company or other enterprise of which he is a director,
    officer, employee or agent acting at our request to the maximum
    extent permitted by applicable law, subject to certain
    limitations. Additionally, under Delaware law, we may purchase
    and maintain insurance for the benefit and on behalf of our
    directors and officers insuring against all liabilities that may
    be incurred by the director or officer in or arising out of his
    capacity as our director, officer, employee
    <FONT style="white-space: nowrap">and/or</FONT> agent.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Transfer agent
    and registrar</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    will be the transfer agent and registrar for our common stock.
</DIV>
<A name='117'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Shares eligible
    for future sale</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Prior to this offering, there has been no public market for our
    common stock. Sales of substantial amounts of common stock in
    the public market after we complete this offering, or the
    perception that such sales may occur, could adversely affect the
    prevailing market price of our common stock and could impair our
    ability to raise equity capital in the future through the sale
    of our equity securities.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007, we
    had&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock outstanding. Upon the closing of this offering,
    we will
    have&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock outstanding and outstanding options to purchase
    shares of our common stock. All of the shares of our common
    stock sold in this offering will be freely tradable without
    restriction or further registration under the Securities Act,
    except for any shares purchased by one of our
    &#147;affiliates&#148; as that term is defined in Rule&#160;144
    under the Securities Act. All of the shares outstanding other
    than the shares sold in
</DIV>

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    <BR>
    110
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    this offering (a total
    of&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares,
    or&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    if the underwriters exercise their option to purchase additional
    shares in full) will be &#147;restricted securities&#148; within
    the meaning of Rule&#160;144 under the Securities Act and may
    not be sold other than through registration under the Securities
    Act or pursuant to an exemption from registration, subject to
    the restrictions on transfer contained in the
    <FONT style="white-space: nowrap">lock-up</FONT>
    agreements described below and in &#147;Underwriting.&#148;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Persons who may be deemed affiliates generally include
    individuals or entities that control, are controlled by or are
    under common control with us and may include our officers,
    directors and significant stockholders.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Lock-up
    arrangements</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In connection with this offering, we, our executive officers and
    directors and the other holders of our common stock (including
    the selling stockholder) have agreed that, during the period
    beginning from the date of this prospectus and continuing to and
    including the date 180&#160;days after the date of this
    prospectus, neither we nor any of them will, directly or
    indirectly, offer, sell, offer to sell, contract to sell or
    otherwise dispose of any shares of our common stock without the
    prior written consent of J.P.&#160;Morgan Securities Inc., on
    behalf of the underwriters, with limited exceptions. This
    <FONT style="white-space: nowrap">lock-up</FONT> will
    not apply to
    approximately&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    that are issuable upon the exercise of options outstanding under
    our long-term incentive plan and up to an
    additional&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    covered by grants that we are permitted to award under our
    existing stock incentive plan during the
    <FONT style="white-space: nowrap">180-day</FONT>
    <FONT style="white-space: nowrap">lock-up</FONT>
    period. See &#147;Underwriting&#148; for a description of these
    <FONT style="white-space: nowrap">lock-up</FONT>
    arrangements. Upon the expiration of these
    <FONT style="white-space: nowrap">lock-up</FONT>
    agreements,&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares,
    or&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    if the underwriters exercise their over-allotment option in
    full, will be eligible for sale in the public market under
    Rule&#160;144 of the Securities Act, subject to volume
    limitations and other restrictions contained in Rule&#160;144.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Rule&#160;144</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In general, under Rule&#160;144 as currently in effect,
    beginning 90&#160;days after the date of this prospectus, a
    person, or persons whose shares are aggregated, who have
    beneficially owned restricted shares for at least one year,
    including the holding period of any prior owner (other than an
    &#147;affiliate&#148; of ours), would be entitled to sell within
    any three-month period a number of shares that does not exceed
    the greater of (i)&#160;1% of the number of shares of common
    stock then outstanding or (ii)&#160;the average weekly trading
    volume of our common stock on the NASDAQ Global Market during
    the four calendar weeks preceding the filing of a Form&#160;144
    with respect to the sale.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Sales under Rule&#160;144 are also subject to certain manner of
    sale provisions and notice requirements and to the availability
    of certain public information about us.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Rule&#160;144(k)</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Under Rule&#160;144(k), a person who is not deemed to have been
    one of our &#147;affiliates&#148; at any time during the
    90&#160;days preceding a sale, and who has beneficially owned
    the shares proposed to be sold for at least two years, including
    the holding period of any prior owner (other than an
    &#147;affiliate&#148; or ours) is entitled to sell those shares
    without complying with the manner of sale, public information,
    volume limitation or notice provisions of Rule&#160;144.
</DIV>

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    <BR>
    111
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Stock issued
    under employee plans</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We intend to file a registration statement on
    <FONT style="white-space: nowrap">Form&#160;S-8</FONT>
    under the Securities Act to register
    approximately&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock issuable with respect to options and other
    equity incentive awards that have been granted or are reserved
    for issuance under our employee plans or otherwise. This
    registration statement is expected to be filed following the
    effective date of the registration statement of which this
    prospectus is a part and will be effective upon filing. Shares
    issued under our 2007 Plan will be eligible for resale in the
    public market without restriction after the effective date of
    the
    <FONT style="white-space: nowrap">Form&#160;S-8</FONT>
    registration statements, subject to Rule&#160;144 limitations
    applicable to affiliates. Under Rule&#160;701 under the
    Securities Act, as currently in effect, each of our employees,
    officers, directors and consultants who purchased or received
    shares pursuant to a written compensatory plan or contract is
    eligible to resell these shares 90&#160;days after the effective
    date of this offering in reliance upon Rule&#160;144, but
    without compliance with specific restrictions. Rule&#160;701
    provides that affiliates may sell their
    Rule&#160;701&#160;shares under Rule&#160;144 without complying
    with the holding period requirement and that non-affiliates may
    sell their shares in reliance on Rule&#160;144 without complying
    with the holding period, public information, volume limitation
    or notice provisions of Rule&#160;144.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Registration
    rights</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In connection with the contribution transaction and certain
    other transactions, we entered into a registration rights
    agreement with certain of our stockholders covering shares of
    common stock owned by such stockholders. For a description of
    the registration rights agreement, see &#147;Certain
    relationships and related party transactions&#151;Registration
    rights agreement.&#148;
</DIV>

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    <BR>
    112
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='118'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Material United
    States federal income and estate tax considerations for
    <FONT style="white-space: nowrap">non-United</FONT>
    States holders</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following is a summary of material United States federal
    income and, to a limited extent, estate tax considerations
    relating to the purchase, ownership and disposition of our
    common stock by persons that are
    <FONT style="white-space: nowrap">non-United</FONT>
    States holders (as defined below), but does not purport to be a
    complete analysis of all the potential tax considerations
    relating thereto. This summary is based upon the current
    provisions of the Internal Revenue Code of 1986, as amended, or
    the Code, Treasury Regulations, administrative rulings,
    published positions of the Internal Revenue Service, or the IRS,
    court decisions thereunder and other applicable authorities, all
    as now in effect and all of which are subject to change or
    differing interpretations, in each case, possibly with
    retroactive effect. This summary deals only with
    <FONT style="white-space: nowrap">non-United</FONT>
    States holders that will hold our common stock as a
    &#147;capital asset&#148; (generally, property held for
    investment). In addition, this discussion does not address all
    of the United States federal income tax consequences that may be
    relevant to a particular person in light of its particular
    circumstances and tax considerations applicable to investors
    that may be subject to special rules under United States federal
    income tax law, such as (without limitation):
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    certain former citizens or residents of the United States;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    stockholders that hold out common stock as part of a straddle,
    appreciated financial position, synthetic security, hedge,
    conversion transaction or other integrated investment or risk
    reduction transaction;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    stockholders who acquired our common stock through the exercise
    of employee stock options or otherwise as compensation or
    through a tax qualified retirement plan;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    stockholders that are S&#160;corporations, entities or
    arrangements treated as partnerships for United States federal
    income tax purposes or other pass through entities or owners
    thereof;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    financial institutions;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    insurance companies;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    tax-exempt entities;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    dealers in securities or foreign currencies; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    traders in securities that mark to market.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Furthermore, this summary does not address any aspect of state,
    local, foreign or other tax laws or the gift tax or alternative
    minimum tax provisions of the Code.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If a partnership (including an entity or arrangement treated as
    a partnership for United States federal income tax purposes)
    holds the common stock, the tax treatment of a partner will
    generally depend upon the status of the partner and the
    activities of the partnership. If you are a partnership
    (including an entity or arrangement treated as a partnership for
    United States federal income tax purposes) holding our common
    stock or a partner of such a partnership, you should consult
    your tax advisor.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have not sought any ruling from the IRS with respect to the
    statements made and the conclusions reached in the following
    summary. No assurance can be given that the IRS would not
    assert, or that a court would not sustain, a position contrary
    to any of those set forth below.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    113
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As used in this discussion, except as otherwise defined for
    estate tax purposes, a
    <FONT style="white-space: nowrap">&#147;non-United</FONT>
    States holder&#148; is a beneficial owner of common stock (other
    than an entity treated as a partnership for United States
    federal income tax purposes) that for United States federal
    income tax purposes is not:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    an individual who is a citizen or resident of the United States,
    including an alien individual who is a lawful permanent resident
    of the United States or who meets the &#147;substantial
    presence&#148; test under Section&#160;7701(b) of the Code;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    a corporation, or other entity treated as a corporation for
    United States federal income tax purposes, that was created or
    organized in or under the laws of the United States or any
    political subdivision thereof;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    an estate whose income is subject to United States federal
    income taxation regardless of its source; or
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    a trust (i)&#160;if its administration is subject to the
    supervision of a court within the United States and one or more
    United States persons have the authority to control all
    substantial decisions of the trust or (ii)&#160;that has a valid
    election in effect under applicable United States Treasury
    Regulations to be treated as a United States person.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK SHOULD
    CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION
    OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR
    PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
    UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
    JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Dividends</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We do not presently expect to declare or pay any dividends on
    our common stock in the foreseeable future. However, if we do
    make distributions on our common stock, such distributions will
    constitute dividends for United States federal income tax
    purposes to the extent paid from our current or accumulated
    earnings and profits, as determined under United States federal
    income tax principles. Distributions in excess of earnings and
    profits will constitute a return of capital that is applied
    against and reduces the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder&#146;s adjusted tax basis in our common stock (on
    a share by share basis). Any remaining excess will be treated as
    gain realized on the sale or other disposition of the common
    stock and will be treated as described under &#147;&#151;Gain on
    disposition of common stock&#148; below. The gross amount of any
    dividend (out of earnings and profits) paid to a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder of common stock generally will be subject to
    United States withholding tax at a rate of 30% unless the holder
    is entitled to an exemption from or reduced rate of withholding
    under an applicable income tax treaty. In order to receive a
    reduced treaty rate, prior to the payment of a dividend a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder must provide us with a properly completed IRS
    <FONT style="white-space: nowrap">Form&#160;W-8BEN</FONT>
    (or successor form) certifying qualification for the reduced
    rate.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Dividends paid to a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder that are effectively connected with a trade or
    business conducted by the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder in the United States (and, where a tax treaty
    applies, are attributable to a permanent establishment
    maintained by the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder in the United States) generally will be exempt
    from the withholding tax described above and instead will be
    subject to United States federal income tax on a net income
    basis at the regular graduated individual or corporate United
    States federal income tax rates in much
</DIV>

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    <BR>
    114
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    the same manner as if the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder were a resident of the United States. In order to
    obtain this exemption from withholding tax prior to the payment
    of a dividend, a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder must provide us with an IRS
    <FONT style="white-space: nowrap">Form&#160;W-8ECI</FONT>
    or <FONT style="white-space: nowrap">W-8BEN,</FONT>
    as applicable, (or other applicable form) properly certifying
    eligibility for such exemption. A corporate
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder also may be subject to an additional &#147;branch
    profits&#148; tax at a rate of 30% of its effectively connected
    earnings and profits or such lower rate as may be specified by
    an applicable tax treaty.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    A <FONT style="white-space: nowrap">non-United</FONT>
    States holder who provides us with an IRS
    <FONT style="white-space: nowrap">Form&#160;W-8BEN</FONT>
    or an IRS
    <FONT style="white-space: nowrap">Form&#160;W-8ECI</FONT>
    may be required to periodically update such form.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder is eligible for a reduced rate of United States
    withholding tax pursuant to an income tax treaty, the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder may obtain a refund of any excess amounts withheld
    by filing an appropriate claim for refund with the IRS.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Gain on
    disposition of common stock</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Any gain realized on the sale or other disposition of our common
    stock by a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder generally will not be subject to United States
    federal income tax unless:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the gain is effectively connected with a trade or business
    conducted by the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder in the United States, and, if required by an
    applicable income tax treaty, is attributable to a United States
    permanent establishment of the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder is an individual who is present in the United
    States for 183&#160;days or more in the taxable year of
    disposition and certain other conditions are met; or
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    we are or have been a &#147;United States real property holding
    corporation&#148; for United States federal income tax purposes.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    A
    <FONT style="white-space: nowrap">non-corporate</FONT>
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder described in the first bullet point immediately
    above will be subject to tax on the net gain derived from the
    sale under regular graduated United States federal income tax
    rates. If a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder that is a foreign corporation falls under the
    first bullet point immediately above, it generally will be
    subject to tax on its net gain in the same manner as if it were
    a United States person as defined under the Code and, in
    addition, may be subject to the branch profits tax equal to 30%
    of its effectively connected earnings and profits or at such
    lower rate as may be specified by an applicable income tax
    treaty.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    An individual described in the second bullet point will be
    subject to tax on such gain (net of certain U.S.&#160;source
    losses) at a rate of 30%, unless otherwise specified by an
    applicable treaty.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As to the third bullet point, we believe that we are currently a
    &#147;United States real property holding corporation&#148; for
    United States federal income tax purposes. So long as our common
    stock is &#147;regularly traded on an established securities
    market,&#148; only a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder who holds or held (at any time during the shorter
    of the five year period preceding the date of disposition or the
    holder&#146;s holding period) more than 5% of our common stock
    will be subject to United States federal income tax on the
    disposition of our common stock. If our common stock were not
    considered to be &#147;regularly traded on an established
    securities market,&#148; all
    <FONT style="white-space: nowrap">non-United</FONT>
    States holders would be subject to United States federal income
    tax on a disposition of our common stock.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    115
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <FONT style="white-space: nowrap">Non-United</FONT>
    States holders should consult their own tax advisors with
    respect to the application of the foregoing rules to their
    ownership and disposition of our common stock.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Federal estate
    taxes</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If an individual
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder (which for United States federal estate tax
    purposes is neither a citizen nor a domiciliary of the United
    States) is treated as the owner, or has made certain lifetime
    transfers, of an interest in our common stock, then the value
    thereof will be included in his or her gross estate for United
    States federal estate tax purposes, and such individual&#146;s
    estate and may be subject to United States federal estate tax,
    unless an applicable estate tax treaty provides otherwise.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Information
    reporting and backup withholding</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We must report annually to the IRS and to each
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder the amount of dividends paid to such holder and
    the tax withheld with respect to such dividends, regardless of
    whether withholding was required. Copies of the information
    returns reporting such dividends and withholding may also be
    made available to the tax authorities in the country in which
    the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder resides under the provisions of an applicable
    income tax treaty or other agreement.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Payments of dividends or of proceeds on the disposition of stock
    made to a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder may be subject to additional information reporting
    and backup withholding. Backup withholding will not apply if the
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder establishes an exemption, for example, by properly
    certifying its
    <FONT style="white-space: nowrap">non-United</FONT>
    States status on an IRS
    <FONT style="white-space: nowrap">Form&#160;W-8BEN</FONT>
    (or successor form).
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Backup withholding is not an additional tax. Any amounts
    withheld under the backup withholding rules may be allowed as a
    refund or a credit against a
    <FONT style="white-space: nowrap">non-United</FONT>
    States holder&#146;s United States federal income tax liability
    provided the required information is timely furnished to the IRS.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    116
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='119'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Underwriting</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    J.P. Morgan Securities Inc. is acting as sole book-runner and
    joint lead manager, and A.G. Edwards&#160;&#038; Sons, Inc. is
    acting as joint lead manager for this offering.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We, the selling stockholder and the underwriters named below
    have entered into an underwriting agreement covering the common
    stock to be sold in this offering. Each underwriter has
    severally agreed to purchase, and we and the selling stockholder
    have agreed to sell to each underwriter, the number of shares of
    common stock set forth opposite their names in the following
    table.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="82%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="15%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=370 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Name</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Number
    of shares</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=370 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">J.P. Morgan Securities Inc.&#160;
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">A.G. Edwards&#160;&#038; Sons,
    Inc.&#160;
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The underwriting agreement provides that if the underwriters
    take any of the shares presented in the table above, then they
    must take all of the shares. No underwriter is obligated to take
    any shares allocated to a defaulting underwriter except under
    limited circumstances. The underwriting agreement provides that
    the obligations of the underwriters are subject to certain
    conditions precedent, including the absence of any material
    adverse change in our business and the receipt of certain
    certificates, opinions and letters from us, our counsel and our
    independent auditors.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The underwriters are offering the shares of common stock,
    subject to the prior sale of shares, and when, as and if such
    shares are delivered to and accepted by them. The underwriters
    will initially offer to sell shares to the public at the initial
    public offering price shown on the front cover page of this
    prospectus. The underwriters may sell shares to securities
    dealers at a discount of up to $&#160;&#160;&#160;&#160;&#160;
    per share from the initial public offering price. Any such
    securities dealers may resell shares to certain other brokers or
    dealers at a discount of up to $&#160;&#160;&#160;&#160;&#160;
    per share from the initial public offering price. After the
    initial public offering, the underwriters may vary the public
    offering price and other selling terms.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    If the underwriters sell more shares than the total number shown
    in the table above, the underwriters have the option to buy up
    to an
    additional&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock from us and the selling stockholder to cover
    such sales. They may exercise this option during the
    <FONT style="white-space: nowrap">30-day</FONT>
    period from the date of this prospectus. If any shares are
    purchased under this option, the underwriters will purchase
    shares in approximately the same proportion as shown in the
    table above. If any additional shares of common stock are
    purchased, the underwriters will offer the additional shares on
    the same terms as those on which the shares are being offered.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    At our request, the underwriters have reserved up
    to&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares
    of common stock offered hereby for sale to our employees and
    other persons associated with us or our officers or directors,
    which we refer to as our directed share program. The number of
    shares of common stock available for sale to the general public
    in the initial public offering will be reduced to the extent
    these persons purchase any reserved shares pursuant to the
    directed share program. Any shares not so purchased will be
    offered by the underwriters to the general public on the same
    basis as the other shares offered in this prospectus.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    117
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table shows the per share and total underwriting
    discounts that we and the selling stockholder will pay to the
    underwriters. These amounts are shown assuming both no exercise
    and full exercise of the underwriters&#146; option to purchase
    additional shares.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="37%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="12%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="12%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="12%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="12%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=151 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Paid by<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Paid by<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc.</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">selling
    stockholder</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Without<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">With full<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Without<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">With full<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">over-allotment<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">over-allotment<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">over-allotment<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">over-allotment<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">exercise</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">exercise</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">exercise</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">exercise</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=151 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Per share
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
    &#160;&#160;&#160;&#160;&#160;&#160;&#160;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="top">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    $
</TD>
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="top">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The underwriters have advised us that they may make short sales
    of our common stock in connection with this offering, resulting
    in the sale by the underwriters of a greater number of shares
    than they are required to purchase pursuant to the underwriting
    agreement. The short position resulting from those short sales
    will be deemed a &#147;covered&#148; short position to the
    extent that it does not exceed the shares subject to the
    underwriters&#146; over-allotment option and will be deemed a
    &#148;naked&#148; short position to the extent that it exceeds
    that number. A naked short position is more likely to be created
    if the underwriters are concerned that there may be downward
    pressure on the trading price of the common stock in the open
    market that could adversely affect investors who purchase shares
    in this offering. The underwriters may reduce or close out their
    covered short position either by exercising the over-allotment
    option or by purchasing shares in the open market. In
    determining which of these alternatives to pursue, the
    underwriters will consider the price at which shares are
    available for purchase in the open market as compared to the
    price at which they may purchase shares through the
    over-allotment option. Any &#147;naked&#148; short position will
    be closed out by purchasing shares in the open market. Similar
    to the other stabilizing transactions described below, open
    market purchases made by the underwriters to cover all or a
    portion of their short position may have the effect of
    preventing or retarding a decline in the market price of our
    common stock following this offering. As a result, our common
    stock may trade at a price that is higher than the price that
    otherwise might prevail in the open market.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The underwriters have advised us that, pursuant to
    Regulation&#160;M under the Securities Exchange Act of 1934,
    they may engage in transactions, including stabilizing bids or
    the imposition of penalty bids, that may have the effect of
    stabilizing or maintaining the market price of the shares of
    common stock at a level above that which might otherwise prevail
    in the open market. A &#147;stabilizing bid&#148; is a bid for
    or the purchase of shares of common stock on behalf of the
    underwriters for the purpose of fixing or maintaining the price
    of the common stock. A &#147;penalty bid&#148; is an arrangement
    permitting the underwriters to claim the selling concession
    otherwise accruing to an underwriter or syndicate member in
    connection with the offering if the common stock originally sold
    by that underwriter or syndicate member is purchased by the
    underwriters in the open market pursuant to a stabilizing bid or
    to cover all or part of a syndicate short position. The
    underwriters have advised us that stabilizing bids and open
    market purchases may be effected on the NASDAQ Global Market, in
    the over-the-counter market or otherwise and, if commenced, may
    be discontinued at any time.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    One or more of the underwriters may facilitate the marketing of
    this offering online directly or through one of its affiliates.
    In those cases, prospective investors may view offering terms
    and a
</DIV>

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    <BR>
    118
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    prospectus online and, depending upon the particular
    underwriter, place orders online or through their financial
    advisor.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We estimate that our total expenses for this offering, excluding
    underwriting discounts, will be approximately
    $&#160;&#160;&#160;&#160;&#160;.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We and the selling stockholder have agreed to indemnify the
    underwriters against certain liabilities, including liabilities
    under the Securities Act.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We, our executive officers and directors, the selling
    stockholder and certain significant holders of our outstanding
    common stock have agreed that, during the period beginning from
    the date of this prospectus and continuing to and including the
    date 180&#160;days after the date of this prospectus, neither we
    nor any of them will, directly or indirectly, offer, sell, offer
    to sell, contract to sell or otherwise dispose of any shares of
    our common stock without the prior written consent of
    J.P.&#160;Morgan Securities Inc., except in limited
    circumstances.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The underwriters have informed us that they do not intend sales
    to discretionary accounts to exceed 5% of the total number of
    shares of our common stock offered by them and that no sales to
    discretionary accounts may be made without prior written
    approval of the customer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have applied to list our common stock on the NASDAQ Global
    Market under the symbol &#147;AREX.&#148; The underwriters
    intend to sell shares of our common stock so as to meet the
    distribution requirements of this listing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    There has been no public market for the common stock prior to
    this offering. We, the selling stockholder and the underwriters
    will negotiate the initial public offering price. In determining
    the initial public offering price, we, the selling stockholder
    and the underwriters expect to consider a number of factors in
    addition to prevailing market conditions, including:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the information set forth in this prospectus and otherwise
    available to the underwriters;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the history of and prospects for our industry;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    an assessment of our management;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our present operations;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our historical results of operations;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the trend of our revenues and earnings;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    our earnings prospects;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the general condition of the securities markets at the time of
    this offering;
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    the recent market prices of, and demand for, publicly traded
    common stock of generally comparable companies; and
</TD>
</TR>

<TR style="line-height: 6pt; font-size: 1pt"><TD>&nbsp;</TD></TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>    &#149;&#160;
</TD>
    <TD align="left">    other factors deemed relevant by us, the selling stockholder and
    the underwriters.
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We, the selling stockholder and the underwriters will consider
    these and other relevant factors in relation to the price of
    similar securities of generally comparable companies. Neither
    the Company, the selling stockholder nor the underwriters can
    assure investors that an active trading market will develop for
    the common stock, or that the common stock will trade in the
    public market at or above the initial public offering price.
</DIV>

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    <BR>
    119
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Affiliates of J.P.&#160;Morgan Securities Inc. will receive in
    excess of 10% of the net proceeds from this offering. According
    to Rule&#160;2720 of the National Association of Securities
    Dealers, Inc.&#146;s, also referred to as the NASD, Conduct
    Rules, the offering must comply with the requirements of
    Rule&#160;2720 of the NASD Conduct Rules. That rule requires
    that the initial public offering price can be no higher than
    that recommended by a &#147;qualified independent
    underwriter,&#148; as defined by the NASD. In view of
    J.P.&#160;Morgan Securities Inc.&#146;s relationship with us,
    the offering is being conducted in accordance with the rules of
    the NASD, and A.G. Edwards&#160;&#038; Sons, Inc. will serve in
    the capacity of &#147;qualified independent underwriter&#148;
    and will perform due diligence investigations and review and
    participate in the preparation of the registration statement of
    which this prospectus forms a part. We have agreed to reimburse
    A.G. Edwards&#160;&#038; Sons, Inc. for its expenses, if any,
    incurred as a result of its engagement as qualified independent
    underwriter. The underwriters may not confirm sales to any
    discretionary account without the prior specific written
    approval of the customer.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    From time to time in the ordinary course of their respective
    businesses, certain of the underwriters and their affiliates
    perform various financial advisory, investment banking and
    commercial banking services from time to time for us and our
    affiliates. For example, certain affiliates of the underwriters
    to this offering are lenders under our revolving credit
    facility. JPMorgan Chase Bank, N.A., an affiliate of
    J.P.&#160;Morgan Securities Inc., is a lender under our
    revolving credit facility. See &#147;Use of proceeds.&#148;
</DIV>
<A name='120'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Legal
    matters</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The validity of our shares of common stock offered by this
    prospectus will be passed upon for us by Thompson&#160;&#038;
    Knight LLP, Dallas, Texas. Legal matters in connection with this
    offering will be passed upon for the underwriters by Cahill
    Gordon&#160;&#038; Reindel
    <FONT style="font-size: 8pt">LLP</FONT>, New York, New York.
</DIV>
<A name='121'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Experts</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The combined financial statements of Approach Resources Inc. and
    affiliated entities as of December&#160;31, 2005 and 2006, and
    for each of the three years in the period ended
    December&#160;31, 2006 included in this prospectus have been
    audited by Hein&#160;&#038; Associates LLP, independent
    registered public accountants, as stated in their report
    appearing in this registration statement, and have been so
    included in reliance upon the report of such firm given upon
    their authority as experts in accounting and auditing.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The Historical Summaries of Revenues and Direct Operating
    Expenses of Properties to be Acquired by Approach Resources Inc.
    as of December&#160;31, 2005 and 2006, and for the years then
    ended included in this prospectus have been audited by
    Hein&#160;&#038; Associates LLP, independent registered public
    accountants, as stated in their report appearing in this
    registration statement, and have been so included in reliance
    upon the report of such firm given upon their authority as
    experts in accounting and auditing
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The information included in this prospectus regarding estimated
    quantities of proved reserves, the future net revenues from
    those reserves and their present value is based, in part, on our
    estimates of the proved reserves, present values of proved
    reserves as of December&#160;31, 2006 prepared by
    DeGolyer&#160;&#038; MacNaughton, an independent engineering
    firm, and present values of proved reserves as of
    December&#160;31, 2005 and 2004 prepared by Cawley,
    Gillespie&#160;&#038; Associates,
</DIV>

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    <BR>
    120
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Inc, an independent engineering firm. These estimates are
    included in this prospectus in reliance upon the authority of
    DeGolyer&#160;&#038; MacNaughton and Cawley, Gillespie and
    Associates, Inc. as experts in these matters.
</DIV>
<A name='122'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Where you can
    find more information</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have filed with the SEC a registration statement on
    <FONT style="white-space: nowrap">Form&#160;S-1,</FONT>
    including exhibits, under the Securities Act with respect to the
    common stock to be sold in this offering. This prospectus, which
    constitutes a part of the registration statement, does not
    contain all of the information set forth in the registration
    statement or the exhibits that are part of the registration
    statement. For further information about us and our common
    stock, you should refer to the registration statement. Any
    statements made in this prospectus as to the contents of any
    contract, agreement or other document are not necessarily
    complete. With respect to each such contract, agreement or other
    document filed as an exhibit to the registration statement, you
    should refer to the exhibit for a more complete description of
    the matter involved, and each statement in this prospectus shall
    be deemed qualified in its entirety by this reference.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    You may read, without charge, and copy, at prescribed rates, all
    or any portion of the registration statement or any reports,
    statements or other information in the files at the public
    reference facilities of the SEC&#146;s principal office at
    Room&#160;1580, 100&#160;F&#160;Street, N.E.,
    Washington,&#160;D.C., 20549. You can request copies of these
    documents upon payment of a duplicating fee by writing to the
    SEC. You may call the SEC at
    <FONT style="white-space: nowrap">1-800-SEC-0330</FONT>
    for further information on the operation of its public reference
    rooms. Our filings, including the registration statement, will
    also be available to you on the Internet web site maintained by
    the SEC at
    <FONT style="white-space: nowrap">http://www.sec.gov.</FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    After the completion of this offering, we will file with or
    furnish to the SEC periodic reports and other information. These
    reports and other information may be inspected and copied at the
    public reference facilities maintained by the SEC or obtained
    from the SEC&#146;s website as provided above. After the
    completion of this offering, we expect our website on the
    Internet to be located at
    <I><U><FONT style="white-space: nowrap">http://www.approachresources.com</FONT></U></I>,
    and we expect to make our periodic reports and other information
    filed with or furnished to the SEC available, free of charge,
    through our website, as soon as reasonably practical after those
    reports and other information are electronically filed with or
    furnished to the SEC. Information on our website or any other
    website is not incorporated by reference into this prospectus
    and does not constitute a part of this prospectus. You may also
    request a copy of these filings at no cost, by writing or
    telephoning us at: Approach Resources Inc., 6300 Ridglea Place,
    Suite&#160;1100, Fort&#160;Worth, Texas 76116,
    <FONT style="white-space: nowrap">(817)&#160;989-9000.</FONT>
</DIV>

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    <BR>
    121
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='123'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Glossary of
    selected oil and gas terms</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following is a description of the meanings of some of the
    oil and gas industry terms used in this prospectus.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="white-space: nowrap">3-D</FONT>
    seismic.</I>&#160;(Three Dimensional Seismic Data) Geophysical
    data that depicts the subsurface strata in three dimensions.
    <FONT style="white-space: nowrap">3-D</FONT> seismic
    data typically provides a more detailed and accurate
    interpretation of the subsurface strata than two dimensional
    seismic data.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Basin.</I>&#160;A large natural depression on the
    earth&#146;s surface in which sediments generally brought by
    water accumulate.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Bbl.</I>&#160;One stock tank barrel, of 42 U.S.&#160;gallons
    liquid volume, used herein in reference to oil, condensate or
    natural gas liquids.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Bcfe.</I>&#160;Billion cubic feet of natural gas equivalent,
    determined using the ratio of six Mcf of gas to one Bbl of oil,
    condensate or gas liquids.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Biogenic gas.</I>&#160;Natural gas formed at low temperatures
    by anaerobic bacterial decomposition of organic matter.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Btu or British Thermal Unit.</I>&#160;The quantity of heat
    required to raise the temperature of one pound of water by one
    degree Fahrenheit.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Completion.</I>&#160;The installation of permanent equipment
    for the production of oil or gas.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Conventional resources or reserves.</I>&#160;Natural gas or
    oil resources or reserves that are generally trapped by
    hydrodynamic processes and commonly contain discrete, measurable
    accumulations of hydrocarbons.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Developed acreage.</I>&#160;The number of acres that are
    allocated or assignable to productive wells or wells that are
    capable of production.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Developmental well.</I>&#160;A well drilled within the proved
    boundaries of an oil or gas reservoir with the intention of
    completing the stratigraphic horizon known to be productive.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Dry hole.</I>&#160;A well found to be incapable of producing
    hydrocarbons in sufficient quantities such that proceeds from
    the sale of such production exceed production expenses and taxes.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Dry hole costs.</I>&#160;Costs incurred in drilling a well,
    assuming a well is not successful, including plugging and
    abandonment costs.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Exploitation.</I>&#160;Ordinarily considered to be a form of
    development within a known reservoir.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Exploratory well.</I>&#160;A well drilled to find and produce
    oil or gas reserves not classified as proved, to find a new
    reservoir in a field previously found to be productive of oil or
    gas in another reservoir or to extend a known reservoir.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Farmout.</I>&#160;An agreement whereby the owner of a
    leasehold or working interest agrees to assign an interest in
    certain specific acreage to the assignees, retaining an interest
    such as an overriding royalty interest, an oil and gas payment,
    offset acreage or other type of interest, subject to the
    drilling of one or more specific wells or other performance as a
    condition of the assignment.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    122
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Field.</I>&#160;An area consisting of either a single
    reservoir or multiple reservoirs, all grouped on or related to
    the same individual geological structural feature
    <FONT style="white-space: nowrap">and/or</FONT>
    stratigraphic condition.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Finding and development costs.</I>&#160;Capital costs
    incurred in the acquisition, exploration, development,
    exploitation and revisions of proved oil and gas reserves
    divided by proved reserve additions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Fracing or Fracture stimulation technology.</I>&#160;The
    technique of improving a well&#146;s production or injection
    rates by pumping a mixture of fluids into the formation and
    rupturing the rock, creating an artificial channel. As part of
    this technique, sand or other material may also be injected into
    the formation to keep the channel open, so that fluids or gases
    may more easily flow through the formation.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Gross acres or gross wells.</I>&#160;The total acres or
    wells, as the case may be, in which a working interest is owned.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Lease operating expenses.</I>&#160;The expenses of lifting
    oil or gas from a producing formation to the surface, and the
    transportation and marketing thereof, constituting part of the
    current operating expenses of a working interest, and also
    including labor, superintendence, supplies, repairs, short lived
    assets, maintenance, allocated overhead costs, ad valorem taxes
    and other expenses incidental to production, but excluding lease
    acquisition or drilling or completion expenses.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>MBbls.</I>&#160;Thousand barrels of oil or other liquid
    hydrocarbons.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Mcf.</I>&#160;Thousand cubic feet of natural gas.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Mcfe.</I>&#160;Thousand cubic feet equivalent, determined
    using the ratio of six Mcf of gas to one Bbl of oil, condensate
    or gas liquids.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>MMBbls.</I>&#160;Million barrels of oil or other liquid
    hydrocarbons.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>MMBoe.</I>&#160;Million barrels of oil equivalent, with six
    thousand cubic feet of natural gas being equivalent to one
    barrel of oil.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>MMBtu.</I>&#160;Million British thermal units.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>MMcf.</I>&#160;Million cubic feet of gas.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>MMcfe.</I>&#160;Million cubic feet equivalent, determined
    using the ratio of six Mcf of gas to one Bbl of oil, condensate
    or gas liquids.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Net acres or net wells.</I>&#160;The sum of the fractional
    working interests owned in gross acres or wells, as the case may
    be.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>NYMEX.</I>&#160;New York Mercantile Exchange.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Productive well.</I>&#160;A well that is found to be capable
    of producing hydrocarbons in sufficient quantities such that
    proceeds from the sale of such production exceed production
    expenses and taxes.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Prospect.</I>&#160;A specific geographic area which, based on
    supporting geological, geophysical or other data and also
    preliminary economic analysis using reasonably anticipated
    prices and costs, is deemed to have potential for the discovery
    of commercial hydrocarbons.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    123
</DIV><!-- END LOGICAL PAGE -->
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Proved developed producing reserves.</I>&#160;Proved
    developed reserves that are expected to be recovered from
    completion intervals currently open in existing wells and
    capable of production to market.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Proved developed reserves.</I>&#160;Proved reserves that can
    be expected to be recovered from existing wells with existing
    equipment and operating methods.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Proved reserves.</I>&#160;The estimated quantities of oil,
    gas and gas liquids that geological and engineering data
    demonstrate with reasonable certainty to be recoverable in
    future years from known reservoirs under existing economic and
    operating conditions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Proved undeveloped reserves or &#147;PUDs.&#148; </I>Proved
    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.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="white-space: nowrap">PV-10</FONT> or
    present value of estimated future net revenues.</I>&#160;An
    estimate of the present value of the estimated future net
    revenues from proved oil and gas reserves at a date indicated
    after deducting estimated production and ad valorem taxes,
    future capital costs and operating expenses, but before
    deducting any estimates of federal income taxes. The estimated
    future net revenues are discounted at an annual rate of 10%, in
    accordance with the Securities and Exchange Commission&#146;s
    practice, to determine their &#147;present value.&#148; The
    present value is shown to indicate the effect of time on the
    value of the revenue stream and should not be construed as being
    the fair market value of the properties. Estimates of future net
    revenues are made using oil and gas prices and operating costs
    at the date indicated and held constant for the life of the
    reserves.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Recompletion.</I>&#160;The addition of production from
    another interval or formation in an existing wellbore.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Reserve life index.</I>&#160;This index is calculated by
    dividing year-end reserves by our annualized December 2006
    average net daily production to estimate the number of years of
    remaining production.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Reservoir.</I>&#160;A porous and permeable underground
    formation containing a natural accumulation of producible oil
    <FONT style="white-space: nowrap">and/or</FONT> gas
    that is confined by impermeable rock or water barriers and is
    individual and separate from other reservoirs.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Spacing.</I>&#160;The distance between wells producing from
    the same reservoir. Spacing is expressed in terms of acres,
    e.g.,
    <FONT style="white-space: nowrap">40-acre</FONT>
    spacing, and is established by regulatory agencies.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Standardized Measure.</I>&#160;The present value of estimated
    future net revenues to be generated from the production of
    proved reserves, determined in accordance with the rules and
    regulations of the SEC (using prices and costs in effect as of
    the period end date) without giving effect to non-property
    related expenses such as general and administrative expenses,
    debt service and future income tax expenses or to depreciation,
    depletion and amortization and discounted using an annual
    discount rate of 10%. Standardized measure does not give effect
    to derivative transactions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Tcfe.</I>&#160;Trillion cubic feet equivalent, determined
    using the ratio of six Mcf of gas to one Bbl of oil, condensate
    or gas liquids.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    124
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Thermogenic gas.</I>&#160;Natural gas formed by thermal
    cracking of sedimentary organic matter into hydrocarbon liquids
    and gas, and thermal cracking of oil at high temperatures into
    gas and pyrobitumen.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Tight gas sands.</I>&#160;A formation with low permeability
    that produces natural gas with low flow rates for long periods
    of time.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Unconventional resources or reserves.</I>&#160;Natural gas or
    oil resources or reserves from (i) low-permeability sandstone
    and shale formations, such as tight gas and gas shales,
    respectively, and (ii) coalbed methane.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Undeveloped acreage.</I>&#160;Lease acreage on which wells
    have not been drilled or completed to a point that would permit
    the production of commercial quantities of oil or gas regardless
    of whether or not such acreage contains proved reserves.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Wellbore.</I>&#160;The hole drilled by the bit that is
    equipped for gas and oil production on a completed well. Also
    called well or borehole.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Working interest.</I>&#160;The operating interest that gives
    the owner the right to drill, produce and conduct operating
    activities on the property and receive a share of production.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>Workover.</I>&#160;Operations on a producing well to restore
    or increase production.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>/d.</I>&#160;&#147;Per day&#148; when used with volumetric
    units or dollars.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    125
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<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='124'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Index to
    financial statements of Approach Resources Inc. and affiliated
    entities</FONT></B>
</DIV>
</A>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="97%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadleft -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=quadright -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="3" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Page</FONT></B>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Approach Resources Inc. and
    Affiliated Entities Combined Financial Statements:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <U><FONT style="font-size: 10pt">Annual Financial
    Statements</FONT></U>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#300'><FONT style="font-size: 10pt">Report of
    Independent Registered Public Accounting Firm</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-2
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#301'><FONT style="font-size: 10pt">Combined Balance
    Sheets as of December&#160;31, 2005 and 2006</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-3
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#302'><FONT style="font-size: 10pt">Combined Statements
    of Operations for the years ended December&#160;31, 2004, 2005
    and 2006</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-4
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#303'><FONT style="font-size: 10pt">Combined Statement
    of Changes in Stockholders&#146; Equity for the years ended
    December&#160;31, 2004, 2005 and 2006</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-5
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#304'><FONT style="font-size: 10pt">Combined Statements
    of Cash Flows for the years ended December&#160;31, 2004, 2005
    and 2006</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-6
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#305'><FONT style="font-size: 10pt">Notes to Combined
    Financial Statements</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-7
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <U><FONT style="font-size: 10pt">Unaudited Financial
    Statements</FONT></U>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#306'><FONT style="font-size: 10pt">Combined Balance
    Sheet as of March&#160;31, 2007 (unaudited)</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-24
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#307'><FONT style="font-size: 10pt">Unaudited Combined
    Statements of Operations for the three months ended
    March&#160;31, 2006 and 2007</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-25
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#308'><FONT style="font-size: 10pt">Combined Statement
    of Changes in Stockholders&#146; Equity for the three months
    ended March&#160;31, 2007 (unaudited)</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-26
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#309'><FONT style="font-size: 10pt">Unaudited Combined
    Statements of Cash Flows for the three months ended
    March&#160;31, 2006 and 2007</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-27
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#310'><FONT style="font-size: 10pt">Notes to Unaudited
    Combined Financial Statements</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-28
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <U><FONT style="font-size: 10pt">Historical Summaries of
    Revenues and Direct Operating Expenses of Properties to be
    Acquired by Approach Resources Inc.</FONT></U>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#311'><FONT style="font-size: 10pt">Report of
    Independent Registered Public Accounting Firm</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-32
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#312'><FONT style="font-size: 10pt">Statements of
    Revenue and Direct Operating Expenses of properties to be
    acquired by Approach Resources Inc. for the years ended
    December&#160;31, 2005 and 2006 and the three months ended
    March&#160;31, 2006 and 2007 (unaudited)</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-33
    </FONT>
</TD>
<TD>
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <A HREF='#313'><FONT style="font-size: 10pt">Notes to Historical
    Summaries of Revenue and Direct Operating Expenses of Properties
    to be Acquired by Approach Resources Inc. for the years ended
    December&#160;31, 2005 and 2006 and the three months ended
    March&#160;31, 2006 and 2007 (unaudited)</FONT></A>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD>
</TD>
<TD nowrap align="right" valign="bottom">
    <FONT style="font-size: 10pt">F-34
    </FONT>
</TD>
<TD>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-1
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='300'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Report of
    independent registered public accounting firm</FONT></B>
</DIV>
</A>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    To the Board of Directors
</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Approach Resources Inc.
</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Fort&#160;Worth, Texas
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have audited the accompanying combined balance sheets of
    Approach Resources Inc. and affiliated entities (the
    &#147;Company&#148;) as of December&#160;31, 2005 and 2006, and
    the related combined statements of operations, changes in
    stockholders&#146; equity, and cash flows for each of the three
    years in the period ended December&#160;31, 2006. These combined
    financial statements are the responsibility of the
    Company&#146;s management. Our responsibility is to express an
    opinion on these financial statements based on our audits.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    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.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In our opinion, the combined financial statements referred to
    above present fairly, in all material respects, the financial
    position of Approach Resources Inc. and affiliated entities as
    of December&#160;31, 2005 and 2006, and the results of their
    operations and their cash flows for each of the three years in
    the period ended December&#160;31, 2006, in conformity with
    U.S.&#160;generally accepted accounting principles.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Hein&#160;&#038; Associates LLP
</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Dallas, Texas
</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    May&#160;7, 2007
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-2
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities <BR>
    <A name='301'>Combined balance sheets</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="71%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=316 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=316 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="9" align="center" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">ASSETS
    </FONT>
</DIV>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">CURRENT ASSETS:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Cash
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,219,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,911,241
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accounts receivable:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Joint interest owners
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,826,035
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,812,439
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,833,717
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,457,948
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Unrealized gain on commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,504,996
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Prepaid expenses and other current
    assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    644,740
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    424,081
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total current assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    19,523,955
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    18,110,705
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">PROPERTIES AND
    EQUIPMENT:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Oil and gas properties, at cost,
    using the successful efforts method of accounting
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    97,810,212
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    155,627,580
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Furniture, fixtures and equipment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    232,648
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    255,451
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    98,042,860
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    155,883,031
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Less accumulated depreciation,
    depletion and amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,239,953
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (23,771,187
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Net properties and equipment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    88,802,907
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    132,111,844
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">OTHER ASSETS</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    88,995
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    86,169
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    108,415,857
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,308,718
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD colspan="9" align="center" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY
    </FONT>
</DIV>
</TD>
</TR>
<TR valign="bottom">
<TD colspan="9" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">CURRENT LIABILITIES:</FONT></B>
</DIV>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accounts payable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    20,529,911
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    7,513,219
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Oil and gas payables
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,644,579
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,940,415
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accrued liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,408,196
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,967,780
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Unrealized loss on commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,163,098
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total current liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,745,784
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,421,414
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">NON-CURRENT
    LIABILITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Long-term debt
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    29,425,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    47,619,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Deferred income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,447,916
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,549,107
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Asset retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    107,230
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    147,644
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    68,725,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    80,737,165
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">COMMITMENTS AND CONTINGENCIES
    </FONT></B><FONT style="font-size: 9pt">(Notes&#160;8 and 9)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">STOCKHOLDERS&#146; EQUITY
    </FONT></B><FONT style="font-size: 9pt">(Note&#160;4)<B>:</B>
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Preferred stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Common stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,654
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Additional paid-in capital
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    34,501,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    43,067,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Retained earnings
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,456,318
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,658,223
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Loans to stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,298,321
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,184,324
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    39,689,927
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    69,571,553
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total liabilities and
    stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    108,415,857
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,308,718
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying notes to these
    combined financial statements.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-3
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities <BR>
    <A name='302'>Combined statements of operations</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="58%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=255 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="10" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">For the years
    ended December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=255 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">REVENUES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,682,280
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    40,339,438
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    52,893,853
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Overhead and services income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    130,309
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    408,016
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    514,209
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total revenues
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,812,589
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    40,747,454
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53,408,062
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">EXPENSES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease operating expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    179,298
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,909,639
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,888,854
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Severance and production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    406,364
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,975,105
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,735,839
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Exploration
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,396,370
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    733,548
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,640,340
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Impairment of non-producing
    properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    558,446
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,073,675
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,066,807
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,929,755
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Accretion of discount on asset
    retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    582
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,974
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,299
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Depletion, depreciation and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,223,340
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,006,054
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14,540,570
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,279,629
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,696,127
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    25,304,103
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">OPERATING INCOME
    (LOSS)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (467,040
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,051,327
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,103,959
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">OTHER:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Interest income (expense), net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    200,870
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (802,065
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,813,589
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,163,098
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,668,094
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">INCOME (LOSS) BEFORE PROVISION
    FOR INCOME TAXES</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (266,170
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    19,086,164
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,958,464
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">PROVISION FOR INCOME
    TAXES</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,027,916
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,756,559
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">NET INCOME (LOSS)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (266,170
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    12,058,248
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    21,201,905
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">EARNINGS (LOSS) PER
    SHARE:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.14
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4.03
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    7.04
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.14
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4.03
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.84
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">WEIGHTED AVERAGE SHARES
    OUTSTANDING:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,928,225
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,988,986
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,012,414
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,928,225
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,988,986
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,101,180
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying notes to these
    combined financial statements.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-4
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    <A name='303'>Combined statements of changes in
    stockholders&#146; equity<BR>
    for the years ended December 31, 2004, 2005 and 2006</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="40%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=06 type=hang1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=07 type=hang1 -->
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="24" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=148 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Loans to<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Retained<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">stockholders<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Additional<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">earnings<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">including<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Common
    stock</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">paid-in<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(accumulated<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">accrued<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Shares</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Amount</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">capital</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">deficit)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">interest</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Total</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="24" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=148 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">BALANCE</FONT></B><FONT style="font-size: 8pt">,
    January&#160;1, 2004
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    560,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,600
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,646,429
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (2,335,760
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (444,302
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,871,967
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Issuance of Approach Resources Inc.
    common stock for cash
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,390,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    23,900
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    23,865,242
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,495,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    20,394,142
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Issuance of Approach
    Oil&#160;&#038; Gas Inc. common stock for cash
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    20,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    200
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,999,800
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,000,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Accrual of interest on loans to
    stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (124,119
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (124,119
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Net loss
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (266,170
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (266,170
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">BALANCE</FONT></B><FONT style="font-size: 8pt">,
    December&#160;31, 2004
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,970,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    29,700
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    31,511,471
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (2,601,930
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,063,421
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,875,820
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Issuance of Approach
    Oil&#160;&#038; Gas Inc. common stock for cash
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    300
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,990,459
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,990,759
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Accrual of interest on loans to
    stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (234,900
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (234,900
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Net income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12,058,248
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12,058,248
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">BALANCE</FONT></B><FONT style="font-size: 8pt">,
    December&#160;31, 2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,000,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    34,501,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,456,318
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,298,321
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    39,689,927
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Purchase and cancellation of
    Approach Resources Inc. common stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (34,615
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (346
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,330,616
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    333,499
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (997,463
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Issuance of Approach
    Oil&#160;&#038; Gas Inc. common stock for cash
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    65,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    650
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,497,685
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,498,335
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Issuance of Approach
    Oil&#160;&#038; Gas Inc. common stock for conversion of
    stockholder note
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    35,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    350
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,499,650
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,500,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Stock option cancellation payment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (273,547
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (273,547
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Stock-based compensation expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    33,612
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    33,612
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Accrual of interest on loans to
    stockholders, net of related income tax
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    138,286
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (219,502
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (81,216
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 8pt">Net income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21,201,905
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21,201,905
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">BALANCE</FONT></B><FONT style="font-size: 8pt">,
    December&#160;31, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,065,385
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    30,654
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    43,067,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    30,658,223
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (4,184,324
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    69,571,553
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="25" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="25" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying notes to these
    combined financial statements.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-5
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    <A name='304'>Combined statements of cash flows</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 8pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="65%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=283 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="10" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">For the years
    ended December 31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=283 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">OPERATING ACTIVITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Net income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (266,170
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    12,058,248
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    21,201,905
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Adjustments to reconcile net income
    (loss) to net cash provided by operating activities:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Depletion, depreciation and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,223,340
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,006,054
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    14,540,570
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Amortization of loan origination
    fees
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    833
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    47,123
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    72,335
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Accretion of discount on asset
    retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    582
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,974
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,299
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,163,098
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8,668,094
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Impairment of non producing
    leasehold costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    558,446
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Exploration expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    902,336
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,419,375
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Stock-based compensation expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    33,612
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Deferred income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,447,916
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,101,191
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Interest earned on loans to
    stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (124,119
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (234,900
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 8pt">Changes in operating assets and
    liabilities:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 8pt">Accounts receivable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (5,881,208
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,778,543
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,389,365
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 8pt">Prepaid expenses and other current
    assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (166,444
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (67,896
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    220,659
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 8pt">Accounts payable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    8,314,994
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12,128,687
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (13,016,692
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 8pt">Oil and gas payables
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,375,519
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,269,060
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,704,164
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 8pt">Accrued liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    50,160
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,358,036
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    951,067
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 60pt">
    <FONT style="font-size: 8pt">Cash provided by operating
    activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,527,487
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    40,304,193
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    34,109,874
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">INVESTING ACTIVITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Advances under note receivable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,587,820
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,151,773
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Payments received under note
    receivable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    41,760
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,697,833
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Additions to oil and gas properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (25,165,644
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (73,445,231
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (59,156,557
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Additions to other property and
    equipment, net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (147,516
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (39,950
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (32,139
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 60pt">
    <FONT style="font-size: 8pt">Cash used in investing activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (26,859,220
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (71,939,121
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (59,188,696
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">FINANCING ACTIVITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Proceeds from issuance of common
    stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,394,142
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,990,759
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,498,335
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Borrowings under credit facility,
    net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    29,325,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    18,194,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Purchase of common stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (997,463
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Borrowing from stockholder
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,500,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Stock option cancellation payment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (273,547
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Income taxes on interest income
    from loans to stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (81,216
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Loan origination fees
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (20,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (116,951
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (69,509
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 60pt">
    <FONT style="font-size: 8pt">Cash provided by financing
    activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,474,142
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    32,198,808
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    26,770,600
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">CHANGE IN CASH AND CASH
    EQUIVALENTS</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    142,409
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    563,880
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,691,778
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">CASH AND CASH
    EQUIVALENTS</FONT></B><FONT style="font-size: 8pt">, beginning
    of year
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,513,174
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,655,583
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,219,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">CASH AND CASH
    EQUIVALENTS</FONT></B><FONT style="font-size: 8pt">, end of year
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,655,583
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,219,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,911,241
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Cash paid for interest
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,935
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    600,070
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,268,593
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Cash paid for income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    2,148
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 8pt">SUPPLEMENTAL DISCLOSURE OF
    NON-CASH TRANSACTION:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 8pt">Conversion of stockholder note into
    common stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,500,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying notes to these
    combined financial statements.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-6
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    <A name='305'>Notes to combined financial statements</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">1.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Summary of
    significant accounting policies</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Organization and
    nature of operations</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Approach Resources Inc. (&#147;ARI&#148;) is a Delaware
    corporation formed September&#160;13, 2002. ARI has three wholly
    owned subsidiaries. In November 2004, Approach Oil&#160;&#038;
    Gas Inc. (&#147;AOG&#148;) and three wholly owned subsidiaries
    were formed and acquired leasehold positions in Kentucky and New
    Mexico. Collectively, ARI and AOG and their respective
    subsidiaries are referred to as &#147;we,&#148; &#147;our,&#148;
    &#147;Approach&#148; or &#147;the Company.&#148; We are engaged
    in the acquisition, development and operation of oil and gas
    properties located in Texas, Kentucky and New Mexico. Our plans
    are to explore for or acquire and develop oil and gas properties
    primarily in the United States.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Basis of
    combination and presentation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The accompanying combined financial statements include the
    accounts of ARI and its subsidiaries and AOG and its
    subsidiaries. These entities are related due to their common
    ownership. All significant intercompany transactions and
    balances have been eliminated.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The combination of ARI and AOG is to occur simultaneously with
    the closing of an initial public offering with Approach
    Resources Inc. as the surviving entity.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Cash and cash
    equivalents</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We consider all highly liquid debt instruments purchased with a
    remaining maturity of three months or less to be cash
    equivalents.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Financial
    instruments</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The carrying amounts of financial instruments including cash and
    cash equivalents, accounts receivable, notes receivable,
    accounts payable and accrued liabilities and long-term debt
    approximate fair value, as of December&#160;31, 2005 and 2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Oil and gas
    properties</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We follow the successful efforts method of accounting for our
    oil and gas producing activities. Costs incurred by the Company
    related to the acquisition of oil and gas properties and the
    cost of drilling all development wells and successful
    exploratory wells are capitalized. Costs incurred to maintain
    wells and related equipment and lease and well operating costs
    are charged to expense as incurred. Gains and losses arising
    from sales of properties are included in income. Unproved
    properties are assessed periodically for possible impairment. No
    such impairment was recorded during either year ended
    December&#160;31, 2004 or 2005. An impairment of $558,446 was
    recorded in 2006 for unproved properties. The Company had
    unproved properties amounting to $1,787,422 and $5,597,411 as of
    December&#160;31, 2005 and 2006, respectively.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Capitalized amounts attributable to proved oil and gas
    properties are depleted by the unit-of-production method based
    on proved reserves. Depreciation and depletion expense for oil
    and
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-7
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    gas producing property and related equipment was $1,193,562,
    $7,951,256 and $14,476,643 for the years ended December&#160;31,
    2004, 2005 and 2006, respectively.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Capitalized costs are evaluated for impairment based on an
    analysis of undiscounted future net cash flows in accordance
    with Financial Accounting Standards Board Statement
    No.&#160;144, <I>Accounting for the Impairment or Disposal of
    Long-Lived Assets</I>. If impairment is indicated, the asset is
    written down to its estimated fair value based on expected
    discounted future net cash flows. No impairment was recorded
    during the years ended December&#160;31, 2004, 2005 or 2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Revenue and
    accounts receivable</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We recognize revenue for our production when the quantities are
    delivered to or collected by the respective purchaser. Prices
    for such production are defined in sales contracts and are
    readily determinable based on certain publicly available
    indices. All transportation costs are accounted for as a
    reduction of oil and natural gas sales revenue.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Accounts receivable, joint interest owners, consist of
    uncollateralized joint interest owner obligations due within
    30&#160;days of the invoice date. Accounts receivable, oil and
    gas sales, consist of uncollateralized accrued revenues due
    under normal trade terms, generally requiring payment within 30
    to 60&#160;days of production. No interest is charged on
    past-due balances. Payments made on all accounts receivable are
    applied to the earliest unpaid items. We review receivables
    periodically and reduce the carrying amount by a valuation
    allowance that reflects our best estimate of the amount that may
    not be collectible. No such allowance was considered necessary
    at December&#160;31, 2005 or 2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Concentrations of
    credit risk</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    For the years ended December&#160;31, 2004, 2005 and 2006, we
    sold substantially all of our oil and gas produced to four
    purchasers. We do not believe that the loss of any one of these
    purchasers would have a material adverse effect on our results
    of operations or cash flows because we believe we could readily
    locate other purchasers.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Other
    property</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Furniture, fixtures and equipment are carried at cost.
    Depreciation of furniture, fixtures and equipment is provided
    using the straight-line method over estimated useful lives
    ranging from three to ten years. Gain or loss on retirement or
    sale or other disposition of assets is included in income in the
    period of disposition. Depreciation expense for other property
    and equipment was $29,778, $54,798 and $63,927 for the years
    ended December&#160;31, 2004, 2005 and 2006, respectively.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Note
    receivable</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In conjunction with a farmout agreement, a full recourse
    revolving promissory note was entered into for the benefit of a
    working interest owner to fund its costs incurred drilling wells
    under the farmout agreement. Effective December&#160;31, 2005,
    we purchased the working interest for $10,500,000 by the
    retirement of the note receivable and accrued interest of
    approximately
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-8
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    $3,500,000 and the payment of approximately $7,000,000 in
    January 2006. The note provided for interest at 6&#160;percent
    and was collateralized by the working interest in the wells
    drilled under the farmout agreement.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Income
    taxes</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We follow the provisions of Financial Account Standard
    No.&#160;109, <I>Accounting for Income Taxes
    </I>(&#147;FAS&#160;109&#148;). Under the asset and liability
    method of FAS 109, deferred tax assets and liabilities are
    recognized for the estimated future tax consequences
    attributable to the differences between the financial statement
    carrying amounts of existing assets and liabilities and their
    respective tax bases. Deferred tax assets and liabilities are
    measured using the tax rate in effect for the year in which
    those temporary differences are expected to be recovered or
    settled. Under FAS&#160;109, the effect of a change in tax rates
    on deferred tax assets and liabilities is recognized in income
    in the year of the enacted tax rate change.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Derivative
    activity</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All derivative instruments are recorded on the balance sheet at
    fair value. Changes in the derivative&#146;s fair value are
    currently recognized in the statement of operations unless
    specific hedge accounting criteria are met. For qualifying cash
    flow hedges, the gain or loss on the derivative is deferred in
    accumulated other comprehensive income (loss) to the extent the
    hedge is effective. The ineffective portion of the hedge is
    recognized immediately in the statement of operations. Gains and
    losses on hedging instruments included in cumulative other
    comprehensive income (loss) are reclassified to oil and natural
    gas sales revenue in the period that the related production is
    delivered. Derivative contracts that do not qualify for hedge
    accounting treatment are recorded as derivative assets and
    liabilities at fair value in the balance sheet, and the
    associated unrealized gains and losses are recorded as current
    income or expense in the statement of operations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Historically, we have not designated our derivative instruments
    as cash-flow hedges. We record our open derivative instruments
    at fair value on our combined balance sheets as either
    unrealized gains or losses on commodity derivatives. We record
    changes in such fair value in earnings on our combined
    statements of operations under the caption entitled &#147;change
    in fair value of commodity derivatives.&#148;
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Although we have not designated our derivative instruments as
    cash-flow hedges, we use those instruments to reduce our
    exposure to fluctuations in commodity prices related to our
    natural gas and oil production. Accordingly, we record realized
    gains and losses under those instruments in natural gas and oil
    sales revenues on our combined statements of operations. For the
    years ended December&#160;31, 2005 and 2006, we recognized an
    unrealized loss of $4,163,098 and an unrealized gain of
    $8,668,094 from changes in the fair values of commodity
    derivatives, respectively. See Note&#160;7 for further
    discussion of our derivative activity.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-9
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Comprehensive
    income (loss)</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We had no elements of comprehensive income other than net income
    (loss) during the years ended December&#160;31, 2004, 2005 or
    2006.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Use of estimates
    and certain significant estimates</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The preparation of our financial statements in conformity with
    U.S.&#160;generally accepted accounting principles requires us
    to make estimates and assumptions that affect the amounts
    reported in these financial statements and accompanying notes.
    Actual results could differ from those estimates. Significant
    assumptions are required in the valuation of proved oil and gas
    reserves, which as described above may affect the amount at
    which oil and gas properties are recorded. The estimate of asset
    retirement obligations also utilizes significant assumptions. It
    is at least reasonably possible these estimates could be revised
    in the near term and these revisions could be material.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Stock-based
    compensation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Prior to January&#160;1, 2006, we accounted for stock option
    awards granted under our 2003 Stock Option Plan in accordance
    with the recognition and measurement provisions of Accounting
    Principles Board Opinion No.&#160;25, <I>Accounting for Stock
    Issued to Employees </I>(&#147;APB 25&#148;) and related
    Interpretations, as permitted by Statement of Financial
    Accounting Standards No.&#160;123, <I>Accounting for Stock-Based
    Compensation </I>(&#147;SFAS&#160;No.&#160;123&#148;).
    Share-based employee compensation expense was not recognized in
    the Company&#146;s combined statements of operations prior to
    January&#160;1, 2006, as all stock option awards granted had an
    exercise price equal to or greater than the estimated fair
    market value of the common stock on the date of the grant. As
    permitted by SFAS&#160;No.&#160;123, we reported pro-forma
    disclosures presenting results and earnings (loss) per share as
    if we had used the fair value recognition provisions of
    SFAS&#160;No.&#160;123 in the Notes to Combined Financial
    Statements. Share-based compensation related to non-employees
    and modifications of options granted were accounted for based on
    the fair value of the related stock or options in accordance
    with SFAS&#160;No.&#160;123 and its interpretations.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Effective January&#160;1, 2006, we adopted the provisions of
    Statement of Financial Accounting Standards No.&#160;123
    (revised 2004), <I>Share-Based Payment</I>
    (&#147;SFAS&#160;No.&#160;123(R)&#148;), which requires the
    measurement and recognition of compensation expense for all
    share-based payment awards to employees and directors based on
    estimated fair values. We adopted SFAS&#160;No. 123(R) using the
    modified prospective transition method. In accordance with the
    modified prospective application provisions of
    SFAS&#160;No.&#160;123(R), compensation cost for the portion of
    awards that were outstanding as of January&#160;1, 2006, for
    which the requisite service was not rendered, are recognized as
    the requisite service is rendered, based on the grant date fair
    value estimated in accordance with the provisions of
    SFAS&#160;No.&#160;123(R). Additionally, compensation costs for
    awards granted after January&#160;1, 2006 are recognized over
    the requisite service period based on the grant-date fair value.
    In accordance with the modified prospective transition method,
    our combined financial statements for prior periods have not
    been restated to reflect the impact of
    SFAS&#160;No.&#160;123(R). In connection with the adoption of
    SFAS&#160;123(R) on January&#160;1, 2006, we recorded
    compensation expense of $33,612 for options vesting during 2006.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-10
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Asset retirement
    obligation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our asset retirement obligations relate to future plugging and
    abandonment expenses on oil and gas properties. The following
    table shows the changes in the balance of the ARO during the
    years ended December&#160;31, 2006 and 2005:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="77%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=348 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=348 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Asset retirement obligation,
    January 1
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    99,312
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    107,230
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Changes in assumptions
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (63,375
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (13,612
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Liabilities incurred during the
    year
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    66,319
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    43,727
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Liabilities settled during the year
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Accretion expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,974
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,299
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Asset retirement obligation,
    December 31
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    107,230
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    147,644
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Based on the expected timing of payments, the full asset
    retirement obligation is classified as non-current.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Earnings (loss)
    per common share</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In accordance with SFAS&#160;No.&#160;128, <I>Earnings Per
    Share</I>, we report basic earnings (loss) per common share,
    which excludes the effect of potentially dilutive securities,
    and diluted earnings (loss) per common share, which includes the
    effect of all potentially dilutive securities unless their
    impact is anti-dilutive. Stock options were the only dilutive
    securities outstanding during the years ended December&#160;31,
    2004, 2005 and 2006. During the years ended December&#160;31,
    2004 and 2005, the effects of options to acquire 125,000 common
    shares were excluded from diluted weighted average shares
    outstanding because their effects would have been anti-dilutive.
    The following is a reconciliation of basic and diluted weighted
    average shares outstanding for the year ended December&#160;31,
    2006:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="89%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="4" valign="bottom">
<DIV style="text-indent: -10pt; margin-left: 10pt">
    <DIV style="font-size: 0pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=201 iwidth=455 length=0 -->
</DIV>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Weighted average shares
    outstanding, basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,012,414
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Dilutive effect of stock options
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    88,766
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Weighted average shares
    outstanding, diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,101,180
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">New accounting
    pronouncements</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In September 2006, Statement of Financial Accounting Standards
    No.&#160;157, <I>Fair Value Measurements
    </I>(&#147;SFAS&#160;157&#148;), was issued. SFAS&#160;157
    provides guidance for using fair value to measure assets and
    liabilities. It applies whenever other standards require or
    permit assets or liabilities to be measured at fair value, but
    it does not expand the use of fair value in any new
    circumstances. The provisions of SFAS&#160;157 are effective for
    financial statements issued for fiscal years beginning after
    November&#160;15, 2007. The effect of adopting SFAS&#160;157 has
    not been determined, but it is not expected to have a
    significant effect on our reported financial position or
    earnings.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-11
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In February 2007, SFAS&#160;No.&#160;159, <I>The Fair Value
    Option for Financial Assets and Financial Liabilities -Including
    an Amendment of FASB Statement No.&#160;115</I>
    (&#147;SFAS&#160;159&#148;), was issued. SFAS&#160;159 permits
    an entity to choose to measure many financial instruments and
    certain other items at fair value. The fair value option
    established by SFAS&#160;159 permits all entities to choose to
    measure eligible items at fair value at specified election
    dates. Unrealized gains and losses on items for which the fair
    value option has been elected are to be recognized in earnings
    at each subsequent reporting date. SFAS&#160;159 is effective
    for financial statements issued for fiscal years beginning after
    November&#160;15, 2007. The effect of adopting SFAS&#160;159 has
    not been determined, but it is not expected to have a
    significant effect on reported financial position or earnings.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In July 2006, FASB Interpretation No.&#160;48, <I>Accounting for
    Uncertainty in Income Taxes&#151;an Interpretation of FASB
    Statement No.&#160;109 </I>(&#147;FIN&#160;48&#148;), was
    issued. FIN&#160;48 clarifies financial statement recognition
    and disclosure requirements for uncertain tax positions taken or
    expected to be taken in a tax return. Financial statement
    recognition of the tax position is dependent on an assessment of
    a 50% or greater likelihood that the tax position will be
    sustained upon examination, based on the technical merits of the
    position. The provisions of FIN&#160;48 must be adopted as of
    the beginning of fiscal years beginning after December&#160;15,
    2006, with the cumulative effect reported as an adjustment to
    retained earnings at the adoption date. The effect of adoption
    of FIN&#160;48 has not been determined, but is not expected to
    have a significant effect on our reported financial position or
    earnings.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In September 2006, the SEC staff issued Staff Accounting
    Bulletin&#160;Topic 1N, <I>Financial Statements&#151;Considering
    the Effects of Prior Year Misstatements when Quantifying
    Misstatements in Current Year Financial Statements
    </I>(&#147;SAB 108&#148;). SAB&#160;108 provides guidance on how
    prior year misstatements should be evaluated when determining
    the materiality of misstatements in current year financial
    statements. SAB&#160;108 requires materiality to be determined
    by considering the effect of prior year misstatements on both
    the current year balance sheet and statement of operations, with
    consideration of their carryover and reversing effects.
    SAB&#160;108 also addresses how to correct material
    misstatements. The provisions of SAB&#160;108 are effective for
    financial statements issued for fiscal years ending after
    November&#160;15, 2006. SAB&#160;108 did not have any effect on
    our reported financial position or earnings.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">2.&#160;&#160;Loans
    to stockholders and stockholder notes payable</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    During each of the years ended December&#160;31, 2003 and 2004,
    in exchange for cash and notes receivable from employees and
    entities owned by or affiliated with management, we issued
    450,000&#160;shares of common stock. In January 2007, the
    remaining notes and accrued interest were repaid in exchange for
    84,550&#160;shares of common stock held by management. The notes
    provided for interest at 6&#160;percent and were payable upon
    the earlier of December&#160;31, 2008, the registration of the
    underlying common stock, or upon a merger with another entity or
    upon a divestiture of our assets. The notes were collateralized
    by the underlying common stock purchased and are reported in the
    accompanying balance sheet as loans to stockholders including
    accrued interest, reducing stockholders&#146; equity. Interest
    earned is reported net of related tax income as a component of
    additional paid-in capital in the accompanying statement
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-12
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    of changes in stockholders&#146; equity. The following is a
    summary of the balance of principal and interest outstanding
    under the notes receivable at December 31:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="75%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=331 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="7" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=331 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Principal
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,915,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,613,850
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Accrued interest
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    383,321
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    570,474
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,298,321
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,184,324
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="7" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In 2006, AOG borrowed $3,500,000 from a stockholder to fund the
    acquisition of leaseholds in Kentucky. The terms of the
    borrowing provided for interest at 6&#160;percent and was due on
    demand. The borrowing was settled through the issuance of
    35,000&#160;shares of AOG common stock.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">3.&#160;&#160;Line
    of credit</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have a revolving loan agreement with Frost Bank (the
    &#147;Agreement&#148;), which provides a borrowing base
    determined by the bank based on oil and gas reserve values. As
    of December&#160;31, 2006, the borrowing base was $60,000,000.
    Borrowings outstanding under the Agreement at December&#160;31,
    2005 and 2006 were $29,425,000 and $47,619,000, respectively. In
    February 2007, the line of credit was raised to $100,000,000 and
    the borrowing base was increased to $75,000,000. The borrowings
    bear interest based on the bank&#146;s prime rate or the LIBOR.
    The interest rate applicable to our outstanding borrowings was
    approximately 8.25&#160;percent as of December&#160;31, 2006.
    Principal payments are not required until January&#160;31, 2008,
    the final maturity date of the Agreement, at which time any
    outstanding loan balances shall be due and payable in full. In
    addition, the Agreement requires payment of a quarterly fee
    equal to three-eights of one percent (0.375%) of the unused
    portion of the borrowing base. The borrowings are collateralized
    by substantially all of our oil and gas properties. The
    Agreement contains various covenants, the most restrictive of
    which requires us to maintain a modified current ratio of at
    least one. We were in compliance with the covenants at
    December&#160;31, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We also have outstanding unused letters of credit under the
    Agreement totaling $300,000, which reduce amounts available for
    borrowing under the Agreement.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-13
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">4.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Stockholders&#146;
    equity</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Stockholders&#146; equity on our combined balance sheets as of
    December&#160;31, 2005 and 2006 includes the equity accounts of
    ARI and AOG. Details of authorized and outstanding shares and
    their related par values are as follows:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="58%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=249 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Approach<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Resources
    Inc.</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Oil
    &#038; Gas Inc.</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Combined</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=249 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">PREFERRED STOCK:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Par value, per share
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.01
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.01
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.01
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Shares authorized
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,000,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,100,000
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Shares issued and outstanding at:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">December&#160;31, 2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">December&#160;31, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">COMMON STOCK:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Par value, per share
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.01
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.01
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    0.01
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Shares authorized
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,000,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,000,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,000,000
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Shares issued and outstanding at:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">December&#160;31, 2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,950,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    50,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,000,000
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">December&#160;31, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,915,385
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    150,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,065,385
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="10" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="10" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">5.&#160;&#160;Stock
    options</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In January 2003, our stockholders approved the 2003 Stock Option
    Plan (&#147;the Plan&#148;). Under the Plan, we may grant
    options to selected employees and directors for up to
    150,000&#160;shares of common stock at a price not less than the
    fair market value at the date of the grant, as determined by the
    Board of Directors. The options granted under the Plan generally
    have a term of ten years and vest over a three year period.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As discussed in Note&#160;1, <I>Significant Accounting
    Policies&#151;Shared-Based Compensation</I>, effective
    January&#160;1, 2006, we adopted the fair value recognition
    provisions of SFAS&#160;No.&#160;123(R), using the modified
    prospective transition method. Share-based compensation expense
    resulting from the adoption of SFAS&#160;No.&#160;123(R)
    amounted to $33,612 for the year ended December&#160;31, 2006.
    Such amount represents the estimated fair value of options for
    which the requisite service period elapsed during 2006. There
    was no tax benefit recognized in relation to this change.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-14
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table summarizes stock options outstanding and
    activity as of and for the year ended December&#160;31, 2006:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="66%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="11" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=291 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Weighted<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">average<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Weighted<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">remaining<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">average<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">contractual<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">exercise<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">term<BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Shares</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">price</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(in
    years)</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="11" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=291 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Outstanding at January&#160;1, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    125,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10.00
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Granted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Canceled
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,615
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10.00
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Exercised
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Outstanding at December&#160;31,
    2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    115,385
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10.00
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7.63
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="9" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Exercisable (fully vested) at
    December&#160;31, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    115,385
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10.00
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7.63
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="11" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    There have been no exercises of options through
    December&#160;31, 2006. Additionally, the Plan is a qualified
    plan under the Internal Revenue Code. Accordingly, we do not
    anticipate realizing any tax deductions related to the exercise
    of stock options. Upon exercise, we expect to issue the full
    amount of shares exercisable per the term of the options from
    new shares. We have no plans to repurchase those shares in the
    future.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Total unrecognized share-based compensation expense from
    unvested stock options as of December&#160;31, 2006 was zero
    since all options are fully vested at December&#160;31, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    During the year ended December&#160;31, 2006, we paid $273,547
    in cash to cancel the vested options held by an employee who
    voluntarily resigned. Such amount has been recorded as a
    reduction to additional paid in capital as the payment did not
    exceed the estimated fair value of the options at the time of
    the cancellation.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-15
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">6.&#160;&#160;Income
    taxes</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our provision for income taxes comprised the following during
    the years ended December 31:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="62%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=272 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=272 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Current:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Federal
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#160;&#160;&#160;&#160;&#160;&#160;&#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    509,402
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    549,864
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">State
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    70,598
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    105,504
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="9" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total current
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    580,000
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    655,368
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Deferred:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Federal
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,663,074
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,242,568
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">State
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    784,842
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (141,377
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="9" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total deferred
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,447,916
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,101,191
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="9" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Provision for income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    7,027,916
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,756,559
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="11" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Total income tax expense (benefit) differed from the amounts
    computed by applying the U.S.&#160;Federal statutory tax rates
    to pre-tax income for the years ended December&#160;31, 2006,
    2005 and 2004 as follows:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="61%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=269 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=269 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Statutory tax (benefit) at 34%
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (90,498
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6,489,796
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,205,149
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">State taxes (benefit), net of
    federal impact
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (7,905
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    568,635
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    989,337
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Changes in enacted rates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,076,794
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Other differences
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (25,597
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (249,515
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (173,133
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Change in valuation allowance
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    124,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    219,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    812,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    7,027,916
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,756,559
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In May 2006, the State of Texas enacted a margin tax which will
    require us to pay a tax of 1.0% on our &#147;taxable
    margin,&#148; as defined in the law, based on our operating
    results beginning January&#160;1, 2007. The margin to which the
    tax rate will be applied generally will be calculated as our
    gross revenues for federal income tax purposes less the cost of
    goods sold, as defined for Texas margin tax purposes. Cost of
    goods sold includes the following expenses that are related to
    our production of goods: our lease operating expenses,
    production taxes, depletion and depreciation expense, and labor
    costs. Most of our operations are within the State of Texas.
    Under the provisions of Statement of Financial Accounting
    Standards No.&#160;109, <I>Accounting for Income Taxes</I>, we
    are required to record the effects on deferred taxes for a
    change in tax rates or tax law in the period which includes the
    enactment date. Previously, our results of operations were
    subject to the franchise tax in Texas at a rate of 4.5%, before
    consideration of federal benefits of those state taxes.
    Temporary differences between book and tax income related to our
    oil and gas properties will affect our computation of the Texas
    margin tax, and we have
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-16
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    reduced our deferred tax liabilities by approximately $1,076,000
    as of December&#160;31, 2006 as the result of this change.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Deferred tax assets and liabilities are the result of temporary
    differences between the financial statement carrying values and
    tax bases of assets and liabilities. Our net deferred tax assets
    and liabilities are recorded as a long-term liability of
    $6,447,916 and $17,549,107 at December&#160;31, 2005 and 2006,
    respectively. Significant components of net deferred tax assets
    and liabilities are:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="72%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=319 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=319 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Deferred tax assets:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Difference in depreciation and
    capitalization methods&#151;furniture, fixtures and equipment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    33,300
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    28,017
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Net operating loss carryforwards
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    941,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,805,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Unrealized loss on commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,457,084
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Other
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    23,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total deferred tax assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,454,384
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,833,017
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Less: valuation allowance
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (783,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,595,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Net deferred tax assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,671,384
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    238,017
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Deferred tax liability:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Difference in depreciation,
    depletion and capitalization methods&#151;oil and gas properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8,119,300
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (16,225,692
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Unrealized gain on commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,561,432
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total deferred tax liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8,119,300
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (17,787,124
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Net deferred tax (liability)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (6,447,916
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (17,549,107
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    At December&#160;31, 2005 and 2006, AOG provided a valuation
    allowance related to its deferred tax assets resulting primarily
    from net operating loss carryforwards of $783,000 and
    $1,595,000, respectively, based upon management&#146;s inability
    to assess the amount to be realized until completion of the
    merger with ARI.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Net operating loss carryforwards for tax purposes have the
    following expiration dates:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="88%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=396 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="left" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Expiration
    dates</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Amounts</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=396 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">2024
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,523,000
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">2025
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,082,000
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">2026
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,603,000
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,208,000
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-17
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">7.&#160;&#160;Derivatives</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In 2005, we entered into three natural gas swap agreements. The
    first two swaps were for 170,000&#160;MMBtu per month and
    expired in September 2005. The other swap was for an average of
    282,000&#160;MMBtu per month through December 2006. In January
    2006, we entered into a natural gas swap for approximately
    257,000&#160;MMBtu per month that expired in December 2006. In
    June 2006, we entered into a natural gas swap for
    100,000&#160;MMBtu per month for the fourth quarter of 2006 and
    an average of 250,000&#160;MMBtu per month for 2007. Our oil and
    gas sales revenues include realized losses of $2,924,351 and
    realized gains of $6,221,927 from the swaps for the years ended
    December&#160;31, 2005 and 2006, respectively. The estimated
    unrealized gain or loss from the swaps amounted to a loss of
    $4,163,098 and a gain of $4,504,996 at December&#160;31, 2005
    and 2006, respectively. Changes in unrealized gains and losses
    are reflected in other income (expense) on our statements of
    operations. The net unrealized gain and loss is reflected as a
    current asset and liability, respectively, based on the
    associated production months. The fair value of commodity
    derivatives were estimated based on the present value of the
    difference in exchange-quoted forward price curves and
    contractual settlement prices multiplied by notional quantities.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are exposed to credit loss in the event of nonperformance by
    the counterparty on our oil and gas swaps. However, we do not
    anticipate nonperformance by the counterparty over the term of
    the swaps.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">8.&#160;&#160;Environmental
    issues</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are engaged in oil and gas exploration and production and may
    become subject to certain liabilities as they relate to
    environmental clean up of well sites or other environmental
    restoration procedures as they relate to the drilling of oil and
    gas wells and the operation thereof. In connection with our
    acquisition of existing or previously drilled well bores, we may
    not be aware of what environmental safeguards were taken at the
    time such wells were drilled or during such time the wells were
    operated. Should it be determined that a liability exists with
    respect to any environmental clean up or restoration, we would
    be responsible for curing such a violation. No claim has been
    made, nor are we aware of any liability that exists, as it
    relates to any environmental clean up, restoration or the
    violation of any rules or regulations relating thereto.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">9.&#160;&#160;Commitments
    and contingencies</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have employment agreements with our officers and selected
    other employees. These agreements are automatically renewed for
    successive terms of one year unless employment is terminated at
    the end of the term by written notice given to the employee not
    less than 60&#160;days prior to the end of such term. Our
    maximum commitment under the employment agreements, which would
    apply if the employees covered by these agreements were all
    terminated without cause, is approximately $1,400,000 at
    December&#160;31, 2006.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We lease our office space in Fort&#160;Worth, Texas under a
    non-cancelable agreement that expires on May&#160;31, 2009. We
    also have non-cancelable operating lease commitments related to
    office
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-18
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    equipment that expire in 2009 and 2011. The following is a
    schedule by years of future minimum rental payments required
    under our operating lease arrangements as of December&#160;31,
    2006:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="89%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR valign="bottom" style="font-size: 2pt"><!-- 05-19-07 -->
<TD colspan="4" valign="bottom">
    <DIV style="font-size: 0pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=201 iwidth=455 length=0 -->
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">2007
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    125,824
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">2008
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    127,481
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">2009
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    56,385
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Remainder
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,632
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    314,322
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Rent expense under our lease arrangements amounted to $132,247,
    $129,657, and $136,532 for the years ended December&#160;31,
    2004, 2005 and 2006, respectively.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In April 2007, we signed a five-year lease for approximately
    13,000&#160;square feet of office space in Fort&#160;Worth,
    Texas. That lease calls for minimum monthly rent payments of
    approximately $20,000 from August 2007 through October 2012.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Litigation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are involved in various claims and legal actions arising in
    the normal course of business. In our opinion, the resolution of
    these matters is not expected to have a material adverse effect
    on our financial position or results of operations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">10.&#160;&#160;Oil
    and gas producing activities</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Set forth below is certain information regarding the costs
    incurred for oil and gas property acquisition, development and
    exploration activities (in thousands):
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="71%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=308 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">For the years
    ended December&#160;31,</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=308 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Property acquisition costs:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Unproved properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    552
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    369
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,071
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Proved properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,592
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    356
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Exploration costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,396
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,249
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,640
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Development costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,863
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    60,087
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    55,203
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="8" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total costs incurred
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    27,811
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    74,297
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    61,270
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="10" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="10" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-19
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Set forth below is certain information regarding the results of
    operations for oil and gas producing activities (in thousands):
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="69%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=303 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="10" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">For the years
    ended December&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=303 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revenues
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,813
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    40,747
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    53,408
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Production costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (586
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,885
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (5,624
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Exploration expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (2,396
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (734
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,640
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Depletion
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,223
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8,006
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (14,541
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Income tax expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,157
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (10,169
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (12,221
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Results of operations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    451
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    16,953
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    19,382
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">11.&#160;&#160;Disclosures
    about oil and gas producing activities (unaudited):</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The estimates of proved reserves and related valuations for the
    years ended December&#160;31, 2004, 2005 and 2006 were based
    upon the reports prepared by Cawley, Gillespie&#160;&#038;
    Associates, Inc., independent petroleum engineers (for 2004 and
    2005), and by DeGolyer and MacNaughton, Inc., independent
    petroleum engineers (for 2006). Each year&#146;s estimate of
    proved reserves and related valuations was prepared in
    accordance with the provisions of Statement of Financial
    Accounting Standards No.&#160;69
    (&#147;SFAS&#160;No.&#160;69&#148;), <I>Disclosures about Oil
    and Gas Producing Activities</I>. Estimates of proved reserves
    are inherently imprecise and are continually subject to revision
    based on production history, results of additional exploration
    and development, price changes and other factors.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-20
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All of our oil and natural gas reserves are attributable to
    properties within the United States. A summary of
    Approach&#146;s changes in quantities of proved oil and natural
    gas reserves for the years ended December&#160;31, 2004, 2005
    and 2006, are as follows:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="79%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=354 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Natural
    gas</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Oil</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=354 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(MMcf)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(MBbl)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance&#151;January&#160;1, 2004
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Extensions and discoveries
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    58,555
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    361
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Sales of minerals in place
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Purchases of minerals in place
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (858
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (8
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Revisions to previous estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance&#151;December&#160;31, 2004
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    57,697
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    353
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Extensions and discoveries
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,755
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    26
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Sales of minerals in place
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Purchases of minerals in place
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,400
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    68
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,666
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (58
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Revisions to previous estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    40,219
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    697
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance&#151;December&#160;31, 2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    102,405
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,086
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Extensions and discoveries
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,655
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    339
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Sales of minerals in place
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Purchases of minerals in place
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (6,282
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (77
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Revisions to previous estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (13,121
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (226
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance&#151;December&#160;31, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    98,657
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,122
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Proved developed reserves:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">December&#160;31, 2004
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,986
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    102
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">December&#160;31, 2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    47,078
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    454
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">December&#160;31, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    51,004
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    496
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The standardized measure of discounted future net cash flows
    relating to proved oil and natural gas reserves and the changes
    in standardized measure of discounted future net cash flows
    relating to proved oil and natural gas reserves were prepared in
    accordance with the provisions of SFAS&#160;No.&#160;69. Future
    cash inflows were computed by applying prices at year end to
    estimated future production. Future production and development
    costs are computed by estimating the expenditures to be incurred
    in developing and producing the proved oil and natural gas
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-21
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    reserves at year end, based on year-end costs and assuming
    continuation of existing economic conditions.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Future income tax expenses are calculated by applying
    appropriate year-end tax rates to future pretax net cash flows
    relating to proved oil and natural gas reserves, less the tax
    basis of properties involved.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Future income tax expenses give effect to permanent differences,
    tax credits and loss carryforwards relating to the proved oil
    and natural gas reserves. Future net cash flows are discounted
    at a rate of 10% annually to derive the standardized measure of
    discounted future net cash flows. This calculation procedure
    does not necessarily result in an estimate of the fair market
    value of Approach&#146;s oil and natural gas properties.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The standardized measure of discounted future net cash flows
    relating to proved oil and natural gas reserves are as follows
    (in thousands):
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="64%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=276 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=276 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    414,417
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,003,363
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    709,184
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future production costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (81,441
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (193,171
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (198,023
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future development costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (53,115
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (101,152
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (108,451
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future income tax expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (94,316
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (238,013
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (109,784
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future net cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    185,545
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    471,027
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    292,926
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">10% annual discount for estimated
    timing of cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (125,267
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (324,588
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (215,049
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Standardized measure of discounted
    future net cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    60,278
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    146,439
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    77,877
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Future cash flows as shown above were reported without
    consideration for the effects of hedging transactions
    outstanding at each period end. The effect of hedging
    transactions on the future cash flows for the years ended
    December&#160;31, 2004, 2005, and 2006 was immaterial.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-22
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes to combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The changes in the standardized measure of discounted future net
    cash flows relating to proved oil and natural gas reserves are
    as follows (in thousands):
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="67%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=293 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="12" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=293 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance, beginning of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    60,278
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    146,439
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net change in sales and transfer
    prices and in production (lifting) costs related to future
    production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53,167
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (106,246
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Changes in estimated future
    development costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (87,109
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (43,229
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Sales and transfers of oil and gas
    produced during the period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (5,503
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (38,379
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (40,852
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net change due to extensions,
    discoveries and improved recovery
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    65,781
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,613
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    28,418
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net change due to purchase of
    minerals in place
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,804
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net change due to revisions in
    quantity estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    116,125
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (22,112
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Previously estimated development
    costs incurred during the period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    53,116
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,108
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Accretion of discount
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,686
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,546
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Other
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,616
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,498
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net changes in income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (62,478
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,303
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    60,278
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    146,439
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    77,877
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Average wellhead prices in effect at December&#160;31, 2004,
    2005 and 2006 inclusive of adjustments for quality and location
    used in determining future net revenues related to the
    standardized measure calculation are as follows:
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="74%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=324 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2004</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="10" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=324 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Oil (per Bbl)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    41.33
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    56.50
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    58.05
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Natural gas liquids (per Bbl)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    30.55
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Gas (per Mcf)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.93
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    9.20
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    6.55
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="10" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="10" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    *************
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-23
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    <A name='306'>Combined balance sheet</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="87%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=389 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">March&#160;31,
    2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="4" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=389 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD colspan="5" align="center" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">ASSETS
    </FONT>
</DIV>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">CURRENT ASSETS:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Cash
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,374,312
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accounts receivable:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Joint interest owners
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,463,016
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,460,716
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Unrealized gain on commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Prepaid expenses and other current
    assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    851,984
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total current assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12,150,028
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">PROPERTIES AND
    EQUIPMENT:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Oil and gas properties, at cost,
    using the successful efforts method of accounting
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    164,725,412
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Furniture, fixtures and equipment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    256,144
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    164,981,556
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Less accumulated depreciation,
    depletion and amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (26,859,117
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Net properties and equipment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    138,122,439
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">OTHER ASSETS</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    119,313
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,391,780
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="line-height: 9pt">
<TD colspan="5">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="5" align="center" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY
    </FONT>
</DIV>
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">CURRENT LIABILITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accounts payable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,064,424
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Oil and gas payables
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,407,044
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Accrued liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    970,819
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Unrealized loss on commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    121,312
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total current liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,563,599
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">NON-CURRENT
    LIABILITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Long-term debt
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    52,169,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Deferred income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    17,514,107
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Asset retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    154,817
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    81,401,523
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
    <B><FONT style="font-size: 9pt">COMMITMENTS AND CONTINGENCIES
    <BR>
    STOCKHOLDERS&#146; EQUITY:</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Preferred stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Common stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,021
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Additional paid-in capital
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    38,883,309
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Retained earnings
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    30,076,927
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Loans to stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    68,990,257
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Total liabilities and
    stockholders&#146; equity
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    150,391,780
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying notes to these
    combined financial statements.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-24
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    <A name='307'>Combined statements of operations</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="71%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="10%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=320 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">For the three
    months ended March&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=320 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">REVENUES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Oil and gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    15,679,887
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    11,546,458
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Overhead and services income
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    121,945
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    133,496
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total revenues
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,801,832
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,679,954
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">EXPENSES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Lease operating expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    972,741
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    979,581
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Severance and production taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    380,105
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    375,140
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Exploration
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    196,345
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623,040
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">General and administrative
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    750,272
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,645,552
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Depletion, depreciation and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,280,592
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,090,726
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 10pt">Total expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,580,055
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,714,039
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">OPERATING INCOME
    (LOSS)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,221,777
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,965,915
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">OTHER:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Interest income (expense), net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (725,067
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (955,903
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,192,708
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,626,308
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">INCOME (LOSS) BEFORE PROVISION
    FOR INCOME TAXES</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    15,689,418
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (616,296
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">PROVISION (BENEFIT) FOR INCOME
    TAXES</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,280,326
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (35,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">NET INCOME (LOSS)</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10,409,092
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (581,296
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">EARNINGS (LOSS) PER
    SHARE:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3.49
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.19
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3.39
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (0.19
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 10pt">WEIGHTED AVERAGE SHARES
    OUTSTANDING:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,985,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,987,411
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,069,945
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,987,411
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying notes to these
    combined financial statements.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-25
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    <A name='308'>Combined statement of changes in
    stockholders&#146; equity<BR>
    </A>for the three months ended March 31, 2007
    (unaudited)</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="28%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="6%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=04 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=05 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=06 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=06 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=06 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=06 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=07 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=07 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=07 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=07 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="24" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=109 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Loans to<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Retained<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">stockholders<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Additional<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">earnings<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">including<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Common
    stock</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">paid-in<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(accumulated<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">accrued<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Shares</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Amount</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">capital</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">deficit)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">interest</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Total</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="24" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=109 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">BALANCE,</FONT></B><FONT style="font-size: 9pt">
    January&#160;1, 2007
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,065,385
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    30,654
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    43,067,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    30,658,223
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (4,184,324
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    69,571,553
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Retirement of loans to stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (84,550
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (846
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (4,183,478
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,184,324
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Issuance of restricted stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21,250
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    213
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (213
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 9pt">Net loss
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (581,296
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (581,296
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="23" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">BALANCE,</FONT></B><FONT style="font-size: 9pt">
    March&#160;31, 2007 (unaudited)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,002,085
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    30,021
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    38,883,309
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    30,076,927
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    68,990,257
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="25" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="25" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying notes to these
    combined financial statements.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-26
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    <A name='309'>Unaudited combined statements of cash
    flows</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 9pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="75%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=332 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="6" align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">For the three
    months ended March&#160;31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">2007</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=332 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">OPERATING ACTIVITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Net income (loss)
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    10,409,092
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    (581,296
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Adjustments to reconcile net income
    (loss) to net cash provided by operating activities:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Depletion, depreciation and
    amortization
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,280,592
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,087,930
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Amortization of loan origination
    fees
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12,763
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    23,830
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Accretion of discount on asset
    retirement obligations
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,796
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Change in fair value of commodity
    derivatives
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (6,192,708
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,626,308
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Exploration expense
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    196,345
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    623,040
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Deferred income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,006,746
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (35,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 36pt">
    <FONT style="font-size: 9pt">Changes in operating assets and
    liabilities:
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Accounts receivable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,913,515
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,346,655
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Prepaid expenses and other current
    assets
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (239,321
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (427,903
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Accounts payable
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    945
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (2,448,795
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Oil and gas payables
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,003,810
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    466,629
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 48pt">
    <FONT style="font-size: 9pt">Accrued liabilities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (768,394
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,996,961
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 60pt">
    <FONT style="font-size: 9pt">Cash provided by operating
    activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    12,615,765
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,687,233
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">INVESTING ACTIVITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Additions to oil and gas properties
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (24,585,618
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,716,495
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Additions to other property and
    equipment, net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    7,178
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (693
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 60pt">
    <FONT style="font-size: 9pt">Cash used in investing activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (24,578,440
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,717,188
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">FINANCING ACTIVITIES:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Borrowings under credit facility,
    net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11,235,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,550,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Purchase of common stock
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (997,463
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Stock option cancellation payment
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (273,547
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Income taxes on interest income
    from loans to stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (20,771
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Loan origination fees
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (25,000
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (56,974
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 60pt">
    <FONT style="font-size: 9pt">Cash provided by financing
    activities
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    9,918,219
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,493,026
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">CHANGE IN CASH AND CASH
    EQUIVALENTS</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (2,044,456
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    463,071
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">CASH AND CASH
    EQUIVALENTS</FONT></B><FONT style="font-size: 9pt">, beginning
    of period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,219,463
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    4,911,241
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">CASH AND CASH
    EQUIVALENTS</FONT></B><FONT style="font-size: 9pt">, end of
    period
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,175,007
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,374,312
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Cash paid for interest
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    552,943
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,273,057
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Cash paid for income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    450,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    1,200,000
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <B><FONT style="font-size: 9pt">SUPPLEMENTAL DISCLOSURE OF
    NON-CASH TRANSACTION:</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 9pt">Return of common shares in exchange
    for retirement of loans to stockholders
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,184,324
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See accompanying notes to these
    combined financial statements.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-27
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    <A name='310'>Notes&#160;to unaudited combined financial
    statements</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">1.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Summary of
    significant accounting policies</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Basis of
    presentation and use of estimates</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The interim combined financial statements of Approach Resources
    Inc. are unaudited and contain all adjustments (consisting
    primarily of normal recurring accruals) necessary for a fair
    statement of the results for the interim periods presented.
    Results for interim periods are not necessarily indicative of
    results to be expected for a full year or for previously
    reported periods due in part, but not limited to, the volatility
    in prices for crude oil and natural gas, future commodity prices
    for derivative hedging contracts, interest rates, estimates of
    reserves, drilling risks, geological risks, transportation
    restrictions, the timing of acquisitions, product demand, market
    competition, and interruptions of production. You should read
    these combined interim financial statements in conjunction with
    the audited combined financial statements and notes thereto
    included in this Prospectus beginning on
    <FONT style="white-space: nowrap">page&#160;F-2.</FONT>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The accompanying combined financial statements have been
    prepared in accordance with accounting principles generally
    accepted in the United States of America (&#147;GAAP&#148;) and
    include the accounts of Approach Resources Inc.
    (&#147;ARI&#148;) and its wholly-owned subsidiaries and Approach
    Oil &#038; Gas Inc. (&#147;AOG&#148;) and its wholly-owned
    subsidiaries. Collectively, ARI and AOG are referred to as
    &#147;we,&#148; &#147;our,&#148; &#147;Approach&#148; or
    &#147;the Company.&#148; Intercompany accounts and transactions
    are eliminated. In preparing the accompanying financial
    statements, management has made certain estimates and
    assumptions that affect reported amounts in the financial
    statements and disclosures of contingencies. Actual results may
    differ from those estimates. Significant assumptions are
    required in the valuation of proved oil and natural gas
    reserves, which may affect the amount at which oil and natural
    gas properties are recorded. It is at least reasonably possible
    these estimates could be revised in the near term, and these
    revisions could be material.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Earnings (loss)
    per common share</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In accordance with SFAS&#160;No.&#160;128, <I>Earnings Per
    Share</I>, we report basic earnings (loss) per common share,
    which excludes the effect of potentially dilutive securities,
    and diluted earnings (loss) per common share, which includes the
    effect of all potentially dilutive securities unless their
    impact is anti-dilutive. Stock options were the only dilutive
    securities outstanding during the three months ended
    March&#160;31, 2007. During the three months ended
    March&#160;31, 2007, the effects of 21,250 non-vested restricted
    shares granted on March&#160;14, 2007 and options to acquire
    115,385 common shares were excluded from diluted weighted
    average shares outstanding because their effects would have been
    anti-dilutive. The following is a reconciliation of basic and
    diluted weighted average shares outstanding for the three months
    ended March&#160;31, 2006:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="89%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Weighted average shares
    outstanding, basic
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,985,000
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Dilutive effect of stock options
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    84,945
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Weighted average shares
    outstanding, diluted
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,069,945
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-28
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 14pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes&#160;to unaudited combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">2.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Loans to
    stockholders and stockholder notes payable</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    During each of the years ended December&#160;31, 2003 and 2004,
    in exchange for cash and notes receivable from employees and
    entities owned by or affiliated with management, we issued
    450,000 shares of common stock. The notes had an outstanding
    principal balance of $3,613,850 at December&#160;31, 2006. In
    January 2007, the remaining notes and accrued interest of
    $570,474 were retired in exchange for 84,550&#160;shares of
    common stock held by management. The notes provided for interest
    at 6&#160;percent and were payable upon the earlier of
    December&#160;31, 2008, the registration of the underlying
    common stock, or upon a merger with another entity or upon a
    divestiture of our assets. The notes were collateralized by the
    underlying common stock purchased.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">3.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Line of
    credit</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have a revolving loan agreement with Frost Bank (the
    &#147;Agreement&#148;), which provides a borrowing base
    determined by the bank based on oil and gas reserve values. As
    of December&#160;31, 2006, the borrowing base was $60,000,000.
    Borrowings outstanding under the Agreement at December&#160;31,
    2006 and March&#160;31, 2007 were $47,619,000 and $52,169,000,
    respectively. In February 2007, the line of credit was raised to
    $100,000,000 and the borrowing base was increased to
    $75,000,000. In June 2007, the maturity date of the Agreement
    was extended to July 2010. The borrowings bear interest based on
    the bank&#146;s prime rate or the LIBOR. The interest rate
    applicable to our outstanding borrowings was approximately 8.25%
    as of December&#160;31, 2006 and 7.02% as of March&#160;31,
    2007. Principal payments are not required until the final
    maturity date of the agreement, at which time any outstanding
    loan balances shall be due and payable in full. In addition, the
    Agreement requires payment of a quarterly fee equal to
    three-eights of one percent (0.375%) of the unused portion of
    the borrowing base. The borrowings are collateralized by
    substantially all of our oil and gas properties. The Agreement
    contains various covenants, the most restrictive of which
    requires us to maintain a modified current ratio of at least
    one. We were in compliance with the covenants at
    December&#160;31, 2006 and March&#160;31, 2007.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We also have outstanding unused letters of credit under the
    Agreement totaling $400,000, which reduce amounts available for
    borrowing under the Agreement.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">4.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Stock based
    compensation</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Restricted stock
    grants</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    On March&#160;14, 2007, we granted 21,250 restricted shares to
    an employee. Such shares had a grant-date fair value of $49.49
    per share, and vest in three equal increments&#151;one third on
    the earlier of the closing date of an initial public offering of
    Approach common stock, or February&#160;21, 2008 (the
    &#147;Initial Vesting Date&#148;), and one-third on each of the
    two following anniversaries of the Initial Vesting Date. As of
    March&#160;31, 2007, all of the restricted shares were unvested.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-29
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 14pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes&#160;to unaudited combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">5.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Income
    taxes</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Total income tax expense (benefit) differed from the amounts
    computed by applying the U.S.&#160;Federal statutory tax rates
    and estimated state rates to pre-tax income for the three months
    ended March&#160;31, 2006 and 2007 due primarily to adjustments
    to the valuation allowance applied to net operating loss
    carryovers of AOG. AOG provided a valuation allowance related to
    its deferred tax assets resulting primarily from net operating
    loss carryforwards based upon management&#146;s inability to
    assess the amount to be realized until completion of the merger
    with ARI.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">6.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Derivatives</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In 2005, we entered into three natural gas swap agreements. The
    first two swaps were for 170,000&#160;MMBtu per month and
    expired in September 2005. The other swap was for an average of
    282,000&#160;MMBtu per month through December 2006. In January
    2006, we entered into a natural gas swap for approximately
    257,000&#160;MMBtu per month that expired in December 2006. In
    June 2006, we entered into a natural gas swap for
    100,000&#160;MMBtu per month for the fourth quarter of 2006 and
    an average of 250,000&#160;MMBtu per month for 2007. In May
    2007, we entered into a natural gas collar for 2008 based on the
    NYMEX floating price with a $7.50 floor and a $11.45 ceiling. In
    addition, we entered into a WAHA basis swap for 2008 for $0.69
    per mcf. Both of these hedges were for an average volume of
    approximately 186,000&#160;MMBtu per month. Our oil and gas
    sales revenues include realized gains of $1,424,277 and
    $2,155,140 from the swaps for the three months ended
    March&#160;31, 2006 and 2007, respectively. The estimated
    unrealized gain or loss from the swaps amounted to a gain of
    $6,192,708 and a loss of $4,626,308 at March&#160;31, 2006 and
    2007, respectively. Changes in unrealized gains and losses are
    reflected in other income (expense) on our statements of
    operations. The net unrealized gain and loss is reflected as a
    current asset and liability, respectively, based on the
    associated production months. The fair value of commodity
    derivatives were estimated based on the present value of the
    difference in exchange-quoted forward price curves and
    contractual settlement prices multiplied by notional quantities.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are exposed to credit loss in the event of nonperformance by
    the counterparty on our oil and gas swaps. However, we do not
    anticipate nonperformance by the counterparty over the term of
    the swaps.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">7.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Commitments and
    contingencies</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Employment
    agreements</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have employment agreements with our officers and selected
    other employees. These agreements are automatically renewed for
    successive terms of one year unless employment is terminated at
    the end of the term by written notice given to the employee not
    less than 60&#160;days prior to the end of such term. Our
    maximum commitment under the employment agreements, which would
    apply if the employees covered by these agreements were all
    terminated without cause, is approximately $1,500,000 at
    March&#160;31, 2007.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-30
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 14pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Approach
    Resources Inc. and affiliated entities<BR>
    Notes&#160;to unaudited combined financial
    statements&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Operating
    leases</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In April 2007, we signed a five-year lease for approximately
    13,000&#160;square feet of office space in Fort&#160;Worth,
    Texas. That lease calls for minimum monthly rent payments of
    approximately $20,000 from August 2007 through October 2012.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Litigation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We are involved in various claims and legal actions arising in
    the normal course of business. In our opinion, the resolution of
    these matters is not expected to have a material adverse effect
    on our financial position or results of operations.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">8.&#160;&#160;</FONT></B>
</TD>
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Subsequent
    events</FONT></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Equity
    financing</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    On June&#160;25, 2007, Yorktown Energy Partners VII, L.P. and
    Lubar Equity Fund, LLC loaned an aggregate of $20,000,000 to
    Approach Oil&#160;&#038; Gas Inc. under two convertible
    promissory notes of $10,000,000 each. These notes bear interest
    at a rate of 7.00% per annum and mature on June&#160;25, 2010.
    These notes are convertible at the election of the lender into
    shares of equity securities of Approach Oil&#160;&#038; Gas Inc.
    upon the occurrence of certain events and automatically, and
    without further action required by any person, convert into
    shares of our common stock upon the consummation of this
    offering. The number of shares of our common stock to be issued
    upon the automatic conversion of these notes will be equal to
    the quotient obtained by dividing (a)&#160;the outstanding
    principal and accrued interest on each respective note by
    (b)&#160;the initial public offering price per share, less any
    underwriting discount per share for the shares of our common
    stock that are issued in this offering. The shares of our common
    stock issued to Yorktown Energy Partners VII, L.P. and Lubar
    Equity Fund, LLC upon such automatic conversion will be entitled
    to the same registration rights as those provided to certain
    holders of our common stock in connection with the contribution
    agreement. The total principal and interest owned under these
    notes as of June&#160;30, 2007 was $20,023,014, consisting of
    $10,011,507 owed to each of Yorktown Energy Partners VII, L.P.
    and Lubar Equity Fund, LLC. Yorktown Energy Partners VII, L.P.
    is an affiliate of the Yorktown entities, and Lubar Equity Fund,
    LLC is an affiliate of Sheldon B. Lubar, who serves as a member
    of our board of directors.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Canadian
    unconventional gas investment</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In May 2007, we acquired shares of common stock of a
    <FONT style="white-space: nowrap">Canadian-based</FONT>
    private exploration company focused on tight gas and shale gas
    opportunities in Canada. Our investment amounted to
    approximately $917,000 and is a
    <FONT style="white-space: nowrap">non-controlling</FONT>
    interest.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    *************
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-31
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='311'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Report of
    independent registered public accounting firm</FONT></B>
</DIV>
</A>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Board of Directors
</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Approach Resources Inc.
</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Fort&#160;Worth, Texas
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We have audited the accompanying Historical Summaries of
    Revenues and Direct Operating Expenses of Properties to be
    Acquired by Approach Resources Inc., for the years ended
    December&#160;31, 2005 and 2006 (&#147;Historical
    Summaries&#148;). The Historical Summaries are the
    responsibility of the management of Approach Resources Inc. Our
    responsibility is to express an opinion on the Historical
    Summaries based on our audit.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We conducted our audit 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 Historical Summaries are
    free of material misstatement. An audit includes examining, on a
    test basis, evidence supporting the amounts and disclosures in
    the Historical Summaries. An audit also includes assessing the
    accounting principles used and significant estimates made by
    management, as well as evaluating the overall Historical
    Summaries presentation. We believe that our audit provides a
    reasonable basis for our opinion.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The accompanying Historical Summaries were prepared for the
    purpose of complying with the rules and regulations of the
    Securities and Exchange Commission as described in Note&#160;1
    and are not intended to be a complete presentation of the
    properties&#146; revenues and expenses.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In our opinion, the Historical Summaries referred to above
    present fairly, in all material respects, the revenues and
    direct operating expenses of the properties to be acquired by
    Approach Resources Inc. in conformity with accounting principles
    generally accepted in the United States of America.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    May&#160;7, 2007
</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Dallas, Texas
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-32
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='312'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Statements of
    revenue and direct operating expenses of properties to be
    acquired by Approach Resources Inc.<BR>
    for the years ended December 31, 2005 and 2006 and the three
    months ended March 31, 2006 and 2007 (unaudited)</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="45%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="11%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=04 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=04 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=04 type=body -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=05 type=gutter -->
    <TD width="9%" align="right">&nbsp;</TD>	<!-- colindex=05 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=05 type=body -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" nowrap align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=190 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Three months
    ended <BR>
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">Year ended
    December 31,</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="5" nowrap align="right" valign="bottom" style="border-bottom: 1px solid #000000">
    <B><FONT style="font-family: Arial, Helvetica">March
    31,</FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2007</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="13" nowrap align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=190 length=0 -->
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">(unaudited)</FONT></B>
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Crude oil and natural gas sales
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    19,371,892
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    19,558,497
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,936,955
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,801,767
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Direct operating expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,484,364
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    2,584,567
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    729,895
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    587,286
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="11" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Net revenue
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    16,887,528
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    16,973,930
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    5,207,060
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    3,214,481
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="13" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="13" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I><FONT style="font-size: 8pt">See notes to Historical
    Summaries.</FONT></I>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-33
</DIV><!-- END LOGICAL PAGE -->
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->
<A name='313'>
<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Notes&#160;to
    historical summaries of revenue and direct<BR>
     operating expenses of properties to be acquired by Approach
    Resources Inc.<BR>
     for the years ended December 31, 2005 and 2006 and the three
    months ended March 31, 2006 and 2007 (unaudited)</FONT></B>
</DIV>
</A>
<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">1.&#160;&#160;Basis
    of preparation</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The accompanying statements of revenue and direct operating
    expenses relate to the operations of certain crude oil and
    natural gas properties in the Ozona Northeast field located in
    Texas that are to be acquired by Approach Resources Inc.
    (&#147;Approach&#148;) to be completed upon the effectiveness of
    Approach completing its initial public offering. The acquired
    properties are referred to herein as the Neo Canyon Acquisition
    Properties.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Approach is the operator of the properties prior to the
    acquisition of the additional interest. The accompanying
    statements of revenues and direct operating expenses were
    derived from the historical accounting records of Approach and
    reflect the acquired interest in the revenues and direct
    operating expenses of the Neo Canyon Acquisition Properties.
    Such amounts may not be representative of future operations. The
    statements do not include depreciation, depletion and
    amortization, general and administrative expenses, income taxes
    or interest expense as these costs may not be comparable to the
    expenses to be incurred by Approach on a prospective basis.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Revenue is recognized when crude oil and natural gas quantities
    are delivered to or collected by the respective purchaser. Title
    to the produced quantities transfers to the purchaser at the
    time the purchaser collects or receives the quantities. Prices
    for such production are defined in sales contracts and are
    readily determinable based on certain publicly available
    indices. All transportation costs are accounted for as a
    reduction of crude oil and natural gas sales revenue.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    As of December&#160;31, 2005 and 2006, crude oil production was
    sold to one independent purchaser and natural gas production was
    sold to one affiliated purchaser.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Direct operating expenses are recorded when the related
    liability is incurred. Direct operating expenses include lease
    operating expenses and production taxes.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The process of preparing financial statements in conformity with
    generally accepted accounting principles requires the use of
    estimates and assumptions regarding certain types of revenues
    and expenses. Such estimates primarily relate to unsettled
    transactions and events as of the date of the financial
    statements. Accordingly, upon settlement, actual results may
    differ from estimated amounts.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Historical financial statements reflecting financial position,
    results of operations and cash flows required by generally
    accepted accounting principles are not presented as such
    information is not meaningful to the Neo Canyon Acquisition
    Properties. Accordingly, the historical summaries of revenue and
    direct operating expenses are presented in lieu of the financial
    statements required under
    <FONT style="white-space: nowrap">Rule&#160;3-05</FONT>
    of the Securities and Exchange Commission
    <FONT style="white-space: nowrap">Regulation&#160;S-X.</FONT>
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-34
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Notes&#160;to
    historical summaries of revenue and direct<BR>
    operating expenses of properties to be acquired by Approach
    Resources Inc.<BR>
    for the years ended December 31, 2005 and 2006 and the three
    months ended March 31, 2006 and 2007
    (unaudited)&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Interim financial
    information</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In the opinion of Approach&#146;s management, the information
    furnished herein reflects all adjustments, consisting of only
    normal recurring adjustments, necessary for a fair presentation
    of the results of the interim periods reported herein. Operating
    results for the three months ended March&#160;31, 2007&#160;may
    not necessarily be indicative of the results for the year ending
    December&#160;31, 2007.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">2.&#160;&#160;Related
    party transactions</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The properties were operated by Approach Resources Inc. during
    the three months ended March&#160;31, 2006 and 2007 and the
    years ended December&#160;31, 2005 and 2006. During those
    periods, Approach Resources Inc. charged the properties overhead
    amounting to approximately $69,224, $100,467 $168,514 and
    $338,991, respectively. Such overhead charges are included in
    direct operating expenses.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">3.&#160;&#160;Supplemental
    information on oil and gas reserves (unaudited)</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    All of the operations of the Neo Canyon Acquisition Properties
    are directly related to crude oil and natural gas producing
    activities located in West Texas. The Neo Canyon Acquisition
    Properties&#146; proved crude oil and natural gas reserves have
    been estimated by independent petroleum engineers. Proved
    reserves are the estimated quantities that geologic and
    engineering data demonstrate with reasonable certainty to be
    recoverable in future years from known reservoirs under existing
    economic and operating conditions. Proved developed reserves are
    the quantities expected to be recovered through existing wells
    with existing equipment and operating methods. Due to the
    inherent uncertainties and the limited nature of reservoir data,
    such estimates are subject to change as additional information
    becomes available. The reserves actually recovered and the
    timing of production of these reserves may be substantially
    different from the original estimate. Revisions result primarily
    from new information obtained from development drilling and
    production history; acquisitions of oil and gas properties; and
    changes
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-35
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Notes&#160;to
    historical summaries of revenue and direct<BR>
    operating expenses of properties to be acquired by Approach
    Resources Inc.<BR>
    for the years ended December 31, 2005 and 2006 and the three
    months ended March 31, 2006 and 2007
    (unaudited)&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    in economic factors. The Neo Canyon Acquisition Properties&#146;
    proved reserves are summarized in the table below.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="79%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="4%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=354 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Natural gas<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Oil<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(MMcf)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">(MBbl)</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=354 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Reserves at January&#160;1, 2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    24,727
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    151
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Extensions and discoveries
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    1,181
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    11
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revisions to previous estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    19,073
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    330
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (2,082
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (25
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Reserves at December&#160;31, 2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    42,899
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    467
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Extensions and discoveries
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,421
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    61
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revisions to previous estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (5,526
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (105
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (2,645
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (32
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Reserves at December&#160;31, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    41,149
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    391
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Proved developed reserves
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">December&#160;31, 2005
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    19,595
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    198
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">December&#160;31, 2006
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    21,400
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    170
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Standardized
    measure</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The standardized measure of discounted future net cash flows
    (&#147;standardized measure&#148;) and changes in such cash
    flows are prepared using assumptions required by the Financial
    Accounting Standards Board. Such assumptions include the use of
    year-end prices for crude oil and natural gas and year-end costs
    for estimated future development and production expenditures to
    produce year-end estimated proved reserves. Discounted future
    net cash flows are calculated using a 10% discount rate.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The standardized measure does not represent management&#146;s
    estimate of our future cash flows or the value of proved crude
    oil and natural gas reserves. Probable and possible reserves,
    which may become proved in the future, are excluded from the
    calculations. Furthermore, year-end prices used to determine the
    standardized measure of discounted cash flows, are influenced by
    seasonal demand and other factors and may not be the most
    representative in estimating future revenues or reserve data.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Price and cost revisions are primarily the net result of changes
    in year-end prices, based on beginning of year reserve
    estimates. Quantity estimate revisions are primarily the result
    of
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-36
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV style="margin-top: 18pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Notes&#160;to
    historical summaries of revenue and direct<BR>
    operating expenses of properties to be acquired by Approach
    Resources Inc.<BR>
    for the years ended December 31, 2005 and 2006 and the three
    months ended March 31, 2006 and 2007
    (unaudited)&#151;(continued)</FONT></B>
</DIV>
<P>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    higher prices resulting in extended economic lives of proved
    reserves and significant amounts of proved undeveloped reserves
    becoming economic, as well as increased development activities.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The standardized measure of discounted future net cash flows
    related to proved crude oil and natural gas reserves at
    December&#160;31, 2005 and 2006 is as follows (in thousands):
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="77%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=341 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=341 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future cash inflows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    420,581
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    292,399
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future production
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (76,357
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (81,784
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future development costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (42,895
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (45,957
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (1,647
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Future net cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    301,329
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    163,011
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">10% annual discount
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (192,251
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (112,306
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Standardized measure of discounted
    future net cash flows
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    109,078
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    50,705
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The primary changes in the standardized measure of discounted
    future net cash flows for the twelve months ended
    December&#160;31, 2005 and 2006 are as follows (in thousands):
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="77%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=02 type=hang1 -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=03 type=lead -->
    <TD width="7%" align="right">&nbsp;</TD>	<!-- colindex=03 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=03 type=hang1 -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=348 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD nowrap align="right" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2005</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="2" nowrap align="right" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">2006</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="8" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=348 length=0 -->
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance at beginning of year
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    43,139
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    109,078
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net changes in prices and
    production costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    16,646
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (56,734
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net changes due to extensions,
    discoveries and improved recovery
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    3,402
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,265
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net changes in future development
    costs
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (33,524
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,707
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Sales of oil and gas produced, net
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (16,888
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (16,974
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Revisions of previous quantity
    estimates
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    57,406
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (9,314
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Net change in income taxes
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    &#151;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (726
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Previously estimated development
    costs incurred
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,764
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    22,332
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Accretion of discount
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    5,453
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    6,136
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Other
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    10,680
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    (3,651
</TD>
<TD nowrap align="left" valign="bottom">
    )
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" align="right" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD colspan="7" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Balance at end of year
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    109,078
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    50,705
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="9" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="9" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    F-37
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><I><FONT style="font-size: 18pt">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;shares</FONT></I></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><I><FONT style="font-size: 18pt">Common stock</FONT></I></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="center" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <B><FONT style="font-size: 24pt">Prospectus</FONT></B>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">    <B><FONT style="font-size: 16pt; font-family: Arial, Helvetica">JPMorgan</FONT></B></TD>
    <TD nowrap align="right">    <B><FONT style="font-size: 16pt; font-family: Arial, Helvetica">A.G.
    Edwards</FONT></B></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">    <I><FONT style="font-family: Arial, Helvetica">Book running
    manager</FONT></I></TD>
    <TD nowrap align="right">    <I><FONT style="font-family: Arial, Helvetica">Joint lead
    manager</FONT></I></TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <FONT style="font-size: 11pt">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007
    </FONT>
</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<DIV style="margin-top: 13pt; font-size: 1pt">&nbsp;</DIV>



<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Until&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007 (25&#160;days after the date of this prospectus), all
    dealers that effect transactions in our common stock, whether or
    not participating in this offering, may be required to deliver a
    prospectus. This requirement is in addition to a dealer&#146;s
    obligation to deliver a prospectus when acting as an underwriter
    and with respect to unsold allotments or subscriptions.
</DIV>

<P align="left" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

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

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Part&#160;II<BR>
    Information not required in prospectus</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Item&#160;13.<I>&#160;</I></FONT></B>
</TD>
    <TD>
    <B><I><FONT style="font-family: Arial, Helvetica">Other expenses
    of issuance and distribution</FONT></I></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The following table sets forth estimates of all expenses payable
    by the registrant in connection with the sale of common stock
    being registered. The selling stockholder will not bear any
    portion of such expenses. With the exception of SEC registration
    fee, the NASD filing fee and the NASDAQ Global Market
    application and entry listing fee, the amounts set forth below
    are estimates.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="89%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="8%" align="right">&nbsp;</TD>	<!-- colindex=02 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=02 type=body -->
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">SEC registration fee
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    4,061
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">NASD filing fee
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    13,725
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">NASDAQ Global Market application
    and entry listing fee
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    100,000
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Accounting fees and expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    *
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Legal fees and expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    *
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Printing and engraving
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    *
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Advisory fee
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    *
</TD>
</TR>
<TR valign="bottom">
<TD align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 12pt">
    <FONT style="font-size: 10pt">Miscellaneous fees and expenses
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
&nbsp;
</TD>
<TD nowrap align="right" valign="bottom">
    *
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
<TD style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="background: #CCEEFF">
<TD nowrap align="left" valign="bottom">
<DIV style="text-indent: -12pt; margin-left: 24pt">
    <FONT style="font-size: 10pt">Total
    </FONT>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="bottom">
    $
</TD>
<TD nowrap align="right" valign="bottom">
    *
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="4" valign="bottom">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="4" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="98%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT style="font-size: 8pt">*
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">To be completed by amendment.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Item&#160;14.<I>&#160;</I></FONT></B>
</TD>
    <TD>
    <B><I><FONT style="font-family: Arial, Helvetica">Indemnification
    of directors and officers</FONT></I></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our restated certificate of incorporation provides that no
    director or officer will be liable to the corporation or any of
    its stockholders for damages for breach of fiduciary duty as a
    director or officer occurring on or after the date of
    incorporation; provided, however, that the foregoing provision
    shall not eliminate or limit the liability of a director or
    officer (i)&#160;for any breach of the director&#146;s duty of
    loyalty to the corporation or its stockholders, (ii)&#160;for
    acts or omissions not in good faith or which involved
    intentional misconduct, fraud or a knowing violation of the law,
    (iii)&#160;the payment of dividends in violation of
    Section&#160;174 of the General Corporation Law of the State of
    Delaware or (iv)&#160;for any transaction from which the
    director derived an improper personal benefit. In addition, if
    the General Corporation Law of the State of Delaware is amended
    to authorize corporate action further eliminating or limiting
    the personal liability of directors, then the liability of a
    director of the corporation shall be eliminated or limited to
    the fullest extent permitted by the General Corporation Law of
    the State of Delaware, as so amended. Our restated bylaws
    provide that the corporation will indemnify, and advance
    expenses to, any officer or director to the fullest extent
    authorized by the General Corporation Law of the State of
    Delaware.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Section&#160;145 of the General Corporation Law of the State of
    Delaware provides that a corporation may indemnify directors and
    officers as well as other employees and individuals against
    expenses, including attorneys&#146; fees, judgments, fines and
    amounts paid in settlement in connection with specified actions,
    suits and proceedings whether civil, criminal, administrative or
    investigative, other than a derivative action by or in the right
    of the corporation, if they acted
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    II-1
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    in good faith and in a manner they reasonably believed to be in
    or not opposed to the best interests of the corporation and,
    with respect to any criminal action or proceeding, had no
    reasonable cause to believe their conduct was unlawful. A
    similar standard is applicable in the case of derivative
    actions, except that indemnification extends only to expenses,
    including attorneys&#146; fees, incurred in connection with the
    defense or settlement of such action and the statute requires
    court approval before there can be any indemnification where the
    person seeking indemnification has been found liable to the
    corporation. The statute provides that it is not exclusive of
    other indemnification that may be granted by a
    corporation&#146;s charter, bylaws, disinterested director vote,
    stockholder vote, agreement or otherwise.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Our restated certificate of incorporation also contains
    indemnification rights for our directors and our officers.
    Specifically, our restated certificate of incorporation provides
    that we shall indemnify our officers and directors to the
    fullest extent authorized by the General Corporation Law of the
    State of Delaware. Further, we may maintain insurance on behalf
    of our officers and directors against expenses, liability or
    loss asserted incurred by them in their capacities as officers
    and directors.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We will obtain directors&#146; and officers&#146; insurance to
    cover our directors, officers and some of our employees for
    certain liabilities.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    We will enter into written indemnification agreements with our
    directors and executive officers. Under these agreements, if an
    officer or director makes a claim of indemnification to us,
    either a majority of the independent directors or independent
    legal counsel selected by the independent directors must review
    the relevant facts and make a determination whether the officer
    or director has met the standards of conduct under Delaware law
    that would permit (under Delaware law) and require (under the
    indemnification agreement) us to indemnify the officer or
    director.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The registration rights agreement we entered into in connection
    with our earlier financings provide for the indemnification by
    the investors in those financings of our officers and directors
    for certain liabilities.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Item&#160;15.<I>&#160;</I></FONT></B>
</TD>
    <TD>
    <B><I><FONT style="font-family: Arial, Helvetica">Recent sales
    of unregistered securities</FONT></I></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    In the three years preceding the filing of this registration
    statement, we have issued and sold the following securities that
    were not registered under the Securities Act:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    1.&#160;On August&#160;16, 2004, we issued 1,130,000&#160;shares
    of our common stock to Yorktown Energy Partners&#160;V, L.P. and
    certain of our employees in consideration of $11,300,000,
    $1,202,500 of which was evidenced by full recourse promissory
    notes secured by pledge of the securities purchased. These
    shares were issued in a transaction exempt from the registration
    requirements of the Securities Act under Section&#160;4(2) of
    the Securities Act.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    2.&#160;On August&#160;30, 2004, we issued 125,000&#160;shares
    of our common stock to certain of our employees in consideration
    of $1,250,000 evidenced by full recourse promissory notes
    secured by pledge of the securities purchased. These shares were
    issued in a transaction exempt from the registration
    requirements of the Securities Act under Section&#160;4(2) of
    the Securities Act.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    3.&#160;On March&#160;14, 2007, we issued 21,250&#160;shares of
    restricted common stock to one of our executive officers. These
    shares were issued in a transaction exempt from the registration
    requirements of the Securities Act pursuant to Rule&#160;701,
    promulgated under the Securities Act.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    II-2
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    4.&#160;On June&#160;25, 2007, Approach Oil&#160;&#038; Gas Inc.
    issued convertible promissory notes to each of Yorktown Energy
    Partners&#160;VII, L.P. and Lubar Equity Fund, LLC in the
    aggregate amount of $20,000,000. The notes are convertible into
    shares of equity securities of Approach Oil&#160;&#038; Gas Inc.
    at the election of the individual lender upon the occurrence of
    certain events and are automatically convertible into shares of
    our common stock upon the consummation of the offering described
    in the prospectus contained within this registration statement.
    The number of shares of our common stock to be issued upon the
    automatic conversion of these notes will be equal to the
    quotient obtained by dividing (a)&#160;the outstanding principal
    and accrued interest on each respective note by (b)&#160;the
    initial public offering price per share, less any underwriting
    discount per share for the shares of our common stock that are
    issued in this offering. These notes were issued in a
    transaction exempt from the registration requirements of the
    Securities Act under Section&#160;4(2) of the Securities Act.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Item&#160;16.<I>&#160;</I></FONT></B>
</TD>
    <TD>
    <B><I><FONT style="font-family: Arial, Helvetica">Exhibits and
    financial statement schedules</FONT></I></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=01 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=01 type=body -->
    <TD width="3%" align="left">&nbsp;</TD>	<!-- colindex=01 type=align1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="91%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=33 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="3" nowrap align="center" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Exhibit<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="3" nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Description</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=33 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    1
</TD>
<TD nowrap align="left" valign="top">
    .1*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Underwriting Agreement.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    3
</TD>
<TD nowrap align="left" valign="top">
    .1
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Restated Certificate of
    Incorporation of Approach Resources Inc.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    3
</TD>
<TD nowrap align="left" valign="top">
    .2
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Restated Bylaws of
    Approach Resources Inc.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    4
</TD>
<TD nowrap align="left" valign="top">
    .1*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Specimen Common Stock Certificate.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    5
</TD>
<TD nowrap align="left" valign="top">
    .1*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Opinion of Thompson&#160;&#038;
    Knight LLP regarding legality of securities issued
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .1*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Indemnity Agreement
    between Approach Resources Inc. and each of its directors and
    officers.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .2
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Contribution Agreement by and
    among Approach Resources Inc. and the equity holders identified
    therein, dated June&#160;29, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .3
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Employment Agreement by and
    between Approach Resources Inc. and J. Ross Craft dated
    January&#160;1, 2003.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .4
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Employment Agreement by and
    between Approach Resources Inc. and Steven P. Smart dated
    January&#160;1, 2003.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .5
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Employment Agreement by and
    between Approach Resources Inc. and Glenn W. Reed dated
    January&#160;1, 2003.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .6
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Approach Resources Inc. 2007 Stock
    Incentive Plan, effective as of June&#160;28, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .7
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Convertible Promissory Note issued
    by Approach Oil&#160;&#038; Gas Inc. to Yorktown Energy Partners
    VII, L.P. dated June&#160;25, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .8
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Convertible Promissory Note issued
    by Approach Oil&#160;&#038; Gas Inc. to Lubar Equity Fund, LLC
    dated June&#160;25, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .9
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">$100,000,000 Revolving Amended and
    Restated Credit Agreement by and among Approach
    Resources&#160;I, LP, as borrower, The Frost National Bank, as
    administrative agent and lender, and the financial institutions
    party thereto, dated February&#160;15, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .10
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Amendment to Amended and Restated
    Credit Agreement dated as of February&#160;15, 2007 between
    Approach Resources&#160;I, LP, The Frost National Bank, as
    administrative agent, and the lenders party thereto, dated
    June&#160;14, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .11*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Business Opportunities
    Agreement
    dated&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007, among Approach Resources Inc. and the other signatories
    thereto.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .12
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Option Agreement under
    2003 Stock Option Plan.
    </FONT>
</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    II-3
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="3%" align="right">&nbsp;</TD>	<!-- colindex=01 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=01 type=body -->
    <TD width="3%" align="left">&nbsp;</TD>	<!-- colindex=01 type=align1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="91%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=33 length=0 --><B><FONT style="font-family: Arial, Helvetica">
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="3" nowrap align="center" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Exhibit<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="3" nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Description
    </FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=33 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .13
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Restricted Stock Award Agreement
    by and between Approach Resources Inc. and J. Curtis Henderson
    dated March&#160;14, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .14*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Summary of Stock Option
    Grant under Approach Resources&#160;Inc. 2007 Stock Incentive
    Plan.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .15*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Stock Award Agreement
    under Approach Resources&#160;Inc. 2007 Stock Incentive Plan.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    21
</TD>
<TD nowrap align="left" valign="top">
    .1
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">List of Subsidiaries.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    23
</TD>
<TD nowrap align="left" valign="top">
    .1
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Consent of Hein&#160;&#038;
    Associates LLP.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    23
</TD>
<TD nowrap align="left" valign="top">
    .2
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Consent of DeGolyer&#160;&#038;
    MacNaughton.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    23
</TD>
<TD nowrap align="left" valign="top">
    .3
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Consent of Cawley,
    Gillespie&#160;&#038; Associates, Inc.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    23
</TD>
<TD nowrap align="left" valign="top">
    .4*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Consent of Thompson&#160;&#038;
    Knight LLP (contained in Exhibit&#160;5.1).
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    24
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Power of Attorney (contained on
    the signature page hereto).
    </FONT>
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" align="left" valign="top">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="98%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT style="font-size: 8pt">*
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>
    <B><FONT style="font-family: Arial, Helvetica">Item&#160;17.<I>&#160;</I></FONT></B>
</TD>
    <TD>
    <B><I><FONT style="font-family: Arial, Helvetica">Undertakings</FONT></I></B>
</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    The undersigned registrant hereby undertakes:
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (a)&#160;Insofar as indemnification for liabilities arising
    under the Securities Act of 1933, as amended, may be permitted
    to directors, officers and controlling persons of the registrant
    pursuant to the provisions described in Item&#160;14 or
    otherwise, the registrant has been advised that in the opinion
    of the Securities and Exchange Commission, such indemnification
    is against public policy as expressed in the Act and is,
    therefore, unenforceable. In the event that a claim for
    indemnification against such liabilities (other than the payment
    by the registrant of expenses incurred or paid by a director,
    officer or controlling person of the registrant in the
    successful defense of any action, suit or proceeding) is
    asserted by such director, officer or controlling person in
    connection with the securities being registered, the registrant
    will, unless in the opinion of its counsel the matter has been
    settled by controlling precedent, submit to a court of
    appropriate jurisdiction the question of whether such
    indemnification by it is against public policy as expressed in
    the Act and will be governed by the final adjudication of such
    issue.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (b)&#160;To provide the underwriter(s) at the closing specified
    in the underwriting agreements certificates in such
    denominations and registered in such names as required by the
    underwriter to permit prompt delivery to each purchaser.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (c)&#160;For purposes of determining any liability under the
    Securities Act of 1933, the information omitted from the form of
    prospectus filed as part of this registration statement in
    reliance upon Rule&#160;430A and contained in a form of
    prospectus filed by the registrant pursuant to
    Rule&#160;424(b)(1) or (4)&#160;or 497(h) under the Securities
    Act shall be deemed to be part of this registration statement as
    of the time it was declared effective.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    (d)&#160;For the purpose of determining any liability under the
    Securities Act of 1933, each post-effective amendment that
    contains a form of prospectus shall be deemed to be a new
    registration statement relating to the securities offering
    therein, and the offering of such securities at that time shall
    be deemed to be the initial bona fide offering thereof.
</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    II-4
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Signatures</FONT></B>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Pursuant to the requirements of the Securities Act of 1933, as
    amended, the Registrant has duly caused this registration
    statement to be signed on its behalf by the undersigned,
    thereunto duly authorized, in the City of Fort&#160;Worth, and
    State of Texas, on the
    12<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>
    day of July, 2007.
</DIV>

<DIV style="margin-top: 20pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 49%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    APPROACH RESOURCES INC.
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

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

<TR>
    <TD width="49%"></TD>
    <TD width="5%"></TD>
    <TD width="46%"></TD>
</TR>

<TR valign="top" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <TD>&nbsp;</TD>
    <TD>    By:&#160;
</TD>
    <TD align="left">
    <DIV style="display:inline; text-align:left;">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">J.
    Ross Craft</FONT></DIV>
</TD>
</TR>

</TABLE>

<DIV style="font-size: 2pt; margin-left: 54%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=999 iwidth=455 length=0 -->

<DIV align="left" style="margin-left: 54%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    J. Ross Craft
</DIV>

<DIV align="left" style="margin-left: 54%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <I>President and Chief Executive Officer</I>
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    Pursuant to the requirements of the Securities Act of 1933, as
    amended, this registration statement has been signed by the
    following persons in the capacities indicated on July&#160;12,
    2007. Each person whose signature appears below constitutes and
    appoints J. Ross Craft and Steven P. Smart, and each of them
    individually, his true and lawful attorneys-in-fact and agents,
    with full power of substitution and resubstitution, for him and
    in his name, place and stead, in any and all capacities, to sign
    any and all amendments (including post-effective amendments) to
    this registration statement under the Securities Act of 1933, as
    amended, and to file the same, with all exhibits thereto and
    other documents in connection therewith, with the SEC, granting
    unto said attorneys-in-fact and agents, and each of them, full
    power and authority to do and perform each and every act and
    thing requisite and necessary to be done in connection
    therewith, as fully to all intents and purposes as he might or
    could do in person, hereby ratifying and confirming all that
    said attorneys-in-fact and agents or any of them, or their or
    his substitute or substitutes, may lawfully do or cause to be
    done by virtue hereof. This document may be executed by the
    signatories hereto on any number of counterparts, all of which
    constitute one and the same instrument.
</DIV>

<DIV style="margin-top: 6pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="3%">&nbsp;</TD>	<!-- colindex=01 type=maindata -->
    <TD width="1%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="37%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
    <TD width="3%">&nbsp;</TD>	<!-- colindex=03 type=gutter -->
    <TD width="56%">&nbsp;</TD>	<!-- colindex=03 type=maindata -->
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="3" nowrap align="center" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Signature</FONT></B>
</DIV>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
<DIV style="border-bottom: 1px solid #000000; width: 1%; padding-bottom: 1px">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Title</FONT></B>
</DIV>
</TD>
</TR>
<TR style="line-height: 12pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="center" valign="top">
    <DIV style="display:inline; text-align:center; width:90%"><FONT style="font-size: 10pt">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">J.
    Ross Craft</FONT></FONT></DIV><FONT style="font-size: 10pt"><BR>
    <DIV style="font-size: 2pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=184 length=0 -->J.
    Ross Craft
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">President, Chief Executive Officer
    and Director<BR>
    (Principal Executive Officer)
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 12pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="center" valign="top">
    <DIV style="display:inline; text-align:center; width:90%"><FONT style="font-size: 10pt">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">Steven
    P. Smart</FONT></FONT></DIV><FONT style="font-size: 10pt"><BR>
    <DIV style="font-size: 2pt; margin-left: 0%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=184 length=0 -->Steven
    P. Smart
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Executive Vice President and Chief
    Financial Officer<BR>
    (Principal Financial and Accounting Officer)
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 12pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="center" valign="top">
    <DIV style="display:inline; text-align:center; width:90%"><FONT style="font-size: 10pt">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">Bryan
    H. Lawrence</FONT></FONT></DIV><FONT style="font-size: 10pt"><BR>
    <DIV style="font-size: 2pt; margin-left: 0%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=184 length=0 -->Bryan
    H. Lawrence
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Director and Chairman of the Board
    of Directors
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 12pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="center" valign="top">
    <DIV style="display:inline; text-align:center; width:90%"><FONT style="font-size: 10pt">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">James
    H. Brandi</FONT></FONT></DIV><FONT style="font-size: 10pt"><BR>
    <DIV style="font-size: 2pt; margin-left: 0%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=184 length=0 -->James
    H. Brandi
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    <FONT style="font-size: 10pt">Director
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 12pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="center" valign="top">
    <DIV style="display:inline; text-align:center; width:90%"><FONT style="font-size: 10pt">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">James
    C. Crain</FONT></FONT></DIV><FONT style="font-size: 10pt"><BR>
    <DIV style="font-size: 2pt; margin-left: 0%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=184 length=0 -->James
    C. Crain
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    <FONT style="font-size: 10pt">Director
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 12pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="center" valign="top">
    <DIV style="display:inline; text-align:center; width:90%"><FONT style="font-size: 10pt">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">Sheldon
    B. Lubar</FONT></FONT></DIV><FONT style="font-size: 10pt"><BR>
    <DIV style="font-size: 2pt; margin-left: 0%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=184 length=0 -->Sheldon
    B. Lubar
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    <FONT style="font-size: 10pt">Director
    </FONT>
</TD>
</TR>
<TR valign="bottom" style="line-height: 12pt">
<TD colspan="3">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD colspan="3" align="center" valign="top">
    <DIV style="display:inline; text-align:center; width:90%"><FONT style="font-size: 10pt">/s/&#160;&#160;<FONT style="font-variant: SMALL-CAPS">Christopher
    J. Whyte</FONT></FONT></DIV><FONT style="font-size: 10pt"><BR>
    <DIV style="font-size: 2pt; margin-left: 0%; width: 100%; align: left; border-bottom: 1pt solid #000000"></DIV><!-- callerid=201 iwidth=184 length=0 -->Christopher
    J. Whyte
    </FONT>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="left" valign="top">
    <FONT style="font-size: 10pt">Director
    </FONT>
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    II-5
</DIV><!-- END LOGICAL PAGE -->
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="width: 87%; margin-left: 6%"><!-- BEGIN LOGICAL PAGE -->

<DIV align="center" style="margin-left: 0%; margin-right: 0%; font-size: 16pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

    <B><FONT style="font-family: Arial, Helvetica">Exhibit
    index</FONT></B>
</DIV>

<DIV style="margin-top: 12pt; font-size: 1pt">&nbsp;</DIV>

<TABLE border="0" width="100%" align="center" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
<!-- Table Width Row -->
<TR style="font-size: 1pt" valign="bottom">
    <TD width="5%" align="right">&nbsp;</TD>	<!-- colindex=01 type=lead -->
    <TD width="1%" align="right">&nbsp;</TD>	<!-- colindex=01 type=body -->
    <TD width="1%" align="left">&nbsp;</TD>	<!-- colindex=01 type=align1 -->
    <TD width="2%">&nbsp;</TD>	<!-- colindex=02 type=gutter -->
    <TD width="91%">&nbsp;</TD>	<!-- colindex=02 type=maindata -->
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: -2pt; margin-left: 0%; width: 100%;border-bottom: 2pt solid #000000"></DIV><!-- callerid=209 iwidth=33 length=0 -->
</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom" align="center">
<TD colspan="3" nowrap align="center" valign="bottom">
    <B><FONT style="font-size: 9pt; font-family: Arial, Helvetica">Exhibit<BR>
    </FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
&nbsp;
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="3" nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Number</FONT></B>
</TD>
<TD>
&nbsp;
</TD>
<TD nowrap align="center" valign="bottom">
    <B><FONT style="font-family: Arial, Helvetica">Description</FONT></B>
</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom" align="center">
<TD colspan="5" align="right" valign="bottom">
    <DIV style="font-size: 3pt; margin-left: 0%; width: 100%;border-bottom: 1pt solid #000000"></DIV><!-- callerid=209 iwidth=33 length=0 -->
</TD>
</TR>
<TR style="line-height: 3pt; font-size: 1pt">
<TD>&nbsp;
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    1
</TD>
<TD nowrap align="left" valign="top">
    .1*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Underwriting Agreement.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    3
</TD>
<TD nowrap align="left" valign="top">
    .1
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Restated Certificate of
    Incorporation of Approach Resources Inc.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    3
</TD>
<TD nowrap align="left" valign="top">
    .2
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Restated Bylaws of
    Approach Resources Inc.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    4
</TD>
<TD nowrap align="left" valign="top">
    .1*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Specimen Common Stock Certificate.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    5
</TD>
<TD nowrap align="left" valign="top">
    .1*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Opinion of Thompson&#160;&#038;
    Knight LLP regarding legality of securities issued.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .1*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Indemnity Agreement
    between Approach Resources Inc. and each of its directors and
    officers.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .2
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Contribution Agreement by and
    among Approach Resources Inc. and the equity holders identified
    therein, dated June 29, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .3
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Employment Agreement by and
    between Approach Resources Inc. and J. Ross Craft dated
    January&#160;1, 2003.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .4
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Employment Agreement by and
    between Approach Resources Inc. and Steven P. Smart dated
    January&#160;1, 2003.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .5
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Employment Agreement by and
    between Approach Resources Inc. and Glenn W. Reed dated
    January&#160;1, 2003.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .6
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Approach Resources Inc. 2007 Stock
    Incentive Plan, effective as of June&#160;28, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .7
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Convertible Promissory Note issued
    by Approach Oil&#160;&#038; Gas Inc. to Yorktown Energy Partners
    VII, L.P. dated June&#160;25, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .8
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Convertible Promissory Note issued
    by Approach Oil&#160;&#038; Gas Inc. to Lubar Equity Fund, LLC
    dated June&#160;25, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .9
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">$100,000,000 Revolving Amended and
    Restated Credit Agreement by and among Approach
    Resources&#160;I, LP, as borrower, The Frost National Bank, as
    administrative agent and lender, and the financial institutions
    party thereto, dated February&#160;15, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .10
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Amendment to Amended and Restated
    Credit Agreement dated as of February&#160;15, 2007 between
    Approach Resources&#160;I, LP, The Frost National Bank, as
    administrative agent, and the lenders party thereto, dated
    June&#160;14, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .11*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Business Opportunities
    Agreement
    dated&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;,
    2007, among Approach Resources Inc. and the other signatories
    thereto.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .12
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Option Agreement under
    2003 Stock Option Plan.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .13
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Restricted Stock Award Agreement
    by and between Approach Resources Inc. and J. Curtis Henderson
    dated March&#160;14, 2007.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .14*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Summary of Stock Option
    Grant under Approach Resources Inc. 2007 Stock Incentive Plan.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    10
</TD>
<TD nowrap align="left" valign="top">
    .15*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Form of Stock Award Agreement
    under Approach Resources Inc. 2007 Stock Incentive Plan.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    21
</TD>
<TD nowrap align="left" valign="top">
    .1
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">List of Subsidiaries.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    23
</TD>
<TD nowrap align="left" valign="top">
    .1
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Consent of Hein&#160;&#038;
    Associates LLP.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    23
</TD>
<TD nowrap align="left" valign="top">
    .2
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Consent of DeGolyer&#160;&#038;
    MacNaughton.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    23
</TD>
<TD nowrap align="left" valign="top">
    .3
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Consent of Cawley,
    Gillespie&#160;&#038; Associates, Inc.
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    23
</TD>
<TD nowrap align="left" valign="top">
    .4*
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Consent of Thompson&#160;&#038;
    Knight LLP (contained in Exhibit&#160;5.1).
    </FONT>
</TD>
</TR>
<TR valign="bottom">
<TD nowrap align="right" valign="top">
&nbsp;
</TD>
<TD nowrap align="right" valign="top">
    24
</TD>
<TD nowrap align="left" valign="top">
&nbsp;
</TD>
<TD>
&nbsp;
</TD>
<TD align="left" valign="top">
    <FONT style="font-size: 10pt">Power of Attorney (contained on
    the signature page hereto).
    </FONT>
</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
<TD colspan="5" align="right" valign="top">
&nbsp;
</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
<TD colspan="5" style="border-top: 1px solid #000000">
&nbsp;
</TD>
</TR>
</TABLE>

<DIV align="left" style="margin-left: 0%; margin-right: 0%; text-indent: 0%; font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

</DIV>

<DIV style="margin-top: 3pt; font-size: 1pt">&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">

<TR>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="98%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT style="font-size: 8pt">*
    </FONT></TD>
    <TD></TD>
    <TD valign="bottom">
    <FONT style="font-size: 8pt">To be filed by amendment.
    </FONT></TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt; font-family: Arial, Helvetica; color: #000000; background: #FFFFFF">
    <BR>
    II-6
</DIV><!-- END LOGICAL PAGE -->
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>d47789exv3w1.htm
<DESCRIPTION>RESTATED CERTIFICATE OF INCORPORATION
<TEXT>
<HTML>
<HEAD>
<TITLE>exv3w1</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">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;3.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>RESTATED CERTIFICATE OF INCORPORATION</B>
</DIV>

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


<DIV align="center" style="font-size: 10pt"><B>APPROACH RESOURCES INC.</B></DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;J.&nbsp;Ross Craft hereby certifies that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>ONE: </B>He is the duly elected and acting President and Chief Executive Officer of Approach
Resources Inc., a Delaware corporation originally incorporated as of September&nbsp;12, 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TWO: </B>This Restated Certificate of Incorporation was duly adopted by the Board of Directors of
the Corporation in accordance with the provisions of Sections&nbsp;242 and 245 of the Delaware General
Corporation Law and was duly adopted by vote of the stockholders of the Corporation in accordance
with the provisions of Sections&nbsp;228 and 242 of the Delaware General Corporation Law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>THREE: </B>The Certificate of Incorporation of this corporation is hereby amended and restated in
its entirety to read as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;1. NAME</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The name of this corporation is Approach Resources Inc. (the &#147;<B>Corporation</B>&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;2. REGISTERED OFFICE AND AGENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registered office of the Corporation shall be located at Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801 in the County of New Castle. The registered agent of the
Corporation at such address shall be The Corporation Trust Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;3. PURPOSE AND POWERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purpose of the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of Delaware (the
&#147;<B>DGCL</B>&#148;). The Corporation shall have all power necessary or convenient to the conduct, promotion or
attainment of such acts and activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;4. CAPITAL STOCK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.1. Authorized Shares</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total number of shares of all classes of stock that the Corporation shall have the
authority to issue is 100,000,000, of which 90,000,000 of such shares shall be Common Stock, all of
one class, having a par value of $0.01 per share (&#147;<B>Common Stock</B>&#148;), and 10,000,000 of such shares
shall be Preferred Stock, having a par value of $0.01 per share (&#147;<B>Preferred Stock</B>&#148;).
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.2. Common Stock</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The holders of the Common Stock shall have and possess all rights as stockholders
of the Corporation except as such rights may be limited by the preferences, privileges and
voting powers, and the restrictions and limitations of the outstanding Preferred Stock.
All Common Stock, when duly issued, shall be fully paid and nonassessable. The holders of
Common Stock shall be entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each stockholder of record shall have one vote for each share of Common Stock
standing in his name on the books of the Corporation and entitled to vote.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) The holders of shares of the Common Stock shall be entitled to participate ratably
on a per share basis in all distributions in any dissolution, liquidation or winding up of
the Corporation, subject to the payment of any preferences thereto applicable to
outstanding Preferred Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.3. Preferred Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation may divide and issue the Preferred Stock in series. Preferred Stock of each
series when issued shall be designated to distinguish them from the shares of all other series. The
Board of Directors hereby is expressly vested with authority to divide the class of Preferred Stock
into series and to fix and determine the relative rights, limitations and preferences of the shares
of any such series so established to the full extent permitted by this Certificate of Incorporation
and the DGCL in respect of the following:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The number of shares to constitute such series, and the distinctive designations
thereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The rate and preference of any dividends and the time of payment of any dividends,
whether dividends are cumulative and the date from which any dividends shall accrue;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Whether shares may be redeemed and, if so, the redemption price and the terms and
conditions of redemption;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) The amount payable upon shares in event of involuntary liquidation;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The amount payable upon shares in event of voluntary liquidation;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Sinking fund or other provisions, if any, for the redemption or purchase of
shares;
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) The terms and conditions on which shares may be converted, if the shares of any
series are issued with the privilege of conversion;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) Voting rights, if any; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Any other relative rights and preferences of shares of such series, including
without limitation any restriction on an increase in the number of shares of any series
theretofore authorized and any limitation or restriction of rights or powers to which
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of any future series shall be subject.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding the fixing of the number of shares constituting the particular series upon the
issuance thereof, the Board of Directors may at any time thereafter authorize the issuance of
additional shares of the same series or may reduce the number of shares constituting such series.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors expressly is authorized to vary the provisions relating to the
foregoing matters between the various series of Preferred Stock, but in all other respects the
shares of each series shall be of equal rank with each other, regardless of series. All Preferred
Stock in any one series shall be identical in all respects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.4. Preemptive Rights</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ownership of shares of any class of the capital stock of the Corporation shall not entitle the
holders thereof to any preemptive rights to subscribe for or purchase or to have offered to them
for subscription or purchase any additional shares of capital stock of any class of the Corporation
or any securities convertible into any class of capital stock of the Corporation, whether now or
hereafter authorized, however acquired, issued or sold by the Corporation, it being the purpose and
intent hereof that the Board of Directors shall have the full right, power and authority to offer
for subscription or sell or to make any disposal of any or all unissued shares of the capital stock
of the Corporation or any securities convertible into stock or any or all shares of stock or
convertible securities issues and thereafter acquired by the Corporation, for such consideration,
in money or property, as the Board of Directors in its sole discretion may determine.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;5. BOARD OF DIRECTORS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.1. Management</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The governing body of this Corporation shall be known as the Board of Directors,
and the number of directors of the Corporation may from time to time be increased or
decreased in such manner as shall be provided by the Bylaws of the Corporation. The exact
number of directors shall be fixed from time to time pursuant to a resolution adopted by
the directors or as provided in the Bylaws of the Corporation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Board of Directors shall be and is divided into three (3)&nbsp;classes as nearly as
equal in size as is practicable, hereby designated Class&nbsp;I, Class&nbsp;II and
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Class&nbsp;III. If a fraction is contained in the quotient arrived at by dividing the
authorized number of directors by three, then, if such fraction is one-third, the extra
director shall be a member of Class&nbsp;III, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class&nbsp;II and one of the extra directors shall be a
member of Class&nbsp;III, unless otherwise provided from time to time by resolution adopted by
the Board of Directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Holders of Common Stock shall elect all directors of the Corporation. Elections
of directors need not be by written ballot except as and to the extent provided in the
Bylaws of the Corporation. Cumulative voting for the election of directors is not allowed.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Each director shall serve for a term ending on the date of the third annual
meeting following the annual meeting at which such director was elected; <I>provided</I>, that
each initial director in Class&nbsp;I shall serve for a term expiring at the Corporation&#146;s
annual meeting held in 2008; each initial director in Class&nbsp;II shall serve for a term
expiring at the Corporation&#146;s annual meeting held in 2009; and each initial director in
Class&nbsp;III shall serve for a term expiring at the Corporation&#146;s annual meeting held in 2010;
<I>provided, further</I>, that the term of each director shall continue until the election and
qualification of his successor and shall be subject to his earlier death, resignation or
removal.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The initial directors of the Corporation, who shall serve as the directors of the
Corporation until their successors are elected and qualify or until their earlier death,
resignation or removal from office, and their respective classifications and terms shall be
as follows:
</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="14%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="28%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Class</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Expiration of Term</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Directors</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">I
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Next succeeding annual meeting
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sheldon B. Lubar</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">Christopher J. Whyte</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">II
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second succeeding annual meeting
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">James H. Brandi</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">James C. Crain</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">III
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Third succeeding annual meeting
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">J. Ross Craft</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">Bryan H. Lawrence</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Subject to the rights of the holders of any series of Preferred Stock to remove
directors under specified circumstances, (i)&nbsp;no director may be removed without cause and
(ii)&nbsp;the affirmative vote of the holders of at least sixty-seven (67%) of the voting power
of all of the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class, shall be
required to remove any director or the entire Board of Directors for cause.
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) In the event of any increase or decrease in the authorized number of directors,
(i)&nbsp;each director then serving as such shall nevertheless continue as a director of the
class of which he is a member until the expiration of his current term, subject to his
earlier death, resignation or removal, and (ii)&nbsp;the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors in accordance with the provisions of
subsection (b)&nbsp;above. To the extent possible, consistent with the provisions of subsection
(b)&nbsp;above, any newly created directorships shall be added to those classes whose terms of
office are to expire at the latest dates following such allocation, and any newly
eliminated directorships shall be subtracted from those classes whose terms of offices are
to expire at the earliest dates following such allocation, unless otherwise provided from
time to time by resolution adopted by the Board of Directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) Unless and until filled by the stockholders, any vacancy in the Board of
Directors, however occurring, including a vacancy resulting from an enlargement of the
Board, may be filled by a vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall
be elected to hold office until the next election of the class for which such director
shall have been chosen, subject to the election and qualification of his successor and to
his earlier death, resignation or removal.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.2. Stockholder Nominations of Directors and Introduction of Business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advanced notice of stockholder nominations for the election of directors and of
business to be brought by stockholders before any meeting of the stockholders of the
Corporation shall be given in the manner and to the extent provided in the Bylaws of the
Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;6. DIRECTOR AND OFFICER LIABILITY</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1 Elimination of Director and Officer Liability</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the fullest extent permitted by the DGCL as the same exists or may hereafter be amended, no
director or officer of the corporation shall be personally liable to the corporation or any of its
stockholders for damages for breach of fiduciary duty as a director or officer occurring on or
after the date of incorporation; provided, however, that the foregoing provision shall not
eliminate or limit the liability of a director or officer (i)&nbsp;for any breach of the director&#146;s duty
of loyalty to the Corporation or its stockholders, (ii)&nbsp;for acts or omissions not in good faith or
which involve intentional misconduct, fraud or a knowing violation of law, (iii)&nbsp;the payment of
dividends in violation of Section&nbsp;174 of the DGCL or (iv)&nbsp;for any transaction for which the
director derived an improper personal benefit. If the DGCL is amended to authorize corporate
action further eliminating or limiting the personal liability of directors, then the liability of a
director of the
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so
amended. Any repeal or modification of this Section&nbsp;6.1 by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the personal liability
of a director or officer of the Corporation for acts or omissions prior to such repeal or
modification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.2 Indemnification and Insurance</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <I>Right to Indemnification. </I>Each person who was or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a &#147;<B>proceeding</B>&#148;), by reason of the
fact that he or she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation, or serves, in any capacity, any corporation,
partnership or other entity in which the Corporation has a partnership or other interest,
including service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent authorized
by the DGCL, as the same exists or may hereafter be amended (but, in case of any such
amendment, only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to the benefit
of his or her heirs, executors and administrators; provided, however, the Corporation shall
indemnify any such person seeking indemnification pursuant to this subsection in connection
with a proceeding (or part thereof) initiated by such person only if such proceeding (or
part thereof) was authorized by the Board of Directors of the Corporation. The Corporation
may, by action of its Board of Directors, provide indemnification to employees or agents of
the Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <I>Nonexclusivity of Rights. </I>The right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition conferred
in this Article&nbsp;6 shall not be exclusive of any right which any person may have or
hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <I>Insurance. </I>The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any such
expense, liability or loss, whether or not the
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <I>Severability. </I>If any subsection of this Section&nbsp;6.2 shall be deemed to be invalid
or ineffective in any proceedings, the remaining subsections hereof shall not be affected
and shall remain in full force and effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;7. TERM</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation shall have perpetual existence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;8. BYLAWS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the
Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of
Directors shall require the approval of a majority of the total number of directors fixed by
resolution of the Board of Directors regardless of whether there exist any vacancies in such fixed
number of directorships. The stockholders shall also have the power to adopt, amend or repeal the
Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any
class or series of capital stock of the Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-seven percent (67%) of the
voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single class, shall be
required to adopt, amend or repeal any provision of the Bylaws of the Corporation in the event of
such a vote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;9. STOCKHOLDER MEETINGS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any action required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders of the Corporation and may not
be effected by any consent in writing by such stockholders. Only the Board of Directors, the
Chairman of the Board of Directors or the Chief Executive Officer shall be permitted to call a
special meeting of stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;10. AMENDMENT TO CERTIFICATE OF INCORPORATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation reserves the right to amend, alter, change or repeal any provision contained
in this Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this reservation; provided
however, that the affirmative vote of the holders of at least sixty-seven percent (67%) of the
shares of capital stock of the Corporation issued and outstanding and entitled to vote, voting
together as a single class, shall be required to alter, amend or repeal Articles 5, 6 and 9 of this
Certificate of Incorporation; provided, however, that this Article&nbsp;10 shall not apply to, and such
sixty-seven percent (67%) vote shall not be required for, any amendment, repeal or adoption
unanimously recommended by the Board of Directors.
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Article&nbsp;11. RENUNCIATION OF BUSINESS OPPORTUNITIES</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Renouncement of Business Opportunities</U>. The Corporation hereby renounces
any interest or expectancy in any business opportunity, transaction or other matter in
which any Designated Party participates or desires or seeks to participate in and that
involves any aspect of the E&#038;P Business (each, a &#147;<B>Business Opportunity</B>&#148;) other than a
Business Opportunity that (i)&nbsp;is first presented to a Designated Party solely in such
person&#146;s capacity as a director of the Corporation or its Subsidiaries and with respect to
which, at the time of such presentment, no other Designated Party has independently
received notice of or otherwise identified such Business Opportunity or (ii)&nbsp;is identified
by a Designated Party solely through the disclosure of information by or on behalf of the
Corporation (each Business Opportunity other than those referred to in clauses (i)&nbsp;or (ii)
are referred to as a &#147;<B>Renounced Business Opportunity</B>&#148;). No Designated Party shall have any
obligation to communicate or offer any Renounced Business Opportunity to the Corporation,
and any Designated Party may pursue a Renounced Business Opportunity. The Corporation
shall not be prohibited from pursuing any Business Opportunity with respect to which it has
renounced any interest or expectancy as a result of this Article&nbsp;11. Nothing in this
Article&nbsp;11 shall be construed to allow any director to usurp a Business Opportunity of the
Corporation or its Subsidiaries solely for his or her personal benefit.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Consent</U>. Any Person purchasing or otherwise acquiring any interest in
shares of the capital stock of the Company shall be deemed to have consented to these
provisions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Amendment</U>. Any proposed amendment to this Article&nbsp;11 shall require the
approval of at least 67% of the outstanding voting stock of the Corporation entitled to
vote generally in the election of directors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Term</U>. The provisions of this Article&nbsp;11 shall terminate and be of no
further force and effect at such time as no Designated Party serves as a director
(including Chairman of the Board) of the Company or its Subsidiaries.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) As used in this Article&nbsp;11, the following definitions shall apply:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) &#147;<B>Affiliate</B>&#148; means with respect to a specified person, a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified, and any
directors, officers, partners or 5% or more owners of such person.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) &#147;<B>Designated Parties</B>&#148; means James H. Brandi, James C. Crain, Bryan H. Lawrence, Sheldon B.
Lubar, Christopher J. Whyte, all Affiliates of the foregoing, Yorktown Energy
Partners V, L.P., Yorktown Energy Partners
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">VI, L.P., Yorktown Energy Partners VII, L.P., any other investment fund
sponsored or managed by Yorktown Partners LLC, including any fund still to be
formed, and such other persons as the Board of Directors of the Corporation shall,
from time to time, determine by resolution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) &#147;<B>E&#038;P Business</B>&#148; means the oil and gas exploration, exploitation,
development and production business and includes without limitation (a)&nbsp;the
ownership of oil and gas property interests (including working interests, mineral
fee interests and royalty and overriding royalty interests), (b)&nbsp;the ownership and
operation of real and personal property used or useful in connection with
exploration for Hydrocarbons, development of Hydrocarbon reserves upon discovery
thereof and production of Hydrocarbons from wells located on oil and gas properties
and (c)&nbsp;the ownership of debt of or equity interests in corporations, partnerships
or other entities engaged in the exploration for Hydrocarbons, the development of
Hydrocarbon reserves and the production and sale of Hydrocarbons.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) &#147;<B>Hydrocarbons</B>&#148; means oil, gas or other liquid or gaseous hydrocarbons or
other minerals produced from oil and gas wells.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) &#147;<B>Person</B>&#148; means an individual, corporation, partnership, limited liability
company, trust, joint venture, unincorporated organization or other legal or
business entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) &#147;<B>Subsidiary</B>&#148; or &#147;<B>Subsidiaries</B>&#148; means, with respect to any Person, any other Person the majority of the voting securities of which are owned, directly or indirectly, by such first Person.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">* * * * *
</DIV>


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</DIV>

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




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IN WITNESS WHEREOF</B>, Approach Resources Inc. has caused this Restated Certificate of
Incorporation to be executed by its President and Chief Executive Officer who hereby certifies that
the facts hereinabove stated are truly set forth, this
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; day of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2007.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">APPROACH RESOURCES INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">J. Ross Craft,&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


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<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>d47789exv3w2.htm
<DESCRIPTION>RESTATED BYLAWS
<TEXT>
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;3.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><FONT style="font-variant: SMALL-CAPS"><B>Restated Bylaws</B></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><B>of</B></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><B>Approach Resources, Inc.</B></FONT>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE I<BR>
<U>OFFICES</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1. <U>Name</U>. The name of the corporation is Approach Resources Inc. (hereinafter
called the &#147;<B>Corporation</B>&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2. <U>Registered Office</U>. The registered office of the Corporation required by
the state of incorporation of the Corporation to be maintained in the state of incorporation of the
Corporation shall be the registered office named in the certificate of incorporation of the
Corporation, or such other office as may be designated from time to time by the Board of Directors
in the manner provided by law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3. <U>Other Offices</U>. The Corporation shall also have such offices, and keep the
books and records of the Corporation as may be required by law, and at such other place or places
as the Board of Directors may from time to time determine or the business of the Corporation
require.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE II<BR>
<U>MEETINGS OF STOCKHOLDERS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1. <U>Annual Meetings</U>. The annual meetings of stockholders for the election of
directors and for the transaction of such other business as may properly come before the meeting
shall be held during each calendar year on a date and at such hour as may be fixed by the Board of
Directors, beginning in 2008, at such place as designated by the Board of Directors in the notice
of such meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2. <U>Special Meetings</U>. Special meetings of the stockholders for any purpose or
purposes may be called by a majority of the entire Board of Directors, the Chairman of the Board of
Directors or the Chief Executive Officer. Only such business as is specified in the notice of any
special meeting of the stockholders shall come before such meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3. <U>Notice of Meetings</U>. Except as otherwise provided by law, written notice of
each meeting of the stockholders, whether annual or special, shall be given, either by personal
delivery or by mail, not less than ten (10)&nbsp;nor more than sixty (60)&nbsp;days before the date of the
meeting to each stockholder of record entitled to notice of the meeting. If mailed, such notice
shall be deemed given when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder&#146;s address as it appears on the records of the Corporation. Each
such notice shall state the place, date and hour of the meeting, and the purpose or purposes for
which the meeting is called. Notice of any meeting of stockholders shall not be required to be
given to any stockholder who shall attend such meeting in person or by proxy without protesting,
prior to or at the commencement of the meeting, the lack of proper notice to such stockholder.
Notice of adjournment of a meeting of stockholders need not be given if the time and place to
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">which it is adjourned are announced at such meeting, unless the adjournment is for more than thirty
(30)&nbsp;days or, after adjournment, a new record date is fixed for the adjourned meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4. <U>Quorum; Adjournment of Meetings</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Unless otherwise required by law or provided in the certificate of incorporation of the
Corporation (the &#147;<B>Certificate of Incorporation</B>&#148;) or these Bylaws, (i)&nbsp;the holders of a majority of
the shares of stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at any meeting of the stockholders for the
transaction of business and (ii)&nbsp;where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in person or represented by
proxy shall constitute a quorum entitled to take action with respect to the vote on that matter.
The stockholders present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Notwithstanding the other provisions of the Certificate of Incorporation or these Bylaws,
the chairman of the meeting or the holders of a majority of the issued and outstanding stock,
present in person or represented by proxy and entitled to vote thereat, at any meeting of
stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from
time to time, without any notice other than announcement at the meeting of the time and place of
the holding of the adjourned meeting. If the adjournment is for more than thirty (30)&nbsp;days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting.
At such adjourned meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally called.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5. <U>Voting</U>. At each meeting of the stockholders, in all matters, other than
the election of directors (except as otherwise provided in the Certificate of Incorporation), the
affirmative vote of the holders of a majority of such stock so present or represented by proxy at
any meeting of stockholders at which a quorum is present shall constitute the act of the
stockholders. There shall be no separate votes of classes of capital stock, except as specifically
required by law, the Certificate of Incorporation, or the Bylaws. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of the directors. Where a separate vote by a class or classes is
required, the affirmative vote of the majority of the shares of such class or classes present in
person or represented by proxy at the meeting shall be the act of such class. Each stockholder
entitled to vote at any meeting of stockholders may authorize any person or persons to act for such
stockholder by a proxy signed by such stockholder or such stockholder&#146;s attorney-in-fact.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise required by law or provided in the Certificate of Incorporation, each
stockholder shall on each matter submitted to a vote at a meeting of stockholders have one vote for
each share of the stock entitled to vote which is registered in his name on the record date for the
meeting. For the purposes hereof, each election to fill a directorship shall constitute a separate
matter. Shares registered in the name of another entity, domestic or foreign, may be voted by such
officer, agent or proxy as the organizational documents of such entity may determine. Shares
registered in the name of a deceased person may be voted by the executor or administrator of such
person&#146;s estate, either in person or by proxy.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All voting, except as required by the Certificate of Incorporation or where otherwise required
by law, may be by a voice vote; provided, however, upon request of the chairman of the meeting or
upon demand therefor by stockholders holding a majority of the issued and outstanding stock present
in person or by proxy at any meeting, a stock vote shall be taken. Every stock vote shall be taken
by written ballots, each of which shall state the name of the stockholder or proxy voting and such
other information as may be required under the procedure established for the meeting. All elections
of directors shall be by written ballots, unless otherwise provided in the Certificate of
Incorporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At any meeting at which a vote is taken by written ballots, the chairman of the meeting may
appoint one or more inspectors, each of whom shall subscribe an oath or affirmation to execute
faithfully the duties of inspector at such meeting with strict impartiality and according to the
best of such inspector&#146;s ability. Such inspector shall receive the written ballots, count the votes
and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director shall be appointed as
an inspector.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise provided in the Certificate of Incorporation, cumulative voting for the
election of directors shall be prohibited.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6. <U>Participation in Meeting by Means of Communication Equipment</U>. Any
stockholder may participate in any meeting of the stockholders by means of conference telephone or
similar communications equipment by means of which all persons participating in the meeting can
hear each other, and such participation shall constitute presence in person at such meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7. <U>Notice of Stockholder Business</U>. At an annual or special meeting of the
stockholders, only such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting of stockholders, business must be (i)&nbsp;specified
in the notice of meeting (or any supplement thereto) given at the direction of the Board of
Directors, (ii)&nbsp;properly brought before the meeting by or at the direction of the Board of
Directors or (iii)&nbsp;properly brought before a meeting by a stockholder who is a stockholder of
record on the date of the giving of the notice provided for in this Section&nbsp;7 and on the record
date for the determination of stockholders entitled to vote at such annual meeting and who complies
with the notice provisions set forth in this Section&nbsp;7. For business to be properly brought before
a meeting by a stockholder, it must be a proper matter for stockholder action under the Delaware
General Corporation Law, and the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To be timely, notice by a stockholder must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than ninety (90)&nbsp;and no more than one
hundred twenty (120)&nbsp;calendar days prior to the one year anniversary of the date of the
Corporation&#146;s proxy statement issued in connection with the prior year&#146;s annual meeting in the case
of an annual meeting, and not less than sixty (60)&nbsp;days prior to the meeting in the case of a
special meeting; provided however, that if a public announcement of the date of the special meeting
is not given at least seventy (70)&nbsp;days before the scheduled date for such special meeting, then a
stockholder&#146;s notice shall be timely if it is received at the principal executive
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">offices of the Corporation within ten (10)&nbsp;days following the date public notice of the meeting
date is first given, whether by press release or other public filing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To be in proper written form, notice by a stockholder to the Secretary of the Corporation
shall set forth as to each matter the stockholder proposes to bring before the annual or special
meeting (i)&nbsp;a description of the business desired to be brought before the meeting, (ii)&nbsp;the name
and address of the stockholder proposing such business and of the beneficial owner, if any, on
whose behalf the business is being brought, (iii)&nbsp;the class, series and number of shares of the
Corporation which are beneficially owned by the stockholder and such other beneficial owner, (iv)
any material interest of the stockholder and such other beneficial owner in such business and (v)&nbsp;a
representation that such stockholder intends to appear in person or by proxy at the annual or
special meeting to bring such business before such meeting. In no event shall an announcement of
an adjournment or postponement of a meeting of stockholders commence a new time period (or extend
any time period) for the giving of a stockholder&#146;s notice as described above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;8. <U>Nomination of Director Candidates</U>. Subject to any provision of the
Certificate of Incorporation or any Certificate of Designations establishing the rights of holders
of any class or series of capital stock then outstanding, nominations for the election or
re-election of directors at a meeting of the stockholders may be made by (i)&nbsp;the Board of Directors
or a duly authorized committee thereof or (ii)&nbsp;any stockholder entitled to vote in the election of
directors generally who complies with the procedures set forth in these Bylaws and who is a
stockholder of record at the time notice is delivered to the Secretary of the Corporation and on
the record date for the determination of stockholders entitled to vote at such annual meeting and
who complies with the notice provisions set forth in this Section&nbsp;8. Subject to any provision of
the Certificate of Incorporation or any Certificate of Designations establishing the rights of
holders of any class or series of capital stock then outstanding, any stockholder entitled to vote
in the election of directors generally may nominate one or more persons for election or re-election
as directors at an annual meeting only if timely notice of such stockholder&#146;s intent to make such
nominations has been given in writing to the Secretary of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To be timely, notice of a stockholder nomination for a director to be elected must be
delivered to or mailed and received at the principal executive offices of the Corporation, not less
than ninety (90)&nbsp;and no more than one hundred twenty (120)&nbsp;calendar days prior to the one year
anniversary of the date of the Corporation&#146;s proxy statement issued in connection with the prior
year&#146;s annual meeting in the case of an annual meeting, and not less than sixty (60)&nbsp;days prior to
the meeting the case of a special meeting; provided however, that if a public announcement of the
date of the special meeting is not given at least seventy (70)&nbsp;days before the scheduled date for
such special meeting, then a stockholder&#146;s notice shall be timely if it is received at the
principal executive offices of the Corporation within ten (10)&nbsp;days following the date public
notice of the meeting date is first given, whether by press release or other public filing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To be in proper written form, notice by a stockholder to the Secretary of the Corporation
shall set forth as to each matter the stockholder proposes to bring before the annual or special
meeting (i)&nbsp;the name and address of the stockholder who intends to make the nomination, of the
beneficial owner, if any on whose behalf the nomination is being made and of each person to be
nominated, (ii)&nbsp;a representation that the stockholder is the holder of record of stock of the
Corporation entitled to vote for the election of directors on the date of such notice and intends
to appear in person or by proxy at the meeting to nominate each person specified in the notice,
(iii)
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">a description of all the arrangements or understandings between the stockholder or such beneficial
owner and each nominee and any other person (naming such person) pursuant to which the nomination
is to be made by the stockholder, (iv)&nbsp;such other information regarding each nominee proposed by
such stockholder as would be required to be included in solicitations of proxies for the election
of directors in an election contest or is otherwise required pursuant to the federal securities
laws and regulations, had the nominee been nominated, or intended to be nominated, by the Board of
Directors and (v)&nbsp;the consent of each nominee to serve as a director of the Corporation if so
elected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding the foregoing, in the event that the number of directors to be elected at an
annual meeting is increased and there is no public announcement by the Corporation naming the
nominees for the additional directorships at least 130&nbsp;days prior to such meeting, a stockholder&#146;s
notice required by this Section&nbsp;8 shall also be considered timely, but only with respect to
nominees for the additional directorships, if it shall be delivered to the Secretary of the
Corporation no later than the close of business on the 10th day following the day on which such
public announcement is first made by the Corporation. In no event shall an announcement of an
adjournment or postponement of a meeting of stockholders commence a new time period (or extend any
time period) for the giving of a stockholder&#146;s notice as described above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;9. <U>Stockholder List</U>. A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each class of stock and showing the
address of each such stockholder and the number of shares registered in the name of such
stockholder, 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)&nbsp;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 stockholder 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;10. <U>Proxies</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each stockholder entitled to vote at a meeting of stockholders may authorize another person or
persons to act for him by proxy. Proxies for use at any meeting of stockholders shall be filed with
the Secretary, or such other officer as the Board of Directors may from time to time determine by
resolution, before or at the time of the meeting. A written proxy may be in the form of a
telegram, cablegram or other means of electronic transmission which sets forth or is submitted with
information from which it can be determined that the telegram, cablegram or other means of
electronic transmission was authorized by the person. All proxies shall be received and taken
charge of and all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching upon the qualification of voters, the validity of the proxies,
and the acceptance or rejection of votes, unless an inspector or inspectors shall have been
appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide
all such questions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No proxy shall be valid after three (3)&nbsp;years from its date, unless the proxy provides for a
longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable
and coupled with an interest sufficient in law to support an irrevocable power.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Should a proxy designate two or more persons to act as proxies, unless such instrument shall
provide the contrary, a majority of such persons present at any meeting at which their powers
thereunder are to be exercised shall have and may exercise all the powers of voting thereby
conferred, or if only one be present, then such powers may be exercised by that one; or, if an even
number attend and a majority do not agree on any particular issue, each proxy so attending shall be
entitled to exercise such powers in respect of such portion of the shares as is equal to the
reciprocal of the fraction equal to the number of proxies representing such shares divided by the
total number of shares represented by such proxies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;11. <U>Treasury Stock</U>. The Corporation shall not vote, directly or indirectly,
shares of its own stock owned by it and such shares shall not be counted for quorum purposes.
Nothing in this Section&nbsp;11 shall be construed as limiting the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary capacity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;12. <U>Stockholder Action</U>. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in writing by such
stockholders.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE III<BR>
<U>BOARD OF DIRECTORS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1. <U>Number</U>. The Board of Directors shall consist of not less than three (3)
and not more than nine (9)&nbsp;directors, and the exact number of directors which shall constitute the
Board of Directors shall be fixed from time to time by resolution of the Board; provided, however,
that no decrease in the number of directors constituting the Board shall have the effect of
shortening the term of any incumbent director. None of the directors needs to be a stockholder of
the Corporation or a resident of the State of Delaware.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2. <U>Vacancies</U>. Any vacancies in the Board of Directors for any reason, and any
newly created directorships resulting from any increase in the authorized number of directors, may
be filled only by a majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders and until their successors are duly elected and qualified or
until their earlier resignation or removal. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3. <U>Quorum and Manner of Acting</U>. A majority of the entire Board of Directors
shall constitute a quorum for the transaction of business at any meeting of the Board, and the vote
of a majority of the directors present at any meeting at which there is a quorum shall be the act
of the Board. In the absence of a quorum, a majority of the directors present may adjourn the
meeting to another time and place. At any adjourned meeting at which a quorum is present, any
business that might have been transacted at the meeting as originally called may be transacted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4. <U>Regular and Special Meetings</U>. Regular meetings of the Board of Directors
shall be held at such times and places as the Board shall from time to time by
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">resolution determine. Special meetings of the Board of Directors shall be held whenever called by
the Chairman of the Board, the President, or by at least two (2)&nbsp;of the directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5. <U>Participation in Meeting by Means of Communication Equipment</U>. Any one or
more members of the Board of Directors or any committee thereof may participate in any meeting of
the Board or of any such 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 such
participation shall constitute presence in person at such meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6. <U>Committees</U>. The Board of Directors may, by unanimous resolution, designate
one or more committees, each committee to consist of two (2)&nbsp;or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in the resolution, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which may require it;
provided, however, that in the absence or disqualification of any member of such committee or
committees the member or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or disqualified member. Such
committee or committees shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7. <U>Compensation</U>. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as a director. No such payment shall
preclude any director from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like compensation for attending
committee meetings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;8. <U>Resignations</U>. Any director of the Corporation may at any time resign by
giving written notice to the Board of Directors, the Chairman of the Board, the President or the
Secretary of the Corporation. Such resignation shall take effect at the time specified therein or,
if the time be not specified, upon receipt thereof; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;9. <U>Reliance upon Books, Reports and Records</U>. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors, shall, in the
performance of such person&#146;s duties, be protected to the fullest extent permitted by law in relying
upon the records of the Corporation and upon information, opinions, reports or statements presented
to the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;10. <U>Consents</U>. Any action which may be taken at a meeting of the Board of
Directors or any committee thereof may be taken without a meeting in compliance with Delaware
General Corporation Law.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE IV<BR>
<U>NOTICES</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1. 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
Corporation, 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 prepaid telegram, facsimile, or reputable courier service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2. Whenever any notice is required to be given under the provisions of the statutes or
of the certificate of incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE V<BR>
<U>OFFICERS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1. <U>Number, Term of Office</U>. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a
Treasurer, a Secretary and such other officers or agents with such titles and such duties as the
Board of Directors may from time to time determine (including a Chief Operating Officer), each to
have such authority, functions or duties as in these Bylaws provided or as the Board may from time
to time determine, and each to hold office for such term as may be prescribed by the Board and
until such person&#146;s successor shall have been chosen and shall qualify, or until such person&#146;s
death or resignation, or until such person&#146;s removal in the manner hereinafter provided. The
Chairman of the Board shall be elected from among the directors. One person may hold the offices
and perform the duties of any two or more of said officers; provided, however, that no officer
shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is
required by law, the Certificate of Incorporation of the Corporation or these Bylaws to be
executed, acknowledged or verified by two (2)&nbsp;or more officers. The Board may from time to time
authorize any officer to appoint and remove any such other officers and agents and to prescribe
their powers and duties. The Board may require any officer or agent to give security for the
faithful performance of such person&#146;s duties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2. <U>Removal</U>. Any officer may be removed, either with or without cause, by the
Board of Directors at any meeting thereof called for that purpose, or, except in the case of any
officer elected by the Board, by any committee or superior officer upon whom such power may be
conferred by the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3. <U>Resignation</U>. Any officer may at any time resign by giving written notice
to the Board of Directors, the President or the Secretary of the Corporation. Any such resignation
shall take effect at the date of receipt of such notice or at any later date specified therein,
and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary
to make it effective.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4. <U>Vacancies</U>. A vacancy in any office because of death, resignation, removal
or any other cause may be filled for the unexpired portion of the term by the Board of Directors in
the manner prescribed in these Bylaws for election to such office.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5. <U>Chairman of the Board</U>. The Chairman of the Board of Directors shall
preside at meetings of the Board of Directors and of the stockholders. He shall have general power
to execute bonds, mortgages and other instruments requiring a seal, under the seal of the
Corporation, except when the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent. When the Board of Directors designates the
Chairman of the Board as the Chief Executive Officer of the Corporation he shall have general
supervision, direction and active management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect. The Chairman of the
Board shall have such other specific duties as shall be assigned to him by the Board of Directors
from time to time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6. <U>Chief Executive Officer</U>. The Chief Executive Officer shall be the chief
executive officer of the Corporation and as such shall have general supervision and direction of
the business and affairs of the Corporation, subject to the control of the Board of Directors. The
Chief Executive Officer shall, if present and in the absence of the Chairman of the Board, preside
at meetings of the stockholders and at meetings of the Board of Directors. The Chief Executive
Officer shall perform such other duties as the Board may from time to time determine. The Chief
Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts or other instruments authorized by the Board of Directors or any committee thereof
empowered to authorize the same, except when the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7. <U>President</U>. The President, in the absence or disability of the Chairman of
the Board of Directors and the Chief Executive Officer, shall preside at meetings of the Board of
Directors and of the stockholders and shall perform the duties and exercise the powers of the
Chairman of the Board of Directors. He shall have general power to execute deeds, mortgages, bonds,
contracts or other instruments authorized by the Board of Directors or any committee thereof
empowered to authorize the same, except when the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the Corporation. When
designated as Chief Executive Officer of the Corporation, the President shall have general
supervision, direction and active management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect; otherwise, he shall
be the chief operating officer of the Corporation and shall perform such other duties as may be
prescribed by the Board of Directors or by the Chairman of the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;8. <U>Vice Presidents</U>. Each Vice President shall have such powers and duties as
shall be prescribed by the Chairman of the Board, the President or the Board of Directors. Any
Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts or other instruments authorized by the Board or any committee thereof empowered to
authorize the same, except when the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;9. <U>Treasurer</U>. The Treasurer shall perform all duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to the Treasurer by the
Chairman of the Board, the President or the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;10. <U>Secretary</U>. It shall be the duty of the Secretary to act as secretary at
all meetings of the Board of Directors and of the stockholders and to record the proceedings of
such meetings in a book or books to be kept for that purpose; the Secretary shall see that all
notices required to be given by the Corporation are duly given and served; the Secretary shall be
custodian of the seal of the Corporation and shall affix the seal or cause it to be affixed to all
certificates of stock of the Corporation (unless the seal of the Corporation on such certificates
shall be a facsimile, as hereinafter provided) and to all documents, the execution of which on
behalf of the Corporation under its seal is duly authorized in accordance with the provisions of
these Bylaws. The Secretary shall have charge of the stock ledger and also of the other books,
records and papers of the Corporation and shall see that the reports, statements and other
documents required by law are properly kept and filed; and the Secretary shall in general perform
all the duties incident to the office of Secretary and such other duties as from time to time may
be assigned to such person by the Chairman of the Board, Chief Executive Officer, President or the
Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;11. <U>Assistant Treasurers and Secretaries</U>. The Assistant Treasurers and the
Assistant Secretaries shall perform such duties as shall be assigned to them by the Treasurer or
Secretary, respectively, or by the Chairman of the Board, Chief Executive Officer, President or the
Board of Directors.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VI<BR>
<U>INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1. <U>Power to Indemnify in Actions, Suits or Proceedings</U>. Subject to Section&nbsp;2
of this Article&nbsp;VI, the Corporation shall indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), any person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a &#147;<B>proceeding</B>&#148;), by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, against all expense, liability
and loss (including attorneys&#146; fees, judgments, fines or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and administrators; provided,
however, that except as provided in Article&nbsp;VI, Section&nbsp;2 of these Bylaws, the Corporation shall
indemnify any such person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">authorized by the Board of Directors of the Corporation. The right to indemnification conferred in
this section of Article&nbsp;VI shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of its final
disposition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2. <U>Indemnification by a Court</U>. Notwithstanding anything to the contrary
contained herein, any director or officer may apply to any court of competent jurisdiction in the
State of Delaware for indemnification. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standards of conduct set forth in the Delaware
General Corporation Law. Notice of any application for indemnification pursuant to this Section&nbsp;2
shall be given to the Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be entitled to be paid
the expense of prosecuting such application.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3. <U>Expenses Payable in Advance</U>. Expenses incurred by a director or officer in
defending or investigating a threatened or pending action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized
this Article&nbsp;VI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4. <U>Nonexclusivity of Indemnification and Advancement of Expenses</U>. The
indemnification and advancement of expenses provided by or granted pursuant to this Article&nbsp;VI
shall not be deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of stockholders
or disinterested directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, it being the policy of the Corporation that
indemnification of the persons specified in this Article&nbsp;VI shall be made to the fullest extent
permitted by law. The provisions of this Article&nbsp;VI shall not be deemed to preclude the
indemnification of any person who is not specified in Sections&nbsp;1 or 2 of this Article&nbsp;VI but whom
the Corporation has the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware, or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5. <U>Insurance</U>. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director or officer of the Corporation, or is or was a director or
officer of the Corporation serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation would have the power
or the obligation to indemnify him against such liability under the provisions of this Article&nbsp;VI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;6. <U>Certain Definitions</U>. For purposes of this Article&nbsp;VI, references to &#147;the
Corporation&#148; shall include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to indemnify its directors,
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">officers and employees or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the provisions of this
section with respect to the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued. For purposes of this Article
VI, references to &#147;fines&#148; shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to &#147;serving at the request of the Corporation&#148; shall include
any service as a director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;7. <U>Survival of Indemnification and Advancement of Expenses</U>. The
indemnification and advancement of expenses provided by, or granted pursuant to, this Article&nbsp;VI
shall, unless otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;8. <U>Limitation on Indemnification</U>. Notwithstanding anything contained in this
Article&nbsp;VI to the contrary, except for proceedings to enforce rights to indemnification (which
shall be governed by Section&nbsp;2 hereof), the Corporation shall not be obligated to indemnify any
director or officer in connection with a proceeding (or part thereof) initiated by such person
unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors
of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;9. <U>Indemnification of Employees and Agents</U>. The Corporation may, to the
extent authorized from time to time by the Board of Directors, provide rights to indemnification
and the advancement of expenses to employees and agents of the Corporation similar to those
conferred in this Article&nbsp;VI to directors and officers of the Corporation.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VII<BR>
<U>CAPITAL STOCK</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1. <U>Certificates of Stock</U>. The Board of Directors may provide by resolution or
resolutions that some or all of any or all classes or series of its capital stock shall be
uncertificated shares. The certificates for shares of the capital stock of the Corporation shall
be in such form, not inconsistent with that required by law and the certificate of incorporation of
the Corporation, as shall be approved by the Board of Directors. Every holder of capital stock
represented by certificates shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman of the Board, the Chief Executive Officer, President, a Vice President
or such other officer as designated by the Board of Directors and the Secretary or an assistant
Secretary or the Treasurer or an assistant Treasurer of the Corporation representing the number of
shares (and, if the capital stock of the Corporation shall be divided into classes or series,
certifying the class and series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any of or all the signatures on the certificate may be
facsimile. The stock record books and the blank stock certificate books shall be kept by
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the Secretary or at the office of such transfer agent or transfer agents as the Board of Directors
may from time to time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon any such certificate
or certificates shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued by the Corporation, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered and shall be entered
in the books of the Corporation as they are issued and shall exhibit the holder&#146;s name and number
of shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2. <U>Transfer of Shares</U>. In respect of certificated shares of capital stock,
such shares of capital stock of the Corporation shall be transferable only on the books of the
Corporation by the holders thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like number of shares. Upon
surrender to the Corporation or a transfer agent of the Corporation of such certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer,
it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books. In respect of uncertificated
shares of capital stock, such shares of capital stock of the Corporation shall be transferable only
on the books of the Corporation by the holders thereof in person or by their duly authorized
attorneys or legal representatives upon the compliance with such rules and procedures as may be
proscribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or such other officer as designated by the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3. <U>Ownership of Shares</U>. The Corporation shall be entitled to treat the holder
of record of any share or shares of capital stock of the Corporation as the holder in fact thereof
and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the state of incorporation of the
Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;4. <U>Regulations Regarding Certificates</U>. The Board of Directors shall have the
power and authority to make all such rules and regulations as they may deem expedient concerning
the issue, transfer and registration or the replacement of certificates for shares of capital stock
of the Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;5. <U>Lost or Destroyed Certificates</U>. The Board of Directors may determine the
conditions upon which the Corporation may issue a new certificate for shares of capital stock in
place of a certificate theretofore issued by it which is alleged to have been lost, stolen or
destroyed and may require the owner of such certificate or such owner&#146;s legal representative to
give bond, with surety sufficient to indemnify the Corporation and each transfer agent and
registrar against any and all losses or claims which may arise by reason of the alleged loss, theft
or destruction of any such certificate or the issuance of such new certificate in the place of the
one so lost, stolen or destroyed.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VIII<BR>
<U>MISCELLANEOUS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;1. <U>Seal</U>. The corporate seal shall have inscribed thereon the name of the
corporation and shall be in such form as may be approved from time to time by the Board of
Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed,
imprinted or in any manner reproduced.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;2. <U>Facsimile Signatures</U>. In addition to the provision for the use of
facsimile signatures elsewhere in these Bylaws, facsimile signatures of any officer or officers of
the Corporation may be used whenever and as authorized by the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3. <U>Application of Bylaws</U>. In the event that any provision of these Bylaws is
or may be in conflict with any law of the United States, of the state of incorporation of the
Corporation or of any other governmental body or power having jurisdiction over the Corporation, or
over the subject matter to which such provision of these Bylaws applies, or may apply, such
provision of these Bylaws shall be inoperative to the extent only that the operation thereof
unavoidably conflicts with such law or provision, and shall in all other respects be in full force
and effect.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE IX<BR>
<U>AMENDMENTS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These Bylaws may be altered, amended or repealed or new bylaws may be adopted by the
stockholders or by the Board of Directors at any regular meeting of the stockholders or of the
Board of Directors or at any special meeting of the stockholders or of the Board of Directors if
notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice
of such special meeting. Any adoption, amendment or repeal of these Bylaws or adoption of new
bylaws by the Board of Directors shall require the approval of a majority of the total number of
directors fixed by resolution of the Board of Directors regardless of whether there exist any
vacancies in such fixed number of directorships. In addition to any vote of the holders of any
class or series of capital stock of the Corporation required by law or by the certificate of
incorporation, the affirmative vote of the holders of at least sixty-seven percent (67%) of the
voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single class, shall be
required to adopt, amend or repeal any provision of the Bylaws of the Corporation or to adopt new
bylaws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Date of
adoption:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2007
</DIV>


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<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>d47789exv10w2.htm
<DESCRIPTION>CONTRIBUTION AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B><I>Exhibit&nbsp;10.2</I></B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><DIV style="width: 100%; border-bottom: 3px double #000000; font-size: 1px">&nbsp;</DIV>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONTRIBUTION AGREEMENT</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>by and among</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>APPROACH RESOURCES INC.,</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>THE STOCKHOLDERS OF</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 0pt"><B>APPROACH OIL &#038; GAS INC.,</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>APPROACH OIL &#038; GAS INC.,</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>LUBAR EQUITY FUND, LLC,</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>YORKTOWN ENERGY PARTNERS VII, L.P.</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>and</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>NEO CANYON EXPLORATION, L.P.</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>and joined in by</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>THE GENERAL PARTNER OF NEO CANYON EXPLORATION, L.P.</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>June&nbsp;29, 2007</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV style="width: 100%; border-bottom: 3px double #000000; font-size: 1px">&nbsp;</DIV>

</DIV>

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">TABLE OF CONTENTS
</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="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&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="3" style="border-bottom: 1px solid #000000">Page</TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ARTICLE I. DEFINITIONS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</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">ARTICLE II. CONTRIBUTION TRANSACTION</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.1 Contribution of AOG Common Stock to ARI</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.2 Contribution of Neo Canyon Assets to ARI</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.3 Contribution of Lubar Note to ARI</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.4 Contribution of Yorktown Note to ARI</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.5 Issuance of New Certificates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.6 Certificate Legends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.7 Fractional Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.8 Certain Adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.9 Proration of Costs and Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.10 Receipts Not Reflected</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.11 Expenses Not Reflected</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2.12 Transfer Taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</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">ARTICLE III. CLOSING</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">3.1 Time and Place</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">3.2 Deliveries at Closing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</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">ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF AOG</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.1 Organization and Power</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.2 Authorizations; Execution and Validity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.3 Capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.4 Financial Statements; Other Financial Data</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.5 Consents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.6 No Defaults or Conflicts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.7 Agreements, Contracts and Commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.8 Litigation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.9 ERISA Compliance; Labor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.10 Taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.11 Brokers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.12 Absence of Certain Changes or Events</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.13 Compliance with Laws</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.14 Transactions with Related Parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.15 Agents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.16 Books and Records</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.17 Information Furnished</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.18 Directors and Officers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.19 Bank Accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.20 Owned Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center" style="font-size: 10pt; margin-top: 18pt">TABLE OF CONTENTS
</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="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&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="3" style="border-bottom: 1px solid #000000">Page</TD>

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<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.21 Leased Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.22 Insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.23 Title to Oil and Gas Properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.24 Environmental Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">4.25 Patents, Trademarks and Similar Rights</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">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:15px; text-indent:-15px">ARTICLE V. REPRESENTATIONS AND WARRANTIES OF NEO CANYON</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.1 Organization and Power</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.2 Authorization; Execution and Validity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.3 Consents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.4 No Defaults or Conflicts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.5 Brokers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.6 Litigation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.7 Title to the Neo Canyon Oil and Gas Properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.8 Environmental Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.9 Taxes and Assessments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.10 Outstanding Capital Commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.11 Compliance with Laws</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.12 Forward Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.13 Properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.14 Consents and Preferential Purchase Rights</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.15 Contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.16 Intentionally Omitted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.17 Intentionally Omitted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.18 Intellectual Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.19 Accredited Investor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.20 Restricted Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">5.21 Investment Intent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</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:0px; text-indent:-0px">ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF THE AOG STOCKHOLDERS,
LUBAR AND YORKTOWN VII</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">6.1 Organization and Good Standing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">6.2 Authority and Enforceability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">6.3 No Conflict; Required Filings and Consents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">6.4 Ownership</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">6.5 Accredited Investor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">6.6 Restricted Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">6.7 Investment Intent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</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">ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF ARI</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.1 Organization and Power</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.2 Authorizations; Execution and Validity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.3 Capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.4 Financial Statements; Other Financial Data</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center" style="font-size: 10pt; margin-top: 18pt">TABLE OF CONTENTS
</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="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&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="3" style="border-bottom: 1px solid #000000">Page</TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.5 Consents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.6 No Defaults or Conflicts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.7 Agreements, Contracts and Commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.8 Litigation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.9 ERISA Compliance; Labor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.10 Taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.11 Brokers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.12 Absence of Certain Changes or Events</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.13 Compliance with Laws</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.14 Transactions with Related Parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.15 Agents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.16 Books and Records</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.17 Information Furnished</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.18 Directors and Officers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.19 Bank Accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.20 Owned Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.21 Leased Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.22 Insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.23 Title to Oil and Gas Properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.24 Environmental Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.25 Patents, Trademarks and Similar Rights</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.26 Plugging and Abandonment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.27 Additional Drilling Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">7.28 Gas Imbalances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</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">ARTICLE VIII. COVENANTS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.1 Ordinary Course of Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.2 AOG Restricted Activities and Transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.3 Neo Canyon Restricted Activities and Transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.4 HSR and Other Regulatory Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.5 Commercially Reasonable Efforts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.6 New ARI Charter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.7 Officers and Directors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.8 Access to Information</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.9 Section&nbsp;351</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.10 ARI Registration Statement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.11 Blue Sky</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.12 Notification Of Certain Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.13 Consents and Preferential Rights</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.14 Assumption and Indemnification</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.15 Indemnification Procedures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.16 Limits on Indemnification</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.17 Further Assurances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">8.18 Over-allotment Option</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center" style="font-size: 10pt; margin-top: 18pt">TABLE OF CONTENTS
</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="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&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="3" style="border-bottom: 1px solid #000000">Page</TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ARTICLE IX. CONDITIONS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">9.1 Conditions to Obligations of Each Party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">9.2 Conditions to Obligations of Neo Canyon</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">9.3 Conditions to Obligations of ARI</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">9.4 Conditions to Obligations of AOG</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">9.5 Conditions to Obligations of each of the AOG Stockholders, Lubar and Yorktown VII</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</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">ARTICLE X. TERMINATION</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">10.1 Termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">10.2 Effect of Termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">10.3 Fees and Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</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">ARTICLE XI. MISCELLANEOUS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.1 Waiver And Amendment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.2 Nonsurvival of Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.3 Assignment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.4 Notices</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.5 Governing Law</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.6 Severability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.7 Counterparts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.8 Headings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.9 Enforcement Of The Contribution Agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.10 Entire Agreement; Third Party Beneficiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.11 Certain Assignments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.12 Representation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">11.13 Joinder</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">EXHIBITS
</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="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="89%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;A
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Oil and Gas Properties &#150; Leases and Wells</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;B
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Oil and Gas Properties &#150; Leases and Wells</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;C
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Oil and Gas Properties &#150; Leases and Wells</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;D
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Conveyance</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit&nbsp;E
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights Agreement</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">DISCLOSURE SCHEDULES
</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="9%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.3(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Subsidiaries</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.3(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Stockholders&#146; Agreements and Voting Trusts</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Financial Statements</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Consents</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Material Contracts</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Legal Proceedings</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Employee Benefit Plans</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Taxes</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Absence of Certain Changes (AOG)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Related Parties</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Agents</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Directors and Officers</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Bank Accounts</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Real Property Leases</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Insurance</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title to AOG Oil and Gas Properties</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Environmental Matters</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4.25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AOG Intellectual Property</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Consents</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Legal Proceedings</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title to Neo Canyon Oil and Gas Properties</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Environmental Matters</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Capital Commitments</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Forward Sales</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Oil and Gas Properties Subject to Sales Contract</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Leases Subject to Consents or Preferential Purchase Rights</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Contracts</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Neo Canyon Intellectual Property</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.3(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Capitalization</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.3(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Subsidiaries</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.3(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Stockholders&#146; Agreements and Voting Trusts</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Financial Statements</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Consents</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Material Contracts</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Legal Proceedings</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</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="9%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Employee Benefit Plans</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Taxes</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Financial Statements</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Related Parties</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Agents</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Directors and Officers</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Bank Accounts</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Real Property Leases</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Insurance</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title to ARI Oil and Gas Properties</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Environmental Matters</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Intellectual Property</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.27
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Additional Drilling Obligations</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;7.28
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ARI Gas Imbalances</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;8.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&#151;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Activities</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B><I>Execution version</I></B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CONTRIBUTION AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS CONTRIBUTION AGREEMENT, dated as of June&nbsp;29, 2007 (this &#147;<B>Contribution Agreement</B>&#148;), is by
and among Approach Resources Inc., a Delaware corporation (&#147;<B>ARI</B>&#148;), Approach Oil &#038; Gas Inc., a
Delaware corporation (&#147;<B>AOG</B>&#148;), all of the stockholders of AOG listed on the signature pages hereto
(the &#147;<B>AOG Stockholders</B>&#148;), Lubar Equity Fund, LLC, a Wisconsin limited liability company (&#147;<B>Lubar</B>&#148;),
Yorktown Energy Partners VII, L.P., a Delaware limited partnership (&#147;<B>Yorktown VII</B>&#148;), and Neo Canyon
Exploration, L.P., a Texas limited partnership (&#147;<B>Neo Canyon</B>&#148;), and is joined in by J. Cleo Thompson
Petroleum Management, L.L.C., a Texas limited liability company and the general partner of Neo
Canyon (&#147;<B>Neo Canyon GP</B>&#148;).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">W I T N
E S S E T H:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the AOG Stockholders currently own all of the outstanding common stock of AOG and
have agreed to transfer to ARI all of the outstanding capital stock of AOG owned by them in
exchange for shares of ARI Common Stock;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Neo Canyon currently owns certain oil and gas properties in the Ozona Northeast Field
located in Crockett and Schleicher Counties, Texas and has agreed to transfer to ARI all of its
interest in such oil and gas properties in exchange for shares of ARI Common Stock on the terms and
subject to the conditions set forth in this Agreement;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the parties intend for the foregoing transfers to qualify under Section 351(a) of the
Internal Revenue Code of 1986, as amended (the &#147;<B>Code</B>&#148;); and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the transactions contemplated by this Contribution Agreement shall be effective upon
the consummation of the ARI Initial Public Offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and
agreements herein contained, the parties hereto agree as follows:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE I.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">DEFINITIONS

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The terms set forth below in this <U>Article&nbsp;I</U> shall have the meanings ascribed to them
below or in the part of this Contribution Agreement referred to below:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Acquisition Proposal</B>&#148; means (i)&nbsp;any proposal for a merger, consolidation or other business
combination involving ARI or AOG, (ii)&nbsp;any proposal or offer to acquire in any manner a substantial
equity interest in ARI or AOG, (iii)&nbsp;any proposal or offer to acquire in any manner a substantial
portion of the ARI Oil and Gas Properties or the AOG Oil and Gas Properties, (iv)&nbsp;any proposal or
offer with respect to any recapitalization or restructuring (whether of equity or debt or a
combination thereof) with respect to ARI or AOG, or (v)&nbsp;any proposal or offer with respect to any
other transaction similar to any of the foregoing with respect to ARI or AOG.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AFEs</B>&#148; shall have the meaning set forth in <U>Section&nbsp;5.10</U> hereto.
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Affiliate</B>&#148; shall have the meaning ascribed to such term in Rule&nbsp;12b-2 of the general rules
and regulations under the Securities Exchange Act of 1934, as in effect on the date of this
Contribution Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Aggregated Group</B>&#148; has the meaning set forth in <U>Section&nbsp;4.9(a)</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG</B>&#148; has the meaning set forth in the introductory paragraph hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG Audited Financial Statements</B>&#148; has the meaning set forth in <U>Section&nbsp;4.4</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG Board</B>&#148; means the board of directors of AOG.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG Common Stock</B>&#148; means the common stock of AOG, par value $0.01 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG Financial Statements</B>&#148; has the meaning set forth in <U>Section&nbsp;4.4</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG Oil and Gas Properties</B>&#148; means all Oil and Gas Properties of AOG or any of its
Subsidiaries. Attached hereto as <U>Exhibit&nbsp;A</U> is a description of each Lease belonging to
AOG, or in which AOG has an interest, which <U>Exhibit&nbsp;A</U> shall be a part of the definition of
&#147;AOG Oil and Gas Properties.&#148; The respective &#147;net revenue interest&#148; and &#147;working interest&#148; of AOG
or any of its Subsidiaries in the AOG Oil and Gas Properties described on <U>Exhibit&nbsp;A</U> shall
be a part of the definition of &#147;AOG Oil and Gas Properties.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG Preferred Stock</B>&#148; means the preferred stock of AOG, par value $0.01 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG Stockholders</B>&#148; has the meaning set forth in the introductory paragraph hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>AOG Unaudited Balance Sheet</B>&#148; has the meaning set forth in <U>Section&nbsp;4.4</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI</B>&#148; has the meaning set forth in the introductory paragraph hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Audited Financial Statements</B>&#148; has the meaning set forth in <U>Section&nbsp;7.4</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Board</B>&#148; means the board of directors of ARI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Bylaws</B>&#148; means the bylaws of ARI, dated as of September&nbsp;12, 2002, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Common Stock</B>&#148; means the common stock of ARI, par value $0.01 per share, which par value
is subject to adjustment in connection with the ARI Initial Public Offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Financial Statements</B>&#148; has the meaning set forth in <U>Section&nbsp;7.4</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Initial Public Offering</B>&#148; means the initial public offering of the ARI Common Stock
contemplated by the ARI Registration Statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Material Adverse Effect</B>&#148; means a Material Adverse Effect on ARI, AOG and Neo Canyon,
taken as a whole.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Oil and Gas Properties</B>&#148; means all Oil and Gas Properties of ARI or any of its
Subsidiaries. Attached hereto as <U>Exhibit&nbsp;B</U> is a description of each Lease and Well
belonging to ARI, or in which ARI has an interest, which <U>Exhibit&nbsp;B</U> shall be a part of the
definition of &#147;ARI Oil and Gas Properties.&#148; The respective &#147;net revenue interest&#148; and &#147;working
interest&#148; of ARI or any of its Subsidiaries in the ARI Oil and Gas Properties described on
<U>Exhibit&nbsp;B</U> shall be a part of the definition of &#147;ARI Oil and Gas Properties.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Preferred Stock</B>&#148; means the preferred stock of ARI, par value $0.01 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Registration Statement</B>&#148; means the Registration Statement on Form S-1 relating to the ARI
Common Stock to be filed with the Commission by ARI in accordance with <U>Section&nbsp;8.9</U>, and any
amendments thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Stockholders</B>&#148; means the holders of all of the outstanding shares of capital stock of ARI
as of the date hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI Unaudited Financial Statements</B>&#148; has the meaning set forth in <U>Section&nbsp;7.4</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>ARI&#146;s Senior Lender</B>&#148; means Frost National Bank, N.A.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Basket Amount</B>&#148; shall have the meaning set forth in <U>Section&nbsp;8.16</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Business Day</B>&#148; means any day other than a Saturday, a Sunday or any other day when banks are
not open for business generally in the State of New York.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>CERCLA</B>&#148; means the Comprehensive Environmental Response, Compensation and Liability Act, as
amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>CERCLIS</B>&#148; means the Comprehensive Environmental Response, Compensation and Liability
Information System List.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Closing</B>&#148; has the meaning set forth in <U>Section&nbsp;3.1</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Closing Date</B>&#148; has the meaning set forth in <U>Section&nbsp;3.1</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Code</B>&#148; has the meaning set forth in the recitals hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Contribution Agreement</B>&#148; has the meaning set forth in the introductory paragraph hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Commission</B>&#148; means the U.S. Securities and Exchange Commission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Conveyance</B>&#148; shall mean a Conveyance to effect the sale, transfer and conveyance of the Neo
Canyon Oil and Gas Properties, substantially in the form set forth in <U>Exhibit&nbsp;D</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Defensible Title</B>&#148; means with, respect to the Oil and Gas Properties, such title and ownership
by ARI, AOG or Neo Canyon, as applicable, that:
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Except as set forth on <U>Schedules 4.23</U>, <U>5.7</U> and <U>7.23</U>,
respectively entitles ARI, AOG or Neo Canyon, as applicable, to receive and retain, without
reduction, suspension or termination, not less than the percentage set forth in <U>Exhibits
A</U>, <U>B</U> or <U>C</U>, respectively, as the &#147;net revenue interest&#148; of all
Hydrocarbons produced, saved and marketed from each Lease comprising such Oil and Gas
Property as set forth in <U>Exhibits A</U>, <U>B</U> or <U>C</U>, respectively, through
plugging, abandonment and salvage of all wells comprising or included in such Oil and Gas
Property, and except for changes or adjustments that result from the establishment of units,
changes in existing units (or the participating areas therein), or the entry into of pooling
or unitization agreements after the date hereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) obligates ARI, AOG or Neo Canyon, as applicable, to bear not greater than the
percentage set forth in <U>Exhibits A</U>, <U>B</U> or <U>C</U>, respectively, as the
&#147;working interest&#148; of the costs and expenses relating to the maintenance, development and
operation of each Lease comprising such Oil and Gas Property (including the plugging and
abandonment and site restoration with respect to all existing and future wells located
thereon or attributable thereto), through plugging, abandonment and salvage of all wells
comprising or included in such Oil and Gas Property, and except for changes or adjustments
that result from the establishment of units, changes in existing units (or the participating
areas therein), or the entry into of pooling or unitization agreements after the date
hereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) is free and clear of all Liens, except Permitted Liens;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) reflects that all royalties, rentals, Pugh clause payments, shut-in gas payments
and other payments due with respect to such Oil and Gas Property have been properly and
timely paid, except for payments held in suspense for title or other reasons which are
customary in the industry and which will not result in grounds for cancellation of the
Company&#146;s rights in such Oil and Gas Property as such suspense payments are set forth on
<U>Schedules 4.23</U>, <U>5.7</U> and <U>7.23</U>, respectively; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) reflects that all consents to assignment, notices of assignment or preferential
purchase rights which are applicable to or must be complied with in connection with the
transaction contemplated by this Agreement, or any prior sale, assignment or the transfer of
such Oil and Gas Property as such rights are set forth on <U>Schedule&nbsp;5.7</U>, have been
obtained and complied with to the extent the failure to obtain or comply with the same could
have an ARI Material Adverse Effect;
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">provided, that: (i)&nbsp;the legal proceedings, if any, scheduled on <U>Schedule&nbsp;4.8</U>,
<U>Schedule&nbsp;5.6</U> and <U>Schedule&nbsp;7.8</U> shall not be considered to effect a reduction in the
value of the assets, and (ii)&nbsp;no fact, circumstance or condition of the title to an Oil and Gas
Property shall be considered to effect a reduction in the value of the assets, unless such fact,
circumstance or condition is of the type that can generally be expected to be encountered in the
area involved and is usually and customarily acceptable to reasonable and prudent operators,
interest owners and purchasers engaged in the business of the ownership, development and operation
of Oil and Gas Properties.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Effective Time</B>&#148; means the date and time of the closing under the Underwriting Agreement.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Employee Benefit Plan</B>&#148; means any &#147;employee benefit plan&#148; within the meaning of Section&nbsp;3(3)
of ERISA and any bonus, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, vacation, severance, disability, death benefit,
hospitalization or insurance plan providing benefits to any present or former employee or
contractor of the Company or any member of the Aggregated Group maintained by any such entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Environmental Law</B>&#148; means any Law of any Governmental Authority whose purpose is to conserve
or protect human health, the environment, wildlife or natural resources, including: the Clean Air
Act, as amended, the Federal Water Pollution Control Act, as amended, the Rivers and Harbors Act of
1899, as amended, the Safe Drinking Water Act, as amended, CERCLA, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act of 1976, as
amended, the Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances
Control Act, as amended, the Occupational Safety and Health Act, as amended, the Hazardous
Materials Transportation Act, as amended, and any other federal, state and local law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Governmental Authorities</B>&#148; means the federal, state, county, city and political subdivisions
in which any property of ARI, AOG or Neo Canyon, respectively, is located or which exercises
jurisdiction over any such property or entity, and any agency, department, commission, board,
bureau or instrumentality of any of them which exercises jurisdiction over any such property or
entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Hazardous Material</B>&#148; means (i)&nbsp;any &#147;hazardous substance,&#148; as defined by CERCLA; (ii)&nbsp;any
&#147;hazardous waste&#148; or &#147;solid waste,&#148; in either case as defined by the Resource Conservation and
Recovery Act of 1976, as amended; (iii)&nbsp;any solid, hazardous, dangerous or toxic chemical,
material, waste or substance, within the meaning of and regulated by any Environmental Law; (iv)
any asbestos containing materials in any form or condition; (v)&nbsp;any polychlorinated biphenyls in
any form or condition; (vi)&nbsp;petroleum, petroleum hydrocarbons, or any fraction or byproducts
thereof; or (vii)&nbsp;any air pollutant which is so designated by the United States Environmental
Protection Agency as authorized by the Clean Air Act, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Hedging Transaction</B>&#148; means any futures, hedge, swap, collar, put, call, floor, cap, option or
other contract that is intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons, interest rates, currencies or
securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>HSR Act</B>&#148; means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Hydrocarbons</B>&#148; means oil, condensate, gas, casinghead gas and other liquid or gaseous
hydrocarbons.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Indemnified Party</B>&#148; shall have the meaning set forth in <U>Section&nbsp;8.15</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Indemnifying Party</B>&#148; shall have the meaning set forth in <U>Section&nbsp;8.15</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Intellectual Property</B>&#148; means (a)&nbsp;patent rights, (b)&nbsp;trademark rights, and (c)&nbsp;copyrights.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Knowledge</B>&#148; means actual knowledge of any officer or director of such party and, in the case
of Neo Canyon, the actual knowledge of any officer or manager of Neo Canyon GP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Law</B>&#148; means any federal, state, local or foreign law, statute, rule, ordinance, code or
regulation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Legal Proceedings</B>&#148; means any judicial, administrative or arbitral action, suit, proceeding
(public or private), litigation, investigation, complaint, claim or governmental proceeding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Lien</B>&#148; means a lien, mortgage, deed of trust, pledge, hypothecation, assignment, deposit
arrangement, easement, preference, priority, assessment, security interest, lease, sublease,
charge, claim, adverse claim, levy, interest of other Persons or other encumbrance of any kind.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Lubar</B>&#148; has the meaning set forth in the introductory paragraph hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Lubar Note</B>&#148; means that certain Convertible Promissory Note dated June&nbsp;25, 2007 in the
principal amount of $10,000,000 payable by AOG to Lubar.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Material Adverse Effect</B>&#148; means a material adverse effect on the business, operations,
prospects, properties (including intangible properties), assets, operating results or condition
(financial or otherwise) liabilities or reserves of such Person; provided, however, that a general
deterioration in the economy or changes in oil and gas prices or other changes affecting the oil
and gas industry generally shall not be deemed to be a Material Adverse Effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Material Contracts</B>&#148; means all leases, contracts, agreements and instruments to which such
Person is a party as of the date hereof involving payment by or to such Person of more than
$1,000,000 and extending for a term of more than six months from the date of this Contribution
Agreement and not terminable without payment or penalty upon less than sixty (60)&nbsp;days&#146; notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Neo Canyon</B>&#148; has the meaning set forth in the introductory paragraph hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Neo Canyon GP</B>&#148; has the meaning set forth in the introductory paragraph hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Neo Canyon Oil and Gas Properties</B>&#148; means all Oil and Gas Properties of Neo Canyon, except as
specifically excluded on <U>Exhibit&nbsp;C</U>. Attached hereto as <U>Exhibit&nbsp;C</U> is a description
of each Lease and Well belonging to Neo Canyon, or in which Neo Canyon has an interest, which
<U>Exhibit&nbsp;C</U> shall be a part of the definition of &#147;Neo Canyon Oil and Gas Properties.&#148; The
respective &#147;net revenue interest&#148; and &#147;working interest&#148; of Neo Canyon or any of its Subsidiaries
in the Neo Canyon Oil and Gas Properties described on <U>Exhibit&nbsp;C</U> shall be a part of the
definition of &#147;Neo Canyon Oil and Gas Properties.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>New ARI Bylaws</B>&#148; shall mean the Amended and Restated Bylaws of ARI in such form as shall be
approved by the ARI Board prior to the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>New ARI Charter</B>&#148; shall mean the Amended and Restated Certificate of Incorporation of ARI in
such form as shall be approved by the ARI Board and the ARI Stockholders prior to
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the Closing and which shall authorize a sufficient number of ARI Common Stock as shall be
necessary to cover the shares of ARI Common Stock issuable pursuant to <U>Article&nbsp;II</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Oil and Gas Properties</B>&#148; means all right, title, interest and estate, real or personal,
recorded or unrecorded, movable or immovable, tangible or intangible, in and to: (i)&nbsp;oil and gas
leases, oil, gas and mineral leases, subleases and other leaseholds, royalties, overriding
royalties, net profit interests, mineral fee interests, carried interests and other properties and
interests (the &#147;Leases&#148;) and the lands covered thereby (&#147;Land(s)&#148;) and any and all oil, gas, water
or injection wells thereon or applicable thereto (the &#147;Wells&#148;); (ii)&nbsp;any pools or units which
include all or a part of any Land or include any Well (the &#147;Units&#148;) and including, without
limitation, all right, title and interest in production from any such Unit, whether such Unit
production comes from wells located on or off of the Lands, and all tenements, hereditaments and
appurtenances belonging to, used or useful in connection with the Leases, Lands and Units; (iii)
interests under or derived from all contracts, agreements and instruments applicable to or by which
such properties are bound or created, to the extent applicable to such properties, including,
without limitation, operating agreements, gathering agreements, marketing agreements (including
commodity swap, collar and/or similar derivative agreements), transportation agreements, processing
agreements, seismic, geological and geophysical agreements, unitization, pooling and
communitization agreements, declarations and orders, joint venture agreements, and farmin and
farmout agreements; (iv)&nbsp;easements, permits, licenses, servitudes, rights-of-way, surface leases
and other surface rights appurtenant to, and used or held for use to the extent applicable to such
properties; (v)&nbsp;equipment, machinery, fixtures and other tangible personal property and
improvements located on or used or obtained in connection with such properties and (vi)&nbsp;seismic and
interpretive data applicable to such properties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Order</B>&#148; means any order, judgment, injunction, ruling, writ, award, decree, statute, Law,
ordinance, rule or regulation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Over-allotment Option</B>&#148; shall have the meaning set forth in <U>Section&nbsp;8.18</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Permit</B>&#148; means any permit, license, certificate (including a certificate of occupancy)
registration, authorization, application, filing, notice, qualification, waiver of any of the
foregoing or approval of a Governmental Authority.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Permitted Liens</B>&#148; means Liens (including mechanics&#146;, workers&#146;, repairers&#146;, materialmens&#146;,
warehousemens&#146;, landlord&#146;s and other similar Liens) arising in the ordinary course of business as
would not individually or in the aggregate materially adversely affect the value of, or materially
adversely interfere with the use of, the property subject to them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Person</B>&#148; means an individual, corporation, partnership (limited or general), limited liability
company, trust, joint stock company, Governmental Authority, unincorporated association or other
legal entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Property Costs</B>&#148; means all operating and production expenses of the Oil and Gas Properties
(including, without limitation, costs of insurance and ad valorem, property, severance, production
and similar Taxes based upon or measured by the ownership or operation of the Oil and Gas
Properties or the production of Hydrocarbons therefrom, but excluding any other
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Taxes), capital expenditures incurred in the ownership and operation of the Oil and Gas
Properties in the ordinary course of business (including, without limitation, cash advances or cash
call amounts paid under applicable operating agreements), and overhead costs charged to the Oil and
Gas Properties under the applicable operating agreement or if none, charged to the Oil and Gas
Properties on the same basis as charged on the date of this Contribution Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Proscribed Action</B>&#148; shall have the meaning set forth in <U>Section&nbsp;8.9</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Real Property Leases</B>&#148; has the meaning set forth in <U>Section&nbsp;4.21</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Registration Rights Agreement</B>&#148; means the registration rights agreement providing for the
registration under the Securities Act of the shares of ARI Common Stock to be received by the ARI
Stockholders, the AOG Stockholders, Lubar, Yorktown VII and Neo Canyon pursuant to this
Contribution Agreement in the form attached hereto as <U>Exhibit&nbsp;E</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Securities Act</B>&#148; means the Securities Act of 1933, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Stockholders&#146; Agreement</B>&#148; means that certain Voting and Stockholders&#146; Agreement, dated as of
January&nbsp;1, 2003, by and among ARI and each of the ARI Stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Subsidiary</B>&#148; or &#147;<B>Subsidiaries</B>&#148; means, with respect to any Person, each entity as to which such
Person (either alone or through or together with any other Subsidiary) (i)&nbsp;owns beneficially or of
record or has the power to vote or control, 50% or more of the voting securities of such entity or
of any class of equity interests of such entity the holders of which are ordinarily entitled to
vote for the election of the members of the board of directors or other persons performing similar
functions, (ii)&nbsp;in the case of partnerships, serves as a general partner, (iii)&nbsp;in the case of a
limited liability company, serves as a managing member or owns a majority of the equity interests
or (iv)&nbsp;otherwise has the ability to elect a majority of the directors, trustees or managing
members thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Tax</B>&#148; or &#147;<B>Taxes</B>&#148; means all income, profits, franchise, gross receipts, capital, sales, use,
withholding, value added, ad valorem, transfer, employment, social security, disability,
occupation, asset, property, severance, documentary, stamp, excise and other taxes, duties and
similar governmental charges or assessments imposed by or on behalf of any Governmental Authority
and any interest, fines, penalties or additions relating to any such tax, duty, charge or
assessment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Tax Return</B>&#148; means any return, report, information statement, or similar statement required to
be filed with respect to any Taxes (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return and declaration of estimated
Tax.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Underwriting Agreement</B>&#148; has the meaning set forth in <U>Section&nbsp;9.1(d)</U> hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Yorktown VII</B>&#148; has the meaning set forth in the introductory paragraph hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B>Yorktown Note</B>&#148; means that certain Convertible Promissory Note dated June&nbsp;25, 2007 in the
principal amount of $10,000,000 payable by AOG to Yorktown VII.
</DIV>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE II.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">CONTRIBUTION TRANSACTION
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 <U>Contribution of AOG Common Stock to ARI</U>. Subject to <U>Section&nbsp;2.8</U>, immediately prior
to the Effective Time, each AOG Stockholder shall contribute all of its shares of AOG Common Stock
to ARI in exchange for the number of shares of ARI Common Stock set forth opposite such Person&#146;s
name in the table below:
</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="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of AOG Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of ARI</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned and to be</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares to be</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Stockholder</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Contributed to ARI</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Received</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yorktown Energy Partners V, L.P.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,964</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yorktown Energy Partners VI, L.P.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">274,755</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 <U>Contribution of Neo Canyon Assets to ARI</U>. Subject to <U>Section&nbsp;2.8</U>,
immediately prior to the Effective Time, Neo Canyon shall contribute, transfer and assign to ARI
all of its right, title and interest in and to the Neo Canyon Oil and Gas Properties, and ARI shall
acquire the Neo Canyon Oil and Gas Properties in exchange for 1,413,081 shares of ARI Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3 <U>Contribution of Lubar Note to ARI</U>. Immediately prior to the Effective Time, Lubar
shall contribute to ARI the Lubar Note in exchange for that number of shares of ARI Common Stock
into which the Lubar Note is convertible on the IPO Conversion Date (as such term is defined in the
Lubar Note).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4 <U>Contribution of Yorktown Note to ARI</U>. Immediately prior to the Effective Time,
Yorktown VII shall contribute to ARI the Yorktown Note in exchange for that number of shares of ARI
Common Stock into which the Yorktown Note is convertible on the IPO Conversion Date (as such term
is defined in the Yorktown Note).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5 <U>Issuance of New Certificates.</U> At the Effective Time, ARI shall issue to each AOG
Stockholder, Neo Canyon, Lubar and Yorktown VII a certificate or certificates representing the
number each of shares of ARI Common Stock to be issued to such Person pursuant to <U>Sections
2.1</U>, <U>2.2</U>, <U>2.3</U> and <U>2.4</U>, subject to adjustment as provided in <U>Section
2.8</U>. Each such certificate shall be registered in the name of the Person or Persons specified
by the recipient thereof to ARI in writing at least two (2)&nbsp;Business Days prior to the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6 <U>Certificate Legends.</U> The certificates evidencing the ARI Common Stock delivered
pursuant to <U>Section&nbsp;2.5</U> shall bear a legend substantially in the form set forth below and
containing such other information as ARI may deem necessary or appropriate:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">ANY STATE SECURITIES LAWS, AND NEITHER THE SECURITIES NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND
SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM WHICH, IN THE OPINION OF COUNSEL FOR
THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR
THIS CORPORATION, IS AVAILABLE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7 <U>Fractional Shares.</U> No fractional shares of ARI Common Stock or scrip shall be
issued as a result of the transactions contemplated by <U>Sections&nbsp;2.3</U>, <U>2.4</U> and
<U>2.8</U>. Any fractional share of ARI Common Stock which would otherwise be issuable as a
result of the such transactions shall be rounded up to the nearest whole share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8 <U>Certain Adjustments.</U> The ARI Board may adjust the number of shares of ARI Common
Stock to be issued to each AOG Stockholder and to Neo Canyon pursuant to <U>Sections&nbsp;2.1</U> and
<U>2.2</U> in order to reflect a capitalization of ARI that the ARI Board reasonably determines to
be in the best interests of ARI and its stockholders (including the AOG Stockholders and Neo
Canyon) based on (i)&nbsp;the actual pricing of the ARI Initial Public Offering, (ii)&nbsp;the number of
shares of ARI Common Stock issuable pursuant to Sections <U>2.3</U> and <U>2.4</U> and (iii)
subject to <U>Section&nbsp;10.1(d)</U>, the relative net asset valuations (as determined in the
reasonable business judgment of the ARI Board using the same valuation methodology for ARI Oil and
Gas Properties and Neo Canyon Oil and Gas Properties) of ARI, AOG and the Neo Canyon Oil and Gas
Properties after giving effect to any financing transactions and acquisitions consummated by AOG or
ARI (in each case to have been approved by the AOG Board or the ARI Board, as applicable) after the
execution of this Contribution Agreement and before the Effective Time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.9 <U>Proration of Costs and Revenues</U>. Except as otherwise expressly set forth in this
Contribution Agreement, ARI shall be entitled to all production of Hydrocarbons from or
attributable to the Neo Canyon Oil and Gas Properties at and after the Closing Date (and all
products and proceeds attributable thereto) and to all other income, proceeds, receipts and credits
earned with respect to the Neo Canyon Oil and Gas Properties at or after the Closing Date, and
shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred
at and after the Closing Date. Neo Canyon shall be entitled to all production of Hydrocarbons from
or attributable to the Neo Canyon Oil and Gas Properties prior to the Closing Date (and all
products and proceeds attributable thereto), and to all other income, proceeds, receipts and
credits earned with respect to the Neo Canyon Oil and Gas Properties prior to the Closing Date, and
shall be responsible for (and entitled to any refunds with respect to) all Property Costs incurred
prior to the Closing Date. &#147;Earned&#148; and &#147;incurred&#148;, as used in this Contribution Agreement, shall
be interpreted in accordance with GAAP and the Council of Petroleum Accountant Societies (COPAS)
standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10 <U>Receipts Not Reflected</U>. Except as otherwise provided in this Contribution
Agreement, any production of Hydrocarbons from or attributable to the Neo Canyon Oil and Gas
Properties (and all products and proceeds attributable thereto) and any other income, proceeds and
receipts earned with respect to the Neo Canyon Oil and Gas Properties shall be treated as follows:
(i)&nbsp;all production of Hydrocarbons from or attributable to the Oil and Gas Properties
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(and all
products and proceeds attributable thereto) and all other income, proceeds and receipts earned with
respect to the Oil and Gas Properties to which ARI is entitled under <U>Section&nbsp;2.9</U> shall be
the sole property and entitlement of ARI, and, to the extent received by Neo Canyon, Neo Canyon
shall fully disclose, account for and remit the same promptly to ARI, and (ii)&nbsp;all production of
Hydrocarbons from or attributable to the Neo Canyon Oil and Gas Properties (and all products
and proceeds attributable thereto) and all other income, proceeds and receipts earned with respect
to the Neo Canyon Oil and Gas Properties to which Neo Canyon is entitled under <U>Section&nbsp;2.9</U>
shall be the sole property and entitlement of Neo Canyon and, to the extent received by ARI, ARI
shall fully disclose, account for and remit the same promptly to Neo Canyon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11 <U>Expenses Not Reflected.</U> Except as otherwise provided in this Contribution
Agreement, any Property Costs shall be treated as follows: (i)&nbsp;all Property Costs for which Neo
Canyon is responsible under <U>Section&nbsp;2.9</U> shall be the sole obligation of Neo Canyon and Neo
Canyon shall promptly pay, or if paid by ARI, promptly reimburse ARI for and hold ARI harmless from
and against same; and (ii)&nbsp;all Property Costs for which ARI is responsible under <U>Section
2.9</U> shall be the sole obligation of ARI and ARI shall promptly pay, or if paid by Neo Canyon,
promptly reimburse Neo Canyon for and hold Neo Canyon harmless from and against same. Neo Canyon
is entitled to resolve all joint interest audits and other audits of Property Costs covering
periods for which Neo Canyon is responsible under the terms of this Contribution Agreement. ARI is
entitled to resolve all joint interest audits and other audits of Property Costs covering periods
for which ARI is in whole or in part responsible, provided that ARI shall not agree to any
adjustments to previously assessed costs for which Neo Canyon is liable without the prior written
consent of Neo Canyon, such consent not to be unreasonably withheld. ARI shall provide Neo Canyon
with a copy of all applicable audit reports and written audit agreements received by ARI and
relating to periods for which Neo Canyon is partially responsible.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.12 <U>Transfer Taxes.</U> All transfer, documentary, sales, use, stamp, registration and
other such taxes and fees (&#147;Transfer Taxes&#148;) incurred in connection with the contribution
transaction contemplated by Article&nbsp;II of this Contribution Agreement shall be borne 70% by ARI and
AOG on the one hand, and 30% by Neo Canyon on the other; provided, that such allocations shall be
adjusted proportionately with any adjustments made pursuant to <U>Section&nbsp;2.9</U>. The parties
shall reasonably cooperate with each other to provide any information and documentation reasonably
requested that may be necessary to obtain any exemption from any Transfer Taxes.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE III.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">CLOSING

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 <U>Time and Place.</U> The closing of the transactions contemplated hereby (the
&#147;<B>Closing</B>&#148;) shall be held at the offices of Thompson &#038; Knight LLP, 1700 Pacific Avenue, Dallas,
Texas 75201 at 10:00&nbsp;a.m., Dallas time, immediately prior to the Effective Time; provided that all
of the conditions contained in <U>Article&nbsp;IX</U> have been satisfied or waived, or at such other
place or time as the parties hereto may mutually agree. The date of the Closing is referred to
herein as the &#147;<B>Closing Date</B>.&#148;
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 <U>Deliveries at Closing.</U> Subject to the provisions of <U>Article&nbsp;IX</U> hereof, at
the Closing there shall be delivered the certificates and other documents required to be delivered
pursuant to <U>Article&nbsp;IX</U> hereof.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE IV.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">REPRESENTATIONS AND WARRANTIES OF AOG

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AOG represents and warrants to ARI and Neo Canyon that the statements contained in this
<U>Article&nbsp;IV</U> are correct and complete as of the date hereof (it being recognized that each
such representation and warranty with respect to AOG&#146;s operations and the AOG Oil and Gas
Properties shall be deemed to refer to AOG and each of its Subsidiaries, taken as a whole).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 <U>Organization and Power.</U> Each of AOG and its Subsidiaries is duly incorporated or
formed (as the case may be), validly existing and in good standing (as applicable) under the Laws
of its respective jurisdiction of incorporation or formation, and is qualified and in good standing
to transact business in each jurisdiction in which such qualification is required by Law, except
where the failure to be so qualified would not have an ARI Material Adverse Effect. AOG has all
requisite corporate power and authority to execute, deliver and perform its obligations under this
Contribution Agreement and to consummate the transactions contemplated hereby. AOG has heretofore
delivered or made available to ARI and Neo Canyon complete and correct copies of (a)&nbsp;its
certificate of incorporation and bylaws, each as amended to date, and (b)&nbsp;its Subsidiaries&#146;
respective certificates of incorporation and bylaws, or other comparable organizational documents,
each as amended to date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 <U>Authorizations; Execution and Validity.</U> The execution and delivery of this
Contribution Agreement by AOG, the performance of this Contribution Agreement by AOG and the
consummation by AOG of the transactions contemplated hereby and thereby to be consummated by it,
have been duly authorized by all necessary corporate action and no other corporate action on the
part of AOG is necessary with respect thereto. This Contribution Agreement has been duly executed
and delivered by AOG and, when duly and validly executed and delivered, will constitute a valid and
binding obligation of AOG and is enforceable against and AOG in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization and similar Laws
affecting creditors generally and by the availability of equitable remedies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 <U>Capitalization.</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The authorized capital stock of AOG consists solely of 1,000,000 shares of AOG Common
Stock and 100,000 shares of AOG Preferred Stock. As of the date hereof, there are an aggregate of
150,000 shares of AOG Common Stock issued and outstanding, all of which shares are owned of record
and beneficially by the AOG Stockholders with each AOG Stockholder owning the number of shares set
forth in <U>Section&nbsp;2.1</U> hereto, and have been duly authorized and validly issued, and are
fully-paid and non-assessable. No shares of AOG Preferred Stock are issued and outstanding. As of
the date hereof, the issued and outstanding amount of AOG Common Stock on a fully diluted basis is
150,000 shares. Except as contemplated by the Lubar Note, the Yorktown Note, future issuances of
equity or convertible
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">debt in connection with financing transactions or acquisitions that the AOG
Board reasonably determines to be in the best interests of AOG and its stockholders, and with
respect to options, warrants, rights or other equity based awards issued as part of reasonable
compensation plans approved by the AOG Board, as of the Closing Date, there shall be no outstanding
options, subscriptions, warrants,
calls, commitments, pre-emptive rights or other rights obligating AOG to issue or sell any
shares of its capital stock or any securities convertible into or exercisable for any shares of its
capital stock, or otherwise requiring AOG to give any Person the right to receive any benefits or
rights similar to any rights enjoyed by or accruing to the holders of shares of capital stock of
AOG or any rights to participate in the equity or net income of AOG. All of the issued shares of
AOG&#146;s capital stock were issued, and to the extent purchased or transferred, have been so purchased
or transferred, in compliance with all applicable Laws, including federal and state securities
Laws, and any preemptive rights and any other statutory or contractual rights of any AOG
Stockholder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;AOG has no Subsidiaries other than those set forth on <U>Schedule&nbsp;4.3(b)</U>. AOG,
directly or indirectly, owns all capital of and other equity interests in its Subsidiaries, and
there are no outstanding options, subscriptions, warrants, calls, commitments, pre-emptive rights
or other rights in favor of any Person other than AOG or other AOG Subsidiaries obligating AOG or
any of its Subsidiaries to issue or sell any shares or other equity interests of any of AOG&#146;s
Subsidiaries or any securities convertible into or exercisable for any shares or other equity
interests of any such Subsidiary, or otherwise requiring AOG or any of its Subsidiaries to give any
Person (other than AOG or any of its Subsidiaries) the right to receive any benefits or rights
similar to any rights enjoyed by or accruing to the holders of shares or other equity interests of
any such Subsidiary or any rights to participate in the equity or net income of any such
Subsidiary. AOG does not own, directly or indirectly, any capital of or other equity interest in
or have any other investment in any other Person other than its Subsidiaries. Except as otherwise
set forth on <U>Schedule&nbsp;4.3(c)</U>, there are no stockholders&#146; agreements, voting trusts or other
agreements or understandings between or among AOG Stockholders or to which AOG is a party or by
which it is bound with respect to the transfer or voting of any capital stock of AOG, none of which
shall be in effect following the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 <U>Financial Statements; Other Financial Data.</U> Attached hereto on <U>Schedule
4.4</U> are correct and complete copies of the audited consolidated balance sheet of AOG and its
Subsidiaries as of December&nbsp;31, 2006 with the related consolidated statements of operations,
changes in stockholders&#146; equity, and cash flows for the year then ended (the &#147;<B>AOG Audited Financial
Statements</B>&#148;) and the unaudited consolidated balance sheet of AOG and its Subsidiaries as of March
31, 2007 (the &#147;<B>AOG Unaudited Balance Sheet</B>&#148; and, together with the AOG Audited Financial
Statements, the &#147;<B>AOG Financial Statements</B>&#148;). The AOG Financial Statements present fairly in all
material respects the financial position of AOG as of the dates indicated, and the results of its
operations for the respective periods indicated. The AOG Audited Financial Statements are in
conformity with GAAP, consistently applied. The AOG Unaudited Balance Sheet is unaudited and,
therefore, is subject to normal recurring year-end adjustments and the absence of footnotes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5 <U>Consents.</U> Neither the execution and delivery by AOG of this Contribution
Agreement nor the consummation or performance by AOG of the transactions contemplated by this
Contribution Agreement to be consummated or performed by it will require prior to the
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Closing (on
the part of AOG) any consent from, authorization or approval or other action by, notice to or
declaration, filing or a registration with, any Governmental Authority or any other third party,
except, if required, to comply with the HSR Act or as specified in <U>Schedule&nbsp;4.5</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6 <U>No Defaults or Conflicts.</U> Neither the execution and delivery by AOG of this
Contribution Agreement nor the consummation or performance by AOG of the transactions contemplated
by this Contribution Agreement to be consummated or performed by it (i)&nbsp;results or will result in
any violation of the certificate of incorporation or bylaws of AOG or other organizational or
governing documents of AOG or any of its Subsidiaries; or (ii)&nbsp;violates or conflicts with, or
constitutes a breach of any of the terms or provisions of or a default under, or results in the
creation or imposition of any Lien upon any property or asset of AOG, the trigger of any charge,
payment or requirement of consent, or the acceleration or increase of the maturity of any payment
date under: (A)&nbsp;any Material Contract to which AOG is a party or (B)&nbsp;any applicable Law or Order to
which AOG or any of its respective properties is subject, other than, in each case, where such
failure, conflict or breach would not have an ARI Material Adverse Effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7 <U>Agreements, Contracts and Commitments.</U> AOG has listed in <U>Schedule&nbsp;4.7</U> all
Material Contracts to which it is a party (true and correct copies of each such document have been
previously delivered or made available to ARI and Neo Canyon). Except as set forth in <U>Schedule
4.7</U>, AOG has not breached, nor to AOG&#146;s Knowledge is there any claim or any legal basis for a
claim that AOG or any third party has breached, any of the terms or conditions of any Material
Contract if any such breach, whether considered individually or in the aggregate, could result in
the imposition of damages or the loss of benefits in an amount or of a kind that would have an ARI
Material Adverse Effect to AOG and its Subsidiaries taken as a whole.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.8 <U>Litigation.</U> <U>Schedule&nbsp;4.8</U> lists all Legal Proceedings pending or, to AOG&#146;s
Knowledge, threatened against or affecting AOG or any of its assets. Except as disclosed on
<U>Schedule&nbsp;4.8</U>, AOG is not subject to any Order. There are no Legal Proceedings pending
against or, to AOG&#146;s Knowledge, threatened in writing against, AOG that questions the validity or
legality of any of this Contribution Agreement or any action taken or to be taken by AOG in
connection herewith or therewith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.9 <U>ERISA Compliance; Labor.</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Except as set forth on <U>Schedule&nbsp;4.9</U>, neither AOG nor any other entity required to
be aggregated with AOG under Section&nbsp;414 of the Code (the &#147;<B>Aggregated Group</B>&#148;) including AOG
sponsors, maintains or contributes to any Employee Benefit Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;No labor associations, organizations, or unions have been certified to represent any
employee of AOG, and no collective bargaining agreement or other labor union contract has been
requested by any employee or group of employees of AOG, and no discussions or negotiations with
respect to any such agreement or contract have occurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;AOG and its Subsidiaries are in material compliance with all Laws, rules, regulations and
Orders relating to the employment of labor, including all such Laws, rules, regulations and Orders
relating to wages, hours, collective bargaining, discrimination, civil
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">rights, safety and health,
workers&#146; compensation and the collection and payment of withholding or Social Security Taxes and
similar Taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.10 <U>Taxes.</U> Except as disclosed on <U>Schedule&nbsp;4.10</U>:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;All material Tax Returns required to be filed on or before the Closing Date by or on
behalf of AOG have been or will be filed within the time prescribed by Law (including extensions of
time permitted by Law) and such Tax Returns are true, correct, complete and accurate in all
material respects and reflect accurately in all material respects all liability for Taxes of AOG or
any of its Subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;AOG has paid, on a timely basis, all material Taxes of AOG and of any of its Subsidiaries
that are due on or before December&nbsp;31, 2006, and will have paid all material Taxes of AOG and of
any of its Subsidiaries that are due on or before the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The provision for Taxes and other accrued Tax liabilities reflected in the Financial
Statements are sufficient to cover all material liabilities for Taxes in respect of Tax Periods
ending at or prior to the relevant Financial Statement date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;There are no Liens for Taxes upon any of the properties or assets of AOG or of any of its
Subsidiaries (except for Permitted Liens).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;There are no pending Orders, audits, actions, proceedings, investigations, disputes or
claims instigated by any Governmental Authority with respect to any Taxes payable by or asserted
against AOG or any of its Subsidiaries. Neither AOG nor any of its Subsidiaries has received
notice from any taxing authority of its intent to examine or audit any of its Tax Returns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Neither AOG nor any of its Subsidiaries is subject to Tax or has done business in any
country other than the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;No agreements relating to allocation or sharing of, or liability or indemnification for,
Taxes exist between AOG or any of its Subsidiaries and any other Person. Any internal tax
allocation agreement shall terminate at the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;All Taxes required to be withheld, collected or deposited by AOG or any of its
Subsidiaries (including, without limitation, amounts required to be withheld, collected or
deposited with respect to amounts paid or owing to any employee, creditor, independent contractor
or other Person) have been timely withheld, collected or deposited and, to the extent required,
have been timely paid to the relevant taxing authority.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Neither AOG nor any of its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that could obligate it to make any payments that will not
be deductible under Section&nbsp;280G of the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) There are no outstanding agreements or waivers that would extend the statutory period in
which a taxing authority may assess or collect a Tax against AOG or any of its Subsidiaries.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.11 <U>Brokers.</U> AOG has not paid or become obligated to pay any fee or commission to
any broker, finder or intermediary in connection with the transactions contemplated hereby for
which AOG, ARI or Neo Canyon shall have liability following the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.12 <U>Absence of Certain Changes or Events.</U> Except as set forth on <U>Schedule
4.12</U> or as disclosed in the AOG Audited Financial Statements or the AOG Unaudited Balance Sheet
or as contemplated by the Lubar Note or the Yorktown Note, since March&nbsp;31, 2007, there has not been
any transaction or occurrence in which AOG has:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;suffered any Material Adverse Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;declared, set aside or paid any dividend or other distribution (whether in cash, stock or
property) with respect to any of its outstanding capital stock, or made any redemption, purchase or
other acquisition of any of its equity securities;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;cancelled any debts or waived any receivables, claims or rights in excess of $500,000
individually;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;suffered any uninsured casualty loss or damage in excess of $500,000 individually;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;amended any term of any equity security of AOG other than as contemplated by this
Contribution Agreement; or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;made any change in its accounting methods, principles or practices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.13 <U>Compliance with Laws.</U> AOG holds all material Permits necessary for the lawful
conduct of its business and is in compliance in all material respects, with all Laws and Orders
applicable to its business and has filed with the proper authorities all statements and reports
required by the Laws and Orders to which AOG or any of its properties or operations are subject.
No claim has been made by any Governmental Authority (and, to AOG&#146;s Knowledge, no such claim is
anticipated) to the effect that the business conducted by AOG fails to comply, in any respect, with
any Law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.14 <U>Transactions with Related Parties.</U> Except for transactions with any of AOG&#146;s
Subsidiaries and as otherwise set forth on <U>Schedule&nbsp;4.14</U>:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;No Affiliate has entered into, or has had any direct or indirect financial interest in,
any AOG Material Contract, transaction or business dealings involving AOG;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;No Affiliate owns or has any interest in, directly or indirectly, in whole or in part, any
tangible or intangible property used in the conduct of the business of AOG;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Other than amounts owed to AOG pursuant to any intercompany debts, joint interest billing
and general and administrative allocations, or expense advance reimbursements in the ordinary
course of business, no Affiliate owes any money to, nor is any such Affiliate owed any money by,
AOG other than as set forth in this Contribution Agreement; and
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;AOG has not, directly or indirectly, guaranteed or assumed any indebtedness for borrowed
money or otherwise for the benefit of any Affiliate of AOG.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.15 <U>Agents.</U> Except as set forth on <U>Schedule&nbsp;4.15</U>, AOG has not designated or
appointed any person or other entity to act for it or on its behalf pursuant to any power of
attorney or any agency which is presently in effect (other than such of AOG&#146;s directors, officers
and employees to whom AOG has given the authority to act for AOG in the ordinary course of its
business) or shall continue after the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.16 <U>Books and Records.</U> The minute books and records of AOG are current as of the
date hereof (and shall be current as of the Closing) with respect to all undertakings and
authorizations, and contain a true, complete and correct record of all actions taken at all
meetings and by all written consents in lieu of meetings of AOG&#146;s board of directors, or any
committees thereof, and AOG Stockholders. The stock ledger and related stock transfer records of
AOG contain a true, complete and correct record of the original issuance, transfer and other
capitalization matters of the capital stock of AOG. The accounting, financial reporting, tax and
business books and records of AOG accurately and fairly reflect in all material respects the
business and condition of AOG and the transactions and the assets and liabilities of AOG with
respect thereto. Without limiting the generality of the foregoing, AOG has not engaged in any
transaction with respect to its business or operations, maintained any bank account therefor or
used any funds of AOG in the conduct thereof except for transactions, bank accounts and funds that
have been and are reflected in the normally maintained books and records of the business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.17 <U>Information Furnished.</U> AOG has made available to ARI and Neo Canyon and their
respective directors, officers, employees, counsel, representatives, financing sources, customers,
creditors, accountants and auditors, true and correct copies of all agreements, documents, and
other items listed on the Schedules to this Contribution Agreement and all books and records of
AOG.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.18 <U>Directors and Officers.</U> <U>Schedule&nbsp;4.18</U> lists all of the directors and
officers of AOG as of the date hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.19 <U>Bank Accounts.</U> Attached hereto as <U>Schedule&nbsp;4.19</U> is a list of all banks
or other financial institutions with which AOG has an account, showing the type and account number
of each such account.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.20 <U>Owned Real Property.</U> Other than the AOG Oil and Gas Properties, AOG does not own
any real property.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.21 <U>Leased Real Property.</U> Other than the AOG Oil and Gas Properties, <U>Schedule
4.21</U> contains a complete and correct list of all real property leases and any and all
amendments thereto relating to the leased real property to which AOG is a party or is bound (the
&#147;<B>Real Property Leases</B>&#148;). AOG has provided or made available to ARI and Neo Canyon correct and
complete copies of the Real Property Leases. Except as disclosed in <U>Schedule&nbsp;4.21</U>, (i)
each of the Real Property Leases is in full force and effect, and, to AOG&#146;s Knowledge, is
enforceable against the landlord which is party thereto in accordance with its terms (except as
such enforceability may be limited by bankruptcy, insolvency, reorganization and similar laws
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">affecting creditors generally and by the availability of equitable remedies), (ii)&nbsp;there are no
subleases under the Real Property Leases and none of the Real Property Leases has been assigned
(other than collateral assignments to AOG&#146;s Senior Lender), (iii)&nbsp;no notices of default
or notices of termination have been received by AOG with respect to the Real Property Leases
which have not been withdrawn or canceled and (iv)&nbsp;AOG is not, and to AOG&#146;s Knowledge, no other
party is, in default under any Real Property Lease. There is no AOG Knowledge of, nor has there
been receipt of any written notice of a proceeding in eminent domain or other similar proceeding
affecting property listed on <U>Schedule&nbsp;4.21</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.22 <U>Insurance.</U> <U>Schedule&nbsp;4.22</U> contains a true and complete list of all
insurance policies, directors and officers liability policies, and formal self-insurance programs,
and other forms of insurance and all fidelity bonds held by or applicable to AOG and its owned or
leased properties. <U>Schedule&nbsp;4.22</U> describes (a)&nbsp;whether each insurance policy listed on
<U>Schedule&nbsp;4.22</U> is occurrence-based or claims made based and (b)&nbsp;each pending claim
thereunder for more than $500,000 per claim and a history of all such claims made against any such
insurance policy of AOG for the past three (3)&nbsp;years. All insurance policies listed on
<U>Schedule&nbsp;4.22</U> have been made available to ARI and Neo Canyon and are subject to the
deductibles or retentions referenced on <U>Schedule&nbsp;4.22</U>. AOG maintains insurance for its
benefit, in coverages and amounts to be customary and adequate in the oil and gas industry. AOG is
not in default with respect to any provision in any current policy maintained for its benefit, and
all such insurance is in full force and effect. AOG has not received, nor is there any AOG
Knowledge of, any notice of cancellation or nonrenewal of any such insurance policy. AOG has not
failed to give any notice or present any claim for more than $500,000 under any of the policies for
the benefit of AOG in due and timely fashion. AOG has not been refused any insurance with respect
to its assets, properties or businesses, nor has any such coverage been materially limited by any
insurance carrier to which AOG has applied for any such insurance or with which AOG has carried
insurance during the past three (3)&nbsp;years. Other than as described on <U>Schedule&nbsp;4.22</U>, no
further payments of premiums will be due following the Closing by AOG with respect to insurance
coverages prior to the Closing. Neither this Contribution Agreement nor any of the transactions
contemplated by this Contribution Agreement to occur at the Closing will adversely affect AOG&#146;s
coverage under the terms of the insurance policies with respect to periods prior to the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.23 <U>Title to Oil and Gas Properties.</U> AOG has Defensible Title to all AOG Oil and Gas
Properties. All proceeds from the sale of AOG&#146;s share of the Hydrocarbons being produced from the
AOG Oil and Gas Properties are currently being paid in full to AOG by the purchasers thereof on a
timely basis, and none of such proceeds are currently being held in suspense by such purchaser or
any other party, except as set forth in <U>Schedule&nbsp;4.23</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.24 <U>Environmental Matters.</U> Except as set forth in <U>Schedule&nbsp;4.24</U>:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) to AOG&#146;s Knowledge, it has conducted its business and operated its assets, and is
conducting its business and operating its assets, and the condition of all facilities and
properties (including off site storage or disposal of any Hazardous Materials from such facilities
or properties) currently or formerly owned, leased or operated by AOG is, in material compliance
with all Environmental Laws;
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;AOG has not been notified by any Governmental Authority or other third party that any of
the operations or assets of AOG is the subject of any investigation or inquiry by any Governmental
Authority or other third party evaluating whether any material remedial action is
needed to respond to a release or threatened release of any Hazardous Material or to the
improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous
Material where such investigation or inquiry has not been fully resolved and satisfied as of the
date hereof;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;neither AOG nor, to AOG&#146;s Knowledge, any other Person has filed any notice under any
federal, state or local Law indicating that (i)&nbsp;AOG is responsible for the improper release into
the environment, or the improper storage or disposal, of any Hazardous Material, or (ii)&nbsp;any
Hazardous Material is improperly stored or disposed of upon any property of AOG;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;to AOG&#146;s Knowledge, it does not have any material liability (contingent or otherwise) in
connection with (i)&nbsp;the release or threatened release into the environment at, beneath or on any
property now or previously owned or leased by AOG, or (ii)&nbsp;the storage or disposal of any Hazardous
Material;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;AOG has not received any claim, complaint, notice, inquiry or request for information
involving any matter which remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Law or regarding current or potential liability under any
Environmental Law or any personal injury, property damage or natural resource damage claim relating
to operations or conditions of any facilities or property (including off site storage or disposal
or release of any Hazardous Material from such facilities or property) currently or formerly owned,
leased or operated by AOG;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;to AOG&#146;s Knowledge, no property now or previously owned, leased or operated by AOG is
listed on the National Priorities List pursuant to CERCLA or on the CERCLIS or on any other federal
or state list as sites requiring investigation or cleanup;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;to AOG&#146;s Knowledge, it is not directly transporting, has not directly transported, is not
directly arranging for the transportation of, or has not directly transported, any Hazardous
Material to any location which is listed on the National Priorities List pursuant to CERCLA, on the
CERCLIS, or on any similar federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations that may lead to material claims against AOG for
remedial work, damage to natural resources or personal injury, including claims under CERCLA;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;except for the draining and backfilling of pits associated with drilling activities in the
ordinary course, there are no sites, locations or operations at which AOG is obligated to
undertake, is currently undertaking, or has completed, any remedial or response action relating to
any disposal or release, as required by Environmental Laws; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;AOG does not own or operate any underground storage tanks or solid waste disposal
facilities.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.25 <U>Patents, Trademarks and Similar Rights.</U> AOG owns or is properly licensed to use
or otherwise has rights to use all Intellectual Property (specifically including any seismic
license or Permit) material to the operations of the business of AOG as currently conducted. To
AOG&#146;s Knowledge, except as set forth on <U>Schedule&nbsp;4.25</U>, (i)&nbsp;the entry into this Contribution
Agreement and the transactions contemplated hereby will not have any effect on any contracts
related to
Intellectual Property, and (ii)&nbsp;neither AOG nor, to AOG&#146;s Knowledge, any other party, is in
breach of or default under any Intellectual Property license or any other contract or legal
requirement relating to the Intellectual Property, in each such case.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE V.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">REPRESENTATIONS AND WARRANTIES OF NEO CANYON

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of Neo Canyon and Neo Canyon GP jointly and severally represents and warrants to ARI,
AOG, the AOG Stockholders, Lubar and Yorktown VII that the statements contained in this <U>Article
V</U> are correct and complete as of the date hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 <U>Organization and Power.</U> Neo Canyon is duly formed (as the case may be), validly
existing and in good standing (as applicable) under the Laws of its jurisdiction of formation, and
is qualified and in good standing to transact business in each jurisdiction in which such
qualification is required by Law, except where the failure to be so qualified would not have an ARI
Material Adverse Effect. Neo Canyon has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Contribution Agreement and to consummate the
transactions contemplated hereby. Neo Canyon and Neo Canyon GP have heretofore delivered or made
available to ARI, AOG, the AOG Stockholders, Lubar and Yorktown VII their respective certificates
of formation, partnership or operating agreements or other comparable organizational documents,
each as amended to date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 <U>Authorization; Execution and Validity.</U> The execution and delivery of this
Contribution Agreement by Neo Canyon, the performance of this Contribution Agreement by Neo Canyon
and the consummation by Neo Canyon of the transactions contemplated hereby and thereby to be
consummated by it, have been duly authorized by all necessary corporate action and no other
corporate action on the part of Neo Canyon is necessary with respect thereto. This Contribution
Agreement has been duly executed and delivered by Neo Canyon and, when duly and validly executed
and delivered, will constitute a valid and binding obligation of Neo Canyon and is enforceable
against Neo Canyon in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization and similar Laws affecting creditors generally and by the
availability of equitable remedies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3 <U>Consents.</U> Neither the execution and delivery by Neo Canyon of this Contribution
Agreement nor the consummation or performance by Neo Canyon of the transactions contemplated by
this Contribution Agreement to be consummated or performed by it will require prior to the Closing
(on the part of Neo Canyon) any consent from, authorization or approval or other action by, notice
to or declaration, filing or a registration with, any Governmental Authority or any other third
party, except, if required, to comply with the HSR Act or as specified in <U>Schedule&nbsp;5.3</U>.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4 <U>No Defaults or Conflicts.</U> Neither the execution and delivery by Neo Canyon of
this Contribution Agreement nor the consummation or performance by Neo Canyon of the transactions
contemplated by this Contribution Agreement to be consummated or performed by it (i)&nbsp;results or
will result in any violation of the certificate of limited partnership or agreement of limited
partnership of Neo Canyon or other organizational or governing documents of Neo
Canyon or any of its Subsidiaries; or (ii)&nbsp;violates or conflicts with, or constitutes a breach
of any of the terms or provisions of or a default under, or results in the creation or imposition
of any Lien upon any property or asset of Neo Canyon, the trigger of any charge, payment or
requirement of consent, or the acceleration or increase of the maturity of any payment date under:
(A)&nbsp;any Material Contract to which Neo Canyon is a party or (B)&nbsp;any applicable Law or Order to
which Neo Canyon or any of its respective properties is subject, other than, in each case, where
such failure, conflict or breach would not have an ARI Material Adverse Effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5 <U>Brokers.</U> Neo Canyon has not paid or become obligated to pay any fee or commission
to any broker, finder or intermediary in connection with the transactions contemplated hereby for
which ARI, AOG, the AOG Stockholders or Neo Canyon shall have liability following the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6 <U>Litigation.</U> <U>Schedule&nbsp;5.6</U> lists all Legal Proceedings pending or, to Neo
Canyon&#146;s Knowledge, threatened against or affecting Neo Canyon or any of its assets. Except as
disclosed on <U>Schedule&nbsp;5.6</U>, Neo Canyon is not subject to any Order. There are no Legal
Proceedings pending against or, to Neo Canyon&#146;s Knowledge, threatened in writing against, Neo
Canyon that questions the validity or legality of any of this Contribution Agreement or any action
taken or to be taken by Neo Canyon in connection herewith or therewith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.7 <U>Title to the Neo Canyon Oil and Gas Properties.</U> Neo Canyon has Defensible Title
to all of the Neo Canyon Oil and Gas Properties. All proceeds from the sale of the Hydrocarbons
being produced from the Neo Canyon Oil and Gas Properties are currently being paid in full to Neo
Canyon by the purchasers thereof on a timely basis, and none of such proceeds are currently being
held in suspense by such purchaser or any other party, except as set forth in <U>Schedule&nbsp;5.7</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.8 <U>Environmental Matters.</U> Except as set forth in <U>Schedule&nbsp;5.8</U>:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;to Neo Canyon&#146;s Knowledge, the Neo Canyon Oil and Gas Properties have been and are being
operated in compliance with all Environmental Laws;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Neo Canyon has not been notified by any Governmental Authority or other third party that
any of the Neo Canyon Oil and Gas Properties are the subject of any investigation or inquiry by any
Governmental Authority or other third party evaluating whether any material remedial action is
needed to respond to a release or threatened release of any Hazardous Material or to the improper
storage or disposal (including storage or disposal at offsite locations) of any Hazardous Material
where investigation or inquiry remains unresolved as of the date hereof;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;neither Neo Canyon nor, to Neo Canyon&#146;s Knowledge, any other Person has filed any notice
under any federal, state or local Law indicating that (i)&nbsp;Neo Canyon is
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">responsible for the
improper release into the environment, or the improper storage or disposal, of any Hazardous
Material, or (ii)&nbsp;any Hazardous Material is improperly stored or disposed of upon the Neo Canyon
Oil and Gas Properties;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;to Neo Canyon&#146;s Knowledge, Neo Canyon does not have any material liability (contingent or
otherwise) in connection with (i)&nbsp;the release or threatened release into the environment at,
beneath or on the Neo Canyon Oil and Gas Properties, or (ii)&nbsp;the storage or disposal of any
Hazardous Material thereon;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Neo Canyon has not received any claim, complaint, notice, inquiry or request for
information involving any matter which remains unresolved as of the date hereof with respect to any
alleged violation of any Environmental Law or regarding current or potential liability under any
Environmental Law or any personal injury, property damage or natural resource damage claim relating
to operations or conditions of the Neo Canyon Oil and Gas Properties (including off site release of
any Hazardous Material from the Neo Canyon Oil and Gas Properties);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;to Neo Canyon&#146;s Knowledge, none of the Neo Canyon Oil and Gas Properties are listed on the
National Priorities List pursuant to CERCLA or on the CERCLIS or on any other federal or state list
as sites requiring investigation or cleanup;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;to Neo Canyon&#146;s Knowledge, Neo Canyon is not directly transporting, has not directly
transported, is not directly arranging for the transportation of, or has not directly transported,
any Hazardous Material to any location which is listed on the National Priorities List pursuant to
CERCLA, on the CERCLIS, or on any similar federal or state list or which is the subject of federal,
state or local enforcement actions or other investigations that may lead to material claims against
the Neo Canyon Oil and Gas Properties for remedial work, damage to natural resources or personal
injury, including claims under CERCLA; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;there are no sites, locations or operations with respect to the Neo Canyon Oil and Gas
Properties at which Neo Canyon is obligated to undertake, is currently undertaking, or has
completed, any remedial or response action relating to any disposal or release, as required by
Environmental Laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.9 <U>Taxes and Assessments</U> Neo Canyon has caused to be timely filed all material Tax returns relating to the Neo
Canyon Oil and Gas Properties the failure to pay which could result in the placement of a Lien on
all or a portion of the Neo Canyon Oil and Gas Properties. Neo Canyon has paid or caused to be
paid all ad valorem, property, production, severance and similar Taxes based upon or measured by
the ownership of or the production of Hydrocarbons from the Oil and Gas Properties, except those
being contested in good faith and disclosed to ARI in writing. Neo Canyon has not received written
notice of any pending claim against Neo Canyon from any applicable taxing authority for assessment
of Taxes with respect to the Neo Canyon Oil and Gas Properties. There are no audits of Neo Canyon
by any applicable taxing authority with respect to Taxes attributable to the Neo Canyon Oil and Gas
Properties. Except for statutory liens for property taxes and ad valorem taxes not yet due and
payable, there are no tax liens on or with respect to the Neo Canyon Oil and Gas Properties.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.10 <U>Outstanding Capital Commitments.</U> Except for Neo Canyon&#146;s commitments under the
Authorizations for Expenditures (&#147;<B>AFEs</B>&#148;) for the currently drilling Wells and the matters which are
set forth in <U>Schedule&nbsp;5.10</U>, there are no pending AFEs and there are no outstanding AFEs or
other commitments to make capital expenditures, which are binding on Neo Canyon or the Neo Canyon
Oil and Gas Properties and which Neo Canyon reasonably anticipates will individually (per AFE)
require expenditures as of such date in excess of $150,000.00. However, the Neo Canyon Oil and Gas
Properties are subject to active and ongoing exploration and Neo Canyon anticipates that there
could be further well proposals at any time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.11 <U>Compliance with Laws.</U> Neo Canyon holds all material Permits necessary for the
lawful conduct of its business and is in compliance in all material respects, with all Laws and
Orders applicable to its business and has filed with the proper authorities all statements and
reports required by the Laws and Orders to which Neo Canyon or any of its properties or operations
are subject. No claim has been made by any Governmental Authority (and, to Neo Canyon&#146;s Knowledge,
no such claim is anticipated) to the effect that the business conducted by Neo Canyon fails to
comply, in any respect, with any Law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.12 <U>Forward Sales.</U> Except as disclosed in <U>Schedule&nbsp;5.12</U>, Neo Canyon is not
obligated by virtue of a take or pay payment, advance payment or other similar payment (other than
royalties, overriding royalties and similar arrangements reflected on <U>Exhibit&nbsp;C</U>), to
deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Leases at some future
time without receiving payment therefor at or after the time of delivery.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.13 <U>Properties.</U> Except as set forth in <U>Schedule&nbsp;5.13</U> and except for
Hydrocarbon sales contracts with a term not greater than thirty (30)&nbsp;days, no Hydrocarbons produced
from the Neo Canyon Oil and Gas Properties are subject to a sales contract or other agreement
relating to the marketing of Hydrocarbons, and no person has any call upon, option to purchase or
similar rights with respect to such Neo Canyon Oil and Gas Properties or the rights therefrom,
except for third party operator rights under operating agreements covering the Neo Canyon Oil and
Gas Properties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.14 <U>Consents and Preferential Purchase Rights.</U> Except as set forth in <U>Schedule
5.14</U>, none of the Leases are subject to any preferential rights to purchase or restrictions on
assignment or required third-party consents to assignment which may be applicable to the
transactions contemplated by this Contribution Agreement, except for governmental consents and
approvals of assignments that are customarily obtained after Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.15 <U>Contracts.</U> Neither Neo Canyon nor to Neo Canyon&#146;s Knowledge, any other party is
in default under any contract except for such defaults as would not have an ARI Material Adverse
Effect. There are no contracts with Affiliates of Neo Canyon which will be binding on the Neo
Canyon Oil and Gas Properties after Closing. Except as set forth in <U>Schedule&nbsp;5.15</U>, none of
the contracts consist of, nor are the Neo Canyon Oil and Gas Properties subject to any, Hedging
Transaction which will be binding on ARI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.16 <U>Intentionally Omitted.</U>
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.17 <U>Intentionally Omitted.</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.18 <U>Intellectual Property.</U> Except as disclosed on <U>Schedule&nbsp;5.18</U>, Neo Canyon
does not own or use any Intellectual Property in the ownership and operation of the Neo Canyon Oil
and Gas Properties. Neo Canyon has received no written notice, and has no knowledge of, any
infringements or unauthorized or unlawful use of any Intellectual Property by Neo Canyon or any
allegation that Neo Canyon&#146;s use of such Intellectual Property has infringed similar properties of
others.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.19 <U>Accredited Investor</U>. Neo Canyon is an &#147;accredited investor&#148; within the meaning
of Regulation&nbsp;D, Rule&nbsp;501(a), promulgated by the Commission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.20 <U>Restricted Securities</U>. Neo Canyon understands that the shares of ARI Common
Stock will not have been registered pursuant to the Securities Act or any applicable state
securities laws, that the shares of ARI Common Stock will be characterized as &#147;restricted
securities&#148; under federal securities laws, and that under such laws and applicable regulations the
shares of ARI Common Stock cannot be sold or otherwise disposed of without registration under the
Securities Act or an exemption therefrom. In this connection, Neo Canyon represents that it is
familiar with Rule&nbsp;144 promulgated under the Securities Act, as currently in effect, and
understands the resale limitations imposed thereby and by the Securities Act. A legend indicating
that the shares of ARI Common Stock have not been registered under applicable federal and state
securities laws and referring to the restrictions on transferability and sale of the ARI Common
Stock pursuant to this Contribution Agreement or otherwise may be placed on any certificate(s) or
other document delivered to Neo Canyon or any substitute therefor and any transfer agent of ARI may
be instructed to require compliance therewith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.21 <U>Investment Intent.</U> The ARI Common Stock is being acquired for Neo Canyon&#146;s own
investment portfolio and account (and not on behalf of, and without the participation of, any other
Person) with the intent of holding the ARI Common Stock for investment and without the intent of
participating, directly or indirectly, in a distribution of the ARI Common Stock and not with a
view to, or for resale in connection with, any distribution of the ARI Common Stock in violation of
applicable securities laws or any portion thereof in violation of applicable securities laws. As
of the Closing Date, Neo Canyon does not have plans to transfer any of the ARI Common Stock on a
specified date or to a specified person, other than as contemplated hereby.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VI.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">REPRESENTATIONS AND WARRANTIES OF THE AOG STOCKHOLDERS, LUBAR AND YORKTOWN VII

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the AOG Stockholders, Lubar and Yorktown VII severally and not jointly represents and
warrants to ARI and Neo Canyon that the statements contained in this <U>Article&nbsp;VI</U> are correct
and complete as of the date hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 <U>Organization and Good Standing</U>. Each of such AOG Stockholders, Lubar and Yorktown
VII is duly organized, validly existing and in good standing under the Laws of the jurisdiction in
which it is organized and has all requisite power and authority to execute, deliver
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and perform its
obligations under this Contribution Agreement and to consummate the transactions contemplated
hereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 <U>Authority and Enforceability</U>. The execution and delivery by each of such AOG
Stockholders, Lubar and Yorktown VII of this Contribution Agreement and the consummation of the
transactions contemplated hereby (if such AOG Stockholder is not a natural Person) have been duly
and validly authorized by all necessary corporate or other action and no other corporate or other
proceedings are necessary to consummate the transactions contemplated hereby. This Contribution
Agreement has been duly and validly executed and delivered and constitutes a valid and binding
obligation of each of such AOG Stockholders, Lubar and Yorktown VII, enforceable against each of
such AOG Stockholders, Lubar and Yorktown VII in accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency, reorganization and similar Laws affecting creditors generally and by the
availability of equitable remedies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 <U>No Conflict; Required Filings and Consents</U>. The execution and delivery of this
Contribution Agreement by each of such AOG Stockholders, Lubar and Yorktown VII do not, and the
performance by each of such AOG Stockholders, Lubar and Yorktown VII of the transactions
contemplated hereby or thereby will not violate, conflict with, require any consent under or result
in a violation or breach of, or constitute a default (with or without due notice or lapse of time
or both) under, or give any party the right to terminate or accelerate any obligation, or give rise
to the creation of any Lien upon any property or asset of AOG under, any of the terms, conditions,
or provisions of any organizational document, contract or other instrument or obligation to which
each of such AOG Stockholders, Lubar and Yorktown VII is a party or by which it may be bound, or
violate any Law or Order of any Governmental Authority binding upon each of such AOG Stockholders,
Lubar and Yorktown VII. No consent of or registration, declaration, or filing with any
Governmental Authority is required by or with respect to each of such AOG Stockholders, Lubar and
Yorktown VII in connection with the execution and delivery of this Contribution Agreement by each
of such AOG Stockholders, Lubar and Yorktown VII or the consummation of the transactions
contemplated hereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.4 <U>Ownership</U>. Such AOG Stockholder is the holder of record of and owns beneficially
the AOG Common Stock identified as being owned by such AOG Stockholder in <U>Section&nbsp;2.1</U> and
to be acquired by ARI in accordance with <U>Section&nbsp;2.1</U>, and, as of the Closing Date, such AOG
Stockholder will be the holder of record and will own beneficially the AOG Common Stock, free and
clear of all Liens. On the Closing Date, ARI will receive good and valid title to the AOG Common
Stock owned by such AOG Stockholder, free and clear of all Liens.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.5 <U>Accredited Investor</U>. Each of such AOG Stockholders, Lubar and Yorktown VII is an
&#147;accredited investor&#148; within the meaning of Regulation&nbsp;D, Rule&nbsp;501(a), promulgated by the
Commission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.6 <U>Restricted Securities</U>. Each of such AOG Stockholders, Lubar and Yorktown VII
understands that the shares of ARI Common Stock will not have been registered pursuant to the
Securities Act or any applicable state securities laws, that the shares of ARI Common Stock will be
characterized as &#147;restricted securities&#148; under federal securities laws, and that under such laws
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and applicable regulations the shares of ARI Common Stock cannot be sold or otherwise disposed of
without registration under the Securities Act or an exemption therefrom. In this connection, each
of such AOG Stockholders, Lubar and Yorktown VII represents that it is familiar with Rule&nbsp;144
promulgated under the Securities Act, as currently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. A legend indicating that the shares of ARI
Common Stock have not been registered under applicable federal and state securities laws and
referring to the restrictions on transferability and sale of the ARI Common Stock pursuant to this
Contribution Agreement or otherwise may be placed on any certificate(s) or other document delivered
to each of such AOG Stockholders, Lubar and Yorktown VII or any substitute therefor and any
transfer agent of ARI may be instructed to require compliance therewith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.7 <U>Investment Intent</U>. The ARI Common Stock is being acquired for the own investment
portfolio and account (and not on behalf of, and without the participation of, any other Person) of
each of such AOG Stockholders, Lubar and Yorktown VII with the intent of holding the ARI Common
Stock for investment and without the intent of participating, directly or indirectly, in a
distribution of the ARI Common Stock and not with a view to, or for resale in connection with, any
distribution of the ARI Common Stock in violation of applicable securities laws or any portion
thereof in violation of applicable securities laws. As of the Closing Date, none of each AOG
Stockholder, Lubar or Yorktown VII has plans to transfer any of the ARI Common Stock on a specified
date or to a specified person, other than in connection with the ARI Initial Public Offering.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VII.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">REPRESENTATIONS AND WARRANTIES OF ARI

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ARI represents and warrants to AOG, the AOG Stockholders, Lubar, Yorktown VII and Neo Canyon
that the statements contained in this <U>Article&nbsp;VII</U> are correct and complete as of the date
hereof (it being recognized that each such representation and warranty with respect to ARI&#146;s
operations and the ARI Oil and Gas Properties shall be deemed to refer to ARI and each of its
Subsidiaries, taken as a whole).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1 <U>Organization and Power.</U> Each of ARI and its Subsidiaries is duly incorporated or
formed (as the case may be), validly existing and in good standing (as applicable) under the Laws
of its respective jurisdiction of incorporation or formation, and is qualified and in good standing
to transact business in each jurisdiction in which such qualification is required by Law, except
where the failure to be so qualified would not have an ARI Material Adverse Effect. ARI has all
requisite corporate power and authority to execute, deliver and perform its obligations under this
Contribution Agreement and to consummate the transactions contemplated hereby. ARI has heretofore
delivered or made available to the AOG Stockholders and Neo Canyon complete and correct copies of
(a)&nbsp;its certificate of incorporation and bylaws, each as amended to date, and (b)&nbsp;its Subsidiaries&#146;
respective certificates of incorporation and bylaws, or other comparable organizational documents,
each as amended to date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2 <U>Authorizations; Execution and Validity.</U> The execution and delivery of this
Contribution Agreement by ARI, the performance of this Contribution Agreement by ARI and
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the
consummation by ARI of the transactions contemplated hereby and thereby to be consummated by it,
have been duly authorized by all necessary corporate action and, except for the approval of the New
ARI Charter as provided herein, no other corporate action on the part of ARI is necessary with
respect thereto. This Contribution Agreement has been duly executed and delivered by ARI and, when
duly and validly executed and delivered, will constitute a valid and binding obligation of ARI and
is enforceable against ARI in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization and similar Laws affecting creditors generally
and by the availability of equitable remedies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3 <U>Capitalization.</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;As of the date hereof, the authorized capital stock of ARI consists solely of 4,000,000
shares of ARI Common Stock and 1,000,000 shares of ARI Preferred Stock. As of the date hereof,
there are an aggregate of 2,852,085 shares of Common Stock issued and outstanding, all of which
shares are owned of record and beneficially, by the ARI Stockholders with each ARI Stockholder
owning the number of shares set forth on <U>Schedule&nbsp;7.3(a)</U> hereto, and have been duly
authorized and validly issued, and are fully-paid and non-assessable. No shares of ARI Preferred
Stock are issued and outstanding. As of the date hereof, ARI had outstanding options which had
been issued to the individuals and entities listed on <U>Schedule&nbsp;7.3(a)</U> totaling 115,385
shares of ARI Common Stock. As of the date hereof, the issued and outstanding amount of ARI Common
Stock on a fully diluted basis is 2,967,470 shares. Except as contemplated by the ARI Registration
Statement, the Lubar Note, the Yorktown Note, future issuances of equity or convertible debt in
connection with financing transactions or acquisitions that the ARI Board reasonably determines to
be in the best interests of ARI and its stockholders, and with respect to options, warrants, rights
or other equity based awards issued as part of reasonable compensation plans approved by the ARI
Board, as of the Closing Date, there shall be no outstanding options, subscriptions, warrants,
calls, commitments, pre-emptive rights or other rights obligating ARI to issue or sell any shares
of its capital stock or any securities convertible into or exercisable for any shares of its
capital stock, or otherwise requiring ARI to give any Person the right to receive any benefits or
rights similar to any rights enjoyed by or accruing to the holders of shares of capital stock of
ARI or any rights to participate in the equity or net income of ARI. All of the issued shares of
ARI&#146;s capital stock were issued, and to the extent purchased or transferred, have been so purchased
or transferred, in compliance with all applicable Laws, including federal and state securities
Laws, and any preemptive rights and any other statutory or contractual rights of any ARI
Stockholder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;ARI has no Subsidiaries other than those set forth on <U>Schedule&nbsp;7.3(b)</U>. ARI,
directly or indirectly, owns all capital of and other equity interests in its Subsidiaries, and
there are no outstanding options, subscriptions, warrants, calls, commitments, pre-emptive rights
or other rights in favor of any Person other than ARI or other ARI Subsidiaries obligating ARI or
any of its Subsidiaries to issue or sell any shares or other equity interests of any of ARI&#146;s
Subsidiaries or any securities convertible into or exercisable for any shares or other equity
interests of any such Subsidiary, or otherwise requiring ARI or any of its Subsidiaries to give any
Person (other than ARI or any of its Subsidiaries) the right to receive any benefits or rights
similar to any rights enjoyed by or accruing to the holders of shares or other equity interests of
any such Subsidiary or any rights to participate in the equity or net income of any such
Subsidiary. ARI does not own, directly or indirectly, any capital of or other equity interest in
or
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">has any other investment in any other Person other than its Subsidiaries. Except for the
Stockholders&#146; Agreement and as otherwise set forth on <U>Schedule&nbsp;7.3(c)</U>, there are no
stockholders&#146; agreements, voting trusts or other agreements or understandings between or among ARI
Stockholders or to which ARI is a party or by which it is bound with respect to the transfer or
voting of any capital stock of ARI, none of which, except as disclosed in <U>Schedule&nbsp;7.3(c)</U>,
shall be in effect following the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4 <U>Financial Statements; Other Financial Data.</U> Attached hereto on <U>Schedule
7.4</U> are correct and complete copies of the audited consolidated balance sheet of ARI and its
Subsidiaries as of December&nbsp;31, 2006 with the related consolidated statements of operations,
changes in stockholders&#146; equity, and cash flows for the year then ended (the &#147;<B>ARI Audited Financial
Statements</B>&#148;) and the unaudited consolidated balance sheet of ARI and its Subsidiaries as of
March&nbsp;31, 2007 with the related unaudited consolidated statements of operations, changes in
stockholders&#146; equity, and cash flows for the quarter then ended (the &#147;<B>ARI Unaudited Financial
Statements</B>&#148; and, together with the ARI Audited Financial Statements, the &#147;<B>ARI Financial
Statements</B>&#148;). The ARI Financial Statements present fairly in all material respects the financial
position of ARI as of the dates indicated, and the results of its operations for the respective
periods indicated. The ARI Audited Financial Statements are in conformity with GAAP, consistently
applied. The ARI Unaudited Financial Statements are unaudited and, therefore, are subject to
normal recurring year-end adjustments and the absence of footnotes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5 <U>Consents.</U> Neither the execution and delivery by ARI of this Contribution
Agreement nor the consummation or performance by ARI of the transactions contemplated by this
Contribution Agreement to be consummated or performed by it will require prior to the Closing (on
the part of ARI) any consent from, authorization or approval or other action by, notice to or
declaration, filing or a registration with, any Governmental Authority or any other third party,
except, if required, to comply with the HSR Act or as specified in <U>Schedule&nbsp;7.5</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.6 <U>No Defaults or Conflicts.</U> Neither the execution and delivery by ARI of this
Contribution Agreement nor the consummation or performance by ARI of the transactions contemplated
by this Contribution Agreement to be consummated or performed by it (i)&nbsp;results or will result in
any violation of the certificate of incorporation or bylaws of ARI or other organizational or
governing documents of ARI or any of its Subsidiaries; or (ii)&nbsp;subject to obtaining the required
consent, if any, from ARI&#146;s Senior Lender, violates or conflicts with, or constitutes a breach of
any of the terms or provisions of or a default under, or results in the creation or imposition of
any Lien upon any property or asset of ARI, the trigger of any charge, payment or requirement of
consent, or the acceleration or increase of the maturity of any payment date under: (A)&nbsp;any
Material Contract to which ARI is a party or (B)&nbsp;any applicable Law or Order to which ARI or any of
its respective properties is subject, other than, in each case, where such failure, conflict or
breach would not have an ARI Material Adverse Effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.7 <U>Agreements, Contracts and Commitments.</U> ARI has listed in <U>Schedule&nbsp;7.7</U> all
Material Contracts to which it is a party (true and correct copies of each such document have been
previously delivered or made available to the AOG Stockholders and Neo Canyon). Except as set
forth in <U>Schedule&nbsp;7.7</U>, ARI has not breached, nor to ARI&#146;s Knowledge is there any claim or
any legal basis for a claim that ARI or any third party has breached, any of the terms or
conditions of any Material Contract if any such breach, whether considered individually or in the
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">aggregate, could result in the imposition of damages or the loss of benefits in an amount or of a
kind that would have an ARI Material Adverse Effect to ARI and its Subsidiaries taken as a whole.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.8 <U>Litigation.</U> <U>Schedule&nbsp;7.8</U> lists all Legal Proceedings pending or, to ARI&#146;s
Knowledge, threatened against or affecting ARI or any of its assets. Except as disclosed on
<U>Schedule&nbsp;7.8</U>, ARI is not subject to any Order. There are no Legal Proceedings pending
against or, to ARI&#146;s Knowledge, threatened in writing against, ARI that questions the validity or
legality of any of this Contribution Agreement or any action taken or to be taken by ARI in
connection herewith or therewith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.9 <U>ERISA Compliance; Labor.</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Except as set forth on <U>Schedule&nbsp;7.9</U>, neither ARI nor any other Aggregated Group
sponsors, maintains or contributes to any Employee Benefit Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;No labor associations, organizations, or unions have been certified to represent any
employee of ARI, and no collective bargaining agreement or other labor union contract has been
requested by any employee or group of employees of ARI, and no discussions or negotiations with
respect to any such agreement or contract have occurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;ARI and its Subsidiaries are in material compliance with all Laws, rules, regulations and
Orders relating to the employment of labor, including all such Laws, rules, regulations and Orders
relating to wages, hours, collective bargaining, discrimination, civil rights, safety and health,
workers&#146; compensation and the collection and payment of withholding or Social Security Taxes and
similar Taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.10 <U>Taxes.</U> Except as disclosed on <U>Schedule&nbsp;7.10</U>:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;All material Tax Returns required to be filed on or before the Closing Date by or on
behalf of ARI have been or will be filed within the time prescribed by Law (including extensions of
time permitted by Law) and such Tax Returns are true, correct, complete and accurate in all
material respects and reflect accurately in all material respects all liability for Taxes of ARI or
any of its Subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;ARI has paid, on a timely basis, all material Taxes of ARI and of any of its Subsidiaries
that are due on or before December&nbsp;31, 2006, and will have paid all material Taxes of ARI and of
any of its Subsidiaries that are due on or before the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;The provision for Taxes and other accrued Tax liabilities reflected in the Financial
Statements are sufficient to cover all material liabilities for Taxes in respect of Tax Periods
ending at or prior to the relevant Financial Statement date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;There are no Liens for Taxes upon any of the properties or assets of ARI or of any of its
Subsidiaries (except for Permitted Liens).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;There are no pending Orders, audits, actions, proceedings, investigations, disputes or
claims instigated by any Governmental Authority with respect to any Taxes payable
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">by or asserted
against ARI or any of its Subsidiaries. Neither ARI nor any of its Subsidiaries has received
notice from any taxing authority of its intent to examine or audit any of its Tax Returns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Neither ARI nor any of its Subsidiaries is subject to Tax or has done business in any
country other than the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;All Taxes required to be withheld, collected or deposited by ARI or any of its
Subsidiaries (including, without limitation, amounts required to be withheld, collected or
deposited with respect to amounts paid or owing to any employee, creditor, independent contractor
or other Person) have been timely withheld, collected or deposited and, to the extent required,
have been timely paid to the relevant taxing authority.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;There are no outstanding agreements or waivers that would extend the statutory period in
which a taxing authority may assess or collect a Tax against ARI or any of its Subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.11 <U>Brokers.</U> Other than the commission payable pursuant to the Underwriting
Agreement, ARI has not paid or become obligated to pay any fee or commission to any broker, finder
or intermediary in connection with the transactions contemplated hereby for which ARI, AOG or Neo
Canyon shall have liability following the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.12 <U>Absence of Certain Changes or Events.</U> Except as set forth on <U>Schedule
7.12</U> or as disclosed in the ARI Audited Financial Statements or the ARI Unaudited Financial
Statements, since March&nbsp;31, 2007, there has not been any transaction or occurrence in which ARI
has:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;suffered any Material Adverse Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;declared, set aside or paid any dividend or other distribution (whether in cash, stock or
property) with respect to any of its outstanding capital stock, or made any redemption, purchase or
other acquisition of any of its equity securities;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;cancelled any debts or waived any receivables, claims or rights in excess of $2,500,000
individually;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;suffered any uninsured casualty loss or damage in excess of $2,500,000 individually;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;amended any term of any equity security of ARI other than as contemplated by this
Contribution Agreement; or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;made any change in its accounting methods, principles or practices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.13 <U>Compliance with Laws.</U> ARI holds all material Permits necessary for the lawful
conduct of its business and is in compliance in all material respects, with all Laws and Orders
applicable to its business and has filed with the proper authorities all statements and reports
required by the Laws and Orders to which ARI or any of its properties or operations are subject.
No claim has been made by any Governmental Authority (and, to ARI&#146;s Knowledge, no such
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">claim is
anticipated) to the effect that the business conducted by ARI fails to comply, in any respect, with
any Law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.14 <U>Transactions with Related Parties.</U> Except for the Stockholders&#146; Agreement,
transactions with any of ARI&#146;s Subsidiaries and as otherwise set forth on <U>Schedule&nbsp;7.14</U>:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;No Affiliate has entered into, or has had any direct or indirect financial interest in,
any ARI Material Contract, transaction or business dealings involving ARI;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;No Affiliate owns or has any interest in, directly or indirectly, in whole or in part, any
tangible or intangible property used in the conduct of the business of ARI;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Other than amounts owed to ARI pursuant to any intercompany debts, joint interest billing
and general and administrative allocations, or expense advance reimbursements in the ordinary
course of business, no Affiliate owes any money to, nor is any such Affiliate owed any money by,
ARI other than as set forth in this Contribution Agreement; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;ARI has not, directly or indirectly, guaranteed or assumed any indebtedness for borrowed
money or otherwise for the benefit of any Affiliate of ARI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.15 <U>Agents.</U> Except as set forth on <U>Schedule&nbsp;7.15</U>, ARI has not designated or
appointed any person or other entity to act for it or on its behalf pursuant to any power of
attorney or any agency which is presently in effect (other than such of ARI&#146;s directors, officers
and employees to whom ARI has given the authority to act for ARI in the ordinary course of its
business) or shall continue after the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.16 <U>Books and Records.</U> The minute books and records of ARI are current as of the
date hereof (and shall be current as of the Closing) with respect to all undertakings and
authorizations, and contain a true, complete and correct record of all actions taken at all
meetings and by all written consents in lieu of meetings of the ARI Board, or any committees
thereof, and the ARI Stockholders. The stock ledger and related stock transfer records of ARI
contain a true, complete and correct record of the original issuance, transfer and other
capitalization matters of the capital stock of ARI. The accounting, financial reporting, tax and
business books and records of ARI accurately and fairly reflect in all material respects the
business and condition of ARI and the transactions and the assets and liabilities of ARI with
respect thereto. Without limiting the generality of the foregoing, ARI has not engaged in any
transaction with respect to its business or operations, maintained any bank account therefor or
used any funds of ARI in the conduct thereof except for transactions, bank accounts and funds that
have been and are reflected in the normally maintained books and records of the business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.17 <U>Information Furnished.</U> ARI has made available to AOG and Neo Canyon and their
respective directors, officers, employees, counsel, representatives, financing sources, customers,
creditors, accountants and auditors, true and correct copies of all agreements, documents, and
other items listed on the Schedules to this Contribution Agreement and all books and records of
ARI.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.18 <U>Directors and Officers.</U> <U>Schedule&nbsp;7.18</U> lists all of the directors and
officers of ARI as of the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.19 <U>Bank Accounts.</U> Attached hereto as <U>Schedule&nbsp;7.19</U> is a list of all banks
or other financial institutions with which ARI has an account, showing the type and account number
of each such account.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.20 <U>Owned Real Property.</U> Other than the ARI Oil and Gas Properties, ARI does not own
any real property.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.21 <U>Leased Real Property.</U> Other than the ARI Oil and Gas Properties, <U>Schedule
7.21</U> contains a complete and correct list of all Real Property Leases. ARI has provided or
made available to the AOG Stockholders and Neo Canyon correct and complete copies of the Real
Property Leases. Except as disclosed in <U>Schedule&nbsp;7.21</U>, (i)&nbsp;each of the Real Property
Leases is in
full force and effect, and, to ARI&#146;s Knowledge, is enforceable against the landlord which is
party thereto in accordance with its terms (except as such enforceability may be limited by
bankruptcy, insolvency, reorganization and similar laws affecting creditors generally and by the
availability of equitable remedies), (ii)&nbsp;there are no subleases under the Real Property Leases and
none of the Real Property Leases has been assigned (other than collateral assignments to ARI&#146;s
Senior Lender), (iii)&nbsp;no notices of default or notices of termination have been received by ARI
with respect to the Real Property Leases which have not been withdrawn or canceled and (iv)&nbsp;ARI is
not, and to ARI&#146;s Knowledge, no other party is, in default under any Real Property Lease. There is
no ARI Knowledge of, nor has there been receipt of any written notice of a proceeding in eminent
domain or other similar proceeding affecting property listed on <U>Schedule&nbsp;7.21</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.22 <U>Insurance.</U> <U>Schedule&nbsp;7.22</U> contains a true and complete list of all
insurance policies, directors and officers liability policies, and formal self-insurance programs,
and other forms of insurance and all fidelity bonds held by or applicable to ARI and its owned or
leased properties. <U>Schedule&nbsp;7.22</U> describes (a)&nbsp;whether each insurance policy listed on
<U>Schedule&nbsp;7.22</U> is occurrence-based or claims made based and (b)&nbsp;each pending claim
thereunder for more than $1,000,000 per claim and a history of all such claims made against any
such insurance policy of ARI for the past three (3)&nbsp;years. All insurance policies listed on
<U>Schedule&nbsp;7.22</U> have been made available to the AOG Stockholders and Neo Canyon and are
subject to the deductibles or retentions referenced on <U>Schedule&nbsp;7.22</U>. ARI maintains
insurance for its benefit, in coverages and amounts to be customary and adequate in the oil and gas
industry. ARI is not in default with respect to any provision in any current policy maintained for
its benefit, and all such insurance is in full force and effect. ARI has not received, nor is
there any ARI Knowledge of, any notice of cancellation or nonrenewal of any such insurance policy.
ARI has not failed to give any notice or present any claim for more than $1,000,000 under any of
the policies for the benefit of ARI in due and timely fashion. ARI has not been refused any
insurance with respect to its assets, properties or businesses, nor has any such coverage been
materially limited by any insurance carrier to which ARI has applied for any such insurance or with
which ARI has carried insurance during the past three (3)&nbsp;years. Other than as described on
<U>Schedule&nbsp;7.22</U>, no further payments of premiums will be due following the Closing by ARI
with respect to insurance coverages prior to the Closing. Neither this Contribution Agreement nor
any of the transactions contemplated by this Contribution Agreement to occur at the Closing will
adversely affect ARI&#146;s coverage under the terms of the insurance policies with respect to periods
prior to the Closing.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.23 <U>Title to Oil and Gas Properties.</U> ARI has Defensible Title to all ARI Oil and Gas
Properties. All proceeds from the sale of ARI&#146;s share of the Hydrocarbons being produced from the
ARI Oil and Gas Properties are currently being paid in full to ARI by the purchasers thereof on a
timely basis, and none of such proceeds are currently being held in suspense by such purchaser or
any other party, except as set forth in <U>Schedule&nbsp;7.23</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.24 <U>Environmental Matters.</U> Except as set forth in <U>Schedule&nbsp;7.24</U>:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;to ARI&#146;s Knowledge, it has conducted its business and operated its assets, and is
conducting its business and operating its assets, and the condition of all facilities and
properties (including off site storage or disposal of any Hazardous Materials from such facilities
or properties) currently or formerly owned, leased or operated by ARI is, in material compliance
with all Environmental Laws;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;ARI has not been notified by any Governmental Authority or other third party that any of
the operations or assets of ARI is the subject of any investigation or inquiry by any Governmental
Authority or other third party evaluating whether any material remedial action is needed to respond
to a release or threatened release of any Hazardous Material or to the improper storage or disposal
(including storage or disposal at offsite locations) of any Hazardous Material where such
investigation or inquiry has not been fully resolved and satisfied as of the date hereof;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;neither ARI nor, to ARI&#146;s Knowledge, any other Person has filed any notice under any
federal, state or local Law indicating that (i)&nbsp;ARI is responsible for the improper release into
the environment, or the improper storage or disposal, of any Hazardous Material, or (ii)&nbsp;any
Hazardous Material is improperly stored or disposed of upon any property of ARI;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;to ARI&#146;s Knowledge, it does not have any material liability (contingent or otherwise) in
connection with (i)&nbsp;the release or threatened release into the environment at, beneath or on any
property now or previously owned or leased by ARI, or (ii)&nbsp;the storage or disposal of any Hazardous
Material;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;ARI has not received any claim, complaint, notice, inquiry or request for information
involving any matter which remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Law or regarding current or potential liability under any
Environmental Law or any personal injury, property damage or natural resource damage claim relating
to operations or conditions of any facilities or property (including off site storage or disposal
or release of any Hazardous Material from such facilities or property) currently or formerly owned,
leased or operated by ARI;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;to ARI&#146;s Knowledge, no property now or previously owned, leased or operated by ARI is
listed on the National Priorities List pursuant to CERCLA or on the CERCLIS or on any other federal
or state list as sites requiring investigation or cleanup;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;to ARI&#146;s Knowledge, it is not directly transporting, has not directly transported, is not
directly arranging for the transportation of, or has not directly transported, any Hazardous
Material to any location which is listed on the National Priorities List pursuant to
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">CERCLA, on the
CERCLIS, or on any similar federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations that may lead to material claims against ARI for
remedial work, damage to natural resources or personal injury, including claims under CERCLA;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;except for the draining and backfilling of pits associated with drilling activities in the
ordinary course, there are no sites, locations or operations at which ARI is obligated to
undertake, is currently undertaking, or has completed, any remedial or response action relating to
any disposal or release, as required by Environmental Laws; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;ARI does not own or operate any underground storage tanks or solid waste disposal
facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.25 <U>Patents, Trademarks and Similar Rights.</U> ARI owns or is properly licensed to use
or otherwise has rights to use all Intellectual Property (specifically including any seismic
license or Permit) material to the operations of the business of ARI as currently conducted. To
ARI&#146;s
Knowledge, except as set forth on <U>Schedule&nbsp;7.25</U>, (i)&nbsp;the entry into this Contribution
Agreement and the transactions contemplated hereby will not have any effect on any contracts
related to Intellectual Property, and (ii)&nbsp;neither ARI nor, to ARI&#146;s Knowledge, any other party, is
in breach of or default under any Intellectual Property license or any other contract or legal
requirement relating to the Intellectual Property, in each such case.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.26 <U>Plugging and Abandonment.</U> As to Wells operated by ARI, there are no Wells that:
(i)&nbsp;ARI is currently obligated by Law or contract to plug and abandon; or (ii)&nbsp;have been plugged
and abandoned in a manner that does not comply in all material respects with Law, in each such
case, where the obligation or failure to comply would reasonably be expected to have an ARI
Material Adverse Effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.27 <U>Additional Drilling Obligations.</U> To ARI&#146;s Knowledge, except as set forth on
<U>Schedule&nbsp;7.27</U>, there are no current obligations or assessments of ARI or any of its
Subsidiaries (other than implied obligations under leases to which ARI is a party concerning
protection from drainage and further development that is customary in the oil and gas industry)
that require the drilling of additional Wells or other material development operations (including
re-entry of existing Wells) in order to earn or to continue to hold all or any portion of the Oil
and Gas Properties, where the obligation or assessment would, individually or in the aggregate,
reasonably be expected to have an ARI Material Adverse Effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.28 <U>Gas Imbalances.</U> Except as set forth in <U>Schedule&nbsp;7.28</U>, ARI has no gas
production imbalances attributable to the ARI Oil and Gas Properties.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE VIII.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">COVENANTS

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1 <U>Ordinary Course of Business</U>. Except as otherwise contemplated herein or in
connection with the ARI Initial Public Offering, between the date of this Contribution Agreement
and the earlier to occur of the Closing Date or the termination of this Contribution Agreement,
ARI, AOG and Neo Canyon, as applicable, will carry on their respective businesses
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">diligently and in
the ordinary and usual course and consistent with past practice, and, without limiting the
generality of the foregoing, and ARI, AOG and Neo Canyon will use, and Neo Canyon GP will cause Neo
Canyon to use, commercially reasonable efforts to preserve their respective business organizations
intact, keep available the services of their respective present executive officers and employees
and preserve their respective present relationships with persons having business dealings with it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2 <U>AOG Restricted Activities and Transactions</U>. Except as otherwise contemplated
herein or in connection with the ARI Initial Public Offering, as set forth on <U>Schedule&nbsp;8.2</U>,
or as otherwise consented to in writing by ARI, AOG, Neo Canyon, Lubar and Yorktown VII, between
the date of this Contribution Agreement and the earlier to occur of the Closing Date or the
termination of this Contribution Agreement, (i)&nbsp;the AOG Stockholders shall not sell, transfer or
otherwise deliver their common stock in AOG, and (ii)&nbsp;AOG will not:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;except (i)&nbsp;as contemplated by the Lubar Note and the Yorktown Note, (ii)&nbsp;subject to
<U>Section&nbsp;10.1(d)</U>, for future issuances of equity or convertible debt in connection with
financing transactions or acquisitions that the ARI Board reasonably determines to be in the best
interests of ARI and its stockholders, or (iii)&nbsp;for options, warrants, rights, or other
equity-based awards issued as part of reasonable compensation plans approved by the ARI Board or
the AOG Board, issue or commit to issue any of its capital stock or other ownership or equity
interests;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;except (i)&nbsp;as contemplated by the Lubar Note and the Yorktown Note, (ii)&nbsp;subject to
<U>Section&nbsp;10.1(d)</U>, for future issuances of equity or convertible debt in connection with
financing transactions or acquisitions that the ARI Board reasonably determines to be in the best
interests of ARI and its stockholders, or (iii)&nbsp;for options, warrants, rights, or other
equity-based awards issued as part of reasonable compensation plans approved by the ARI Board or
the AOG Board, grant or commit to grant any options, warrants, convertible securities or other
rights to subscribe for, purchase or otherwise acquire any shares of its capital stock or other
ownership or equity interests;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;declare, set aside, or pay any dividend or distribution or make any other payment with
respect to its capital stock or other ownership interests except in the ordinary and usual course
and consistent with past practice;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;directly or indirectly redeem, purchase or otherwise acquire or commit to acquire any of
its capital stock or other ownership or equity interests;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;effect a split or reclassification of any of its capital stock or a recapitalization or
other reorganization;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;amend or otherwise alter its certificate of incorporation, bylaws, limited liability
agreement or limited partnership agreement or other governing instruments;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) enter into or make any change in any of its Employee Benefit Plans or grant any increase
in compensation (other than increases in compensation in the ordinary course of business for field
and office personnel who are not managers or executives), or provide any special severance
arrangement involving any of its employees, officers or directors;
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;except in the ordinary course of business or as otherwise permitted under this
Contribution Agreement and except for budgeted capital expenditures, enter into or agree to enter
into any agreement or transaction involving the incurrence of an obligation to pay an amount in
excess of an aggregate of $30,000,000;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;create, assume or permit to exist any Lien on any of its assets, tangible or intangible,
except (i)&nbsp;as permitted under its existing credit facilities with banks and any renewals,
modifications or rearrangements thereof on terms and conditions not materially less favorable to
the respective borrower or (ii)&nbsp;in the ordinary course of business consistent with past practice;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;except as in the ordinary and usual course of business and consistent with past practice
or as otherwise contemplated or permitted herein, (i)&nbsp;cancel or agree to cancel any debts or
claims, (ii)&nbsp;lease, sublease, sell or transfer, agree to sublease, sell or transfer, or grant or
agree to grant any preferential rights to lease or acquire, any of its assets, property or rights
having a
fair market value in excess of $2,000,000 or (iii)&nbsp;make or permit any material amendment or
termination of any Material Contract, agreement, license or other right to which it is a party;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;settle any threatened or pending litigation that is not fully covered by insurance other
than for immaterial consideration or for an amount less than that reserved as of the date hereof
for such litigation on its books and records; or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;commit itself to do any of the foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3 <U>Neo Canyon Restricted Activities and Transactions</U>. Between the date of this
Contribution Agreement and the earlier to occur of the Closing Date or the termination of this
Agreement, Neo Canyon will and Neo Canyon GP will cause Neo Canyon to (except as consented to in
writing by ARI, AOG, Lubar and Yorktown VII or otherwise permitted under this Agreement):
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;not terminate, amend or extend any material contracts affecting the Neo Canyon Oil and Gas
Properties, or enter into or commit to enter into any new material contract relating to the Neo
Canyon Oil and Gas Properties, or settle, compromise or waive any right relating to the Neo Canyon
Oil and Gas Properties,
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;maintain insurance coverage on the Neo Canyon Oil and Gas Properties in the amounts and of
the types presently in force,
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;use commercially reasonable efforts to cause the operator to maintain in full force and
effect the Leases and other Neo Canyon Oil and Gas Properties, and pay all costs and expenses and
perform all material obligations of the owner of the Neo Canyon Oil and Gas Properties promptly
when due,
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;use commercially reasonable efforts to cause the operator to maintain all Permits,
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;not transfer, sell, hypothecate, encumber or otherwise dispose of any Neo Canyon Oil and
Gas Properties except for sales and dispositions of Hydrocarbons made in the ordinary course of
business consistent with past practices,
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;not grant or create any preferential right to purchase, right of first opportunity or
other transfer restriction or requirement with respect to the Neo Canyon Oil and Gas Properties
except in connection with the renewal or extension of Neo Canyon Oil and Gas Properties after the
Closing Date if granting or creating such right or requirement is a condition of such renewal or
extension,
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;use commercially reasonable efforts to cause the operator to maintain the equipment in at
least as good a condition as it is on the date hereof, ordinary wear and tear excepted, and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;not make any change in any method of accounting or accounting practice or policy with
respect to the Neo Canyon Oil and Gas Properties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4 <U>HSR and Other Regulatory Matters.</U> Each of the parties hereto agrees to make all
necessary filings on a timely basis with respect to the HSR Act, and other applicable laws and will
use its commercially reasonable efforts to obtain any other regulatory approvals which may be
required to consummate the transactions contemplated herein. Notwithstanding anything in this
Contribution Agreement to the contrary, if any party hereto or any Affiliate thereof is required to
make a filing under any such acts in connection with the transactions contemplated by this
Contribution Agreement, the filing fees of such Person shall be borne by the party whose equity
ownership gave rise to such filing obligation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5 <U>Commercially Reasonable Efforts</U>. Upon the terms and subject to the conditions
hereof, each of the parties hereto agrees to use its commercially reasonable efforts to take, or
cause to be taken, all appropriate action, and to do or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions as contemplated by this
Contribution Agreement and to cooperate in connection with the foregoing, including commercially
reasonable efforts:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;to obtain any necessary waivers, consents and approvals from other parties to material
notes, licenses, agreements and other instruments and obligations;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;to obtain any material consents, approvals, authorizations and Permits required to be
obtained under any Law or Order;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;to defend all lawsuits or other Legal Proceedings challenging this Contribution Agreement
or the consummation of the transactions as contemplated hereby; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) to effect promptly all necessary filings and notifications including, but not limited to,
filings under the HSR Act, and prompt submissions of information requested by Governmental
Authorities.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6 <U>New ARI Charter.</U> Subject to approval of the New ARI Charter by the ARI
Stockholders, ARI will file the New ARI Charter with the Secretary of State of the State of
Delaware.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.7 <U>Officers and Directors.</U> The duly elected officers and directors of ARI who hold
office immediately prior to the Effective Time shall be the officers and directors of ARI and shall
thereafter continue to hold such positions until their successors have been duly elected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.8 <U>Access to Information</U>. From the date hereof to the Effective Time, each of the
parties hereto shall afford the officers, employees and representatives of the others, complete
access at all reasonable times to its respective officers, employees, agents, properties, books and
records, as applicable, and shall furnish the others all financial, operating and other data and
information as the others, through their officers, employees or representatives, may reasonably
request.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.9 <U>Section&nbsp;351</U>. For United States federal income tax purposes and any applicable
state or local income tax purposes, the parties hereto recognize that (i)&nbsp;the contributions
described in <U>Section&nbsp;2.1</U> will be treated to the AOG Stockholders as contributions by the
AOG Stockholders of common stock in AOG to ARI in exchange for shares of ARI Common Stock to which
Section 351(a) of the Code applies, (ii)&nbsp;the contributions described in <U>Section&nbsp;2.2</U> will be
treated to Neo Canyon as contributions by Neo Canyon of assets in Neo Canyon to ARI in exchange for
shares of ARI Common Stock to which Section 351(a) of the Code applies and (iii)&nbsp;the
contribution described in <U>Sections&nbsp;2.3</U> and <U>2.4</U> will be treated to Lubar and
Yorktown VII as contributions by them of notes payable to ARI in exchange for shares of ARI Common
Stock to which Section 351(a) of the Code applies. No party shall file any income Tax Return or
otherwise take any position for income Tax purposes that is inconsistent with such treatment unless
required to do so pursuant to a &#147;determination&#148; within the meaning of Section 1313(a) of the Code
or the corresponding provision of state or local income Tax Law. Additionally, each party agrees
to take no action which, alone or in combination with the actions of others, reasonably could
prevent the transactions from qualifying for nonrecognition of gain or loss under Section 351(a) of
the Code (a &#147;<B>Proscribed Action</B>&#148;), including, without limitation, any prearranged sale, contribution
or other disposition of ARI Common Stock. For purposes of this <U>Section&nbsp;8.9</U>, the parties
shall assume that Neo Canyon will sell to third parties in a registered secondary offering in
connection with the ARI Initial Public Offering up to the maximum number of shares that it could
sell without violating the &#147;control&#148; requirements in Section&nbsp;351 of the Code and any such sale by
Neo Canyon of such shares of ARI Common Stock shall not, with respect to Neo Canyon, be considered
a Proscribed Action. A Proscribed Action shall not include a distribution of ARI Common Stock by
the AOG Stockholders and Yorktown VII to their respective partners.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.10 <U>ARI Registration Statement.</U> Each of the parties hereto shall cooperate in the
preparation and filing of the ARI Registration Statement and to consummate the ARI Initial Public
Offering. As promptly as is practicable following the execution of this Contribution Agreement,
AOG, the AOG Stockholders and Neo Canyon shall cooperate with ARI to cause such ARI Registration
Statement to be filed with the Commission under and pursuant to the provisions of the Securities
Act for the purpose of registering ARI Common Stock for sale to the public in the ARI Initial
Public Offering.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.11 <U>Blue Sky</U>. ARI will use commercially reasonable efforts to obtain prior to the
Effective Time all necessary Blue Sky Permits and approvals required to permit the issuance of ARI
Common Stock in accordance with the provisions of this Contribution Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.12 <U>Notification Of Certain Matters</U>. Each party hereto will give prompt notice of
(i)&nbsp;the occurrence or non-occurrence of any event, the occurrence or nonoccurrence of which would
be likely to cause any representation or warranty of such Person contained herein to be untrue or
inaccurate in any material respect at or prior to the Effective Time, (ii)&nbsp;any material failure of
any such Person to comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such Person hereunder and (iii)&nbsp;any material adverse change in the business,
operations, operating results or condition (financial or otherwise) of such party. The delivery or
deemed delivery of any notice pursuant to this <U>Section&nbsp;8.12</U> shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such notice, (ii)&nbsp;modify
the conditions set forth in <U>Article&nbsp;IX</U>, or (iii)&nbsp;limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.13 <U>Consents and Preferential Rights</U>. Neo Canyon shall promptly prepare and send,
and Neo Canyon GP shall cause Neo Canyon to promptly prepare and send, (i)&nbsp;notices to the holders
of any required consents to assignment which are set forth on <U>Schedule&nbsp;5.3</U> requesting such
consents and (ii)&nbsp;notices to the holders of any applicable preferential rights to purchase which
are set forth on the Schedules requesting waivers of such preferential rights to purchase. Neo
Canyon shall use, and Neo Canyon GP shall cause Neo Canyon to use, commercially reasonable efforts
to cause such consents and waivers of preferential rights to purchase (or the exercise thereof) to
be obtained and delivered prior to Closing. ARI shall cooperate with Neo Canyon in seeking to
obtain such consents and waivers of preferential rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.14 <U>Assumption and Indemnification</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;FROM AND AFTER CLOSING, AND EXCEPT AS PROVIDED IN <U>SECTION 8.14(b)</U>, ARI SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS NEO CANYON, NEO CANYON GP AND THEIR RESPECTIVE AFFILIATES,
OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND REPRESENTATIVES FROM AND AGAINST ALL LOSSES (as defined
below in <U>Section&nbsp;8.14(c)</U>) INCURRED OR SUFFERED BY NEO CANYON:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) CAUSED BY OR ARISING OUT OF OR RESULTING FROM THE OWNERSHIP, USE OR OPERATION OF
THE NEO CANYON OIL AND GAS PROPERTIES, ON OR AFTER THE CLOSING DATE (INCLUDING, WITHOUT
LIMITATION, ANY OBLIGATION TO PLUG AND ABANDON ANY INACTIVE WELL THAT IS PART OF THE
PROPERTIES OR TO REMEDIATE ANY ENVIRONMENTAL CONDITION WHETHER SUCH ENVIRONMENTAL CONDITION
AROSE PRIOR TO OR AFTER THE CLOSING DATE),
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) CAUSED BY OR ARISING OUT OF OR RESULTING FROM ARI&#146;S BREACH OF ANY OF ARI&#146;S
COVENANTS OR AGREEMENTS THAT SPECIFICALLY SURVIVES CLOSING AS SET FORTH IN <U>SECTION
11.2</U> OF THIS CONTRIBUTION AGREEMENT.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Upon and after Closing, ARI shall assume and perform all the rights, duties, obligations and
liabilities of ownership and operation of the Neo Canyon Oil and Gas Properties including, without
limitation: (i)&nbsp;all of Neo Canyon&#146;s express and implied obligations and covenants after the
Closing Date under the terms of the Leases, the Material Contracts, and all other orders, rules and
regulations to which the Neo Canyon Oil and Gas Properties are subject; (ii)&nbsp;responsibility for all
royalties, overriding royalties, rentals, shut-in payments and other burdens or encumbrances to
which the Neo Canyon Oil and Gas Properties are subject accruing after the Closing Date; (iii)
responsibility for compliance with all applicable Laws pertaining to the Neo Canyon Oil and Gas
Properties, and the procurement and maintenance of all permits required by public authorities in
connection with the Neo Canyon Oil and Gas Properties after the Closing Date; and (iv)&nbsp;all other
obligations assumed by ARI under this Contribution Agreement. With respect to non operating
interests in the Neo Canyon Oil and Gas Properties being contributed to ARI under this Contribution
Agreement, ARI shall assume full responsibility and liability for that portion of the foregoing
rights, duties, obligations and liabilities for which non-operators are responsible. Neo Canyon
remains responsible for all costs, expenses and liabilities incurred by Neo Canyon in connection
with the ownership or operation of the Neo Canyon Oil and Gas Properties before the Closing Date,
except (i)&nbsp;those for which ARI indemnifies Neo Canyon, or (ii)&nbsp;those which ARI expressly assumes in
this Contribution Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;FROM AND AFTER CLOSING, AND EXCEPT AS PROVIDED IN <U>SECTION 8.14(a)</U>, NEO CANYON AND
NEO CANYON GP SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS ARI AND ITS OFFICERS, DIRECTORS, AGENTS,
EMPLOYEES AND REPRESENTATIVES AGAINST AND FROM NEO CANYON&#146;S SHARE OF ALL LOSSES INCURRED OR
SUFFERED BY ARI:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) CAUSED BY OR ARISING OUT OF OR RESULTING FROM THE OWNERSHIP, USE OR OPERATION OF
THE NEO CANYON OIL AND GAS PROPERTIES BEFORE THE CLOSING DATE;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) ATTRIBUTABLE TO OR ARISING OUT OF THE ACTIONS, SUITS, OR PROCEEDINGS, IF ANY, SET
FORTH ON <U>SCHEDULE 5.6</U>;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) CAUSED BY OR ARISING OUT OF OR RESULTING FROM NEO CANYON&#146;S BREACH OF ANY OF ITS
COVENANTS OR AGREEMENTS THAT SPECIFICALLY SURVIVES CLOSING AS SET FORTH IN <U>SECTION
11.2</U> OF THIS CONTRIBUTION AGREEMENT.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&#147;Losses,&#148; for purposes of this <U>Article&nbsp;VIII</U> shall mean the amount of any actual
liability, loss, cost, expense, claim, award or judgment incurred or suffered by any Indemnified
Party (as defined in <U>Section&nbsp;8.15</U>) arising out of or resulting from the indemnified matter,
including reasonable fees and expenses of attorneys, consultants, accountants or other agents and
experts reasonably incident to matters indemnified against, and the costs of investigation and/or
monitoring of such matters, and the costs of enforcement of the indemnity; provided, however, that
ARI, Neo Canyon and Neo Canyon GP shall not be entitled to indemnification under this <U>Section
8.14</U> for, and &#147;Losses&#148; shall not include, (i)&nbsp;loss of profits or other consequential damages
suffered by the party claiming indemnification, or (ii)&nbsp;any special
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">or punitive damages (other than
indirect, consequential, special or punitive damages suffered by third Persons and payable by an
Indemnified Person).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;The indemnity of each party provided in this <U>Article&nbsp;VIII</U> shall be for the benefit
of and extend to such party&#146;s present and former Affiliates, and its and their respective
directors, officers, employees, and agents. Any claim for indemnity under this <U>Article
VIII</U> by any such Affiliate, director, officer, employee, or agent must be brought and
administered by the applicable party to this Contribution Agreement. No Indemnified Party other
than Neo Canyon, Neo Canyon GP and ARI shall have any rights against Neo Canyon or Neo Canyon GP,
on the one hand, and ARI, on the other hand, under the terms of this <U>Article&nbsp;VIII</U> except as
may be exercised on its behalf by ARI or Neo Canyon GP, as applicable, pursuant to this <U>Section
8.14(d)</U>. Neo Canyon and ARI may elect to exercise or not exercise indemnification rights under
this <U>Section&nbsp;8.14</U> on behalf of the other Indemnified Parties affiliated with it in its sole
discretion and shall have no liability to any such other Indemnified Party for any action or
inaction under this <U>Section&nbsp;8.14</U>. For purposes of this <U>Article&nbsp;VIII</U>, but not for
any other purpose, each of the AOG Stockholders, Lubar and Yorktown VII shall be considered
Affiliates of ARI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.15 <U>Indemnification Procedures</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;If any third party asserts any claim against a party to this Contribution Agreement which,
if successful, would entitle the party to indemnification under this <U>Article&nbsp;VIII</U> (the
&#147;<B>Indemnified Party</B>&#148;), it shall give notice of such claim to the party from whom it intends to seek
indemnification (the &#147;<B>Indemnifying Party</B>&#148;) and the Indemnifying Party shall have the right to
assume the defense and, subject to <U>Section&nbsp;8.15(b)</U>, settlement of such claim at its expense
by representatives of its own choosing acceptable to the Indemnified Party (which acceptance shall
not be unreasonably withheld). The failure of the Indemnified Party to notify the Indemnifying
Party of such claim shall not relieve the Indemnifying Party of any liability that the Indemnifying
Party may have with respect to such claim, except to the extent that the defense is materially
prejudiced by such failure. The Indemnified Party shall have the right to participate in the
defense of such claim at its expense (which expense shall not be deemed to be a Loss), in which
case the Indemnifying Party shall cooperate in providing information to and consulting with the
Indemnified Party about the claim. If the Indemnifying Party fails or does not assume the defense
of any such claim within fifteen (15)&nbsp;days after written notice of such claim has been given by the
Indemnified Party to the Indemnifying Party, the Indemnified Party may defend against or, subject
to <U>Section&nbsp;8.15(b)</U>, settle such claim with counsel of its own choosing at the expense (to
the extent reasonable under the circumstances) of the Indemnifying Party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;If the Indemnifying Party does not assume the defense of a claim involving the asserted
liability of the Indemnified Party under this <U>Article&nbsp;VIII</U>, no settlement of such claim
shall be made by the Indemnified Party without the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed. If the Indemnifying Party assumes the
defense of such a claim, (i)&nbsp;no settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party&#146;s consent unless (A)&nbsp;there is no finding or admission of any
violation of Law or any violation of the rights of any Person and no effect on any other claim that
may be made against the Indemnified Party, (B)&nbsp;the sole relief provided is monetary damages that
have been paid in full by the Indemnifying Party, and (C)&nbsp;the settlement includes, as an
unconditional term thereof, the giving by the claimant or the plaintiff
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to the Indemnified Party of
a release in form and substance reasonably satisfactory to the Indemnified Party, from all
liability in respect of such claim, and (ii)&nbsp;the Indemnified Party shall have no liability with
respect to any compromise or settlement thereof effected without its consent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16 <U>Limits on Indemnification</U>. Notwithstanding anything to the contrary contained in
this Contribution Agreement:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Neo Canyon and Neo Canyon GP shall not have any obligation to provide indemnification for
Losses with respect to any specific occurrence, event or circumstance giving rise to a right to be
indemnified pursuant to <U>Section&nbsp;8.14</U> unless the amount of the claim giving rise to the
right to be indemnified with respect to such specific occurrence, event or circumstance exceeds
$250,000 (the &#147;<B>Basket Amount</B>&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;ARI shall not have any obligation to provide indemnification for Losses with respect to
any specific occurrence, event or circumstance giving rise to a right to be indemnified pursuant to
<U>Section&nbsp;8.14</U> unless the amount of the claim giving rise to the right to be indemnified with
respect to such specific occurrence, event or circumstance exceeds the Basket Amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.17 <U>Further Assurances</U>. The parties hereto agree to execute and deliver, or cause to
be executed and delivered, such further instruments or documents or take such other action as may
be reasonably necessary or convenient to carry out the transactions contemplated hereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.18 <U>Over-allotment Option. </U> If the underwriters exercise the over-allotment
option to purchase additional shares of ARI Common Stock in the ARI Initial Public Offering (the
&#147;<B>Over-allotment Option</B>&#148;), Neo Canyon shall be entitled to sell in a registered secondary offering
in connection with the Over-allotment Option the maximum number shares of ARI Common Stock owned by
Neo Canyon which would allow the transactions described in <U>Section&nbsp;8.9</U> to qualify under
Section&nbsp;351 of the Code (as determined by Neo Canyon in its reasonable discretion). ARI shall
apply a portion of the net proceeds received by it from the Over-allotment Option to purchase from
Neo Canyon (at a price per share equal to the initial public offering price per share of ARI Common
Stock less the underwriting discount) that number of its shares of ARI Common Stock equal to the
quotient of (i)&nbsp;a proportionate dollar amount of the gross proceeds received from the
Over-allotment Option based on the ratio that the aggregate purchase price paid to Neo Canyon by
ARI pursuant to <U>Section&nbsp;9.2(e)</U> bears to the aggregate gross proceeds realized by ARI and
Neo Canyon in the ARI Initial Public Offering (excluding any proceeds realized in the
Over-allotment Option), <U>divided by</U> (ii)&nbsp;the initial public offering price per share of ARI
Common Stock.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE IX.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">CONDITIONS

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1 <U>Conditions to Obligations of Each Party.</U> Notwithstanding any other provision of
this Contribution Agreement, the respective obligations of each party to effect the transactions
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">contemplated by this Contribution Agreement shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;the waiting period (and any extension thereof) applicable to the consummation of the
transactions contemplated herein under the HSR Act shall have expired or been terminated;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;no Order shall have been entered and remained in effect in any action or proceeding before
any federal, foreign, state or provincial court or Governmental Authority or other federal,
foreign, state or provincial regulatory or administrative agency or commission that would prevent
or make illegal the consummation of the transactions contemplated herein;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;the ARI Registration Statement shall be effective on the Closing Date and all
post-effective amendments filed shall have been declared effective or shall have been withdrawn,
and no stop order suspending the effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been initiated or, to the knowledge of the parties, threatened by the
Commission;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;ARI and the underwriters named in the ARI Registration Statement shall have executed an
underwriting agreement (the &#147;<B>Underwriting Agreement</B>&#148;) for a firm commitment underwriting as
described in the ARI Registration Statement; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;all other approvals of Governmental Authorities and of non-governmental persons or
entities shall have been obtained (i)&nbsp;the granting of which is necessary for the consummation of
the transactions contemplated herein and (ii)&nbsp;the non-receipt of which will have an ARI Material
Adverse Effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2 <U>Conditions to Obligations of Neo Canyon</U>. Notwithstanding any other provision of
this Contribution Agreement, the obligations of Neo Canyon to effect the transactions contemplated
by this Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;the conditions set forth in Section&nbsp;9.1;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;the representations and warranties of AOG, each of the AOG Stockholders, Lubar and
Yorktown VII contained in this Contribution Agreement shall have been true and correct as of the
Closing Date (or, if given as of a specific date, at and as of such date), except for such failures
to be true which (i)&nbsp;have been cured prior to the Closing Date or (ii)&nbsp;do not, in the aggregate,
constitute an ARI Material Adverse Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;the contributions of the AOG Stockholders, Lubar and Yorktown VII pursuant to <U>Article
II</U> and covenants of each of the parties hereto (other than Neo Canyon) to be complied with or
performed on or before the Closing Date pursuant to the terms hereof shall have been duly complied
with or performed, except for such failures to comply or perform which do not, in the aggregate,
constitute an ARI Material Adverse Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;(d)&nbsp;the ARI Registration Statement shall have included for sale in a registered secondary
offering by Neo Canyon in connection with the ARI Initial Public Offering
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the maximum number shares
of ARI Common Stock owned by Neo Canyon which would allow the transactions described in <U>Section
8.9</U> to qualify under Section&nbsp;351 of the Code (as determined by Neo Canyon in its reasonable
discretion) (the &#147;<B>351 Limit Shares</B>&#148;), provided, however, if the managing underwriter or
underwriters advise ARI in writing that, in its view, the total amount of Included Shares proposed
to be sold in such registered secondary offering may adversely affect the success of the ARI
Initial Public Offering or prevent ARI from offering a sufficient number of shares in the ARI
Initial Public Offering to repay its then outstanding indebtedness under its Credit Facility, then
the amount of Included Shares to be offered by Neo Canyon shall be reduced to the extent necessary
to reduce the total amount of securities to be included in the ARI Initial Public Offering to the
amount recommended by such managing underwriter or underwriters;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;(e)&nbsp;a portion of the net proceeds from the ARI Initial Public Offering (excluding any
proceeds from the Over-allotment Option) shall be applied to purchase from Neo Canyon (at a price
per share equal to the initial public offering price per share of ARI Common Stock less the
underwriting discount) that number of additional shares of ARI Common Stock equal to the quotient
of (A)&nbsp;the difference of (i) $60,000,000 <U>minus</U> (ii)&nbsp;the underwriting discount attributable
to $60,000,000 in gross proceeds from the ARI Initial Public Offering <U>minus</U> (iii)&nbsp;the
aggregate gross proceeds realized by Neo Canyon from its sale of the 351 Limit Shares, <U>divided
by</U>, (B)&nbsp;the initial public offering price per share of ARI Common Stock;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;assignment agreements and stock powers in form and substance reasonably acceptable to ARI
evidencing the transfers of the AOG Common Stock, the Lubar Note and the Yorktown Note contemplated
by <U>Article&nbsp;II</U> shall have been executed and delivered by each of the AOG Stockholders, Lubar
and Yorktown VII, as applicable;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;the Registration Rights Agreement duly executed by all parties thereto, other than Neo
Canyon;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;the New ARI Charter shall have been approved by the ARI Stockholders and filed with the
Secretary of State of the State of Delaware; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;the New ARI Bylaws shall have been approved by the ARI Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3 <U>Conditions to Obligations of ARI.</U> Notwithstanding any other provision of this
Contribution Agreement, the obligations of ARI to effect the transactions contemplated by this
Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;the conditions set forth in Section&nbsp;9.1;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;the representations and warranties of AOG, Neo Canyon, each of the AOG Stockholders, Lubar
and Yorktown VII contained in this Contribution Agreement shall have been true and correct as of
the Closing Date (or, if given as of a specific date, at and as of such date), except for such
failures to be true which (i)&nbsp;have been cured prior to the Closing Date or (ii)&nbsp;do not, in the
aggregate, constitute an ARI Material Adverse Effect;
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;the contributions of the AOG Stockholders, Neo Canyon, Lubar and Yorktown VII pursuant to
<U>Article&nbsp;II</U> and covenants of each of the parties hereto (other than ARI) to be complied with
or performed on or before the Closing Date pursuant to the terms hereof shall have been duly
complied with or performed, except for such failures to comply or perform which do not, in the
aggregate, constitute an ARI Material Adverse Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;assignment agreements and stock powers in form and substance reasonably acceptable to ARI
evidencing the transfers of the AOG Common Stock, the Neo Canyon Oil and Gas Properties, the Lubar
Note and the Yorktown Note contemplated by <U>Article&nbsp;II</U> shall have been executed and
delivered by each of the AOG Stockholders, Neo Canyon, Lubar and Yorktown VII, as applicable;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;the Registration Rights Agreement duly executed by all parties thereto, other than ARI;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;the New ARI Charter shall have been approved by the ARI Stockholders and filed with the
Secretary of State of the State of Delaware;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;the New ARI Bylaws shall have been approved by the ARI Board; .
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;the Conveyance in sufficient duplicate originals to allow recording in all appropriate
jurisdictions and offices, duly executed and delivered by Neo Canyon; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Letters-in-lieu of transfer orders covering the Neo Canyon Oil and Gas Properties, duly
executed and delivered by Neo Canyon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4 <U>Conditions to Obligations of AOG.</U> Notwithstanding any other provision of this
Contribution Agreement, the obligations of AOG to effect the transactions contemplated by this
Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;the conditions set forth in <U>Section&nbsp;9.1</U>;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;the representations and warranties of Neo Canyon and ARI contained in this Contribution
Agreement shall have been true and correct as of the Closing Date (or, if given as of a specific
date, at and as of such date), except for such failures to be true which (i)&nbsp;have been cured prior
to the Closing Date or (ii)&nbsp;do not, in the aggregate, constitute an ARI Material Adverse Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;the contributions of the Neo Canyon pursuant to <U>Article&nbsp;II</U> and covenants of each
of the parties hereto (other than ARI) to be complied with or performed on or before the Closing
Date pursuant to the terms hereof shall have been duly complied with or performed, except for such
failures to comply or perform which do not, in the aggregate, constitute an ARI Material Adverse
Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;assignment agreements in form and substance reasonably acceptable to ARI evidencing the
transfers of the Neo Canyon Oil and Gas Properties contemplated by <U>Article&nbsp;II</U> shall have
been executed and delivered by New Canyon;
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;the Conveyance in sufficient duplicate originals to allow recording in all appropriate
jurisdictions and offices, duly executed and delivered by Neo Canyon; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Letters-in-lieu of transfer orders covering the Neo Canyon Oil and Gas Properties, duly
executed and delivered by Neo Canyon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.5 <U>Conditions to Obligations of each of the AOG Stockholders, Lubar and Yorktown VII.</U>
Notwithstanding any other provision of this Contribution Agreement, the obligations of each of the
AOG Stockholders, Lubar and Yorktown VII to effect the transactions contemplated by this
Contribution Agreement shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;the conditions set forth in <U>Section&nbsp;9.1</U>;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;the representations and warranties of Neo Canyon and ARI contained in this Contribution
Agreement shall have been true and correct as of the Closing Date (or, if given as of a specific
date, at and as of such date), except for such failures to be true which (i)&nbsp;have been cured prior
to the Closing Date or (ii)&nbsp;do not, in the aggregate, constitute an ARI Material Adverse Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;the contributions of Neo Canyon pursuant to <U>Article&nbsp;II</U> and covenants of each of
the parties hereto (other than the AOG Stockholders, Lubar and Yorktown VII) to be complied
with or performed on or before the Closing Date pursuant to the terms hereof shall have been
duly complied with or performed, except for such failures to comply or perform which do not, in the
aggregate, constitute an ARI Material Adverse Effect;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;assignment agreements and stock powers in form and substance reasonably acceptable to ARI
evidencing the transfers of the Neo Canyon Oil and Gas Properties contemplated by <U>Article
II</U> shall have been executed and delivered by Neo Canyon;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;the Registration Rights Agreement duly executed by all parties thereto, other than the AOG
Stockholders, Lubar and Yorktown VII;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;the New ARI Charter shall have been approved by the ARI Stockholders and filed with the
Secretary of State of the State of Delaware;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;the New ARI Bylaws shall have been approved by the ARI Board; .
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;the Conveyance in sufficient duplicate originals to allow recording in all appropriate
jurisdictions and offices, duly executed and delivered by Neo Canyon; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Letters-in-lieu of transfer orders covering the Neo Canyon Oil and Gas Properties, duly
executed and delivered by Neo Canyon.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE X.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">TERMINATION

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.1 <U>Termination</U>. This Contribution Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Effective Time:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;by any party hereto if the Effective Time shall not have occurred on or before March&nbsp;31,
2008 (unless the Effective Time has not occurred as the result of a breach of the terms hereof by
the party desiring to exercise the termination right, which date may be extended by mutual
agreement of the parties hereto);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;by any party hereto if a final unappealable Order to restrain, enjoin or otherwise
prevent, or awarding substantial damages in connection with, consummation of this Contribution
Agreement or the transactions contemplated in connection herewith shall have been entered;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;with the written consent of (i)&nbsp;ARI, (ii)&nbsp;each of the AOG Stockholders, (iii)&nbsp;Neo Canyon,
(iv)&nbsp;Lubar and (v)&nbsp;Yorktown VII;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;by Neo Canyon, if ARI or AOG consummates a financing transaction or an acquisition that
reduces Neo Canyon&#146;s pro forma ownership percentage in ARI (after giving effect to <U>Sections
2.1</U> and <U>2.2</U>, but excluding any reduction resulting from the ARI Initial Public Offering
and the issuance of shares pursuant to <U>Sections</U> <U>2.3</U> and <U>2.4</U>) by 17.5% or
more;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;by ARI, if ARI receives an Acquisition Proposal that the ARI Board determines in good
faith is reasonably likely to be consummated and is in the best interests of ARI and its
stockholders and necessary in order for the ARI Board to discharge its fiduciary duties to
ARI&#146;s stockholders under applicable Law; provided, however, that, prior to any such termination,
ARI shall use its reasonable best efforts to cause the Neo Canyon Oil and Gas Properties to be
included in such Acquisition Proposal; or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;by AOG, if AOG receives an Acquisition Proposal that the AOG Board determines in good
faith is reasonably likely to be consummated and is in the best interests of AOG and its
stockholders and necessary in order for the AOG Board to discharge its fiduciary duties to AOG&#146;s
stockholders under applicable Law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2 <U>Effect of Termination</U>. In the event of any termination of this Contribution
Agreement pursuant to <U>Section&nbsp;10.1</U>, the parties hereto shall have no obligation or
liability to any other party hereto except the provisions of this <U>Section&nbsp;10.2</U> and
<U>Sections&nbsp;10.3</U>, <U>11.5</U>, <U>11.6</U>, <U>11.8</U>, <U>11.9</U>, <U>11.10</U>, and
<U>11.12</U> hereof shall survive any such termination and, except as provided in this <U>Section
10.2</U>, all documents executed in connection with this Contribution Agreement shall be null and
void.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.3 <U>Fees and Expenses</U>. Each party shall bear their own costs and expenses incurred
by it hereto in connection with this Contribution Agreement and the transactions contemplated
hereby.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ARTICLE XI.
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">MISCELLANEOUS

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1 <U>Waiver And Amendment</U>. Any provision of this Contribution Agreement may be waived
at any time by the party that is entitled to the benefits thereof. This Contribution Agreement may
not be amended or supplemented at any time, except by an instrument in writing signed on behalf of
each party hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2 <U>Nonsurvival of Representations and Warranties</U>. No representation and warranty
made in this Contribution Agreement shall survive the Effective Time. This <U>Section&nbsp;11.2</U>
shall not limit the term of any covenant or agreement which by its terms contemplates performance
after the Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.3 <U>Assignment.</U> This Contribution Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their respective successors,
heirs, devisees and assigns. Except as set forth in this Contribution Agreement, this Contribution
Agreement shall not be assignable until after the Closing Date (except by inheritance or devise) by
the parties hereto, except with the prior written consent of the other parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.4 <U>Notices.</U> All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when delivered if
delivered in person, by cable, telegram, telex, or telecopy and shall be deemed to have been duly
given three (3)&nbsp;Business Days after deposit with a United States post office if delivered by
registered or certified mail (postage prepaid, return receipt requested) to the respective parties
as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If to ARI, AOG, the AOG Stockholders or Yorktown VII:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">Approach Resources Inc.<BR>
6300 Ridglea Place, Suite&nbsp;1107<BR>
Fort Worth, Texas 76116<BR>
Fax: (817)&nbsp;989-9001<BR>
Attn: J. Ross Craft
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;with a copy to:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">Thompson &#038; Knight LLP<BR>
1700 Pacific Avenue, Suite&nbsp;3300<BR>
Dallas, TX 75201<BR>
Fax: (214)&nbsp;969-1751<BR>
Attn: Jeffrey A. Zlotky, Esq.
</DIV>


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




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;if to Neo Canyon or Neo Canyon GP:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">Neo Canyon Exploration, L.P.<BR>
325 North Saint Paul, Suite&nbsp;4300<BR>
Dallas, Texas 75201<BR>
Fax: (214)&nbsp;969-7433<BR>
Attn: James Cleo Thompson, Jr.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;with a copy to:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">Carrington, Coleman, Sloman &#038; Blumenthal, L.L.P.<BR>
901 Main Street, Suite&nbsp;5500<BR>
Dallas Texas, 75202<BR>
Fax: (214)&nbsp;758-3732<BR>
Attn: David G. Drumm, Esq.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If to Lubar:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 9%; margin-top: 6pt">Lubar Equity Fund, LLC<BR>
700 N. Water Street, Suite&nbsp;1200<BR>
Milwaukee, WI 53202<BR>
Fax: (414)&nbsp;291-9061<BR>
Attn: David Kuehl
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">or to such other address as any party may have furnished to the others in writing in
accordance herewith, except that notices of change of address shall only be effective upon receipt.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.5 <U>Governing Law</U>. This Contribution Agreement shall be governed by and construed in
accordance with the substantive law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.6 <U>Severability</U>. If any term or other provisions of this Contribution Agreement is
invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other
conditions and provisions of this Contribution Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions contemplated hereby is
not affected in any manner material to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Contribution Agreement so as to effect the original intent of the parties
as closely as possible.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.7 <U>Counterparts</U>. This Contribution Agreement may be executed in counterparts, each
of which shall be an original document, but all of which together shall constitute one and the same
agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.8 <U>Headings.</U> The section headings herein are for convenience only and are not
intended to be part of or to affect the meaning or interpretation of the Contribution Agreement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->49<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.9 <U>Enforcement Of The Contribution Agreement</U>. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this Contribution
Agreement were not performed in accordance with their specific terms or otherwise breached. It is
accordingly agreed that the parties hereto shall be entitled to any injunction or injunctions to
prevent breaches of this Contribution Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedies to which they are entitled at law
or in equity. In addition, each of the parties hereto consents to submit itself to the personal
jurisdiction of any federal or state court sitting in the State of Delaware in the event any
dispute arises out of this Contribution Agreement and agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any such court.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.10 <U>Entire Agreement; Third Party Beneficiaries</U>. This Contribution Agreement,
including the documents and information supplied in writing, and instruments referred to herein,
constitute the entire agreement and supersedes all other prior agreements, and understandings, both
oral and written, among the parties or any of them, with respect to the subject matter hereof. This
Contribution Agreement shall be binding upon and inure solely to the benefit of the parties hereto,
and nothing in this Contribution Agreement, including the documents and information supplied in
writing, and instruments referred to herein, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason of this
Contribution Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.11 <U>Certain Assignments</U>. Each of the parties hereto acknowledge and agree that each
AOG Stockholder, Lubar and Yorktown VII may transfer and assign their respective shares, or their
right to receive such shares, of ARI Common Stock to be received pursuant to <U>Section&nbsp;2.5</U> to
an Affiliate of such AOG Stockholder, Lubar and Yorktown VII, respectively; provided, however, that
each transferee pursuant to this <U>Section&nbsp;11.11</U> shall in connection with such transfer agree
to be bound by, and shall become a party to, this Contribution Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.12 <U>Representation</U>. The parties hereto agree that in connection with the
negotiation and execution of this Contribution Agreement, Thompson &#038; Knight LLP has represented
ARI, AOG, the AOG Stockholders and Yorktown VII. Each of Neo Canyon, Neo Canyon GP and Lubar
hereby acknowledges that it has been advised to consult with its own counsel regarding legal
matters concerning this Contribution Agreement and has been afforded the opportunity to consult
with counsel that such party deems advisable in connection with the negotiation and execution of
this Contribution Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.13 <U>Joinder</U>. Neo Canyon GP is joining in this Contribution Agreement for the
purpose of making specified representations and warranties covenants and conditions as set forth
herein, including those set forth in <U>Articles V, VIII, IX and XI</U>.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;Remainder of page intentionally left blank&#093;
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">&#091;Signature pages follow&#093;

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->50<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties to this Contribution Agreement have caused it to be duly
executed as of the date first above written.
</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="40%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="17%">&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"><B>ARI:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH RESOURCES INC.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:<BR>
Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft
</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>AOG:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH OIL &#038; GAS INC.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:<BR>
Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft
</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>NEO CANYON:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">NEO CANYON EXPLORATION, L.P.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">By: J. Cleo Thompson Petroleum Management,</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">L.L.C., its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:<BR>
Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ James Cleo Thompson, Jr.
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
James Cleo Thompson, 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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member-Manager</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>NEO CANYON GP:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">J. CLEO THOMPSON PETROLEUM MANAGEMENT, L.L.C.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:<BR>
Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ James Cleo Thompson, Jr.
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
James Cleo Thompson, 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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member-Manager</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</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="40%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="17%">&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"><B>AOG STOCKHOLDERS:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">YORKTOWN ENERGY PARTNERS V, L.P.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">By: Yorktown V Company LLC, its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:<BR>
Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ W. Howard Keenan, Jr.
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
W. Howard Keenan, 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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">YORKTOWN ENERGY PARTNERS VI, L.P.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">By: Yorktown VI Company LP, its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">By: Yorktown VI Associates LLC, its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:<BR>
Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ W. Howard Keenan, Jr.
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
W. Howard Keenan, 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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>LUBAR:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">LUBAR EQUITY FUND, LLC</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">By: Lubar &#038; Co., Incorporated, Manager</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:<BR>
Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ David Lubar
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
David Lubar
</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>YORKTOWN VII:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">YORKTOWN ENERGY PARTNERS VII, L.P.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">By: Yorktown VII Company LP, its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">By: Yorktown VII Associates LLC, its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:<BR>
Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ W. Howard Keenan, Jr.
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
W. Howard Keenan, 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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Managing Member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Exhibit&nbsp;A</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>AOG OIL AND GAS PROPERTIES &#151; LEASES AND WELLS</B></U>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Exhibit&nbsp;A-1
</DIV>


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

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Exhibit&nbsp;B</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>ARI OIL AND GAS PROPERTIES &#151; LEASES AND WELLS</B></U>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Exhibit&nbsp;B-1
</DIV>


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

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Exhibit&nbsp;C</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B><U>NEO CANYON OIL AND GAS PROPERTIES &#151; LEASES AND WELLS</U></B>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Exhibit&nbsp;C-1
</DIV>


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

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Exhibit&nbsp;D</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>FORM OF CONVEYANCE</B></U>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Exhibit&nbsp;D-1
</DIV>


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

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Exhibit&nbsp;E</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><U><B>REGISTRATION RIGHTS AGREEMENT</B></U>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Exhibit&nbsp;E-1
</DIV>



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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>d47789exv10w3.htm
<DESCRIPTION>EMPLOYMENT AGREEMENT - J. ROSS CRAFT
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w3</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">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.3</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>EMPLOYMENT AGREEMENT</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Employment Agreement (the &#147;Agreement&#148;) is entered into as of January&nbsp;1, 2003 (the
&#147;Effective Date&#148;), by and between APPROACH RESOURCES INC., a Delaware corporation (the &#147;Company&#148;),
and J. ROSS CRAFT, an individual residing in the State of Texas (&#147;Employee&#148;).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>RECITALS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Company desires to employ Employee as its President pursuant to the terms of this
Agreement;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Employee desires to be employed by the Company as its President pursuant to the terms
of this Agreement;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, both the Company and Employee have read and understood the terms of this Agreement,
and have been afforded a reasonable opportunity to review this Agreement with their respective
legal counsel;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Employee acknowledges that in the course of his employment by the Company and
performance of services on behalf of the Company and its subsidiaries, if any (collectively, the
&#147;Related Parties&#148;), he will become privy to various business opportunities of the Related Parties;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, it is a condition to (i)&nbsp;the sale of the Company&#146;s common stock to Employee occurring
on or about the Effective Date, (ii)&nbsp;the grant to Employee of options to acquire common stock of
the Company occurring on or about the Effective Date, and (iii)&nbsp;the continuing employment of
Employee by the Related Parties, that Employee enter into this Agreement; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, in connection with the sale on even date herewith to Employee of shares of the
Company&#146;s common stock, Employee is simultaneously purchasing 19,950 shares of the Company&#146;s common
stock in consideration of a promissory note payable to the Company (and committing to purchase an
additional 28,500 shares of the Company&#146;s common stock) (collectively, the &#147;Note Shares&#148;);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>AGREEMENT</B></U>
</DIV>


<DIV style="margin-top: 6pt">
<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">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Employment</U>. The Company will employ Employee as its President, subject to the terms
of this Agreement. Employee hereby accepts employment as the Company&#146;s President, subject to
the terms of this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Duties</U>. Employee will perform in the capacity described in paragraph 1 and shall
have such duties, responsibilities, and authorities as may be reasonably assigned by the
Company&#146;s Board of
Directors (the &#147;Board&#148;), in its sole discretion. Employee will devote his full time, best
efforts, abilities, knowledge, and experience to the Company&#146;s business and affairs as
necessary to faithfully perform his duties, responsibilities, and authorities under this
Agreement.</TD>
</TR>

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

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


<DIV style="margin-top: 6pt"><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">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Place of Performance</U>. In connection with his employment under this Agreement,
Employee shall be based at the Company&#146;s offices maintained in Fort Worth, Texas. The Company
shall provide without cost to Employee such office space, secretarial, and administrative
services, equipment, furniture, and furnishings as are suitable and appropriate to Employee&#146;s
titles and duties.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Term of Agreement</U>. The term of this Agreement shall be defined and determined as
follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Initial Term</U>. This Agreement shall continue in full force and effect
for two years (the &#147;Initial Term&#148;), commencing on the Effective Date and expiring on
the second anniversary of the Effective Date (the &#147;Expiration Date&#148;), unless terminated
before the Expiration Date in accordance with paragraph 6.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Renewal Term</U>. Notwithstanding paragraph 4(a), the term of this
Agreement will automatically be extended for an additional one year term (a &#147;Renewal
Term&#148;) on the Expiration Date and on each successive anniversary of the Expiration
Date, unless and until the Agreement terminated in accordance with paragraph 6.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Compensation and Employment Benefits</U>. The Company agrees to pay Employee the
following compensation and employment benefits during his employment under this Agreement:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Base Salary</U>. From the Effective Date until changed as provided in this
paragraph, the Company agrees to pay Employee an annual base salary of $175,000.00 (the
&#147;Base Salary&#148;), pro-rated for any partial period of employment. The Base Salary will
be payable semi-monthly in accordance with the Company&#146;s ordinary payroll policies and
procedures for employee compensation. The Company agrees that during Employee&#146;s
employment under this Agreement, Employee&#146;s Base Salary will be subject to an annual
review and adjustment by the Board; provided, however, that once established at an
increased specified rate, at no time thereafter during Employee&#146;s employment under this
Agreement will the Base Salary be reduced below the increased amount set forth in this
paragraph.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Bonus</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In addition to the Base Salary, Employee is eligible to
participate in an annual employee bonus pool (the &#147;Pool&#148;) to be determined
annually, in its discretion, by the Board or a committee of two members of the
Board designated as the Compensation Committee (the &#147;Compensation Committee&#148;),
initially comprised of Bryan H. Lawrence and J. Ross Craft.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If the Board or the Compensation Committee gives Employee the
option,</TD>
</TR>

</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;2<!-- /Folio -->
</DIV>

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




<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee may choose to receive his bonus in cash or shares of the
Company&#146;s common stock (with the valuation thereof set by the Board or the
Compensation Committee), or any combination thereof.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Board, or the Compensation Committee, as the case may be,
in its discretion, will determine Employee&#146;s participation in the Pool based on
the relative contribution of Employee during the year for which the Pool is
determined to the profitability and welfare of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Employment Benefits</U>. The Company agrees to provide Employee with the
employment benefits that the Company ordinarily provides to its employees. Such
employment benefits shall be governed by the applicable plan documents, insurance
policies, and/or employment policies, and may be modified, suspended, or revoked in
accordance with the terms of the applicable documents or policies. In addition to
those benefits, the Company agrees to provide or cause to provide the following
benefits upon satisfaction by Employee of the any eligibility requirements, subject to
the following limitations:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Sick-Leave Benefits and Disability Insurance</U>. To the
extent made available to other employees of the Company, and unless this
Agreement is terminated pursuant to paragraph 6, Employee shall be paid sick
leave benefits at his then prevailing Base Salary rate during his absence due
to illness or other incapacity.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Vacations</U>. The Company will provide Employee with a
minimum of 20 business days paid vacation per calendar year during his
employment under this Agreement. Such vacation must be utilized in the
calendar year in which it is granted or else it will be forfeited, unless the
Company has adopted a plan pursuant to which some or all of such days of paid
vacation may be rolled over to the next succeeding year. Employee agrees that
the time and duration of any vacation shall be subject to advance notice to the
Board. The Company also agrees to provide Employee with all paid holidays
ordinarily given by the Company to its employees. The Company also agrees to
pay Employee for any accrued unused vacation should this Agreement terminate
pursuant to paragraph 6.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Reimbursement of Business Expenses</U>. Employee is authorized to incur
ordinary, necessary, and reasonable business expenses in connection with the
performance of his duties, responsibilities, and authorities under this Agreement and
for the promotion of the Company&#146;s business and activities during this Agreement,
including but not limited to expenses for necessary travel and entertainment and other
items of expenses required in the normal and routine course of Employee&#146;s employment
under this Agreement. The Company will promptly reimburse Employee from time to time
for all such business expenses incurred pursuant to and in conformity with this
paragraph and the policies and
practices of the Company then in effect relative to the</TD>
</TR>




</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;3<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reimbursement of business
expenses.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Termination of Agreement</U>. This Agreement may be terminated as follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Death</U>. This Agreement shall terminate immediately in the event of
Employee&#146;s death; provided, however, that Employee&#146;s estate shall be paid the Base
Salary that Employee earned through the date of his death in the time and manner in
which Employee would have been paid such compensation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Disability</U>. This Agreement shall terminate immediately in the event
that Employee becomes &#147;Disabled&#148; as defined below. For purposes of this Agreement,
Employee shall be deemed to have become &#147;Disabled&#148; when (i)&nbsp;he receives disability
benefits under either Social Security or the Company&#146;s disability plan, if any, (ii)
the Board, upon the written report of a qualified physician designated by the Board or
its insurers, shall have determined (after a complete physical examination of Employee
at any time after he has been absent from the Company for a period of at least 120
calendar days since the Effective Date) that Employee has become physically and/or
mentally incapable of performing his essential job functions with or without reasonable
accommodation as required by law, or (iii)&nbsp;Employee is otherwise unable for a
continuous period of 180 calendar days to perform his essential job functions with or
without reasonable accommodation as required by law due to injury, illness, or other
incapacity (physical or mental).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>With Cause</U>. The Company shall be entitled to terminate this Agreement
immediately, without any further liability to Employee, except as provided otherwise in
this Agreement, for any &#147;Cause&#148; as defined below.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this Agreement, &#147;Cause&#148; shall be defined as
follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(A)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willful and continued failure by Employee
substantially to perform his duties hereunder (other than any such
failure resulting from Employee becoming Disabled);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(B)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willful engaging by Employee in misconduct
that is materially injurious to the Company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(C)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any misconduct in the course and scope of
Employee&#146;s employment under this Agreement, including but not limited
to dishonesty, disloyalty, disorderly conduct, insubordination,
harassment of other employees or third parties, abuse of alcohol or
controlled substances, or other violations of the Company&#146;s rules; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(D)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any material violation of this Agreement or the
Voting and Stockholders&#146; Agreement dated even date herewith among the
Company and its stockholders.</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;4<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this paragraph, no act, or failure to act, on Employee&#146;s
part shall be considered &#147;willful&#148; unless done, or omitted to be done, by
him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If the Company believes Cause exists for terminating this
Agreement pursuant to this paragraph, it shall give Employee written notice of
the acts or omissions constituting Cause, and no termination of this Agreement
shall be effective unless and until Employee fails to cure such acts or
omissions within 10&nbsp;days after receiving such notice.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Without Cause</U>. The Company shall be entitled to terminate this
Agreement for any reason other than death, disability, or Cause, at any time during
Employee&#146;s employment by providing 90&nbsp;days written notice to Employee that the Company
is terminating the Agreement without Cause as defined in this paragraph (a termination
&#147;without Cause&#148;).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Good Reason</U>. At his option, Employee may terminate his employment
hereunder (a termination for &#147;Good Reason&#148;) in the event of:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a material change in the nature or scope of Employee&#146;s
authorities, powers, functions, duties, or responsibilities, including without
limitation, a material change in the business or operations of the Company (it
being recognized that the purchase or sale of oil and gas properties by the
Company, regardless of the location of such properties, does not constitute a
material change for this purpose);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any demotion of Employee to a non-officer position or an
officer position junior to the position indicated in paragraph 1 hereof or a
removal from or any failure to elect or reelect Employee to the Board, except
in connection with termination of Employee&#146;s employment as permitted in the
foregoing provisions of this paragraph 6; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any material breach of this Agreement by the Company, provided
that the Company has failed to cure any such material breach within 10&nbsp;days of
Employee providing notice of such breach to the Board.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">f.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Expiration of Term</U>. The Employee&#146;s employment shall terminate upon the
expiration of the Initial Term or any successive Renewal Term, provided that the
Company notify Employee
at least 60&nbsp;days before the expiration of the Initial Term or any successive Renewal
Term of its intention not to extend this Agreement pursuant to paragraph 4(b).</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Compensation Upon Termination</U>. Upon termination of Employee&#146;s employment for one of</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;5<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the following reasons, whether before or after the consummation of a Change in Control (as
defined below), Employee shall be entitled to the following compensation:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Cause</U>. If Employee&#146;s employment shall be terminated for Cause, the
Company shall pay Employee his Base Salary then in effect through the Date of
Termination, prorated as provided in paragraph 5(a), and the Company shall have no
further obligations to Employee under this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Breach by the Company or for Good Reason</U>. If (i)&nbsp;in breach of this
Agreement the Company shall terminate Employee&#146;s employment (it being understood that a
purported termination of Employee&#146;s employment by the Company pursuant to any provision
of this Agreement that is disputed and finally determined not to have been proper shall
be a termination by the Company in breach of this Agreement) or (ii)&nbsp;Employee should
terminate his employment for Good Reason, then the Company shall pay or provide
Employee, in lieu of any further salary payments to Employee for any remaining portion
of the Term of this Agreement following the Date of Termination:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(A)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>on or before the 20th day following the Date of Termination, a
lump sum in cash equal to 50% of his Base Salary in effect as of the Date of
Termination;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(B)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>on or before the 90th day following the Date of Termination, a
lump sum in cash equal to 150% of Employee&#146;s Base Salary in effect as of the
Date of Termination;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(C)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all benefits Employee may be entitled to receive pursuant to
any pension or employee benefit plan or other arrangement or life insurance
policy maintained by the Company; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(D)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>for a period of one year following the Date of Termination, a
continuation of all benefits then applicable to Employee and his immediate
family under any pension or employee benefit plan or other arrangement then
maintained by the Company, including without limitation health, dental and life
insurance benefits.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Without Cause or Expiration of Term of Agreement</U>. If Employee&#146;s
employment shall be terminated without Cause as provided in paragraph 6(d) or if the
Company elects not to extend this Agreement as provided in paragraph 6(f), the Company
shall continue to pay Employee his Base Salary plus benefits for the period of 24
months from the date of termination. Such Base Salary and benefits shall be paid from
time to time during such 24&nbsp;month period in accordance with the time periods set forth
in paragraph 5(a). Additionally,
upon a termination of Employee&#146;s employment without Cause or if the Company elects
not to extend this Agreement, within 60&nbsp;days after such event, the Company hereby
agrees to purchase from Employee, and Employee hereby agrees to sell to the Company,
all of the Note Shares in consideration for the</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;6<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>forgiveness of the outstanding
indebtedness under any promissory note made to purchase the Note Shares. The
acquisition of the Note Shares by the Company shall be at a price no less than the
price paid by the Employee for the Note Shares; provided that to the extent such
purchase price is below the fair market value of the common stock of the Company at
the time of such purchase, Employee shall be responsible for any taxes associated
with the Company&#146;s purchase of the Note Shares. Notwithstanding the preceding two
sentences, Employee shall have the right to pay off the indebtedness in full under
any promissory note made to purchase the Note Shares within 30&nbsp;days after the notice
of termination without Cause.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Change in Control</U>. The parties acknowledge that Employee has entered into this
Agreement based on his confidence in the current stockholders of the Company and the support
of the Board. Accordingly, if the Company should undergo a &#147;Change in Control&#148; as defined in
this paragraph, the parties agree as follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Compensation</U>. If there is a &#147;Change in Control&#148; as defined in this
paragraph, then Employee will be deemed to be terminated without Cause.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Definitions</U>. For purposes of this Agreement, a &#147;Change of Control&#148;
shall be deemed to exist in the following circumstances:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Change in Control</U>: a Change in Control of the Company
shall be deemed to have occurred if members of the Incumbent Board cease for
any reason at any time prior to any Public Offering to constitute at least a
majority of the Board, except to the extent that the Incumbent Board consents
to such change; <U>provided</U>, that the words &#147;upon,&#148; &#147;after,&#148; &#147;at the time
of&#148; or any other words of similar import, when used with reference to a Change
in Control, shall mean and shall be deemed to include any period of time during
which events occur in support or furtherance of or which otherwise directly or
indirectly result in a Change in Control. A Change in Control also shall be
deemed to have occurred upon the occurrence of any of the following events:
(1)&nbsp;any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company&#146;s common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company&#146;s common stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger; or (2)&nbsp;any sales, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the
assets of the Company; or (3)&nbsp;the stockholders of the Company approve any
plan or proposal for liquidation or dissolution of the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Incumbent Board</U>: shall mean all individuals who, as of
the Effective Date, constitute the Board of the Company; provided, however,
that in the case of</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;7<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any member of the Board that is employed by Yorktown
Partners LLC or its affiliates, shall include any successor to such person who
is also employed by Yorktown Partners LLC.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Person</U>: shall include any natural person, group or
association of persons, or legal entity of any nature whatsoever.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Public Offering</U>: shall mean an offering of the
Company&#146;s equity securities with the result that such securities become
registered under the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Notwithstanding anything to the contrary in this paragraph 8(b), a transaction shall not
constitute a Change in Control if its sole purpose is to change the state of the Company&#146;s
incorporation or to create a holding company that will be owned in substantially the same
proportions by the persons who held the Company&#146;s securities immediately before such
transaction.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">9.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Other Provisions Relating to Termination</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Notice of Termination</U>. Any termination of Employee&#146;s employment by the
Company or by Employee (other than termination because of Death) shall be communicated
by written Notice of Termination to the other party thereto. For purposes of this
Agreement, a &#147;Notice of Termination&#148; shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon, and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee&#146;s employment under the provision so indicated.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Date of Termination</U>. For purposes of this Agreement, &#147;Date of
Termination&#148; shall mean (i)&nbsp;if Employee&#146;s employment is terminated by Death, the date
of Death; (ii)&nbsp;if Employee&#146;s employment is terminated because of Employee becoming
Disabled, then 60&nbsp;days after Notice of Termination is given (provided that Employee
shall not have returned to the performance of his duties on a full-time basis during
such 60&nbsp;day period); (iii)&nbsp;if (a)&nbsp;Employee&#146;s employment is terminated by the Company
for Cause or by Employee for Good Reason or (b)&nbsp;Employee&#146;s employment is terminated by
Employee, then in each case the date specified in the Notice of Termination; (iv)&nbsp;if
this Agreement is not renewed, the last date of the Initial Term or the Renewal Term as
the case may be; and (v)&nbsp;if Employee&#146;s employment is terminated for any other reason,
the date on which a Notice of Termination is given; provided that if within 30&nbsp;days
after any Notice of Termination is given (other than
with respect to a termination without Cause) the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a binding
and final arbitration award, or by a final judgment order or decree of a court of
competent jurisdiction (the time for</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;8<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>appeal therefrom having expired and no appeal
having been perfected), as applicable.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Mitigation</U>. Employee shall not be required to mitigate the amount of
any payment provided for in paragraph 7 by seeking other employment or otherwise, nor
shall the amount of any payment provided for therein be reduced by any compensation
earned by Employee as the result of employment by another employer after the Date of
Termination, or otherwise.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Interest</U>. Until paid, all past due amounts required to be paid by the
Company under any provision of this Agreement shall bear interest at 8% per annum
compounded daily.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">10.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Business Opportunities and Intellectual Property; Personal Investments; Confidentiality;
Covenant not to Compete</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee shall promptly disclose to the Company all &#147;Business Opportunities&#148;
and &#147;Intellectual Property&#148; (as defined below).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof &#147;Business Opportunities&#148; shall mean all business ideas,
prospects, proposals or other opportunities pertaining to the lease, acquisition,
exploration, production, gathering or marketing of hydrocarbons and related products
and the exploration potential of geographical areas on which hydrocarbon exploration
prospects are located, that are developed by Employee during the period that Employee
is employed by any of the Related Parties (the &#147;Employment Term&#148;) or originated by any
third party and brought to the attention of Employee during the Employment Term,
together with information relating thereto (including, without limitation, geological
and seismic data and interpretations thereof, whether in the form of maps, charts,
logs, seismographs, calculations, summaries, memoranda, opinions, or other written or
charted means).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof, &#147;Intellectual Property&#148; shall mean all ideas, inventions,
discoveries, processes, designs, methods, substances, articles, computer programs, and
improvements (including, without limitation, enhancements to, or further interpretation
or processing of, information that was in the possession of Employee prior to the date
of this Agreement), whether or not patentable or copyrightable, that do not fall within
the definition of Business Opportunities, that Employee discovers, conceives, invents,
creates, or develops, alone or with others, during the Employment Term, if such
discovery, conception, invention, creation, or development (i)&nbsp;occurs in the course of
Employee&#146;s employment with the Related Parties or (ii)&nbsp;occurs with the use of any of
the Related Parties&#146; time, materials, or facilities.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">11.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Non-Compete Obligations During Employment Term</U>. Employee agrees that during the
Employment Term and except as provided below or as otherwise permitted by the Company (acting
upon the instruction of the Board):</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;9<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee will not, other than through the Related Parties, engage or
participate in any manner, whether directly or indirectly through any family member or
as an employee, employer, consultant, agent, principal, partner, more than one percent
shareholder, officer, director, licensor, lender, lessor, or in any other individual or
representative capacity, in any business or activity that is engaged in leasing,
acquiring, exploring, developing or producing hydrocarbons and related products; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all investments made by Employee (whether in his own name or in the name of any
family members or made by Employee&#146;s controlled affiliates), which relate to the lease,
acquisition, exploration, development or production of hydrocarbons and related
products shall be made solely through the Related Parties; and Employee will not
(directly or indirectly through any family members), and will not permit any of his
controlled affiliates to: (A)&nbsp;invest or otherwise participate alongside the Related
Parties in any Business Opportunities or (B)&nbsp;invest or otherwise participate in any
business or activity relating to a Business Opportunity, regardless of whether any of
the Related Parties ultimately participates in such business or activity;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provided that this paragraph 11 shall not apply to (x)&nbsp;the existing personal oil and gas
investments owned by Employee, his family members and his controlled affiliates as of the
date hereof (the &#147;Existing Personal Investments&#148;); (y)&nbsp;future expenditures made by Employee
and his family members and his controlled affiliates that are required to maintain, but not
increase, their respective current ownership interests in the Existing Personal Investments,
excluding however, any expenditure to participate in the acquisition, exploration, or
development of any acreage that is not currently included in the Existing Personal
Investments as of the date hereof; and (z)&nbsp;any opportunity that is first offered to, and
subsequently declined by, the Company (acting through the Board).</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">12.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Confidentiality Obligations</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee hereby acknowledges that all trade secrets and confidential or
proprietary information of the Related Parties (collectively referred to herein as
&#147;Confidential Information&#148;) constitute valuable, special and unique assets of the
Related Parties&#146; business, and that access to and knowledge of such Confidential
Information is essential to the performance of Employee&#146;s duties. Employee agrees that
during the Employment Term and during the one-year period following the Date of
Termination, Employee will hold the Confidential Information in strict confidence and
will not publish, disseminate, or otherwise disclose, directly or indirectly, to any
person other than the Related Parties and their respective officers, directors, and
employees, any Confidential Information or use any
Confidential Information for Employee&#146;s own personal benefit or for the benefit of
anyone other than the Related Parties. The Company agrees to provide Confidential
Information to Employee in exchange for Employee&#146;s agreement to keep such
Confidential Information, and any Confidential Information to which Employee has
already become privy, in strict confidence as provided in this Agreement.</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;10<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this paragraph 12, it is agreed that Confidential Information
includes, without limitation, any information heretofore or hereafter acquired,
developed, or used by any of the Related Parties relating to Business Opportunities or
Intellectual Property or other geological, geophysical, economic, financial, or
management aspects of the business, operations, properties, or prospects of the Related
Parties whether oral or in written form in a Related Parties&#146; business records, but
shall exclude any information that (i)&nbsp;has become part of common knowledge or
understanding in the oil and gas industry or otherwise in the public domain (other than
from disclosure by Employee in violation of this Agreement), or (ii)&nbsp;was rightfully in
the possession of Employee, as shown by Employee&#146;s records, prior to the date of this
Agreement (including Employee&#146;s method of selecting, purchasing, and reworking oil and
gas properties, which the Company and Employee may utilize subsequent to the Employment
Term (subject to the other limitations contained in this Agreement)); provided,
however, that Employee shall provide to the Company copies of all information described
in clause (ii); provided further, however, that this paragraph12 shall not be
applicable to the extent Employee is required to testify in a judicial or regulatory
proceeding pursuant to the order of a judge or administrative law judge after Employee
requests that such Confidential Information be preserved.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">13.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Obligations After Termination Date</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The purpose of the provisions of paragraph 12 and this paragraph 13 are to
protect the Company from unfair loss of goodwill and business advantage and to shield
Employee from pressure to use or disclose Confidential Information or to trade on the
goodwill belonging to the Company. Accordingly, during the &#147;Post-Termination
Non-Compete Term&#148; (as defined below), Employee will not engage or participate in any
manner, whether directly or indirectly through any family member or as an employee,
employer, consultant, agent, principal, partner, shareholder, officer, director,
licensor, lender, lessor, or in any other individual or representative capacity, in any
business or activity that is in engaged in leasing, acquiring, exploring, developing or
producing hydrocarbons and related products within the boundaries of, or within a three
(3)&nbsp;mile radius of the boundaries of, any mineral property interest of any of the
Related Parties (including, without limitation, a mineral lease, overriding royalty
interest, production payment, net profits interest, mineral fee interest, or option or
right to acquire any of the foregoing, or an area of mutual interest as designated
pursuant to contractual agreements between the Related Party and any third party) or
any other property on which the Related Parties have an option, right, license, or
authority to conduct or direct exploratory activities, such as three dimensional
seismic acquisition or
other seismic, geophysical and geochemical activities (but not including any
preliminary geological mapping), as of the Termination Date or as of the end of the
six-month period following such Termination Date; provided that, this paragraph 13
shall not preclude Employee from making personal investments in securities of oil
and gas companies that are registered on a national stock exchange, if the aggregate
amount owned by Employee</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;11<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>and all family members and affiliates does not exceed one
percent (1%) of such company&#146;s outstanding securities.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof, the &#147;Post Termination Non-Compete Term&#148; is:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that (A)&nbsp;Employee voluntarily resigns or otherwise
terminates his position as an officer or employee of the Related Parties other
than on account of a Change of Control, or (B)&nbsp;Employee&#146;s employment or
engagement by the Related Parties is terminated for Cause, the one-year period
following the Termination Date;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if Employee terminates his employment for Good Reason other
than on account of a Change of Control, the sixth month period following the
Termination Date;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that Employee&#146;s employment is terminated on
account of a Change of Control, there shall not be a Post Termination
Non-Compete Term; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iv)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that Employee&#146;s employment is terminated without
Cause, the one-year period following the Termination Date.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee will not, during the one-year period following the Termination Date,
solicit, entice, persuade, or induce, directly or indirectly, any employee (or person
who within the preceding ninety (90)&nbsp;days was an employee) of any of the Related
Parties or any other person who is under contract with or rendering services to any of
the Related Parties, to (i)&nbsp;terminate his employment by, or contractual relationship
with, such person, (ii)&nbsp;refrain from extending or renewing the same (upon the same or
new terms), (iii)&nbsp;refrain from rendering services to or for such person, (iv)&nbsp;become
employed by or to enter into contractual relations with any Persons other than such
person, or (v)&nbsp;enter into a relationship with a competitor of any of the Related
Parties.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">14.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Common Law Duties</U>. Employee acknowledges and agrees that his restrictive covenants
in paragraphs 10, 11, 12, and 13 of this Agreement will supplement, rather than supplant, his
common law duties of confidentiality and loyalty owed to the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">15.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Survival of Covenants; Enforcement of Covenants; and Remedies</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Survival of Covenants</U>. Employee acknowledges and agrees that his
covenants in
paragraphs 10, 11, 12, and 13 of this Agreement shall survive the termination of
this Agreement and shall be construed as agreements independent of any other
provision of this Agreement, and the existence of any claim or cause of action of
Employee against the Company whether predicated on this Agreement or otherwise shall
not constitute a defense to the enforcement by the Company of those covenants.</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;12<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Enforcement of Covenants</U>. Employee acknowledges and agrees that his
covenants in paragraphs 10, 11, 12 and 13 of this Agreement are ancillary to the
otherwise enforceable agreements to provide Employee with Confidential Information and
are supported by independent, valuable consideration. Employee further acknowledges
and agrees that the limitations as to time, geographical area, and scope of activity to
be restrained by those covenants are reasonable and acceptable to Employee and do not
import any greater restraint than is reasonably necessary to protect the Company&#146;s
goodwill and other legitimate business interests. Employee further agrees that if, at
some later date, a court of competent jurisdiction determines that any of the covenants
in paragraphs 10,11, 12, or 13 are unreasonable, any such covenants shall be reformed
by the court and enforced to the maximum extent permitted under the law.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Remedies</U>. In the event of breach or threatened breach by Employee of
any of his covenants in paragraphs 10, 11, 12, and 13 of this Agreement, the Company
shall be entitled to equitable relief by temporary restraining order, temporary
injunction, or permanent injunction or otherwise, in addition to other legal and
equitable relief to which it may be entitled, including any and all monetary damages
that the Company may incur as a result of said breach, violation, or threatened breach
or violation. The Company may pursue any remedy available to it concurrently or
consecutively in any order as to any breach, violation, or threatened breach or
violation, and the pursuit of one of such remedies at any time will not be deemed an
election of remedies or waiver of the right to pursue any other of such remedies as to
such breach, violation, or threatened breach or violation, or as to any other breach,
violation, or threatened breach or violation.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">16.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Successors and Assigns</U>. The parties acknowledge and agree that this Agreement may
not be assigned by the Company to any other person or entity without Employee&#146;s written
consent; provided, however, that in the event of a Change in Control, the Company shall cause
the surviving entity in any such transaction to assume the payment obligations of paragraph 6,
to the extent such obligations have not yet been fully performed. The parties further
acknowledge and agree that Employee&#146;s duties, responsibilities, authorities, compensation, and
benefits are personal to Employee and may not be assigned to any person or entity other than a
Related Party without written consent from the Board. In the event of Employee&#146;s death, this
Agreement shall be enforceable by Employee&#146;s estate, executors, or legal representatives, but
only to the extent that such person may collect any compensation due to Employee under this
Agreement, as provided in paragraph 6(a). This Agreement shall be binding upon and inure to
the benefit of the parties and their respective heirs, legal representatives, successors, and
assigns; provided, however, that
Employee may not assign or otherwise transfer this Agreement or any of Employee&#146;s rights or
obligations under this Agreement without the prior written consent of the Board.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">17.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Representations of Employee</U>. Employee hereby represents and warrants that he has not
previously assumed any obligations inconsistent with those contained in this Agreement.</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;13<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee further represents and warrants that he has entered into this Agreement pursuant to
his own initiative and that the Company did not induce him to execute this Agreement in
contravention of any existing commitments. Employee further acknowledges that the Company has
entered into this Agreement in reliance upon the foregoing representations of Employee.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">18.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Dispute Resolution</U>. The parties agree to the following dispute resolution terms:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Definition of &#147;Dispute&#148;</U>. Any controversy, claim, or cause of action,
whether based on statute, contract, tort, misrepresentation, or any other legal theory,
arising out of or relating to this Agreement (a &#147;Dispute&#148;), shall be resolved solely in
accordance with the terms of this paragraph; provided, however, that the term &#147;Dispute&#148;
shall not include (i)&nbsp;Employee&#146;s claims for workers&#146; compensation or unemployment
compensation benefits (although any claim asserted under Ch. 451 of the Texas Labor
Code shall be considered a &#147;Dispute&#148; subject to dispute resolution under this
paragraph), or (ii)&nbsp;the Company&#146;s claims for injunctive and/or other equitable relief
for Employee&#146;s breach or threatened breach of his restrictive covenants in paragraphs
10, 11, 12, or 13. The parties acknowledge and agree that, notwithstanding the
provisions of this paragraph, nothing in this Agreement shall be construed to require
the mediation or arbitration of any claim arising out of or relating to Employee&#146;s
covenants in paragraphs 10, 11, 12, or 13. Those covenants shall be enforceable by any
court of competent jurisdiction, in accordance with paragraph 26, and shall not be
subject to dispute resolution under this paragraph.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Mediation</U>. If a Dispute cannot be settled by good faith negotiation
between the parties, the parties shall submit the Dispute to nonbinding mediation. If
complete agreement cannot be reached within 30 calendar days of submission to mediation
(&#147;Mediation Period&#148;), any remaining issues will be resolved by binding arbitration in
accordance with the provisions of this paragraph. The Federal Arbitration Act, 9
U.S.C. &#167;&#167; 1-15, not state law, will govern the arbitrability of all Disputes.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Arbitration</U>. A mutually agreeable arbitrator who is knowledgeable of
the Company&#146;s industry or in commercial matters will conduct the arbitration. If the
parties cannot select a mutually agreeable arbitrator within 15&nbsp;days after the
expiration of the Mediation Period, the mediator shall be selected according to rules
of the American Arbitration Association (&#147;AAA&#148;). The arbitrator&#146;s decision and award
will be final and binding and may be entered in any court with jurisdiction. The
arbitrator will not have authority to limit, expand, or otherwise modify the terms of
this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Rules of Conduct for Mediation and Arbitration</U>. The mediation and, if
necessary, the arbitration will be conducted under the then current rules of the
alternate dispute resolution (&#147;ADR&#148;) firm selected by the parties, or if the parties
are unable to agree on an ADR firm, the parties will conduct the mediation and, if
necessary, the arbitration under the then current rules and supervision of the AAA.
Each party will bear its own attorneys&#146; fees associated with the mediation and, if
necessary, the</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;14<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>arbitration. The parties will pay all other costs and expenses of the
mediation/arbitration as the rules of the selected ADR firm provide. The parties and
their representatives shall hold the existence, content, and result of the mediation
and arbitration in confidence.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Limit on Discovery</U>. There shall be no discovery during the mediation
process. If arbitration is necessary, no discovery shall be conducted except by
agreement of the parties or after approval by the arbitrator, who shall attempt to
minimize the burden of discovery.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">19.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Waiver of Rights to Jury Trial and Class-Action Participation</U>. Notwithstanding any
other provision of this Agreement, Employee agrees to irrevocably waive the right to trial by
jury or participate in any class or collective action with respect to any Dispute,
controversy, claim, or cause of action arising out of or relating to Employee&#146;s employment
with the Company, the termination of Employee&#146;s employment with the Company, or this Agreement
(either alleged breach or enforcement).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">20.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Attorneys&#146; Fees and Other Costs</U>. If either party breaches this Agreement, or if a
dispute arises between the parties based on or involving this Agreement, the party that
enforces its rights under this Agreement against the breaching party, or that prevails in the
resolution of such dispute, is entitled to recover from the other party its reasonable
attorneys&#146; fees, court costs, and expenses incurred in enforcing such rights or resolving such
dispute. For purposes of this paragraph 20, the finder of fact shall be requested to answer
affirmatively as to whether a party &#147;prevailed&#148; in order to recoup attorneys&#146; fees and other
costs pursuant to this paragraph 20.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">21.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Entire Agreement</U>. This Agreement constitutes the entire agreement between the
parties concerning the Agreement&#146;s subject matter and supersedes all prior agreements and
understandings, whether written or oral, between the parties with respect to its subject
matter.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">22.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Amendment of Agreement</U>. This Agreement may not be modified or amended in any respect
except by an instrument in writing signed by the party against whom such modification or
amendment is sought to be enforced. No modification or amendment may be enforced against the
Company unless such modification or amendment is in writing and signed by the Board.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">23.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Waiver</U>. The waiver by either party of a breach of any term of this Agreement shall
not operate or be construed as a waiver of a subsequent breach of the same provision by either
party or of the breach of any other term or provision of this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">24.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Severability</U>. If any provision of this Agreement is held to be illegal, invalid, or
unenforceable, (a)&nbsp;this Agreement shall be considered divisible, (b)&nbsp;such provision shall be
deemed inoperative to the extent it is deemed illegal, invalid, or unenforceable, and (c)&nbsp;in
all other respects this Agreement shall remain in full force and effect; provided, however,
that if</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;15<!-- /Folio -->
</DIV>

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


<DIV style="margin-top: 6pt"><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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any such provision may be made enforceable by limitation thereof, then such provision
shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by
applicable law.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">25.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Governing Law; Venue</U>. Except as otherwise provided in this Agreement, this Agreement
shall be governed by and construed and enforced in accordance with the laws of the State of
Texas. Exclusive venue for purposes of any controversy, claim, or cause of action not covered
by paragraph 18, and brought by any party under this Agreement, is in any state or federal
court of competent jurisdiction in and for Tarrant County, Texas. Nothing in this Agreement,
however, precludes the Company or Employee from seeking to remove a civil action from any
state court to federal court.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">26.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Notices</U>. All notices under this Agreement shall be in writing and shall be deemed to
have been delivered on the date personally delivered or three calendar days after the date
deposited in a receptacle maintained by the United States Postal Service for such purpose,
postage prepaid, by certified mail, return receipt requested, addressed to the Company at its
headquarters or Employee at the address of such person as set forth in the Company&#146;s records.
Either party may designate a different address by providing written notice of such new address
to the other party.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">27.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Counterparts</U>. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute but one and the
same instrument.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>&#091;</B><B><I>signature page to follow</I></B><B>&#093;</B>
</DIV>


<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;16<!-- /Folio -->
</DIV>

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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="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="36%">&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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>EMPLOYEE:</B></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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">/s/ J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Name: J. Ross Craft</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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>COMPANY:</B></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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH RESOURCES INC.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">a Delaware 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">&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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ David A. Badley</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">David A. Badley</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">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><!-- Folio --><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page&nbsp;17<!-- /Folio -->
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>6
<FILENAME>d47789exv10w4.htm
<DESCRIPTION>EMPLOYMENT AGREEMENT - STEVEN P. SMART
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w4</TITLE>
</HEAD>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.4</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>EMPLOYMENT AGREEMENT</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Employment Agreement (the &#147;Agreement&#148;) is entered into as of January&nbsp;1, 2003 (the
&#147;Effective Date&#148;), by and between APPROACH RESOURCES INC., a Delaware corporation (the &#147;Company&#148;),
and STEVEN SMART, an individual residing in the state of Texas (&#147;Employee&#148;).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>RECITALS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Company desires to employ Employee pursuant to the terms of this Agreement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Employee desires to be employed by the Company pursuant to the terms of this
Agreement;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, both the Company and Employee have read and understood the terms of this Agreement,
and have been afforded a reasonable opportunity to review this Agreement with their respective
legal counsel;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Employee acknowledges that in the course of his employment by the Company and
performance of services on behalf of the Company and its subsidiaries, if any (collectively, the
&#147;Related Parties&#148;), he will become privy to various business opportunities of the Related Parties;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, it is a condition to (i)&nbsp;the sale of the Company&#146;s common stock to Employee occurring
on or about the Effective Date, (ii)&nbsp;the grant to Employee of options to acquire common stock of
the Company occurring on or about the Effective Date, and (iii)&nbsp;the continuing employment of
Employee by the Related Parties, that Employee enter into this Agreement; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, in connection with the sale on even date herewith to Employee of shares of the
Company&#146;s common stock, Employee is simultaneously purchasing 3,500 shares of the Company&#146;s common
stock in consideration of a promissory note payable to the Company (and committing to purchase an
additional 5,000 shares of the Company&#146;s common stock) (collectively, the &#147;Note Shares&#148;);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>AGREEMENT</B></U>
</DIV>


<DIV style="margin-top: 6pt">
<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">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Employment</U>. The Company will employ Employee subject to the terms of this Agreement.
Employee hereby accepts employment subject to the terms of this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Duties</U>. The Employee shall serve as Controller of the Company. The Employee shall
report to the President and Executive Vice President of the Company.</TD>
</TR>

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

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV style="margin-top: 6pt"><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">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Place of Performance</U>. In connection with his employment under this Agreement,
Employee shall be based at the Company&#146;s offices maintained in Fort Worth, Texas. The Company
shall provide without cost to Employee such office space, secretarial, and administrative
services, equipment, furniture, and furnishings as are suitable and appropriate to Employee&#146;s
titles and duties.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Term of Agreement</U>. The term of this Agreement shall be defined and determined as
follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Initial Term</U>. This Agreement shall continue in full force and effect
for two years (the &#147;Initial Term&#148;), commencing on the Effective Date and expiring on
the second anniversary of the Effective Date (the &#147;Expiration Date&#148;), unless terminated
before the Expiration Date in accordance with paragraph 6.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Renewal Term</U>. Notwithstanding paragraph 4(a), the term of this
Agreement will automatically be extended for an additional one year term (a &#147;Renewal
Term&#148;) on the Expiration Date and on each successive anniversary of the Expiration
Date, unless and until the Agreement terminated in accordance with paragraph 6.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Compensation and Employment Benefits</U>. The Company agrees to pay Employee the
following compensation and employment benefits during his employment under this Agreement:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Base Salary</U>. From the Effective Date until changed as provided in this
paragraph, the Company agrees to pay Employee an annual base salary of $115,000.00 (the
&#147;Base Salary&#148;), pro-rated for any partial period of employment. The Base Salary will
be payable semi-monthly in accordance with the Company&#146;s ordinary payroll policies and
procedures for employee compensation. The Company agrees that during Employee&#146;s
employment under this Agreement, Employee&#146;s Base Salary will be subject to an annual
review and adjustment by the Company&#146;s Board of Directors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Bonus</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In addition to the Base Salary, Employee is eligible to
participate in an annual employee bonus pool (the &#147;Pool&#148;) to be determined
annually, in its discretion, by the Board or a committee of two members of the
Board designated as the Compensation Committee (the &#147;Compensation Committee&#148;),
initially comprised of Bryan H. Lawrence and J. Ross Craft.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If the Board or the Compensation Committee gives Employee the
option, Employee may choose to receive his bonus in cash or shares of the
Company&#146;s common stock (with the valuation thereof set by the Board or the
Compensation Committee), or any combination thereof.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 2
</DIV>



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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Board, or the Compensation Committee, as the case may be,
in its discretion, will determine Employee&#146;s participation in the Pool based on
the relative contribution of Employee during the year for which the Pool is
determined to the profitability and welfare of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Employment Benefits</U>. The Company agrees to provide Employee with the
employment benefits that the Company ordinarily provides to its employees. Such
employment benefits shall be governed by the applicable plan documents, insurance
policies, and/or employment policies, and may be modified, suspended, or revoked in
accordance with the terms of the applicable documents or policies. In addition to
those benefits, the Company agrees to provide or cause to provide the following
benefits upon satisfaction by Employee of the any eligibility requirements, subject to
the following limitations:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Sick-Leave Benefits and Disability Insurance</U>. To the
extent made available to other employees of the Company, and unless this
Agreement is terminated pursuant to paragraph 6, Employee shall be paid sick
leave benefits at his then prevailing Base Salary rate during his absence due
to illness or other incapacity.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Vacations</U>. The Company will provide Employee with a
minimum of 20 business days paid vacation per calendar year during his
employment under this Agreement. Such vacation must be utilized in the
calendar year in which it is granted or else it will be forfeited, unless the
Company has adopted a plan pursuant to which some or all of such days of paid
vacation may be rolled over to the next succeeding year. Employee agrees that
the time and duration of any vacation shall be subject to advance notice to the
Board. The Company also agrees to provide Employee with all paid holidays
ordinarily given by the Company to its employees. The Company also agrees to
pay Employee for any accrued unused vacation should this Agreement terminate
pursuant to paragraph 6.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Reimbursement of Business Expenses</U>. Employee is authorized to incur
ordinary, necessary, and reasonable business expenses in connection with the
performance of his duties, responsibilities, and authorities under this Agreement and
for the promotion of the Company&#146;s business and activities during this Agreement,
including but not limited to expenses for necessary travel and entertainment and other
items of expenses required in the normal and routine course of Employee&#146;s employment
under this Agreement. The Company will promptly reimburse Employee from time to time
for all such business expenses incurred pursuant to and in conformity with this
paragraph and the policies and practices of the Company then in effect relative to the
reimbursement of business expenses.</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 3
</DIV>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Termination of Agreement</U>. This Agreement may be terminated as follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Death</U>. This Agreement shall terminate immediately in the event of
Employee&#146;s death; provided, however, that Employee&#146;s estate shall be paid the Base
Salary that Employee earned through the date of his death in the time and manner in
which Employee would have been paid such compensation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Disability</U>. This Agreement shall terminate immediately in the event
that Employee becomes &#147;Disabled&#148; as defined below. For purposes of this Agreement,
Employee shall be deemed to have become &#147;Disabled&#148; when (i)&nbsp;he receives disability
benefits under either Social Security or the Company&#146;s disability plan, if any, (ii)
the Board, upon the written report of a qualified physician designated by the Board or
its insurers, shall have determined (after a complete physical examination of Employee
at any time after he has been absent from the Company for a period of at least 120
calendar days since the Effective Date) that Employee has become physically and/or
mentally incapable of performing his essential job functions with or without reasonable
accommodation as required by law, or (iii)&nbsp;Employee is otherwise unable for a
continuous period of 180 calendar days to perform his essential job functions with or
without reasonable accommodation as required by law due to injury, illness, or other
incapacity (physical or mental).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>With Cause</U>. The Company shall be entitled to terminate this Agreement
immediately, without any further liability to Employee, except as provided otherwise in
this Agreement, for any &#147;Cause&#148; as defined below.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this Agreement, &#147;Cause&#148; shall be defined as
follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(A)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willful and continued failure by Employee
substantially to perform his duties hereunder (other than any such
failure resulting from Employee becoming Disabled);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(B)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willful engaging by Employee in misconduct
that is materially injurious to the Company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(C)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any misconduct in the course and scope of
Employee&#146;s employment under this Agreement, including but not limited
to dishonesty, disloyalty, disorderly conduct, insubordination,
harassment of other employees or third parties, abuse of alcohol or
controlled substances, or other violations of the Company&#146;s rules; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(D)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any material violation of this Agreement or the
Voting and Stockholders&#146; Agreement dated even date herewith among the
Company and its stockholders.</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 4
</DIV>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this paragraph, no act, or failure to act, on Employee&#146;s
part shall be considered &#147;willful&#148; unless done, or omitted to be done, by
him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If the Company believes Cause exists for terminating this
Agreement pursuant to this paragraph, it shall give Employee written notice of
the acts or omissions constituting Cause, and no termination of this Agreement
shall be effective unless and until Employee fails to cure such acts or
omissions within 10&nbsp;days after receiving such notice.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Without Cause</U>. The Company shall be entitled to terminate this
Agreement for any reason other than death, disability, or Cause, at any time during
Employee&#146;s employment by providing 90&nbsp;days written notice to Employee that the Company
is terminating the Agreement without Cause as defined in this paragraph (a termination
&#147;without Cause&#148;).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Expiration of Term</U>. The Employee&#146;s employment shall terminate upon the
expiration of the Initial Term or any successive Renewal Term, provided that the
Company notify Employee at least 60&nbsp;days before the expiration of the Initial Term or
any successive Renewal Term of its intention not to extend this Agreement pursuant to
paragraph 4(b).</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Compensation Upon Termination</U>. Upon termination of Employee&#146;s employment for one of
the following reasons, Employee shall be entitled to the following compensation:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Cause</U>. If Employee&#146;s employment shall be terminated for Cause, the
Company shall pay Employee his Base Salary then in effect through the Date of
Termination, prorated as provided in paragraph 5(a), and the Company shall have no
further obligations to Employee under this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Breach by the Company</U>. If in breach of this Agreement the Company
shall terminate Employee&#146;s employment (it being understood that a purported termination
of Employee&#146;s employment by the Company pursuant to any provision of this Agreement
that is disputed and finally determined not to have been proper shall be a termination
by the Company in breach of this Agreement), then the Company shall pay or provide
Employee, in lieu of any further salary payments to Employee for any remaining portion
of the Term of this Agreement following the Date of Termination:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(A)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>on or before the 20th day following the Date of Termination, a
lump sum in cash equal to 25% of his Base Salary in effect as of the Date of
Termination;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(B)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>on or before the 90th day following the Date of Termination, a
lump sum in cash equal to 25% of Employee&#146;s Base Salary in effect as of the
Date of Termination; and</TD>
</TR>



</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 5
</DIV>

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


<DIV style="margin-top: 6pt"><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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(C)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all benefits Employee may be entitled to receive pursuant to
any pension or employee benefit plan or other arrangement or life insurance
policy maintained by the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Without Cause or Expiration of Term of Agreement</U>. If Employee&#146;s
employment shall be terminated without Cause as provided in paragraph 6(d) or if the
Company elects not to extend this Agreement as provided in paragraph 6(e), the Company
shall continue to pay Employee his Base Salary plus benefits for the period of 6&nbsp;months
from the date of termination. Such Base Salary and benefits shall be paid from time to
time during such 6&nbsp;month period in accordance with the time periods set forth in
paragraph 5(a). Additionally, upon a termination of Employee&#146;s employment without
Cause or if the Company elects not to extend this Agreement, within 60&nbsp;days after such
event, the Company hereby agrees to purchase from Employee, and Employee hereby agrees
to sell to the Company, all of the Note Shares in consideration for the forgiveness of
the outstanding indebtedness under any promissory note made to purchase the Note
Shares. The acquisition of the Note Shares by the Company shall be at a price no less
than the price paid by the Employee for the Note Shares; provided that to the extent
such purchase price is below the fair market value of the common stock of the Company
at the time of such purchase, Employee shall be responsible for any taxes associated
with the Company&#146;s purchase of the Note Shares. Notwithstanding the preceding two
sentences, Employee shall have the right to pay off the indebtedness in full under any
promissory note made to purchase the Note Shares within 30&nbsp;days after the notice of
termination without Cause.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Intentionally Omitted</U>.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">9.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Other Provisions Relating to Termination</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Notice of Termination</U>. Any termination of Employee&#146;s employment by the
Company or by Employee (other than termination because of Death) shall be communicated
by written Notice of Termination to the other party thereto. For purposes of this
Agreement, a &#147;Notice of Termination&#148; shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon, and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee&#146;s employment under the provision so indicated.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Date of Termination</U>. For purposes of this Agreement, &#147;Date of
Termination&#148; shall mean (i)&nbsp;if Employee&#146;s employment is terminated by Death, the date
of Death; (ii)&nbsp;if Employee&#146;s employment is terminated because of Employee becoming
Disabled, then 60&nbsp;days after
Notice of Termination is given (provided that Employee shall not have returned to
the performance of his duties on a full-time basis during such 60&nbsp;day period); (iii)
if (a)&nbsp;Employee&#146;s employment is terminated by the Company for Cause or (b)
Employee&#146;s employment is terminated by Employee, then in each case the date
specified in the Notice of Termination; (iv)&nbsp;if this Agreement is not renewed, the
last</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 6
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>date of the Initial Term or the Renewal Term as the case may be; and (v)&nbsp;if
Employee&#146;s employment is terminated for any other reason, the date on which a Notice
of Termination is given; provided that if within 30&nbsp;days after any Notice of
Termination is given (other than with respect to a termination without Cause) the
party receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award, or by a final judgment order or
decree of a court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected), as applicable.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Mitigation</U>. Employee shall not be required to mitigate the amount of
any payment provided for in paragraph 7 by seeking other employment or otherwise, nor
shall the amount of any payment provided for therein be reduced by any compensation
earned by Employee as the result of employment by another employer after the Date of
Termination, or otherwise.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Interest</U>. Until paid, all past due amounts required to be paid by the
Company under any provision of this Agreement shall bear interest at 8% per annum
compounded daily.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">10.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Business Opportunities and Intellectual Property; Personal Investments; Confidentiality;
Covenant not to Compete</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee shall promptly disclose to the Company all &#147;Business Opportunities&#148;
and &#147;Intellectual Property&#148; (as defined below).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof &#147;Business Opportunities&#148; shall mean all business ideas,
prospects, proposals or other opportunities pertaining to the lease, acquisition,
exploration, production, gathering or marketing of hydrocarbons and related products
and the exploration potential of geographical areas on which hydrocarbon exploration
prospects are located, that are developed by Employee during the period that Employee
is employed by any of the Related Parties (the &#147;Employment Term&#148;) or originated by any
third party and brought to the attention of Employee during the Employment Term,
together with information relating thereto (including, without limitation, geological
and seismic data and interpretations thereof, whether in the form of maps, charts,
logs, seismographs, calculations, summaries, memoranda, opinions, or other written or
charted means).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof, &#147;Intellectual Property&#148; shall mean all ideas, inventions,
discoveries, processes, designs, methods, substances, articles, computer programs, and
improvements
(including, without limitation, enhancements to, or further interpretation or
processing of, information that was in the possession of Employee prior to the date
of this Agreement), whether or not patentable or copyrightable, that do not fall
within the definition of Business Opportunities, that Employee discovers,</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 7
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>conceives, invents, creates, or develops, alone or with others, during the Employment Term, if
such discovery, conception, invention, creation, or development (i)&nbsp;occurs in the
course of Employee&#146;s employment with the Related Parties or (ii)&nbsp;occurs with the use
of any of the Related Parties&#146; time, materials, or facilities.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">11.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Non-Compete Obligations During Employment Term</U>. Employee agrees that during the
Employment Term and except as provided below or as otherwise permitted by the Company (acting
upon the instruction of the Board):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee will not, other than through the Related Parties, engage or
participate in any manner, whether directly or indirectly through any family member or
as an employee, employer, consultant, agent, principal, partner, more than one percent
shareholder, officer, director, licensor, lender, lessor, or in any other individual or
representative capacity, in any business or activity that is engaged in leasing,
acquiring, exploring, developing or producing hydrocarbons and related products; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all investments made by Employee (whether in his own name or in the name of any
family members or made by Employee&#146;s controlled affiliates), which relate to the lease,
acquisition, exploration, development or production of hydrocarbons and related
products shall be made solely through the Related Parties; and Employee will not
(directly or indirectly through any family members), and will not permit any of his
controlled affiliates to: (A)&nbsp;invest or otherwise participate alongside the Related
Parties in any Business Opportunities or (B)&nbsp;invest or otherwise participate in any
business or activity relating to a Business Opportunity, regardless of whether any of
the Related Parties ultimately participates in such business or activity;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provided that this paragraph 11 shall not apply to (x)&nbsp;the existing personal oil and gas
investments owned by Employee, his family members and his controlled affiliates as of the
date hereof (the &#147;Existing Personal Investments&#148;); (y)&nbsp;future expenditures made by Employee
and his family members and his controlled affiliates that are required to maintain, but not
increase, their respective current ownership interests in the Existing Personal Investments,
excluding however, any expenditure to participate in the acquisition, exploration, or
development of any acreage that is not currently included in the Existing Personal
Investments as of the date hereof; and (z)&nbsp;any opportunity that is first offered to, and
subsequently declined by, the Company (acting through the Board).</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">12.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Confidentiality Obligations</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee hereby acknowledges that all trade secrets and confidential or
proprietary
information of the Related Parties (collectively referred to herein as &#147;Confidential
Information&#148;) constitute valuable, special and unique assets of the Related Parties&#146;
business, and that access to and knowledge of such Confidential Information is
essential to the performance of Employee&#146;s duties. Employee agrees that during the
Employment Term and during the one-year period following the Date of</TD>
</TR>



</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 8
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Termination, Employee will hold the Confidential Information in strict confidence and will not
publish, disseminate, or otherwise disclose, directly or indirectly, to any person
other than the Related Parties and their respective officers, directors, and
employees, any Confidential Information or use any Confidential Information for
Employee&#146;s own personal benefit or for the benefit of anyone other than the Related
Parties. The Company agrees to provide Confidential Information to Employee in
exchange for Employee&#146;s agreement to keep such Confidential Information, and any
Confidential Information to which Employee has already become privy, in strict
confidence as provided in this Agreement.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this paragraph 12, it is agreed that Confidential Information
includes, without limitation, any information heretofore or hereafter acquired,
developed, or used by any of the Related Parties relating to Business Opportunities or
Intellectual Property or other geological, geophysical, economic, financial, or
management aspects of the business, operations, properties, or prospects of the Related
Parties whether oral or in written form in a Related Parties&#146; business records, but
shall exclude any information that (i)&nbsp;has become part of common knowledge or
understanding in the oil and gas industry or otherwise in the public domain (other than
from disclosure by Employee in violation of this Agreement), or (ii)&nbsp;was rightfully in
the possession of Employee, as shown by Employee&#146;s records, prior to the date of this
Agreement (including Employee&#146;s method of selecting, purchasing, and reworking oil and
gas properties, which the Company and Employee may utilize subsequent to the Employment
Term (subject to the other limitations contained in this Agreement)); provided,
however, that Employee shall provide to the Company copies of all information described
in clause (ii); provided further, however, that this paragraph 12 shall not be
applicable to the extent Employee is required to testify in a judicial or regulatory
proceeding pursuant to the order of a judge or administrative law judge after Employee
requests that such Confidential Information be preserved.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">13.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Obligations After Termination Date</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The purpose of the provisions of paragraph 12 and this paragraph 13 are to
protect the Company from unfair loss of goodwill and business advantage and to shield
Employee from pressure to use or disclose Confidential Information or to trade on the
goodwill belonging to the Company. Accordingly, during the &#147;Post-Termination
Non-Compete Term&#148; (as defined below), Employee will not engage or participate in any
manner, whether directly or indirectly through any family member or as an employee,
employer, consultant, agent, principal, partner, shareholder, officer, director,
licensor, lender, lessor, or in any other individual or representative capacity, in any
business or activity that is in engaged in leasing,
acquiring, exploring, developing or producing hydrocarbons and related products
within the boundaries of, or within a three (3)&nbsp;mile radius of the boundaries of,
any mineral property interest of any of the Related Parties (including, without
limitation, a mineral lease, overriding royalty interest, production payment, net
profits interest, mineral fee interest, or option or right to acquire any of the
foregoing, or an area of mutual interest as</TD>
</TR>



</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 9
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designated pursuant to contractual
agreements between the Related Party and any third party) or any other property on
which the Related Parties have an option, right, license, or authority to conduct or
direct exploratory activities, such as three dimensional seismic acquisition or
other seismic, geophysical and geochemical activities (but not including any
preliminary geological mapping), as of the Termination Date or as of the end of the
six-month period following such Termination Date; provided that, this paragraph 13
shall not preclude Employee from making personal investments in securities of oil
and gas companies that are registered on a national stock exchange, if the aggregate
amount owned by Employee and all family members and affiliates does not exceed one
percent (1%) of such company&#146;s outstanding securities.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof, the &#147;Post Termination Non-Compete Term&#148; is:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that (A)&nbsp;Employee voluntarily resigns or otherwise
terminates his position as an officer or employee of the Related Parties other
than on account of a change of control, or (B)&nbsp;Employee&#146;s employment or
engagement by the Related Parties is terminated for Cause, the six month period
following the Termination Date;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that Employee&#146;s employment is terminated on
account of a change of control in the ownership of the Company, there shall not
be a Post Termination Non-Compete Term; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that Employee&#146;s employment is terminated without
Cause, the six month period following the Termination Date.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee will not, during the one-year period following the Termination Date,
solicit, entice, persuade, or induce, directly or indirectly, any employee (or person
who within the preceding ninety (90)&nbsp;days was an employee) of any of the Related
Parties or any other person who is under contract with or rendering services to any of
the Related Parties, to (i)&nbsp;terminate his employment by, or contractual relationship
with, such person, (ii)&nbsp;refrain from extending or renewing the same (upon the same or
new terms), (iii)&nbsp;refrain from rendering services to or for such person, (iv)&nbsp;become
employed by or to enter into contractual relations with any Persons other than such
person, or (v)&nbsp;enter into a relationship with a competitor of any of the Related
Parties.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">14.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Common Law Duties</U>. Employee acknowledges and agrees that his restrictive covenants
in paragraphs 10, 11, 12, and 13 of this Agreement will supplement, rather than supplant, his
common law duties of confidentiality and loyalty owed to the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">15.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Survival of Covenants; Enforcement of Covenants; and Remedies</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Survival of Covenants</U>. Employee acknowledges and agrees that his
covenants in</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 10
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>paragraphs 10, 11, 12, and 13 of this Agreement shall survive the
termination of this Agreement and shall be construed as agreements independent of any
other provision of this Agreement, and the existence of any claim or cause of action of
Employee against the Company whether predicated on this Agreement or otherwise shall
not constitute a defense to the enforcement by the Company of those covenants.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Enforcement of Covenants</U>. Employee acknowledges and agrees that his
covenants in paragraphs 10, 11, 12 and 13 of this Agreement are ancillary to the
otherwise enforceable agreements to provide Employee with Confidential Information and
are supported by independent, valuable consideration. Employee further acknowledges
and agrees that the limitations as to time, geographical area, and scope of activity to
be restrained by those covenants are reasonable and acceptable to Employee and do not
import any greater restraint than is reasonably necessary to protect the Company&#146;s
goodwill and other legitimate business interests. Employee further agrees that if, at
some later date, a court of competent jurisdiction determines that any of the covenants
in paragraphs 10,11, 12, or 13 are unreasonable, any such covenants shall be reformed
by the court and enforced to the maximum extent permitted under the law.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Remedies</U>. In the event of breach or threatened breach by Employee of
any of his covenants in paragraphs 10, 11, 12, and 13 of this Agreement, the Company
shall be entitled to equitable relief by temporary restraining order, temporary
injunction, or permanent injunction or otherwise, in addition to other legal and
equitable relief to which it may be entitled, including any and all monetary damages
that the Company may incur as a result of said breach, violation, or threatened breach
or violation. The Company may pursue any remedy available to it concurrently or
consecutively in any order as to any breach, violation, or threatened breach or
violation, and the pursuit of one of such remedies at any time will not be deemed an
election of remedies or waiver of the right to pursue any other of such remedies as to
such breach, violation, or threatened breach or violation, or as to any other breach,
violation, or threatened breach or violation.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">16.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Successors and Assigns</U>. The parties acknowledge and agree that this Agreement may
not be assigned by the Company to any other person or entity without Employee&#146;s written
consent; provided, however, that in the event of a change in control of the Company&#146;s
ownership, the Company shall cause the surviving entity in any such transaction to assume the
payment obligations of paragraph 6, to the extent such obligations have not yet been fully
performed. The parties further
acknowledge and agree that Employee&#146;s duties, responsibilities, authorities, compensation,
and benefits are personal to Employee and may not be assigned to any person or entity other
than a Related Party without written consent from the Board. In the event of Employee&#146;s
death, this Agreement shall be enforceable by Employee&#146;s estate, executors, or legal
representatives, but only to the extent that such person may collect any compensation due to
Employee under this Agreement, as provided in paragraph 6(a). This Agreement shall be
binding upon and inure to the benefit of the parties and their respective heirs, legal
representatives, successors, and assigns; provided, however, that Employee may</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 11
</DIV>

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


<DIV style="margin-top: 6pt"><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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>not assign or
otherwise transfer this Agreement or any of Employee&#146;s rights or obligations under this
Agreement without the prior written consent of the Board.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">17.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Representations of Employee</U>. Employee hereby represents and warrants that he has not
previously assumed any obligations inconsistent with those contained in this Agreement.
Employee further represents and warrants that he has entered into this Agreement pursuant to
his own initiative and that the Company did not induce him to execute this Agreement in
contravention of any existing commitments. Employee further acknowledges that the Company has
entered into this Agreement in reliance upon the foregoing representations of Employee.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">18.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Dispute Resolution</U>. The parties agree to the following dispute resolution terms:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Definition of &#147;Dispute&#148;</U>. Any controversy, claim, or cause of action,
whether based on statute, contract, tort, misrepresentation, or any other legal theory,
arising out of or relating to this Agreement (a &#147;Dispute&#148;), shall be resolved solely in
accordance with the terms of this paragraph; provided, however, that the term &#147;Dispute&#148;
shall not include (i)&nbsp;Employee&#146;s claims for workers&#146; compensation or unemployment
compensation benefits (although any claim asserted under Ch. 451 of the Texas Labor
Code shall be considered a &#147;Dispute&#148; subject to dispute resolution under this
paragraph), or (ii)&nbsp;the Company&#146;s claims for injunctive and/or other equitable relief
for Employee&#146;s breach or threatened breach of his restrictive covenants in paragraphs
10, 11, 12, or 13. The parties acknowledge and agree that, notwithstanding the
provisions of this paragraph, nothing in this Agreement shall be construed to require
the mediation or arbitration of any claim arising out of or relating to Employee&#146;s
covenants in paragraphs 10, 11, 12, or 13. Those covenants shall be enforceable by any
court of competent jurisdiction, in accordance with paragraph 26, and shall not be
subject to dispute resolution under this paragraph.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Mediation</U>. If a Dispute cannot be settled by good faith negotiation
between the parties, the parties shall submit the Dispute to nonbinding mediation. If
complete agreement cannot be reached within 30 calendar days of submission to mediation
(&#147;Mediation Period&#148;), any remaining issues will be resolved by binding arbitration in
accordance with the provisions of this paragraph. The Federal Arbitration Act, 9
U.S.C. &#167;&#167; 1-15, not state law, will govern the arbitrability of all Disputes.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Arbitration</U>. A mutually agreeable arbitrator who is knowledgeable of
the Company&#146;s industry or in commercial matters will conduct the arbitration. If the
parties cannot select a mutually agreeable arbitrator within 15&nbsp;days after the
expiration of the Mediation Period, the mediator shall be selected according to rules
of the American Arbitration Association (&#147;AAA&#148;). The arbitrator&#146;s decision and award
will be final and binding and may be entered in any court with jurisdiction. The
arbitrator will not have authority to limit, expand, or otherwise modify the terms of
this Agreement.</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 12
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Rules of Conduct for Mediation and Arbitration</U>. The mediation and, if
necessary, the arbitration will be conducted under the then current rules of the
alternate dispute resolution (&#147;ADR&#148;) firm selected by the parties, or if the parties
are unable to agree on an ADR firm, the parties will conduct the mediation and, if
necessary, the arbitration under the then current rules and supervision of the AAA.
Each party will bear its own attorneys&#146; fees associated with the mediation and, if
necessary, the arbitration. The parties will pay all other costs and expenses of the
mediation/arbitration as the rules of the selected ADR firm provide. The parties and
their representatives shall hold the existence, content, and result of the mediation
and arbitration in confidence.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Limit on Discovery</U>. There shall be no discovery during the mediation
process. If arbitration is necessary, no discovery shall be conducted except by
agreement of the parties or after approval by the arbitrator, who shall attempt to
minimize the burden of discovery.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">19.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Waiver of Rights to Jury Trial and Class-Action Participation</U>. Notwithstanding any
other provision of this Agreement, Employee agrees to irrevocably waive the right to trial by
jury or participate in any class or collective action with respect to any Dispute,
controversy, claim, or cause of action arising out of or relating to Employee&#146;s employment
with the Company, the termination of Employee&#146;s employment with the Company, or this Agreement
(either alleged breach or enforcement).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">20.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Attorneys&#146; Fees and Other Costs</U>. If either party breaches this Agreement, or if a
dispute arises between the parties based on or involving this Agreement, the party that
enforces its rights under this Agreement against the breaching party, or that prevails in the
resolution of such dispute, is entitled to recover from the other party its reasonable
attorneys&#146; fees, court costs, and expenses incurred in enforcing such rights or resolving such
dispute. For purposes of this paragraph 20, the finder of fact shall be requested to answer
affirmatively as to whether a party &#147;prevailed&#148; in order to recoup attorneys&#146; fees and other
costs pursuant to this paragraph 20.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">21.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Entire Agreement</U>. This Agreement constitutes the entire agreement between the
parties concerning the Agreement&#146;s subject matter and supersedes all prior agreements and
understandings, whether written or oral, between the parties with respect to its subject
matter.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">22.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Amendment of Agreement</U>. This Agreement may not be modified or amended in any respect
except by an instrument in writing signed by the party against whom such modification or
amendment is sought to be enforced. No modification or amendment may be enforced against the
Company unless such modification or amendment is in writing and signed by the Board.</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 13
</DIV>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">23.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Waiver</U>. The waiver by either party of a breach of any term of this Agreement shall
not operate or be construed as a waiver of a subsequent breach of the same provision by either
party or of the breach of any other term or provision of this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">24.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Severability</U>. If any provision of this Agreement is held to be illegal, invalid, or
unenforceable, (a)&nbsp;this Agreement shall be considered divisible, (b)&nbsp;such provision shall be
deemed inoperative to the extent it is deemed illegal, invalid, or unenforceable, and (c)&nbsp;in
all other respects this Agreement shall remain in full force and effect; provided, however,
that if any such provision may be made enforceable by limitation thereof, then such provision
shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by
applicable law.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">25.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Governing Law; Venue</U>. Except as otherwise provided in this Agreement, this Agreement
shall be governed by and construed and enforced in accordance with the laws of the State of
Texas. Exclusive venue for purposes of any controversy, claim, or cause of action not covered
by paragraph 18, and brought by any party under this Agreement, is in any state or federal
court of competent jurisdiction in and for Tarrant County, Texas. Nothing in this Agreement,
however, precludes the Company or Employee from seeking to remove a civil action from any
state court to federal court.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">26.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Notices</U>. All notices under this Agreement shall be in writing and shall be deemed to
have been delivered on the date personally delivered or three calendar days after the date
deposited in a receptacle maintained by the United States Postal Service for such purpose,
postage prepaid, by certified mail, return receipt requested, addressed to the Company at its
headquarters or Employee at the address of such person as set forth in the Company&#146;s records.
Either party may designate a different address by providing written notice of such new address
to the other party.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">27.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Counterparts</U>. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute but one and the
same instrument.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>&#091;</B><B><I>signature page to follow</I></B><B>&#093;</B>
</DIV>


<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 14
</DIV>

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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="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>EMPLOYEE:</B></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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">/s/ Steven Smart</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Name: Steven Smart</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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>COMPANY:</B></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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH RESOURCES INC.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">a Delaware 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">&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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="0" valign="top" align="left">Name:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="0" valign="top" align="left">J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="0" valign="top" align="left">Title:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="0" valign="top" align="left">President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 15
</DIV>

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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>7
<FILENAME>d47789exv10w5.htm
<DESCRIPTION>EMPLOYMENT AGREEMENT - GLENN W. REED
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w5</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.5</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>EMPLOYMENT AGREEMENT</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Employment Agreement (the &#147;Agreement&#148;) is entered into as of January&nbsp;1, 2003 (the
&#147;Effective Date&#148;), by and between APPROACH RESOURCES INC., a Delaware corporation (the &#147;Company&#148;),
and GLENN REED, an individual residing in the state of Texas (&#147;Employee&#148;).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>RECITALS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Company desires to employ Employee pursuant to the terms of this Agreement;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Employee desires to be employed by the Company pursuant to the terms of this
Agreement;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, both the Company and Employee have read and understood the terms of this Agreement,
and have been afforded a reasonable opportunity to review this Agreement with their respective
legal counsel;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Employee acknowledges that in the course of his employment by the Company and
performance of services on behalf of the Company and its subsidiaries, if any (collectively, the
&#147;Related Parties&#148;), he will become privy to various business opportunities of the Related Parties;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, it is a condition to (i)&nbsp;the sale of the Company&#146;s common stock to Employee occurring
on or about the Effective Date, (ii)&nbsp;the grant to Employee of options to acquire common stock of
the Company occurring on or about the Effective Date, and (iii)&nbsp;the continuing employment of
Employee by the Related Parties, that Employee enter into this Agreement; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, in connection with the sale on even date herewith to Employee of shares of the
Company&#146;s common stock, Employee is simultaneously purchasing 2,800 shares of the Company&#146;s common
stock in consideration of a promissory note payable to the Company (and committing to purchase an
additional 4,000 shares of the Company&#146;s common stock) (collectively, the &#147;Note Shares&#148;);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>AGREEMENT</B></U>
</DIV>


<DIV style="margin-top: 6pt">
<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">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Employment</U>. The Company will employ Employee subject to the terms of this Agreement.
Employee hereby accepts employment subject to the terms of this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Duties</U>. The Employee shall serve as Operations Manager of the Company. In such
capacity, the Employee shall be required to perform all duties as may be required from time to
time by the President of the Company.</TD>
</TR>

</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><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">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Place of Performance</U>. In connection with his employment under this Agreement,
Employee shall be based at the Company&#146;s offices maintained in Fort Worth, Texas. The Company
shall provide without cost to Employee such office space, secretarial, and administrative
services, equipment, furniture, and furnishings as are suitable and appropriate to Employee&#146;s
titles and duties.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Term of Agreement</U>. The term of this Agreement shall be defined and determined as
follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Initial Term</U>. This Agreement shall continue in full force and effect
for two years (the &#147;Initial Term&#148;), commencing on the Effective Date and expiring on
the second anniversary of the Effective Date (the &#147;Expiration Date&#148;), unless terminated
before the Expiration Date in accordance with paragraph 6.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Renewal Term</U>. Notwithstanding paragraph 4(a), the term of this
Agreement will automatically be extended for an additional one year term (a &#147;Renewal
Term&#148;) on the Expiration Date and on each successive anniversary of the Expiration
Date, unless and until the Agreement terminated in accordance with paragraph 6.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Compensation and Employment Benefits</U>. The Company agrees to pay Employee the
following compensation and employment benefits during his employment under this Agreement:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Base Salary</U>. From the Effective Date until changed as provided in this
paragraph, the Company agrees to pay Employee an annual base salary of $115,000.00 (the
&#147;Base Salary&#148;), pro-rated for any partial period of employment. The Base Salary will
be payable semi-monthly in accordance with the Company&#146;s ordinary payroll policies and
procedures for employee compensation. The Company agrees that during Employee&#146;s
employment under this Agreement, Employee&#146;s Base Salary will be subject to an annual
review and adjustment by the Company&#146;s Board of Directors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Bonus</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In addition to the Base Salary, Employee is eligible to
participate in an annual employee bonus pool (the &#147;Pool&#148;) to be determined
annually, in its discretion, by the Board or a committee of two members of the
Board designated as the Compensation Committee (the &#147;Compensation Committee&#148;),
initially comprised of Bryan H. Lawrence and J. Ross Craft.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If the Board or the Compensation Committee gives Employee the
option, Employee may choose to receive his bonus in cash or shares of the
Company&#146;s common stock (with the valuation thereof set by the Board or the
Compensation Committee), or any combination thereof.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 2
</DIV>



</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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




<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Board, or the Compensation Committee, as the case may be,
in its discretion, will determine Employee&#146;s participation in the Pool based on
the relative contribution of Employee during the year for which the Pool is
determined to the profitability and welfare of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Employment Benefits</U>. The Company agrees to provide Employee with the
employment benefits that the Company ordinarily provides to its employees. Such
employment benefits shall be governed by the applicable plan documents, insurance
policies, and/or employment policies, and may be modified, suspended, or revoked in
accordance with the terms of the applicable documents or policies. In addition to
those benefits, the Company agrees to provide or cause to provide the following
benefits upon satisfaction by Employee of the any eligibility requirements, subject to
the following limitations:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Sick-Leave Benefits and Disability Insurance</U>. To the
extent made available to other employees of the Company, and unless this
Agreement is terminated pursuant to paragraph 6, Employee shall be paid sick
leave benefits at his then prevailing Base Salary rate during his absence due
to illness or other incapacity.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Vacations</U>. The Company will provide Employee with a
minimum of 20 business days paid vacation per calendar year during his
employment under this Agreement. Such vacation must be utilized in the
calendar year in which it is granted or else it will be forfeited, unless the
Company has adopted a plan pursuant to which some or all of such days of paid
vacation may be rolled over to the next succeeding year. Employee agrees that
the time and duration of any vacation shall be subject to advance notice to the
Board. The Company also agrees to provide Employee with all paid holidays
ordinarily given by the Company to its employees. The Company also agrees to
pay Employee for any accrued unused vacation should this Agreement terminate
pursuant to paragraph 6.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Reimbursement of Business Expenses</U>. Employee is authorized to incur
ordinary, necessary, and reasonable business expenses in connection with the
performance of his duties, responsibilities, and authorities under this Agreement and
for the promotion of the Company&#146;s business and activities during this Agreement,
including but not limited to expenses for necessary travel and entertainment and other
items of expenses required in the normal and routine course of Employee&#146;s employment
under this Agreement. The Company will promptly reimburse Employee from time to time
for all such business expenses incurred pursuant to and in conformity with this
paragraph and the policies and practices of the Company then in effect relative to the
reimbursement of business expenses.</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 3
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Termination of Agreement</U>. This Agreement may be terminated as follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Death</U>. This Agreement shall terminate immediately in the event of
Employee&#146;s death; provided, however, that Employee&#146;s estate shall be paid the Base
Salary that Employee
earned through the date of his death in the time and manner in which Employee would
have been paid such compensation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Disability</U>. This Agreement shall terminate immediately in the event
that Employee becomes &#147;Disabled&#148; as defined below. For purposes of this Agreement,
Employee shall be deemed to have become &#147;Disabled&#148; when (i)&nbsp;he receives disability
benefits under either Social Security or the Company&#146;s disability plan, if any, (ii)
the Board, upon the written report of a qualified physician designated by the Board or
its insurers, shall have determined (after a complete physical examination of Employee
at any time after he has been absent from the Company for a period of at least 120
calendar days since the Effective Date) that Employee has become physically and/or
mentally incapable of performing his essential job functions with or without reasonable
accommodation as required by law, or (iii)&nbsp;Employee is otherwise unable for a
continuous period of 180 calendar days to perform his essential job functions with or
without reasonable accommodation as required by law due to injury, illness, or other
incapacity (physical or mental).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>With Cause</U>. The Company shall be entitled to terminate this Agreement
immediately, without any further liability to Employee, except as provided otherwise in
this Agreement, for any &#147;Cause&#148; as defined below.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this Agreement, &#147;Cause&#148; shall be defined as
follows:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(A)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willful and continued failure by Employee
substantially to perform his duties hereunder (other than any such
failure resulting from Employee becoming Disabled);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(B)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willful engaging by Employee in misconduct
that is materially injurious to the Company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(C)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any misconduct in the course and scope of
Employee&#146;s employment under this Agreement, including but not limited
to dishonesty, disloyalty, disorderly conduct, insubordination,
harassment of other employees or third parties, abuse of alcohol or
controlled substances, or other violations of the Company&#146;s rules; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="12%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(D)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any material violation of this Agreement or the
Voting and Stockholders&#146; Agreement dated even date herewith among the
Company and its stockholders.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this paragraph, no act, or failure to act, on Employee&#146;s
part shall be considered &#147;willful&#148; unless done, or omitted to be done, by
him not</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 4
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If the Company believes Cause exists for terminating this
Agreement pursuant to this paragraph, it shall give Employee written notice of
the acts or omissions constituting Cause, and no termination of this Agreement
shall be effective unless and until Employee fails to cure such acts or
omissions within 10&nbsp;days after receiving such notice.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Without Cause</U>. The Company shall be entitled to terminate this
Agreement for any reason other than death, disability, or Cause, at any time during
Employee&#146;s employment by providing 90&nbsp;days written notice to Employee that the Company
is terminating the Agreement without Cause as defined in this paragraph (a termination
&#147;without Cause&#148;).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Expiration of Term</U>. The Employee&#146;s employment shall terminate upon the
expiration of the Initial Term or any successive Renewal Term, provided that the
Company notify Employee at least 60&nbsp;days before the expiration of the Initial Term or
any successive Renewal Term of its intention not to extend this Agreement pursuant to
paragraph 4(b).</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Compensation Upon Termination</U>. Upon termination of Employee&#146;s employment for one of
the following reasons, Employee shall be entitled to the following compensation:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Cause</U>. If Employee&#146;s employment shall be terminated for Cause, the
Company shall pay Employee his Base Salary then in effect through the Date of
Termination, prorated as provided in paragraph 5(a), and the Company shall have no
further obligations to Employee under this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Breach by the Company</U>. If in breach of this Agreement the Company
shall terminate Employee&#146;s employment (it being understood that a purported termination
of Employee&#146;s employment by the Company pursuant to any provision of this Agreement
that is disputed and finally determined not to have been proper shall be a termination
by the Company in breach of this Agreement), then the Company shall pay or provide
Employee, in lieu of any further salary payments to Employee for any remaining portion
of the Term of this Agreement following the Date of Termination:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(A)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>on or before the 20th day following the Date of Termination, a
lump sum in cash equal to 50% of his Base Salary in effect as of the Date of
Termination;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(B)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>on or before the 90th day following the Date of Termination, a
lump sum in cash equal to 150% of Employee&#146;s Base Salary in effect as of the
Date of Termination; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(C)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all benefits Employee may be entitled to receive pursuant to
any pension or employee benefit plan or other arrangement or life insurance
policy</TD>
</TR>



</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 5
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>maintained by the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Without Cause or Expiration of Term of Agreement</U>. If Employee&#146;s
employment shall be terminated without Cause as provided in paragraph 6(d) or if the
Company elects not to extend this Agreement as provided in paragraph 6(e), the Company
shall continue to pay Employee his Base Salary plus benefits for the period of 24
months from the date of termination. Such Base Salary and benefits shall be paid from
time to time during such 24&nbsp;month period in accordance with the time periods set forth
in paragraph 5(a). Additionally, upon a termination of Employee&#146;s employment without
Cause or if the Company elects not to extend this Agreement, within 60&nbsp;days after such
event, the Company hereby agrees to purchase from Employee, and Employee hereby agrees
to sell to the Company, all of the Note Shares in consideration for the forgiveness of
the outstanding indebtedness under any promissory note made to purchase the Note
Shares. The acquisition of the Note Shares by the Company shall be at a price no less
than the price paid by the Employee for the Note Shares; provided that to the extent
such purchase price is below the fair market value of the common stock of the Company
at the time of such purchase, Employee shall be responsible for any taxes associated
with the Company&#146;s purchase of the Note Shares. Notwithstanding the preceding two
sentences, Employee shall have the right to pay off the indebtedness in full under any
promissory note made to purchase the Note Shares within 30&nbsp;days after the notice of
termination without Cause.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Intentionally Omitted</U>.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">9.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Other Provisions Relating to Termination</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Notice of Termination</U>. Any termination of Employee&#146;s employment by the
Company or by Employee (other than termination because of Death) shall be communicated
by written Notice of Termination to the other party thereto. For purposes of this
Agreement, a &#147;Notice of Termination&#148; shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon, and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee&#146;s employment under the provision so indicated.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Date of Termination</U>. For purposes of this Agreement, &#147;Date of
Termination&#148; shall mean (i)&nbsp;if Employee&#146;s employment is terminated by Death, the date
of Death; (ii)&nbsp;if Employee&#146;s employment is terminated because of Employee becoming
Disabled, then 60&nbsp;days after Notice of Termination is given (provided that Employee
shall not have returned to the performance of his duties on a full-time basis during
such 60&nbsp;day period); (iii)&nbsp;if (a)&nbsp;Employee&#146;s employment is terminated by the Company
for Cause or (b)&nbsp;Employee&#146;s employment is terminated by Employee, then in each case the
date specified in the Notice of Termination; (iv)&nbsp;if this Agreement is not renewed, the
last date of the Initial Term or the Renewal Term as the case may be; and (v)&nbsp;if
Employee&#146;s employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within 30&nbsp;days after any Notice of Termination
is given (other than with respect to a termination
without Cause) the</TD>
</TR>



</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 6
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding and final arbitration award, or by a
final judgment order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected), as applicable.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Mitigation</U>. Employee shall not be required to mitigate the amount of
any payment provided for in paragraph 7 by seeking other employment or otherwise, nor
shall the amount of any payment provided for therein be reduced by any compensation
earned by Employee as the result of employment by another employer after the Date of
Termination, or otherwise.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Interest</U>. Until paid, all past due amounts required to be paid by the
Company under any provision of this Agreement shall bear interest at 8% per annum
compounded daily.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">10.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Business Opportunities and Intellectual Property; Personal Investments; Confidentiality;
Covenant not to Compete</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee shall promptly disclose to the Company all &#147;Business Opportunities&#148;
and &#147;Intellectual Property&#148; (as defined below).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof &#147;Business Opportunities&#148; shall mean all business ideas,
prospects, proposals or other opportunities pertaining to the lease, acquisition,
exploration, production, gathering or marketing of hydrocarbons and related products
and the exploration potential of geographical areas on which hydrocarbon exploration
prospects are located, that are developed by Employee during the period that Employee
is employed by any of the Related Parties (the &#147;Employment Term&#148;) or originated by any
third party and brought to the attention of Employee during the Employment Term,
together with information relating thereto (including, without limitation, geological
and seismic data and interpretations thereof, whether in the form of maps, charts,
logs, seismographs, calculations, summaries, memoranda, opinions, or other written or
charted means).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof, &#147;Intellectual Property&#148; shall mean all ideas, inventions,
discoveries, processes, designs, methods, substances, articles, computer programs, and
improvements (including, without limitation, enhancements to, or further interpretation
or processing of, information that was in the possession of Employee prior to the date
of this Agreement), whether or not patentable or copyrightable, that do not fall within
the definition of Business Opportunities, that Employee discovers, conceives, invents,
creates, or develops, alone or with others, during the Employment Term, if such
discovery, conception, invention, creation, or development (i)&nbsp;occurs in the course of
Employee&#146;s employment with the Related Parties or (ii)&nbsp;occurs with the use of any of
the Related Parties&#146; time, materials, or facilities.</TD>
</TR>

</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 7
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">11.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Non-Compete Obligations During Employment Term</U>. Employee agrees that during the
Employment Term and except as provided below or as otherwise permitted by the Company (acting
upon the instruction of the Board):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee will not, other than through the Related Parties, engage or
participate in any manner, whether directly or indirectly through any family member or
as an employee, employer, consultant, agent, principal, partner, more than one percent
shareholder, officer, director, licensor, lender, lessor, or in any other individual or
representative capacity, in any business or activity that is engaged in leasing,
acquiring, exploring, developing or producing hydrocarbons and related products; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all investments made by Employee (whether in his own name or in the name of any
family members or made by Employee&#146;s controlled affiliates), which relate to the lease,
acquisition, exploration, development or production of hydrocarbons and related
products shall be made solely through the Related Parties; and Employee will not
(directly or indirectly through any family members), and will not permit any of his
controlled affiliates to: (A)&nbsp;invest or otherwise participate alongside the Related
Parties in any Business Opportunities or (B)&nbsp;invest or otherwise participate in any
business or activity relating to a Business Opportunity, regardless of whether any of
the Related Parties ultimately participates in such business or activity;</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provided that this paragraph 11 shall not apply to (x)&nbsp;the existing personal oil and gas
investments owned by Employee, his family members and his controlled affiliates as of the
date hereof (the &#147;Existing Personal Investments&#148;); (y)&nbsp;future expenditures made by Employee
and his family members and his controlled affiliates that are required to maintain, but not
increase, their respective current ownership interests in the Existing Personal Investments,
excluding however, any expenditure to participate in the acquisition, exploration, or
development of any acreage that is not currently included in the Existing Personal
Investments as of the date hereof; and (z)&nbsp;any opportunity that is first offered to, and
subsequently declined by, the Company (acting through the Board).</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">12.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Confidentiality Obligations</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee hereby acknowledges that all trade secrets and confidential or
proprietary information of the Related Parties (collectively referred to herein as
&#147;Confidential Information&#148;) constitute valuable, special and unique assets of the
Related Parties&#146; business, and that access to and knowledge of such Confidential
Information is essential to the performance of Employee&#146;s duties. Employee agrees that
during the Employment Term and during the one-year period following the Date of
Termination, Employee will hold the Confidential Information in strict confidence and
will not publish, disseminate, or otherwise disclose, directly or indirectly, to any
person other than the Related Parties and their respective officers, directors, and
employees, any Confidential Information or use any Confidential Information for
Employee&#146;s own personal benefit or for the benefit of anyone other than the Related
Parties. The Company agrees to provide Confidential Information to
Employee in</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 8
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>exchange for Employee&#146;s agreement to keep such Confidential Information,
and any Confidential Information to which Employee has already become privy, in
strict confidence as provided in this Agreement.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of this paragraph 12, it is agreed that Confidential Information
includes, without limitation, any information heretofore or hereafter acquired,
developed, or used by any of the Related Parties relating to Business Opportunities or
Intellectual Property or other geological, geophysical, economic, financial, or
management aspects of the business, operations, properties, or prospects of the Related
Parties whether oral or in written form in a Related Parties&#146; business records, but
shall exclude any information that (i)&nbsp;has become part of common knowledge or
understanding in the oil and gas industry or otherwise in the public domain (other than
from disclosure by Employee in violation of this Agreement), or (ii)&nbsp;was rightfully in
the possession of Employee, as shown by Employee&#146;s records, prior to the date of this
Agreement (including Employee&#146;s method of selecting, purchasing, and reworking oil and
gas properties, which the Company and Employee may utilize subsequent to the Employment
Term (subject to the other limitations contained in this Agreement)); provided,
however, that Employee shall provide to the Company copies of all information described
in clause (ii); provided further, however, that this paragraph 12 shall not be
applicable to the extent Employee is required to testify in a judicial or regulatory
proceeding pursuant to the order of a judge or administrative law judge after Employee
requests that such Confidential Information be preserved.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">13.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Obligations After Termination Date</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The purpose of the provisions of paragraph 12 and this paragraph 13 are to
protect the Company from unfair loss of goodwill and business advantage and to shield
Employee from pressure to use or disclose Confidential Information or to trade on the
goodwill belonging to the Company. Accordingly, during the &#147;Post-Termination
Non-Compete Term&#148; (as defined below), Employee will not engage or participate in any
manner, whether directly or indirectly through any family member or as an employee,
employer, consultant, agent, principal, partner, shareholder, officer, director,
licensor, lender, lessor, or in any other individual or representative capacity, in any
business or activity that is in engaged in leasing, acquiring, exploring, developing or
producing hydrocarbons and related products within the boundaries of, or within a three
(3)&nbsp;mile radius of the boundaries of, any mineral property interest of any of the
Related Parties (including, without limitation, a mineral lease, overriding royalty
interest, production payment, net profits interest, mineral fee interest, or option or
right to acquire any of the foregoing, or an area of mutual interest as designated
pursuant to contractual agreements between the Related Party and any third party) or
any other property on which the Related Parties have an option, right, license, or
authority to conduct or direct exploratory activities, such as three dimensional
seismic acquisition or other seismic, geophysical and geochemical activities (but not
including any preliminary geological mapping), as of the Termination Date or as of the
end of the six-month period following such Termination Date; provided that, this
paragraph 13 shall not preclude
Employee from</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 9
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>making personal investments in securities of oil and gas companies
that are registered on a national stock exchange, if the aggregate amount owned by
Employee and all family members and affiliates does not exceed one percent (1%) of
such company&#146;s outstanding securities.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes hereof, the &#147;Post Termination Non-Compete Term&#148; is:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that (A)&nbsp;Employee voluntarily resigns or otherwise
terminates his position as an officer or employee of the Related Parties other
than on account of a change of control, or (B)&nbsp;Employee&#146;s employment or
engagement by the Related Parties is terminated for Cause, the one-year period
following the Termination Date;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that Employee&#146;s employment is terminated on
account of a change of control in the ownership of the Company, there shall not
be a Post Termination Non-Compete Term; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the event that Employee&#146;s employment is terminated without
Cause, the one-year period following the Termination Date.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Employee will not, during the one-year period following the Termination Date,
solicit, entice, persuade, or induce, directly or indirectly, any employee (or person
who within the preceding ninety (90)&nbsp;days was an employee) of any of the Related
Parties or any other person who is under contract with or rendering services to any of
the Related Parties, to (i)&nbsp;terminate his employment by, or contractual relationship
with, such person, (ii)&nbsp;refrain from extending or renewing the same (upon the same or
new terms), (iii)&nbsp;refrain from rendering services to or for such person, (iv)&nbsp;become
employed by or to enter into contractual relations with any Persons other than such
person, or (v)&nbsp;enter into a relationship with a competitor of any of the Related
Parties.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">14.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Common Law Duties</U>. Employee acknowledges and agrees that his restrictive covenants
in paragraphs 10, 11, 12, and 13 of this Agreement will supplement, rather than supplant, his
common law duties of confidentiality and loyalty owed to the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">15.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Survival of Covenants; Enforcement of Covenants; and Remedies</U>.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Survival of Covenants</U>. Employee acknowledges and agrees that his
covenants in paragraphs 10, 11, 12, and 13 of this Agreement shall survive the
termination of this Agreement and shall be construed as agreements independent of any
other provision of this Agreement, and the existence of any claim or cause of action of
Employee against the Company whether predicated on this Agreement or otherwise shall
not constitute a defense to the enforcement by the Company of those covenants.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Enforcement of Covenants</U>. Employee acknowledges and agrees that his
covenants in paragraphs 10, 11, 12 and 13 of this Agreement are ancillary to the
otherwise</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 10
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>enforceable agreements to provide Employee with Confidential Information and
are supported by independent, valuable consideration. Employee further acknowledges
and agrees that the limitations as to time, geographical area, and scope of activity to
be restrained by those covenants are reasonable and acceptable to Employee and do not
import any greater restraint than is reasonably necessary to protect the Company&#146;s
goodwill and other legitimate business interests. Employee further agrees that if, at
some later date, a court of competent jurisdiction determines that any of the covenants
in paragraphs 10,11, 12, or 13 are unreasonable, any such covenants shall be reformed
by the court and enforced to the maximum extent permitted under the law.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Remedies</U>. In the event of breach or threatened breach by Employee of
any of his covenants in paragraphs 10, 11, 12, and 13 of this Agreement, the Company
shall be entitled to equitable relief by temporary restraining order, temporary
injunction, or permanent injunction or otherwise, in addition to other legal and
equitable relief to which it may be entitled, including any and all monetary damages
that the Company may incur as a result of said breach, violation, or threatened breach
or violation. The Company may pursue any remedy available to it concurrently or
consecutively in any order as to any breach, violation, or threatened breach or
violation, and the pursuit of one of such remedies at any time will not be deemed an
election of remedies or waiver of the right to pursue any other of such remedies as to
such breach, violation, or threatened breach or violation, or as to any other breach,
violation, or threatened breach or violation.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">16.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Successors and Assigns</U>. The parties acknowledge and agree that this Agreement may
not be assigned by the Company to any other person or entity without Employee&#146;s written
consent; provided, however, that in the event of a change in control of the Company&#146;s
ownership, the Company shall cause the surviving entity in any such transaction to assume the
payment obligations of paragraph 6, to the extent such obligations have not yet been fully
performed. The parties further acknowledge and agree that Employee&#146;s duties,
responsibilities, authorities, compensation, and benefits are personal to Employee and may not
be assigned to any person or entity other than a Related Party without written consent from
the Board. In the event of Employee&#146;s death, this Agreement shall be enforceable by
Employee&#146;s estate, executors, or legal representatives, but only to the extent that such
person may collect any compensation due to Employee under this Agreement, as provided in
paragraph 6(a). This Agreement shall be binding upon and inure to the benefit of the parties
and their respective heirs, legal representatives, successors, and assigns; provided, however,
that Employee may not assign or otherwise transfer this Agreement or any of Employee&#146;s rights
or obligations under this Agreement without the prior written consent of the Board.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">17.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Representations of Employee</U>. Employee hereby represents and warrants that he has not
previously assumed any obligations inconsistent with those contained in this Agreement.
Employee further represents and warrants that he has entered into this Agreement pursuant to
his own initiative and
that the Company did not induce him to execute this Agreement in contravention of any
existing commitments. Employee further acknowledges that the Company has entered into this
Agreement in reliance upon the foregoing representations of Employee.</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 11
</DIV>

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">18.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Dispute Resolution</U>. The parties agree to the following dispute resolution terms:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Definition of &#147;Dispute&#148;</U>. Any controversy, claim, or cause of action,
whether based on statute, contract, tort, misrepresentation, or any other legal theory,
arising out of or relating to this Agreement (a &#147;Dispute&#148;), shall be resolved solely in
accordance with the terms of this paragraph; provided, however, that the term &#147;Dispute&#148;
shall not include (i)&nbsp;Employee&#146;s claims for workers&#146; compensation or unemployment
compensation benefits (although any claim asserted under Ch. 451 of the Texas Labor
Code shall be considered a &#147;Dispute&#148; subject to dispute resolution under this
paragraph), or (ii)&nbsp;the Company&#146;s claims for injunctive and/or other equitable relief
for Employee&#146;s breach or threatened breach of his restrictive covenants in paragraphs
10, 11, 12, or 13. The parties acknowledge and agree that, notwithstanding the
provisions of this paragraph, nothing in this Agreement shall be construed to require
the mediation or arbitration of any claim arising out of or relating to Employee&#146;s
covenants in paragraphs 10, 11, 12, or 13. Those covenants shall be enforceable by any
court of competent jurisdiction, in accordance with paragraph 26, and shall not be
subject to dispute resolution under this paragraph.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Mediation</U>. If a Dispute cannot be settled by good faith negotiation
between the parties, the parties shall submit the Dispute to nonbinding mediation. If
complete agreement cannot be reached within 30 calendar days of submission to mediation
(&#147;Mediation Period&#148;), any remaining issues will be resolved by binding arbitration in
accordance with the provisions of this paragraph. The Federal Arbitration Act, 9
U.S.C. &#167;&#167; 1-15, not state law, will govern the arbitrability of all Disputes.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Arbitration</U>. A mutually agreeable arbitrator who is knowledgeable of
the Company&#146;s industry or in commercial matters will conduct the arbitration. If the
parties cannot select a mutually agreeable arbitrator within 15&nbsp;days after the
expiration of the Mediation Period, the mediator shall be selected according to rules
of the American Arbitration Association (&#147;AAA&#148;). The arbitrator&#146;s decision and award
will be final and binding and may be entered in any court with jurisdiction. The
arbitrator will not have authority to limit, expand, or otherwise modify the terms of
this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Rules of Conduct for Mediation and Arbitration</U>. The mediation and, if
necessary, the arbitration will be conducted under the then current rules of the
alternate dispute resolution (&#147;ADR&#148;) firm selected by the parties, or if the parties
are unable to agree on an ADR firm, the parties will conduct the mediation and, if
necessary, the arbitration under the then current rules and supervision of the AAA.
Each party will bear its own attorneys&#146; fees associated with the mediation and, if
necessary, the arbitration. The parties will pay all other costs and expenses of the
mediation/arbitration as the rules of the selected ADR firm
provide. The parties and their representatives shall hold the existence, content,
and result of the mediation and arbitration in confidence.</TD>
</TR>


</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 12
</DIV>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Limit on Discovery</U>. There shall be no discovery during the mediation
process. If arbitration is necessary, no discovery shall be conducted except by
agreement of the parties or after approval by the arbitrator, who shall attempt to
minimize the burden of discovery.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">19.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Waiver of Rights to Jury Trial and Class-Action Participation</U>. Notwithstanding any
other provision of this Agreement, Employee agrees to irrevocably waive the right to trial by
jury or participate in any class or collective action with respect to any Dispute,
controversy, claim, or cause of action arising out of or relating to Employee&#146;s employment
with the Company, the termination of Employee&#146;s employment with the Company, or this Agreement
(either alleged breach or enforcement).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">20.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Attorneys&#146; Fees and Other Costs</U>. If either party breaches this Agreement, or if a
dispute arises between the parties based on or involving this Agreement, the party that
enforces its rights under this Agreement against the breaching party, or that prevails in the
resolution of such dispute, is entitled to recover from the other party its reasonable
attorneys&#146; fees, court costs, and expenses incurred in enforcing such rights or resolving such
dispute. For purposes of this paragraph 20, the finder of fact shall be requested to answer
affirmatively as to whether a party &#147;prevailed&#148; in order to recoup attorneys&#146; fees and other
costs pursuant to this paragraph 20.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">21.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Entire Agreement</U>. This Agreement constitutes the entire agreement between the
parties concerning the Agreement&#146;s subject matter and supersedes all prior agreements and
understandings, whether written or oral, between the parties with respect to its subject
matter.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">22.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Amendment of Agreement</U>. This Agreement may not be modified or amended in any respect
except by an instrument in writing signed by the party against whom such modification or
amendment is sought to be enforced. No modification or amendment may be enforced against the
Company unless such modification or amendment is in writing and signed by the Board.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">23.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Waiver</U>. The waiver by either party of a breach of any term of this Agreement shall
not operate or be construed as a waiver of a subsequent breach of the same provision by either
party or of the breach of any other term or provision of this Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">24.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Severability</U>. If any provision of this Agreement is held to be illegal, invalid, or
unenforceable, (a)&nbsp;this Agreement shall be considered divisible, (b)&nbsp;such provision shall be
deemed inoperative to the extent it is deemed illegal, invalid, or unenforceable, and (c)&nbsp;in
all other respects this Agreement shall remain in full force and effect; provided, however,
that if any such provision may be made enforceable by limitation thereof, then such provision
shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by
applicable law.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">25.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Governing Law; Venue</U>. Except as otherwise provided in this Agreement, this Agreement
shall be governed by and construed and enforced in accordance with the laws of the State of</TD>
</TR>



</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 13
</DIV>

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


<DIV style="margin-top: 6pt"><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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Texas. Exclusive venue for purposes of any controversy, claim, or cause of action not covered
by paragraph 18, and brought by any party under this Agreement, is in any state or federal
court of competent jurisdiction in and for Tarrant County, Texas. Nothing in this Agreement,
however, precludes the Company or Employee from seeking to remove a civil action from any
state court to federal court.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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">26.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Notices</U>. All notices under this Agreement shall be in writing and shall be deemed to
have been delivered on the date personally delivered or three calendar days after the date
deposited in a receptacle maintained by the United States Postal Service for such purpose,
postage prepaid, by certified mail, return receipt requested, addressed to the Company at its
headquarters or Employee at the address of such person as set forth in the Company&#146;s records.
Either party may designate a different address by providing written notice of such new address
to the other party.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">27.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Counterparts</U>. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute but one and the
same instrument.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>&#091;</B><B><I>signature page to follow</I></B><B>&#093;</B>
</DIV>


<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 14
</DIV>

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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="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>EMPLOYEE:</B></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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">/s/ Glenn W. Reed</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Name: Glenn Reed</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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>COMPANY:</B></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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH RESOURCES INC.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">a Delaware 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">&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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="0" valign="top" align="left">Name:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="0" valign="top" align="left">J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="0" valign="top" align="left">Title:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="0" valign="top" align="left">President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS"><B>Employment Agreement</B></FONT> &#151; Page 15
</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>8
<FILENAME>d47789exv10w6.htm
<DESCRIPTION>2007 STOCK INCENTIVE PLAN
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w6</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.6</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>APPROACH RESOURCES INC.<BR>
2007 STOCK INCENTIVE PLAN</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>ARTICLE I. ESTABLISHMENT AND PURPOSE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.1 Establishment. </B>Approach Resources Inc. (&#147;Approach&#148;) hereby establishes the Approach
Resources Inc. 2007 Stock Incentive Plan, as set forth in this document, as an amendment and
restatement of the Approach Resources Inc. 2003 Stock Option Plan. Awards granted pursuant to the
Approach Resources Inc. 2003 Stock Option Plan shall continue to be governed by the terms of such
plan as in effect at the time of the award and the terms of the related award agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.2 Purpose. </B>The purposes of this Plan are to attract and retain highly qualified individuals
to perform services for the Company, to further align the interests of those individuals with those
of the stockholders of Approach, and to more closely link compensation with Company performance.
Approach is committed to creating long-term stockholder value. Approach&#146;s compensation philosophy
is based on the belief that Approach can best create stockholder value if key employees, officers,
directors and others performing services for Approach and its Affiliates act and are rewarded as
business owners. Approach believes that an equity stake through equity compensation programs
effectively aligns service provider and stockholder interests by motivating and rewarding
performance that will enhance stockholder value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.3 Effectiveness and Term. </B>This Plan shall become effective on June&nbsp;28, 2007 (the &#147;Effective
Date&#148;), the date of its approval by the holders of at least a majority of the shares of Common
Stock either (a)&nbsp;present or represented and entitled to vote at a special meeting of the
stockholders of Approach duly held in accordance with applicable law or (b)&nbsp;by written action in
lieu of a meeting in accordance with applicable law. Unless terminated earlier by the Board
pursuant to Section&nbsp;14.1, this Plan shall terminate on the day prior to the tenth anniversary of
the Effective Date.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE II. DEFINITIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.1 </B>&#147;<B>Affiliate</B>&#148; means any corporation, partnership, limited liability company or
partnership, association, trust or other organization which, directly or indirectly, controls, is
controlled by, or is under common control with, Approach. For purposes of the preceding sentence,
&#147;control&#148; (including, with correlative meanings, the terms &#147;controlled by&#148; and &#147;under common
control with&#148;), as used with respect to any entity or organization, shall mean the possession,
directly or indirectly, of the power (a)&nbsp;to vote more than 50% of the securities having ordinary
voting power for the election of directors of the controlled entity or organization, or (b)&nbsp;to
direct or cause the direction of the management and policies of the controlled entity or
organization, whether through the ownership of voting securities or by contract or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.2 </B>&#147;<B>Approach</B>&#148; means Approach Resources Inc., a Delaware corporation, or any successor
thereto.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.3 </B>&#147;<B>Award</B>&#148; means an award granted to a Participant in the form of Options, SARs, Restricted
Stock, Restricted Stock Units, Performance Awards, Stock Awards or Other Incentive Awards, whether
granted singly or in combination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.4 </B>&#147;<B>Award Agreement</B>&#148; means a written agreement between Approach and a Participant that sets
forth the terms, conditions, restrictions and limitations applicable to an Award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.5 </B>&#147;<B>Board</B>&#148; means the Board of Directors of Approach.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.6 &#147;Cash Dividend Right&#148; </B>means a contingent right, granted in tandem with a specific
Restricted Stock Unit Award, to receive an amount in cash equal to the cash distributions made by
Approach with respect to a share of Common Stock during the period such Award is outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.7 </B>&#147;<B>Cause</B>&#148; means any of the following: (a)&nbsp;a Participant&#146;s conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing substantial harm to Approach or its
Affiliates or involving acts of theft, fraud, embezzlement, moral turpitude or similar conduct; (b)
a Participant&#146;s repeated intoxication by alcohol or drugs during the performance of his duties in a
manner that materially and adversely affects the Participant&#146;s performance of such duties; (c)
malfeasance in the conduct of the Participant&#146;s duties, including, but not limited to (i)&nbsp;willful
and intentional misuse or diversion of funds of Approach or its Affiliates, (ii)&nbsp;embezzlement or
(iii)&nbsp;fraudulent or willful and material misrepresentations or concealments on any written reports
submitted to Approach or its Affiliates; (d)&nbsp;a Participant&#146;s material violation of any provision of
any employment, nonsolicitation, noncompetition or other agreement with Approach or any of its
Affiliates; or (e)&nbsp;a Participant&#146;s material failure to perform the duties of the Participant&#146;s
employment or material failure to follow or comply with the reasonable and lawful written
directives of the Board or senior officers of Approach, in any case under clause (d)&nbsp;or (e)&nbsp;only
after the Participant shall have been informed in writing of such material failure and given a
period of not more than 30&nbsp;days to remedy same.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.8 </B>&#147;<B>Change of Control</B>&#148; means (a)&nbsp;any consolidation or merger of Approach in which Approach is
not the continuing or surviving corporation or pursuant to which shares of Approach&#146;s Common Stock
would be converted into cash, securities or other property, other than a merger of Approach in
which the holders of Approach&#146;s Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately after the merger,
(b)&nbsp;any sale, lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all, of the assets of Approach and its subsidiaries to any
other person or entity (other than an Affiliate of Approach), (c)&nbsp;the stockholders of Approach
approve any plan or proposal for liquidation or dissolution of Approach, (d)&nbsp;any person or entity
(other than Yorktown Energy Partners V, L.P., or any of its affiliated funds), including a &#147;group&#148;
as contemplated by section 13(d)(3) of the Exchange Act acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the outstanding shares of
Approach&#146;s voting stock (based upon voting power) or (e)&nbsp;as a result of or in connection with a
contested election of Directors, the persons who were Directors of Approach before such election
shall cease to constitute a majority of the Board.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Notwithstanding the foregoing, a Change of Control shall not include the initial public
offering of the Common Stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.9 </B>&#147;<B>Code</B>&#148; means the Internal Revenue Code of 1986, as amended from time to time, including
regulations thereunder and successor provisions and regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.10 </B>&#147;<B>Committee</B>&#148; means the Compensation Committee of the Board or such other committee of the
Board as may be designated by the Board to administer the Plan, which committee shall consist of
two or more members of the Board; provided, however, that with respect to the application of the
Plan to Awards made to Outside Directors, the &#147;Committee&#148; shall be the Board. During such time as
the Common Stock is registered under Section&nbsp;12 of the Exchange Act, each member of the Committee
shall be an Outside Director. To the extent that no Committee exists that has the authority to
administer the Plan, the functions of the Committee shall be exercised by the Board. If for any
reason the appointed Committee does not meet the requirements of Rule&nbsp;16b-3 or Section 162(m) of
the Code, such noncompliance with such requirements shall not affect the validity of Awards,
grants, interpretations or other actions of the Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.11 </B>&#147;<B>Common Stock</B>&#148; means the common stock of Approach, $0.01 par value per share, or any
stock or other securities hereafter issued or issuable in substitution or exchange for the Common
Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.12 </B>&#147;<B>Company</B>&#148; means Approach and any Affiliate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.13 </B>&#147;<B>Disability</B>&#148; means (a)&nbsp;the Participant is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment that can be expected
to result in death or can be expected to last for a continuous period of not less than 12&nbsp;months or
(b)&nbsp;the Participant is, by reason of any medically determinable physical or mental impairment that
can be expected to result in death or can be expected to last for a continuous period of not less
than 12&nbsp;months, receiving income replacement benefits for a period of not less than three months
under an accident or health plan covering employees of Approach or an Affiliate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.14 </B>&#147;<B>Dividend Unit Right</B>&#148; means a contingent right, granted in tandem with a specific
Restricted Stock Unit Award, to have an additional number of Restricted Stock Units credited to a
Participant in respect of the Award equal to the number of shares of Common Stock that could be
purchased at Fair Market Value with the amount of each cash distribution made by Approach with
respect to a share of Common Stock during the period such Award is outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.15 </B>&#147;<B>Effective Date</B>&#148; means the date this Plan becomes effective as provided in Section&nbsp;1.3.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.16 </B>&#147;<B>Employee</B>&#148; means an employee of the Company; provided, however, that the term &#147;Employee&#148;
does not include an Outside Director or an individual performing services for the Company who is
treated for tax purposes as an independent contractor at the time of performance of services.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.17 </B>&#147;<B>Exchange Act</B>&#148; means the Securities Exchange Act of 1934, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.18 </B>&#147;<B>Fair Market Value</B>&#148; means (a)&nbsp;if the Common Stock is listed on any established stock
exchange or a national market system, including without limitation Nasdaq Global Select Market,
Nasdaq Global Market, Nasdaq Capital Market and the New York Stock Exchange, the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or
system for the date of the determination (or if there was no quoted price for such date, then for
the last preceding business day on which there was a quoted price), as reported in <I>The Wall Street
Journal </I>or such other source as the Committee deems reliable, (b)&nbsp;if the Common Stock is regularly
quoted by a recognized securities dealer but selling prices are not reported, the mean between the
high bid and low asked prices for the Common stock for the date of the determination, as reported
in <I>The Wall Street Journal </I>or such other source as the Committee deems reliable or (c)&nbsp;if the
Common Stock is not reported or quoted by any such organization, (i)&nbsp;with respect to Incentive
Stock Options, the fair market value of the Common Stock as determined in good faith by the
Committee within the meaning of Section&nbsp;422 of the Code or (ii)&nbsp;with respect to other Awards, fair
market value of the Common Stock as determined in good faith by the Committee using a &#147;reasonable
application of a reasonable valuation method&#148; within the meaning of Section&nbsp;409A of the Code and
the regulations and other guidance thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.19 </B>&#147;<B>Grant Date</B>&#148; means the date an Award is determined to be effective by the Committee upon
the grant of such Award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.20 </B>&#147;<B>Inability to Perform</B>&#148; means and shall be deemed to have occurred if the Participant has
been determined under the Company&#146;s or any co-employer&#146;s long-term disability plan to be eligible
for long-term disability benefits. In the absence of the Participant&#146;s participation in,
application for benefits under, or existence of such a plan, &#147;Inability to Perform&#148; means a finding
by the Committee in its sole judgment that the Participant is, despite any reasonable accommodation
required by law, unable to perform the essential functions of his position because of an illness or
injury for (a)&nbsp;60% or more of the normal working days during six consecutive calendar months or (b)
40% or more of the normal working days during twelve consecutive calendar months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.21 </B>&#147;<B>Incentive Stock Option</B>&#148; means an Option that is intended to meet the requirements of
Section 422(b) of the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.22 </B>&#147;<B>NASDAQ</B>&#148; means The NASDAQ Stock Market, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.23 </B>&#147;<B>Nonqualified Stock Option</B>&#148; means an Option that is not an Incentive Stock Option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.24 </B>&#147;<B>Option</B>&#148; means an option to purchase shares of Common Stock granted to a Participant
pursuant to Article&nbsp;VII. An Option may be either an Incentive Stock Option or a Nonqualified Stock
Option, as determined by the Committee.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.25 </B>&#147;<B>Other Incentive Award</B>&#148; means an incentive award granted to a Participant pursuant to
Article&nbsp;XII.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.26 </B>&#147;<B>Outside Director</B>&#148; means a member of the Board who (a)&nbsp;meets the independence
requirements of the principal exchange or quotation system upon which the shares of Common Stock
are listed or quoted, (b)&nbsp;from and after the date on which the remuneration paid (or Awards made)
pursuant to the Plan becomes subject to the deduction limitation under Section 162(m) of the Code,
qualifies as an &#147;outside director&#148; under Section 162(m) of the Code, (c)&nbsp;qualifies as a
&#147;non-employee director&#148; of Approach under Rule&nbsp;16b-3 and (d)&nbsp;satisfies independence criteria under
any other applicable laws or regulations relating to the issuance of shares of Common Stock to
Employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.27 </B>&#147;<B>Participant</B>&#148; means an Employee, Outside Director or other individual or entity
performing services for the Company that has been granted an Award; provided, however, that no
Award that may be settled in Common Stock may be issued to a Participant that is not a natural
person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.28 </B>&#147;<B>Performance Award</B>&#148; means an Award granted to a Participant pursuant to Article&nbsp;XI to
receive cash or Common Stock conditioned in whole or in part upon the satisfaction of specified
performance criteria.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.29 </B>&#147;<B>Permitted Transferee</B>&#148; shall have the meaning given such term in Section&nbsp;15.4.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.30 </B>&#147;<B>Plan</B>&#148; means the Approach Resources Inc. 2007 Stock Incentive Plan, as in effect from
time to time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.31 </B>&#147;<B>Prior Plan</B>&#148; means the Approach Resources Inc. 2003 Stock Option Plan, as in effect prior
to the Effective Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.32 </B>&#147;<B>Restricted Period</B>&#148; means the period established by the Committee with respect to an
Award of Restricted Stock or Restricted Stock Units during which the Award remains subject to
forfeiture.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.33 </B>&#147;<B>Restricted Stock</B>&#148; means a share of Common Stock granted to a Participant pursuant to
Article&nbsp;IX that is subject to such terms, conditions and restrictions as may be determined by the
Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.34 </B>&#147;<B>Restricted Stock Unit</B>&#148; means a fictional share of Common Stock granted to a Participant
pursuant to Article&nbsp;X that is subject to such terms, conditions and restrictions as may be
determined by the Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.35 </B>&#147;<B>Rule&nbsp;16b-3</B>&#148; means Rule&nbsp;16b-3 promulgated by the SEC under the Exchange Act, or any
successor rule or regulation that may be in effect from time to time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.36 </B>&#147;<B>SEC</B>&#148; means the United States Securities and Exchange Commission, or any successor agency
or organization.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.37 </B>&#147;<B>Securities Act</B>&#148; means the Securities Act of 1933, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.38 </B>&#147;<B>Stock Appreciation Right</B>&#148; or &#147;<B>SAR</B>&#148; means a right granted to a Participant pursuant to
Article&nbsp;VIII with respect to a share of Common Stock to receive upon exercise cash, Common Stock or
a combination of cash and Common Stock, equal to the appreciation in value of a share of Common
Stock.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE III. PLAN ADMINISTRATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.1 Plan Administrator and Discretionary Authority. </B>The Plan shall be administered by the
Committee. The Committee shall have total and exclusive responsibility to control, operate, manage
and administer the Plan in accordance with its terms. The Committee shall have all the authority
that may be necessary or helpful to enable it to discharge its responsibilities with respect to the
Plan. Without limiting the generality of the preceding sentence, the Committee shall have the
exclusive right to (a)&nbsp;interpret the Plan and the Award Agreements executed hereunder, (b)&nbsp;decide
all questions concerning eligibility for, and the amount of, Awards granted under the Plan, (c)
construe any ambiguous provision of the Plan or any Award Agreement, (d)&nbsp;prescribe the form of
Award Agreements, (e)&nbsp;correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award Agreement, (f)&nbsp;issue administrative guidelines as an aid to administering the
Plan and make changes in such guidelines as the Committee from time to time deems proper, (g)&nbsp;make
regulations for carrying out the Plan and make changes in such regulations as the Committee from
time to time deems proper, (h)&nbsp;determine whether Awards should be granted singly or in combination,
(i)&nbsp;to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions
and limitations, (j)&nbsp;accelerate the exercise, vesting or payment of an Award when such action or
actions would be in the best interests of the Company, (k)&nbsp;require Participants to hold a stated
number or percentage of shares of Common Stock acquired pursuant to an Award for a stated period
and (l)&nbsp;take any and all other actions the Committee deems necessary or advisable for the proper
operation or administration of the Plan. The Committee shall have authority in its sole discretion
with respect to all matters related to the discharge of its responsibilities and the exercise of
its authority under the Plan, including without limitation its construction of the terms of the
Plan and its determination of eligibility for participation in, and the terms of Awards granted
under, the Plan. The decisions of the Committee and its actions with respect to the Plan shall be
final, conclusive and binding on all persons having or claiming to have any right or interest in or
under the Plan, including without limitation Participants and their respective Permitted
Transferees, estates, beneficiaries and legal representatives. In the case of an Award intended to
be eligible for the performance-based compensation exemption under section 162(m) of the Code, the
Committee shall exercise its discretion consistent with qualifying the Award for such exemption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.2 Liability; Indemnification. </B>No member of the Committee, nor any person to whom it has
delegated authority, shall be personally liable for any action, interpretation or determination
made in good faith with respect to the Plan or Awards granted hereunder, and each member of the
Committee (or delegatee of the Committee) shall be fully indemnified and protected by Approach with
respect to any liability he may incur with respect to any such action, interpretation or
determination, to the maximum extent permitted by applicable law.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE IV. SHARES SUBJECT TO THE PLAN</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.1 Available Shares</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Subject to adjustment as provided in Sections&nbsp;4.2, the maximum number of shares of
Common Stock that shall be available for grant of Awards under the Plan shall be (i)&nbsp;ten
percent of the outstanding shares of Common Stock, as adjusted on the first business day
after the closing of the initial public offering of the Common Stock and thereafter on the
first business day of each calendar year, plus (ii)&nbsp;all shares of Common Stock that, as of
the Effective Date, remain available for grant of awards under the Prior Plan, plus (iii)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of Common Stock subject to outstanding awards under the Prior Plan on the Effective
Date, that later cease to be subject to such awards for any reason other than such awards
having been exercised. In addition, subject to adjustment as provided in Section&nbsp;4.2,
115,385 shares of Common Stock covered by awards granted under the Prior Plan and
outstanding as of the Effective Date, shall be available for issuance under this Plan, but
shall available for grant of Awards under this Plan only as provided in (iii)&nbsp;above. If an
Award granted under this Plan expires, is forfeited or becomes unexercisable for any reason
without having been exercised in full, the undelivered shares of Common Stock which were
subject to the Award shall, unless the Plan shall have been terminated, become available for
future Awards under the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The maximum number of shares of Common Stock that may be subject to Incentive Stock
Options granted under the Plan is 1,100,000. The maximum number of shares of Common Stock
that may be subject to all Awards granted under the Plan to any one Participant each fiscal
year is 330,000 shares. The maximum number of shares of Common Stock that may be subject to
Nonqualified Stock Options and SARs granted under the Plan to any one Participant during a
fiscal year is 330,000. The limitations provided in this Section&nbsp;4.1(b) shall be subject to
adjustment as provided in Section&nbsp;4.2.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Shares of Common Stock issued pursuant to the Plan may be original issue or
treasury shares or a combination of the foregoing, as the Committee, in its sole discretion,
shall from time to time determine. During the term of this Plan, Approach will at all times
reserve and keep available such number of shares of Common Stock as shall be sufficient to
satisfy the requirements of the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Notwithstanding any provision of this Plan to the contrary, the Board or the
Committee shall have the right to substitute or assume awards in connection with mergers,
reorganizations, separations or other transactions to which Section 424(a) of the Code
applies, provided such substitutions or assumptions are permitted by Section&nbsp;424 of the Code
(or, if applicable, Section&nbsp;409A of the Code) and the regulations promulgated thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.2 Adjustments for Recapitalizations and Reorganizations. </B>Subject to Article&nbsp;XIII, if there
is any change in the number or kind of shares of Common Stock outstanding (a)&nbsp;by reason of a stock
dividend, spin-off, recapitalization, stock split or combination or exchange of shares, (b)&nbsp;by
reason of a merger, reorganization or consolidation, (c)&nbsp;by reason of a reclassification or change
in par value or (d)&nbsp;by reason of any other extraordinary or unusual
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">event affecting the outstanding Common Stock as a class without Approach&#146;s receipt of
consideration, or if the value of outstanding shares of Common Stock is reduced as a result of a
spin-off or Approach&#146;s payment of an extraordinary cash dividend, or distribution or dividend or
distribution consisting of any assets of Approach other than cash, the maximum number and kind of
shares of Common Stock available for issuance under the Plan, the maximum number and kind of shares
of Common Stock for which any individual may receive Awards in any fiscal year or under the Plan,
the number and kind of shares of Common Stock covered by outstanding Awards, and the price per
share or the applicable market value or performance target of such Awards will be appropriately
adjusted by the Committee to reflect any increase or decrease in the number of, or change in the
kind or value of, issued shares of Common Stock to preclude, to the extent practicable, the
enlargement or dilution of rights under such Awards; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated; provided, further, that the number and kind of
shares of Common Stock available for issuance as Incentive Stock Options under the Plan shall be
adjusted only in accordance with Sections&nbsp;422 and 424 of the Code and the regulations thereunder.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.3 Adjustments for Awards. </B>The Committee shall have sole discretion to determine the manner
in which shares of Common Stock available for grant of Awards under the Plan are counted. Without
limiting the discretion of the Committee under this Section&nbsp;4.3, unless otherwise determined by the
Committee, the following rules shall apply for the purpose of determining the number of shares of
Common Stock available for grant of Awards under the Plan:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <B>Options, Restricted Stock and Stock Awards. </B>The grant of Options, Restricted Stock
or Stock Awards shall reduce the number of shares of Common Stock available for grant of
Awards under the Plan by the number of shares of Common Stock subject to such an Award.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <B>SARs. </B>The grant of SARs that may be paid or settled (i)&nbsp;only in Common Stock or
(ii)&nbsp;in either cash or Common Stock shall reduce the number of shares available for grant of
Awards under the Plan by the number of shares subject to such an Award; provided, however,
that upon the exercise of SARs, the excess of the number of shares of Common Stock with
respect to which the Award is exercised over the number of shares of Common Stock issued
upon exercise of the Award shall again be available for grant of Awards under the Plan. The
grant of SARs that may be paid or settled only for cash shall not affect the number of
 shares available for grant of Awards under the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <B>Restricted Stock Units. </B>The grant of Restricted Stock Units (including those
credited to a Participant in respect of a Dividend Unit Right) that may be paid or settled
(i)&nbsp;only in Common Stock or (ii)&nbsp;in either cash or Common Stock shall reduce the number of
 shares available for grant of Awards under the Plan by the number of shares subject to such
an Award; provided, however, that upon settlement of the Award, the excess, if any, of the
number of shares of Common Stock that had been subject to such Award over the number of
shares of Common Stock issued upon its settlement shall again be available for grant of
Awards under the Plan. The grant of Restricted Stock Units that may be paid or settled only
for cash shall not affect the number of shares available for grant of Awards under the Plan.
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <B>Performance Awards and Other Incentive Awards. </B>The grant of a Performance Award or
Other Incentive Award in the form of Common Stock or that may be paid or settled (i)&nbsp;only in
Common Stock or (ii)&nbsp;in either Common Stock or cash shall reduce the number of shares
available for grant of Awards under the Plan by the number of shares subject to such an
Award; provided, however, that upon settlement of the Award, the excess, if any, of the
number of shares of Common Stock that had been subject to such Award over the number of
shares of Common Stock issued upon its settlement shall again be available for grant of
Awards under the Plan. The grant of a Performance Award or Other Incentive Award that may
be paid or settled only for cash shall not affect the number of shares available for grant
of Awards under the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <B>Cancellation, Forfeiture and Termination. </B>If any Award referred to in Sections
4.3(a), (b), (c)&nbsp;or (d) (other than an Award that may be paid or settled only for cash) is
canceled or forfeited, or terminates, expires or lapses, for any reason, the shares then
subject to such Award shall again be available for grant of Awards under the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <B>Payment of Exercise Price and Withholding Taxes. </B>If shares of Common Stock are
used to pay the exercise price of an Award, the number of shares available for grant of
Awards under the Plan shall be increased by the number of shares delivered as payment of
such exercise price. If shares of Common Stock are used to pay withholding taxes payable
upon exercise, vesting or payment of an Award, or shares of Common Stock that would be
acquired upon exercise, vesting or payment of an Award are withheld to pay withholding taxes
payable upon exercise, vesting or payment of such Award, the number of shares available for
grant of Awards under the Plan shall be increased by the number of shares delivered or
withheld as payment of such withholding taxes.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE V. ELIGIBILITY</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee shall select Participants from those Employees, Outside Directors and other
individuals or entities providing services to the Company that, in the opinion of the Committee,
are in a position to make a significant contribution to the success of the Company. Once a
Participant has been selected for an Award by the Committee, the Committee shall determine the type
and size of Award to be granted to the Participant and shall establish in the related Award
Agreement the terms, conditions, restrictions and limitations applicable to the Award, in addition
to those set forth in the Plan and the administrative guidelines and regulations, if any,
established by the Committee.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VI. FORM OF AWARDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1 Form of Awards. </B>Awards may be granted under the Plan, in the Committee&#146;s sole discretion,
in the form of Options pursuant to Article&nbsp;VII, SARs pursuant to Article&nbsp;VIII, Restricted Stock
pursuant to Article&nbsp;IX, Restricted Stock Units pursuant to Article&nbsp;X, Performance Awards pursuant
to Article&nbsp;XI and Stock Awards and Other Incentive Awards pursuant to Article&nbsp;XII, or a combination
thereof. All Awards shall be subject to the terms, conditions, restrictions and limitations of the
Plan. The Committee may, in its sole discretion,
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">subject any Award to such other terms, conditions, restrictions and/or limitations (including
without limitation the time and conditions of exercise, vesting or payment of an Award and
restrictions on transferability of any shares of Common Stock issued or delivered pursuant to an
Award), provided they are not inconsistent with the terms of the Plan. The Committee may, but is
not required to, subject an Award to such conditions as it determines are necessary or appropriate
to ensure than an Award constitutes &#147;qualified performance based compensation&#148; within the meaning
of Section 162(m) of the Code and the regulations thereunder. Awards under a particular Article of
the Plan need not be uniform, and Awards under more than one Article of the Plan may be combined in
a single Award Agreement. Any combination of Awards may be granted at one time and on more than
one occasion to the same Participant. Subject to compliance with applicable tax law, an Award
Agreement may provide that a Participant may elect to defer receipt of income attributable to the
exercise or vesting of an Award.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.2 No Repricing or Reload Rights. </B>Except for adjustments made pursuant to Section&nbsp;4.2, no
Award may be repriced, replaced, regranted through cancellation or otherwise modified without
stockholder approval, if the effect would be to reduce the exercise price for the shares underlying
such Award. The Committee may not cancel an outstanding Option that is under water for the purpose
of granting a replacement Award of a different type.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.3 Loans. </B>The Committee may, in its sole discretion, approve the extension of a loan by the
Company to a Participant who is an Employee to assist the Participant in paying the exercise price
or purchase price of an Award; provided, however, that no loan shall be permitted if the extension
of such loan would violate any provision of applicable law. Any loan will be made upon such terms
and conditions as the Committee shall determine.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VII. OPTIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.1 General. </B>Awards may be granted in the form of Options that may be Incentive Stock Options
or Nonqualified Stock Options, or a combination of both; provided, however, that Incentive Stock
Options may be granted only to employees of Approach or a &#147;parent corporation&#148; or a &#147;subsidiary
corporation&#148; of Approach, as those terms are defined in Sections 424(e) and (f)&nbsp;of the Code,
respectively. Nonqualified Stock Options may be granted only to Employees, Outside Directors or
other individuals or entities performing services for a corporation or other type of entity in a
chain of corporations or other entities, starting with Approach, in which each corporation or other
entity has a &#147;controlling interest&#148; in another corporation or entity in the chain, but not
corporations or other entities in the chain below the corporation or other entity for which the
Employees, Outside Directors or other individuals or entities are providing services on the date of
grant of the Nonqualified Stock Options. For purposes of this Section, &#147;controlling interest&#148;
means (i)&nbsp;in the case of a corporation, ownership of stock possessing at least 50% of total
combined voting power of all classes of stock entitled to vote of such corporation or at least 50%
of the total value of shares of all classes of stock of such corporation; (ii)&nbsp;in the case of a
partnership, ownership of at least 50% of the profits interest or capital interest of such
partnership; (iii)&nbsp;in the case of a sole proprietorship, ownership of the sole proprietorship; or
(iv)&nbsp;in the case of a trust or estate, ownership of an actuarial interest (as defined in Treasury
Regulation&nbsp;Section&nbsp;1.414(c)-2(b)(2)(ii)) of at least 50% of such trust or estate.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.2 Terms and Conditions of Options. </B>An Option shall be exercisable in whole or in such
installments and at such times as may be determined by the Committee. The price at which a share
of Common Stock may be purchased upon exercise of an Option shall be determined by the Committee,
but such exercise price shall not be less than 100% of the Fair Market Value per share of Common
Stock on the Grant Date unless the Option is granted through the assumption of, or in substitution
for, outstanding awards previously granted to individuals who became Employees (or other service
providers) as a result of a merger, consolidation, acquisition or other corporate transaction
involving the Company and complies with Section&nbsp;409A of the Code. Except as otherwise provided
in Section&nbsp;7.3, the term of each Option shall be as specified by the Committee; provided, however,
that no Options shall be exercisable later than 10&nbsp;years after the Grant Date. Options may be
granted with respect to Restricted Stock or shares of Common Stock that are not Restricted Stock,
as determined by the Committee in its sole discretion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.3 Restrictions Relating to Incentive Stock Options.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Options granted in the form of Incentive Stock Options shall, in addition to being
subject to the terms and conditions of Section&nbsp;7.2, comply with Section 422(b) of the Code.
To the extent the aggregate Fair Market Value (determined as of the dates the respective
Incentive Stock Options are granted) of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by an individual during any calendar year under
all incentive stock option plans of Approach and its parent and subsidiary corporations
exceeds $100,000, such excess Incentive Stock Options shall be treated as options that do
not constitute Incentive Stock Options. The Committee shall determine, in accordance with
the applicable provisions of the Code, which of a Participant&#146;s Incentive Stock Options will
not constitute Incentive Stock Options because of such limitation and shall notify the
Participant of such determination as soon as practicable after such determination. The
price at which a share of Common Stock may be purchased upon exercise of an Incentive Stock
Option shall be determined by the Committee, but such exercise price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the Grant Date. No Incentive
Stock Option shall be granted to an Employee under the Plan if, at the time such Option is
granted, such Employee owns stock possessing more than 10% of the total combined voting
power of all classes of stock of Approach or of its parent or subsidiary corporations,
within the meaning of Section&nbsp;422(b)(6) of the Code, unless (i)&nbsp;on the Grant Date of such
Option, the exercise price of such Option is at least 110% of the Fair Market Value of the
Common Stock subject to the Option and (ii)&nbsp;such Option by its terms is not exercisable
after the expiration of five years from the Grant Date of the Option.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each Participant awarded an Incentive Stock Option shall notify Approach in writing
immediately after the date he or she makes a disqualifying disposition of any shares of
Common Stock acquired pursuant to the exercise of such Incentive Stock Option. A
disqualifying disposition is any disposition (including any sale) of such Common Stock
before the later of (i)&nbsp;two years after the Grant Date of the Incentive Stock Option or (ii)
one year after the date of exercise of the Incentive Stock Option.
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.4 Exercise of Options.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Subject to the terms and conditions of the Plan, Options shall be exercised by the
delivery of a written notice of exercise to Approach, setting forth the number of whole
shares of Common Stock with respect to which the Option is to be exercised, accompanied by
full payment for such shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Upon exercise of an Option, the exercise price of the Option shall be payable to
Approach in full either (i)&nbsp;in cash or an equivalent acceptable to the Committee, (ii)&nbsp;in
the sole discretion of the Committee and in accordance with any applicable administrative
guidelines established by the Committee, (A)&nbsp;by tendering one or more previously acquired
nonforfeitable, unrestricted shares of Common Stock having an aggregate Fair Market Value at
the time of exercise equal to the total exercise price or (B)&nbsp;by surrendering a sufficient
portion of the shares with respect to which the Option is exercised having an aggregate Fair
Market Value at the time of exercise equal to the total exercise price or (iii)&nbsp;in a
combination of the forms specified in (i)&nbsp;or (ii)&nbsp;of this subsection; provided, however,
that payment of the exercise price by means of tendering or surrendering shares of Common
Stock shall not be permitted when the same may, in the reasonable opinion of the Committee,
cause Approach to record a loss or expense as a result thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) During such time as the Common Stock is registered under Section&nbsp;12 of the Exchange
Act, to the extent permissible under applicable law, payment of the exercise price of an
Option may also be made, in the absolute discretion of the Committee, by delivery to
Approach or its designated agent of an executed irrevocable option exercise form together
with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of
the shares with respect to which the Option is exercised and deliver the sale or margin loan
proceeds directly to Approach to pay the exercise price and any required withholding taxes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) As soon as reasonably practicable after receipt of written notification of exercise
of an Option and full payment of the exercise price and any required withholding taxes,
Approach shall (i)&nbsp;deliver to the Participant, in the Participant&#146;s name or the name of the
Participant&#146;s designee, a stock certificate or certificates in an appropriate aggregate
amount based upon the number of shares of Common Stock purchased under the Option or (ii)
cause to be issued in the Participant&#146;s name or the name of the Participant&#146;s designee, in
book-entry form, an appropriate number of shares of Common Stock based upon the number of
 shares purchased under the Option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.5 Termination of Employment or Service. </B>Each Award Agreement embodying the Award of an
Option shall set forth the extent to which the Participant shall have the right to exercise the
Option following termination of the Participant&#146;s employment or service with the Company. Such
provisions shall be determined by the Committee in its absolute discretion, need not be uniform
among all Options granted under the Plan and may reflect distinctions based on the reasons for
termination of employment or service. In the event a Participant&#146;s Award Agreement embodying the
award of an Option does not set forth such termination provisions, the following termination
provisions shall apply with respect to such Award:
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <B>Termination For Cause. </B>If the employment or service of a Participant shall
terminate for Cause, each outstanding Option held by the Participant shall automatically
terminate as of the date of such termination of employment or service, and the right to
exercise the Option shall immediately terminate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <B>Termination By Reason of Death or Disability. </B>In the event of a Participant&#146;s
death or Disability while employed by or in the service of Approach or an Affiliate, each
outstanding Option shall remain outstanding and may be exercised by the person who acquires
the Option by will or the laws of descent and distribution, or by the Participant, as the
case may be, but only (i)&nbsp;within the one year period following the date of death or
Disability (if otherwise prior to the date of expiration of the Option), and not thereafter,
and (ii)&nbsp;to purchase the number of shares of Common Stock that were subject to purchase upon
exercise of the Option at the time of such death or Disability, plus the number of shares of
Common Stock that would have become purchasable upon the next vesting date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <B>Termination For Reasons Other Than Cause, Death or Disability. </B>If a Participant&#146;s
employment or service with Approach and its Affiliates is terminated voluntarily by the
Participant or by action of Approach or an Affiliate for reasons other than for Cause, an
Option may be exercised, but only (i)&nbsp;within three months after such termination (if
otherwise prior to the date of expiration of the Option), and not thereafter, and (ii)&nbsp;to
purchase the number of shares of Common Stock, if any, that could be purchased upon exercise
of the Option at the date of termination of the Participant&#146;s employment or service.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Notwithstanding the foregoing, an Option will not be treated as an Incentive Stock Option unless at
all times beginning on the Grant Date and ending on the day three months (one year in the case of a
Participant who is &#147;disabled&#148; within the meaning of Section&nbsp;22(e)(3) of the Code) before the date
of exercise of the Option, the Participant is an employee of Approach or a &#147;parent corporation&#148; or
a &#147;subsidiary corporation&#148; of Approach, as those terms are defined in Sections 424(e) and (f)&nbsp;of
the Code, respectively (or a corporation or a parent or subsidiary corporation of such corporation
issuing or assuming an option in a transaction to which Section 424(a) of the Code applies).
</DIV>


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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE VIII. STOCK APPRECIATION RIGHTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.1 General.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Committee may grant Awards in the form of SARs in such numbers and at such
times as it shall determine. SARs shall vest and be exercisable in whole or in such
installments and at such times as may be determined by the Committee. The price at which
SARs may be exercised shall be determined by the Committee but shall not be less than 100%
of the Fair Market Value per share of Common Stock on the Grant Date unless the SARs are
granted through the assumption of, or in substitution for, outstanding awards previously
granted to individuals who became Employees (or other service providers) as a result of a
merger, consolidation, acquisition or other corporate transaction involving the Company and
comply with Section&nbsp;409A of the Code. The term of each SAR shall be as specified by the
Committee; provided, however, that no SARs shall be exercisable later than 10&nbsp;years after
the Grant Date. At the time of an Award of SARs, the Committee may, in its sole discretion,
prescribe additional terms, conditions, restrictions and limitations applicable to the SARs,
including without limitation rules pertaining to the termination of employment or service
(by reason of death, permanent and total disability, or otherwise) of a Participant prior to
exercise of the SARs, as it determines are necessary or appropriate, provided they are not
inconsistent with the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) SARs may be granted only to an Employee, Outside Director or other individual or
entity performing services for a corporation or other type of entity in a chain of
corporations or other entities, starting with Approach, in which each corporation or other
entity has a &#147;controlling interest&#148; in another corporation or entity in the chain, but not
corporations or other entities in the chain below the corporation or other entity for which
the Employee, Outside Director or other individual or entity is providing services on the
date of grant of the SARs. For purposes of this subsection, &#147;controlling interest&#148; means
(i)&nbsp;in the case of a corporation, ownership of stock possessing at least 50% of total
combined voting power of all classes of stock entitled to vote of such corporation or at
least 50% of the total value of shares of all classes of stock of such corporation; (ii)&nbsp;in
the case of a partnership, ownership of at least 50% of the profits interest or capital
interest of such partnership; (iii)&nbsp;in the case of a sole proprietorship, ownership of the
sole proprietorship; or (iv)&nbsp;in the case of a trust or estate, ownership of an actuarial
interest (as defined in Treasury Regulation&nbsp;Section&nbsp;1.414(c)-2(b)(2)(ii)) of at least 50% of
such trust or estate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.2 Exercise of SARs. </B>SARs shall be exercised by the delivery of a written notice of exercise
to Approach, setting forth the number of whole shares of Common Stock with respect to which the
Award is being exercised. Upon the exercise of SARs, the Participant shall be entitled to receive
an amount equal to the excess of the aggregate Fair Market Value of the shares of Common Stock with
respect to which the Award is exercised (determined as of the date of such exercise) over the
aggregate exercise price of such shares. Such amount shall be payable to the Participant in cash
or in shares of Common Stock, as provided in the Award Agreement.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE IX. RESTRICTED STOCK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.1 General. </B>Awards may be granted in the form of Restricted Stock in such numbers and at
such times as the Committee shall determine. The Committee shall impose such terms, conditions and
restrictions on Restricted Stock as it may deem advisable, including without limitation providing
for vesting upon the achievement of specified performance goals pursuant to a Performance Award and
restrictions under applicable Federal or state securities laws. A Participant shall not be
required to make any payment for Restricted Stock unless required by the Committee pursuant to
Section&nbsp;9.2.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.2 Purchased Restricted Stock. </B>The Committee may in its sole discretion require a
Participant to pay a stipulated purchase price for each share of Restricted Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.3 Restricted Period. </B>At the time an Award of Restricted Stock is granted, the Committee
shall establish a Restricted Period applicable to such Restricted Stock. Each Award of Restricted
Stock may have a different Restricted Period in the sole discretion of the Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.4 Other Terms and Conditions. </B>Restricted Stock shall constitute issued and outstanding
shares of Common Stock for all corporate purposes. Restricted Stock awarded to a Participant under
the Plan shall be registered in the name of the Participant or, at the option of Approach, in the
name of a nominee of Approach, and shall be issued in book-entry form or represented by a stock
certificate. Subject to the terms and conditions of the Award Agreement, a Participant to whom
Restricted Stock has been awarded shall have the right to receive dividends thereon during the
Restricted Period, to vote the Restricted Stock and to enjoy all other stockholder rights with
respect thereto, except that (a)&nbsp;Approach shall retain custody of any certificates evidencing the
Restricted Stock during the Restricted Period and (b)&nbsp;the Participant may not sell, transfer,
pledge, exchange, hypothecate or otherwise dispose of the Restricted Stock during the Restricted
Period. A breach of the terms and conditions established by the Committee pursuant to the Award of
the Restricted Stock may result in a forfeiture of the Restricted Stock. At the time of an Award
of Restricted Stock, the Committee may, in its sole discretion, prescribe additional terms,
conditions, restrictions and limitations applicable to the Restricted Stock, including without
limitation rules pertaining to the termination of employment or service (by reason of death,
permanent and total disability, retirement, cause or otherwise) of a Participant prior to
expiration of the Restricted Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.5 Miscellaneous. </B>Nothing in this Article shall prohibit the exchange of shares of
Restricted Stock pursuant to a plan of merger or reorganization for stock or other securities of
Approach or another corporation that is a party to the reorganization, provided that the stock or
securities so received in exchange for shares of Restricted Stock shall, except as provided in
Article&nbsp;XIII, become subject to the restrictions applicable to such Restricted Stock. Any shares
of Common Stock received as a result of a stock split or stock dividend with respect to shares of
Restricted Stock shall also become subject to the restrictions applicable to such Restricted Stock.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE X. RESTRICTED STOCK UNITS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.1 General. </B>Awards may be granted in the form of Restricted Stock Units in such numbers and
at such times as the Committee shall determine. The Committee shall impose such terms, conditions
and restrictions on Restricted Stock Units as it may deem advisable, including without limitation
prescribing the period over which and the conditions upon which a Restricted Stock Unit may become
vested or be forfeited, and providing for vesting upon the achievement of specified performance
goals pursuant to a Performance Award. Upon the lapse of restrictions with respect to each
Restricted Stock Unit, the Participant shall be entitled to receive one share of Common Stock or an
amount of cash equal to the Fair Market Value of one share of Common Stock, as provided in the
Award Agreement. A Participant shall not be required to make any payment for Restricted Stock
Units.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.2 Restricted Period. </B>At the time an Award of Restricted Stock Units is granted, the
Committee shall establish a Restricted Period applicable to such Restricted Stock Units. Each
Award of Restricted Stock Units may have a different Restricted Period in the sole discretion of
the Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.3 Cash Dividend Rights and Dividend Unit Rights. </B>To the extent provided by the Committee
in its sole discretion, a grant of Restricted Stock Units may include a tandem Cash Dividend Right
or Dividend Unit Right grant. A grant of Cash Dividend Rights may provide that such Cash Dividend
Rights shall be paid directly to the Participant at the time of payment of related dividend, be
credited to a bookkeeping account subject to the same vesting and payment provisions as the tandem
Award (with or without interest in the sole discretion of the Committee), or be subject to such
other provisions or restrictions as determined by the Committee in its sole discretion. A grant of
Dividend Unit Rights may provide that such Dividend Unit Rights shall be subject to the same
vesting and payment provisions as the tandem Award or be subject to such other provisions and
restrictions as determined by the Committee in its sole discretion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.4 Other Terms and Conditions. </B>At the time of an Award of Restricted Stock Units, the
Committee may, in its sole discretion, prescribe additional terms, conditions, restrictions and
limitations applicable to the Restricted Stock Units, including without limitation rules pertaining
to the termination of employment or service (by reason of death, Disability, retirement, Cause or
otherwise) of a Participant prior to expiration of the Restricted Period.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE XI. PERFORMANCE AWARDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.1 General. </B>Awards may be granted in the form of Performance Awards that may be payable in
the form of cash, shares of Common Stock or a combination of both, in such amounts and at such
times as the Committee shall determine. Performance Awards shall be conditioned upon the level of
achievement of one or more stated performance goals over a specified performance period that shall
not be shorter than one year. Performance Awards may be combined with other Awards to impose
performance criteria as part of the terms of such other Awards.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.2 Terms and Conditions. </B>Each Award Agreement embodying a Performance Award shall set forth
(a)&nbsp;the amount, including a target and maximum amount if applicable, a Participant may earn in the
form of cash or shares of Common Stock or a formula for determining such amount, (b)&nbsp;the
performance criteria and level of achievement versus such criteria that shall determine the amount
payable or number of shares of Common Stock to be granted, issued, retained and/or vested, (c)&nbsp;the
performance period over which performance is to be measured, (d)&nbsp;the timing of any payments to be
made, (e)&nbsp;restrictions on the transferability of the Award and (f)&nbsp;such other terms and conditions
as the Committee may determine that are not inconsistent with the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.3 Code </B><B>Section 162(m)</B><B> Requirements. </B>From and after the date on which remuneration paid (or
Awards granted) pursuant to the Plan becomes subject to the deduction limitation of Section 162(m)
of the Code, the Committee shall determine in its sole discretion whether all or any portion of a
Performance Award shall be intended to satisfy the requirements for &#147;performance-based
compensation&#148; under Section 162(m) of the Code (the &#147;162(m) Requirements&#148;). The performance
criteria for any Performance Award that is intended to satisfy the 162(m) Requirements shall be
established in writing by the Committee based on one or more performance goals as set forth in
Section&nbsp;11.4 not later than 90&nbsp;days after commencement of the performance period with respect to
such Award, provided that the outcome of the performance in respect of the goals remains
substantially uncertain as of such time. The maximum amount that may be paid in cash pursuant to
Performance Awards granted to a Participant with respect to a Approach&#146;s fiscal year that are
intended to satisfy the 162(m) Requirements is $5,000,000; provided, however, that such maximum
amount with respect to a Performance Award that provides for a performance period longer than one
fiscal year shall be the foregoing limit multiplied by the number of full fiscal years in the
performance period. At the time of the grant of a Performance Award and to the extent permitted
under Code Section 162(m) and regulations thereunder for a Performance Award intended to satisfy
the 162(m) Requirements, the Committee may provide for the manner in which the performance goals
will be measured in light of specified corporate transactions, extraordinary events, accounting
changes and other similar occurrences.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.4 Performance Goals. </B>The performance measure(s) to be used for purposes of Performance
Awards may be described in terms of objectives that are related to the individual Participant or
objectives that are Company-wide or related to a subsidiary, division, department, region, function
or business unit of the Company in which the Participant is employed or with respect to which the
Participant performs services, and may consist of one or more or any combination of the following
criteria: (a)&nbsp;earnings or earnings per share (whether on a pre-tax, after-tax, operational or
other basis), (b)&nbsp;return on equity, (c)&nbsp;return on assets or net assets, (d)&nbsp;return on capital or
invested capital and other related financial measures, (e)&nbsp;cash flow or EBITDA or EBITDAX, (f)
revenues, (g)&nbsp;income or operating income, (h)&nbsp;expenses or costs or expense levels or cost levels
(absolute or per unit), (i)&nbsp;one or more operating ratios, (j)&nbsp;stock price, (k)&nbsp;total stockholder
return, (l)&nbsp;operating profit, (m)&nbsp;profit margin, (n)&nbsp;capital expenditures, (o)&nbsp;net borrowing, debt
leverage levels, credit quality or debt ratings, (p)&nbsp;the accomplishment of mergers, acquisitions,
dispositions, public offerings or similar extraordinary business transactions, (q)&nbsp;net asset value
per share, (r)&nbsp;economic value added, (s)&nbsp;individual business objectives, (t)&nbsp;growth in production,
(u)&nbsp;growth in reserves, (v)&nbsp;reserve replacement ratio and/or
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(w)&nbsp;finding and development cost per unit. The performance goals based on these performance
measures may be made relative to the performance of other business entities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.5 Certification and Negative Discretion. </B>Prior to the payment of any compensation pursuant
to a Performance Award that is intended to satisfy the 162(m) Requirements, the Committee shall
certify the extent to which the performance goals and other material terms of the Award have been
achieved or satisfied. The Committee in its sole discretion shall have the authority to reduce,
but not to increase, the amount payable and the number of shares to be granted, issued, retained or
vested pursuant to a Performance Award.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE XII. STOCK AWARDS AND OTHER INCENTIVE AWARDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>12.1 Stock Awards. </B>Stock Awards may be granted to Participants upon such terms and conditions
as the Committee may determine. Shares of Common Stock issued pursuant to Stock Awards may be
issued for cash consideration or for no cash consideration. The Committee shall determine the
number of shares of Common Stock to be issued pursuant to a Stock Award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>12.2 Other Incentive Awards. </B>Other Incentive Awards may be granted in such amounts, upon such
terms and at such times as the Committee shall determine. Other Incentive Awards may be granted
based upon, payable in or otherwise related to, in whole or in part, shares of Common Stock if the
Committee, in its sole discretion, determines that such Other Incentive Awards are consistent with
the purposes of the Plan. Each grant of an Other Incentive Award shall be evidenced by an Award
Agreement that shall specify the amount of the Other Incentive Award and the terms, conditions,
restrictions and limitations applicable to such Award. Payment of Other Incentive Awards shall be
made at such times and in such form, which may be cash, shares of Common Stock or other property
(or a combination thereof), as established by the Committee, subject to the terms of the Plan.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE XIII. CHANGE OF CONTROL</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>13.1 Vesting of Awards. </B>Except as provided otherwise in an Award Agreement at the time an
Award is granted, notwithstanding any provision of this Plan to the contrary, in the event of a
Change of Control, any time periods, conditions or contingencies relating to the exercise or
realization of, or lapse of restrictions under, an Award granted hereunder shall be accelerated or
waived (assuming with respect to any Performance Awards, all performance criteria and other
conditions are achieved or fulfilled to the maximum extent possible) so that:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) if no exercise of the Award is required, the Award may be realized in full at the
time of the occurrence of the Change of Control (the &#147;Change Effective Time&#148;) or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) if exercise of the Award is required, the Award may be exercised in full at the
Change Effective Time;
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">provided, however, that with respect to any Award that consists of deferred compensation within the
meaning of Section&nbsp;409A of the Code, in the event of a Change of Control that does not satisfy the
requirements for a change in the ownership or effective control of Approach or a
</DIV>


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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">change in the ownership of a substantial portion of the assets of Approach within the meaning of
Section&nbsp;409A of the Code and Treasury guidance and regulations thereunder, then delivery of payment
with respect to such Award as provided herein shall be made upon the earliest of (i)&nbsp;the
Participant&#146;s &#147;separation from service&#148; (within the meaning of Code Section&nbsp;409A and the
regulations thereunder), (ii)&nbsp;the Participant&#146;s becoming disabled (within the meaning of Code
Section&nbsp;409A(a)(2)(C)), (iii)&nbsp;the Participant&#146;s death or (iv)&nbsp;a Change of Control that does satisfy
the requirements for a change in the ownership or effective control of Approach or a change in the
ownership of a substantial portion of the assets of Approach within the meaning of Section&nbsp;409A of
the Code and Treasury guidance and regulations thereunder; provided, however, that delivery of
payment upon separation from service to a Participant who is a &#147;specified employee&#148; (as defined in
Code Section&nbsp;409A and the regulations thereunder) as of the date of his or her separation from
service shall be delayed for a period of six months after the Participant&#146;s separation from service
(or, if earlier than the end of the six-month period, the date of death of the Participant).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>13.2 Assumption of Awards. </B>Upon a Change of Control where Approach is not the surviving
corporation (or survives only as a subsidiary of another corporation), unless the Committee
determines otherwise, all outstanding Options that are not exercised before the Change of Control
will be assumed by or replaced with comparable options or rights in the surviving corporation (or a
parent of the surviving corporation) in accordance with Section 424(a) of the Code and the
regulations thereunder, and other outstanding Awards will be converted into similar awards of the
surviving corporation (or a parent of the surviving corporation).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>13.3 Cancellation of Awards. </B>Notwithstanding the foregoing, in the event of a Change of
Control of Approach, then the Committee, in its discretion, may, no later than the effective time
of such Change of Control, require any Participant holding an Award to surrender such Award in
exchange for (a)&nbsp;with respect to each share of Common Stock subject to an Option or SAR (whether or
not vested), payment by the Company (or a successor), in cash, of an amount equivalent to the
excess of the value of the consideration received for each share of Common Stock by holders of
Common Stock in connection with such Change of Control (the &#147;Change of Control Consideration&#148;) over
the exercise price or grant price per share, (b)&nbsp;with respect to each share of Common Stock subject
to an Award of Restricted Stock Units or Other Incentive Awards, and related Cash Dividend Rights
and Dividend Unit Rights (if applicable), payment by the Company (or a successor), in cash, of an
amount equivalent to the value of any such Cash Dividend Rights and Dividend Unit Rights plus the
value of the Change of Control Consideration for each share covered by the Award, assuming all
restrictions or limitations (including risks of forfeiture) have lapsed and (c)&nbsp;with respect to a
Performance Award, payment by the Company (or a successor), in cash, of an amount equivalent to the
value of such Award, as determined by the Committee, taking into account, to the extent applicable,
the Change of Control Consideration, and assuming all performance criteria and other conditions to
payment of such Awards are achieved or fulfilled to the maximum extent possible. Payments made
upon a Change of Control pursuant to this Section shall be made no later than the date on which the
Change of Control occurs. Notwithstanding the foregoing, with respect to any Award that consists
of deferred compensation within the meaning of Section&nbsp;409A of the Code, in the event of a Change
of Control that does not satisfy the requirements for a change in the ownership or effective
control of Approach or a change in the ownership of a substantial portion of the assets
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">of Approach within the meaning of Section&nbsp;409A of the Code and Treasury guidance and regulations
thereunder, then delivery of payment with respect to such Award as provided herein shall be made
upon the earliest of (i)&nbsp;the Participant&#146;s &#147;separation from service&#148; (within the meaning of Code
Section&nbsp;409A and the regulations thereunder), (ii)&nbsp;the Participant&#146;s becoming disabled (within the
meaning of Code Section&nbsp;409A(a)(2)(C)), (iii)&nbsp;the Participant&#146;s death or (iv)&nbsp;a Change of Control
that does satisfy the requirements for a change in the ownership or effective control of Approach
or a change in the ownership of a substantial portion of the assets of Approach within the meaning
of Section&nbsp;409A of the Code and Treasury guidance and regulations thereunder; provided, however,
that delivery of payment upon separation from service to a Participant who is a &#147;specified
employee&#148; (as defined in Code Section&nbsp;409A and the regulations thereunder) as of the date of his or
her separation from service shall be delayed for a period of six months after the Participant&#146;s
separation from service (or, if earlier than the end of the six-month period, the date of death of
the Participant).
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE XIV. AMENDMENT AND TERMINATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>14.1 Plan Amendment and Termination. </B>The Board may at any time suspend, terminate, amend or
modify the Plan, in whole or in part; provided, however, that no amendment or modification of the
Plan shall become effective without the approval of such amendment or modification by the holders
of at least a majority of the shares of Common Stock if (a)&nbsp;such amendment or modification
increases the maximum number of shares subject to the Plan (except as provided in Article&nbsp;IV) or
changes the designation or class of persons eligible to receive Awards under the Plan or (b)
counsel for Approach determines that such approval is otherwise required by or necessary to comply
with applicable law or the listing requirements of NASDAQ or such other exchange or association on
which the Common Stock is then listed or quoted. An amendment to the Plan shall not require
stockholder approval if it curtails rather than expands the scope of the Plan, nor if it is made to
conform the Plan to statutory or regulatory requirements, such as, without limitation, Code Section
409A, or regulations issued thereunder. Upon termination of the Plan, the terms and provisions of
the Plan shall, notwithstanding such termination, continue to apply to Awards granted prior to such
termination. Except as otherwise provided herein, no suspension, termination, amendment or
modification of the Plan shall adversely affect in any material way any Award previously granted
under the Plan, without the consent of the Participant (or the Permitted Transferee) holding such
Award. Notwithstanding the foregoing, Approach may amend any Award Agreement to be exempt from
Code Section&nbsp;409A or to comply with the requirements of Code Section&nbsp;409A or to modify any
provision that causes an Award that is intended to be classified as an &#147;equity instrument&#148; under
FAS 123R to be classified as a liability on Approach&#146;s financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>14.2 Award Amendment and Cancellation. </B>The Committee may amend the terms of any outstanding
Award granted pursuant to the Plan, but except as otherwise provided herein, no such amendment
shall adversely affect in any material way the Participant&#146;s (or a Permitted Transferee&#146;s) rights
under an outstanding Award without the consent of the Participant (or the Permitted Transferee)
holding such Award.
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>ARTICLE XV. MISCELLANEOUS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.1 Award Agreements. </B>After the Committee grants an Award under the Plan to a Participant,
Approach and the Participant shall enter into an Award Agreement setting forth the terms,
conditions, restrictions and limitations applicable to the Award and such other matters as the
Committee may determine to be appropriate. The Committee may permit or require a Participant to
defer receipt of the payment of cash or the delivery of shares of Common Stock that would otherwise
be due to the Participant in connection with any Award. Awards that are not paid currently shall
be recorded as payable on Approach&#146;s records for the Plan. The terms and provisions of the
respective Award Agreements need not be identical. All Award Agreements shall be subject to the
provisions of the Plan, and in the event of any conflict between an Award Agreement and the Plan,
the terms of the Plan shall govern.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.2 Listing; Suspension.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) As long as the Common Stock is listed on a national securities exchange or system
sponsored by a national securities association, the issuance of any shares of Common Stock
pursuant to an Award shall be conditioned upon such shares being listed on such exchange or
system. Approach shall have no obligation to issue such shares unless and until such shares
are so listed, and the right to exercise any Option or other Award with respect to such
shares shall be suspended until such listing has been effected.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If at any time counsel to Approach or its Affiliates shall be of the opinion that
any sale or delivery of shares of Common Stock pursuant to an Award is or may in the
circumstances be unlawful or result in the imposition of excise taxes on Approach or its
Affiliates under the laws of any applicable jurisdiction, Approach or its Affiliates shall
have no obligation to make such sale or delivery, or to make any application or to effect or
to maintain any qualification or registration under the Securities Act, or otherwise, with
respect to shares of Common Stock or Awards, and the right to exercise any Option or other
Award shall be suspended until, in the opinion of such counsel, such sale or delivery shall
be lawful or will not result in the imposition of excise taxes on Approach or its
Affiliates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Upon termination of any period of suspension under this Section, any Award affected
by such suspension that shall not then have expired or terminated shall be reinstated as to
all shares available before such suspension and as to shares that would otherwise have
become available during the period of such suspension, but no such suspension shall extend
the term of any Award unless otherwise determined by the Committee in its sole discretion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.3 Additional Conditions. </B>Notwithstanding anything in the Plan to the contrary (a)&nbsp;the
Committee may, if it shall determine it necessary or desirable in its sole discretion, at the time
of grant of any Award or the issuance of any shares of Common Stock pursuant to any Award, require
the recipient of the Award or such shares of Common Stock, as a condition to the receipt thereof,
to deliver to Approach a written representation of present intention to acquire the Award or such
shares of Common Stock for his own account for investment and not for distribution, (b)&nbsp;the
certificate for shares of Common Stock issued to a Participant may include
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">any legend that the Committee deems appropriate to reflect any restrictions on transfer and
(c)&nbsp;all certificates for shares of Common Stock delivered under the Plan shall be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the SEC, any stock exchange or association upon which the
Common Stock is then listed or quoted, any applicable federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.4 Transferability.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All Awards granted to a Participant shall be exercisable during his lifetime only
by such Participant, or if applicable, a Permitted Transferee as provided in subsection (c)
of this Section; provided, however, that in the event of a Participant&#146;s legal incapacity,
an Award may be exercised by his guardian or legal representative. When a Participant dies,
the personal representative, beneficiary, or other person entitled to succeed to the rights
of the Participant may acquire the rights under an Award. Any such successor must furnish
proof satisfactory to Approach of the successor&#146;s entitlement to receive the rights under an
Award under the Participant&#146;s will or under the applicable laws of descent and distribution.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Except as otherwise provided in this Section, no Award shall be subject to
execution, attachment or similar process, and no Award may be sold, transferred, pledged,
exchanged, hypothecated or otherwise disposed of, other than by will or pursuant to the
applicable laws of descent and distribution. Any attempted sale, transfer, pledge,
exchange, hypothecation or other disposition of an Award not specifically permitted by the
Plan or the Award Agreement shall be null and void and without effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If provided in the Award Agreement, Nonqualified Stock Options may be transferred
by a Participant to a Permitted Transferee. For purposes of the Plan, &#147;Permitted
Transferee&#148; means (i)&nbsp;a member of a Participant&#146;s immediate family, (ii)&nbsp;any person sharing
the Participant&#146;s household (other than a tenant or employee of the Participant), (iii)
trusts in which a person listed in (i)&nbsp;or (ii)&nbsp;above has more than 50% of the beneficial
interest, (iv)&nbsp;a foundation in which the Participant or a person listed in (i)&nbsp;or (ii)&nbsp;above
controls the management of assets, (v)&nbsp;any other entity in which the Participant or a person
listed in (i)&nbsp;or (ii)&nbsp;above owns more than 50% of the voting interests, provided that in the
case of the preceding clauses (i)&nbsp;through (v), no consideration is provided for the transfer
and (vi)&nbsp;any transferee permitted under applicable securities and tax laws as determined by
counsel to Approach. In determining whether a person is a &#147;Permitted Transferee,&#148; immediate
family members shall include a Participant&#146;s child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including
adoptive relationships.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Incident to a Participant&#146;s divorce, the Participant may request that Approach
agree to observe the terms of a domestic relations order which may or may not be part of a
qualified domestic relations order (as defined in Code Section&nbsp;414(p)) with respect to all
or a part of one or more Awards made to the Participant under the Plan.
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Approach&#146;s decision regarding such a request shall be made by the Committee, in its
sole and absolute discretion, based upon the best interests of Approach. The Committee&#146;s
decision need not be uniform among Participants. As a condition of participation, a
Participant agrees to hold Approach harmless from any claim that may arise out of Approach&#146;s
observance of the terms of any such domestic relations order.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.5 Withholding Taxes. </B>The Company shall be entitled to deduct from any payment made under
the Plan, regardless of the form of such payment, the amount of all applicable income and
employment taxes required by law to be withheld with respect to such payment, may require the
Participant to pay to the Company such withholding taxes prior to and as a condition of the making
of any payment or the issuance or delivery of any shares of Common Stock under the Plan, and shall
be entitled to deduct from any other compensation payable to the Participant any withholding
obligations with respect to Awards. In accordance with any applicable administrative guidelines it
establishes, the Committee may allow a Participant to pay the amount of taxes required by law to be
withheld from or with respect to an Award by (a)&nbsp;withholding shares of Common Stock from any
payment of Common Stock due as a result of such Award, or (b)&nbsp;permitting the Participant to deliver
to the Company previously acquired shares of Common Stock, in each case having an aggregate Fair
Market Value equal to the amount of such required withholding taxes. No payment shall be made and
no shares of Common Stock shall be issued pursuant to any Award unless and until the applicable tax
withholding obligations have been satisfied.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.6 No Fractional Shares. </B>No fractional shares of Common Stock shall be issued or delivered
pursuant to the Plan or any Award granted hereunder, provided that the Committee in its sole
discretion may round fractional shares down to the nearest whole share or settle fractional shares
in cash.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.7 Notices. </B>All notices required or permitted to be given or made under the Plan or
pursuant to any Award Agreement (unless provided otherwise in such Award Agreement) shall be in
writing and shall be deemed to have been duly given or made if (a)&nbsp;delivered personally, (b)
transmitted by first class registered or certified United States mail, postage prepaid, return
receipt requested, (c)&nbsp;sent by prepaid overnight courier service or (d)&nbsp;sent by telecopy or
facsimile transmission, with confirmation receipt, to the person who is to receive it at the
address that such person has theretofore specified by written notice delivered in accordance
herewith. Such notices shall be effective (a)&nbsp;if delivered personally or sent by courier service,
upon actual receipt by the intended recipient, (b)&nbsp;if mailed, upon the earlier of five days after
deposit in the mail or the date of delivery as shown by the return receipt therefore or (c)&nbsp;if sent
by telecopy or facsimile transmission, when the answer back is received. Approach or a Participant
may change, at any time and from time to time, by written notice to the other, the address that it
or such Participant had theretofore specified for receiving notices. Until such address is changed
in accordance herewith, notices hereunder or under an Award Agreement shall be delivered or sent
(a)&nbsp;to a Participant at his address as set forth in the records of the Company or (b)&nbsp;to Approach
at the principal executive offices of Approach clearly marked &#147;Attention: Corporate Secretary.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.8 Compliance with Law and Stock Exchange or Association Requirements. </B>In addition, it is
the intent of Approach that Options designated Incentive Stock Options comply with the applicable
provisions of Section&nbsp;422 of the Code, and that Awards intended to constitute
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#147;qualified performance-based awards&#148; comply with the applicable provisions of Section 162(m)
of the Code and that any deferral of the receipt of the payment of cash or the delivery of shares
of Common Stock that the Committee may permit or require, and all Awards either be exempt from Code
section 409A or, if not exempt, comply with the requirements of Section&nbsp;409A of the Code. To the
extent that any legal requirement of Section&nbsp;16 of the Exchange Act or Sections&nbsp;422, 162(m) or 409A
of the Code as set forth in the Plan ceases to be required under Section&nbsp;16 of the Exchange Act or
Sections&nbsp;422, 162(m) or 409A of the Code, that Plan provision shall cease to apply. Any provision
of this Plan to the contrary notwithstanding, the Committee may revoke any Award if it is contrary
to law, governmental regulation or stock exchange or association requirements or modify an Award to
bring it into compliance with any government regulation or stock exchange or association
requirements. The Committee may agree to limit its authority under this Section.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.9 Binding Effect. </B>The obligations of Approach under the Plan shall be binding upon any
successor corporation or organization resulting from the merger, consolidation or other
reorganization of Approach, or upon any successor corporation or organization succeeding to all or
substantially all of the assets and business of Approach. The terms and conditions of the Plan
shall be binding upon each Participant and his Permitted Transferees, heirs, legatees, distributees
and legal representatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.10 Severability. </B>If any provision of the Plan or any Award Agreement is held to be illegal
or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions
of the Plan or such agreement, as the case may be, but such provision shall be fully severable and
the Plan or such agreement, as the case may be, shall be construed and enforced as if the illegal
or invalid provision had never been included herein or therein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.11 No Restriction of Corporate Action. </B>Nothing contained in the Plan shall be construed to
prevent Approach or any Affiliate from taking any corporate action (including any corporate action
to suspend, terminate, amend or modify the Plan) that is deemed by Approach or such Affiliate to be
appropriate or in its best interest, whether or not such action would have an adverse effect on the
Plan or any Awards made or to be made under the Plan. No Participant or other person shall have
any claim against Approach or any Affiliate as a result of such action.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.12 Governing Law. </B>The Plan shall be governed by and construed in accordance with the
internal laws (and not the principles relating to conflicts of laws) of the State of Texas except
as superseded by applicable federal law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.13 No Right, Title or Interest in Company Assets. </B>No Participant shall have any rights as
a stockholder of Approach as a result of participation in the Plan until the date of issuance of
Common Stock in his name and, in the case of Restricted Stock, unless and until such rights are
granted to the Participant pursuant to the Plan. To the extent any person acquires a right to
receive payments from the Company under the Plan, such rights shall be no greater than the rights
of an unsecured general creditor of the Company, and such person shall not have any rights in or
against any specific assets of the Company. All Awards shall be unfunded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.14 Risk of Participation. </B>Nothing contained in the Plan shall be construed either as a
guarantee by Approach or its Affiliates, or their respective stockholders, directors, officers or
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">employees, of the value of any assets of the Plan or as an agreement by Approach or its
Affiliates, or their respective stockholders, directors, officers or employees, to indemnify anyone
for any losses, damages, costs or expenses resulting from participation in the Plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.15 No Guarantee of Tax Consequences. </B>No person connected with the Plan in any capacity,
including without limitation Approach and the Affiliates and their respective directors, officers,
agents and employees, makes any representation, commitment or guarantee that any tax treatment,
including without limitation federal, state and local income, estate and gift tax treatment, will
be applicable with respect to any Awards or payments thereunder made to or for the benefit of a
Participant under the Plan or that such tax treatment will apply to or be available to a
Participant on account of participation in the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.16 Continued Employment or Service. </B>Nothing contained in the Plan or in any Award
Agreement shall confer upon any Participant the right to continue in the employ or service of the
Company, or interfere in any way with the rights of the Company to terminate a Participant&#146;s
employment or service at any time, with or without cause. The loss of existing or potential profit
in Awards will not constitute an element of damages in the event of termination of employment or
service for any reason, even if the termination is in violation of an obligation of Approach or an
Affiliate to the Participant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>15.17 Miscellaneous. </B>Headings are given to the articles and sections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction of the Plan or any provisions hereof. The use of the masculine gender
shall also include within its meaning the feminine. Wherever the context of the Plan dictates, the
use of the singular shall also include within its meaning the plural, and vice versa.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, this Plan has been executed as of the Effective Date.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
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<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>APPROACH RESOURCES INC.</B></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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">J. Ross Craft</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">President and Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
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</DIV>



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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>9
<FILENAME>d47789exv10w7.htm
<DESCRIPTION>CONVERTIBLE PROMISSORY NOTE - YORKTOWN ENERGY PARNTERS VII, L.P.
<TEXT>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.7</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CONVERTIBLE PROMISSORY NOTE</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%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
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<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">$10,000,000
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">June&nbsp;25, 2007</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR VALUE RECEIVED, Approach Oil &#038; Gas Inc., a Delaware corporation (the &#147;Company&#148;), hereby
promises to pay to the order of YORKTOWN ENERGY PARTNERS VII, L.P., a Delaware limited partnership
(the &#147;Lender&#148;), the principal sum of Ten Million and no/100 Dollars ($10,000,000), together with
interest thereon from the date of this Convertible Promissory Note (this &#147;Note&#148;) on the unpaid
principal balance. Interest shall accrue at a rate of seven percent (7%) per annum based on a
three hundred sixty-five (365) &#150; day year and compounded annually. Principal and accrued interest
shall be due and payable on the third anniversary of the date of this Note; provided, that the
Company shall have the right to prepay the principal in whole or in part from time to time without
premium or penalty provided that the Company gives the Lender at least fifteen (15)&nbsp;days prior
notice of such prepayment. Lender shall have the right to exercise its conversion rights in whole
or in part prior to such prepayment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All payments shall be made in lawful money of the United States of America at the principal
office of the Lender, or at such other place as the holder hereof may from time to time designate
in writing to the Company. All payments shall be credited first to the accrued interest then due
and payable and the remainder applied to principal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At any time commencing December&nbsp;31, 2007 or earlier in connection with the Company&#146;s
prepayment hereof or the occurrence of a &#147;Sales Event&#148; as defined below, the Lender shall have the
right, in its sole and absolute discretion, to convert all or any portion of the unpaid principal
of and interest on this Note into shares of the equity securities of the Company or any successor
to the Company of any class or classes issued by the Company or its successor prior to the date of
the Lender&#146;s election. Except as provided below with respect to an automatic conversion upon the
occurrence of an IPO (defined below), the number of shares of such equity securities to be issued
upon such conversion shall be equal to the quotient obtained by dividing (a)&nbsp;by (b), where (a)&nbsp;is
the outstanding principal and accrued interest of this Note (or such portion as will be converted),
and (b)&nbsp;is (i)&nbsp;the lowest price per share that equity securities in any such class have been issued
by the Company, or (ii)&nbsp;if no such shares have been issued, then at One Hundred and no/100 Dollars
($100) per share. The conversion price will be subject to adjustment to provide the Lender with
full antidilution protection in the case of any stock splits, recapitalizations or changes in
capital structure of the Company or the issuance of options, warrants, or other rights to acquire
or convertible into equity securities of the Company excluding only options, warrants, rights or
other equity-based awards issued as part of reasonable compensation plans approved by the Company&#146;s
Board of Directors. Shares issued for consideration other than cash shall be deemed to be issued at
the fair market value of the consideration given for them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The first day on which both of the following transactions shall have been consummated shall be
referred to herein as the &#147;IPO Conversion Date&#148;: (a)&nbsp;the initial sale by Approach Resources Inc., a
Delaware corporation, of shares of its common stock, par value $0.01 per share
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(the &#147;Approach Common Stock&#148;), to the public pursuant to a registration statement under the
Securities Act of 1933, as amended (&#147;IPO&#148;), and (b)&nbsp;the exchange of all outstanding shares of
Company Common Stock for shares of Approach Common Stock and the consummation of the other
transactions contemplated by the terms of a contribution agreement by and among Approach, the
Company and certain other parties thereto (the &#147;Contribution Agreement&#148;). Notwithstanding anything
to the contrary contained herein, this Note shall, on the IPO Conversion Date, automatically and
without further action required by any person, convert into shares of Approach Common Stock. The
number of shares of Approach Common Stock to be issued upon such automatic conversion shall be
equal to the quotient obtained by dividing (a)&nbsp;by (b), where (a)&nbsp;is the outstanding principal and
accrued interest of this Note, and (b)&nbsp;is the initial public offering price per share, less any
underwriting discount per share for the shares of Approach Common Stock that are issued in the IPO.
The shares of Approach Common Stock issued to Lender upon any automatic conversion of this Note
shall be entitled to the same registration rights as those provided to holders of shares of Company
Common Stock whose shares are exchanged into shares of Approach Common Stock pursuant to the
Contribution Agreement. Approach shall execute an agreement with the Lender reflecting those rights
on or prior to the IPO Conversion Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Lender shall be granted no less protective rights with regards to such shares of equity
securities (including preferences and voting rights) acquired pursuant to the conversion of this
Note as are granted to any other holder of such shares of equity securities. If only a portion of
this Note is converted into equity securities, the Company shall return this Note to the Lender
with a notation thereon of the remaining outstanding principal of this Note or, at the request of
the Lender, shall issue and deliver to the Lender a replacement convertible secured promissory note
for the remaining outstanding balance hereof, such Note containing the same material terms as set
forth herein. The issuance of certificates for shares of equity securities upon conversion of this
Note will be made without charge to the Lender for any issuance tax in respect thereof or other
cost incurred by the Company in connection with such conversion and the related issuance of shares
of equity securities. Upon conversion of this Note, the Company will take all such actions as are
necessary in order to ensure that the shares issuable with respect to such conversion will be
validly issued, fully paid and nonassessable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following will be deemed to constitute events of default under the Note:
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall fail to make when due any payment of principal or
interest under this Note and such failure shall remain uncured for a period of five
(5)&nbsp;business days.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall fail to perform or observe, in any material respect,
any provision of this Note or any material agreement or contract to which it is a
party or by which it or its assets are bound, and such default shall continue for
more than thirty (30)&nbsp;days after written notice from Lender is received by Borrower
or,</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>notwithstanding the foregoing, the Company fails to give a timely &#147;Default Notice&#148;
as defined below.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any representation or warranty made by the Company herein, or any
statement, written information or certificate furnished by the Company in
connection with the transactions contemplated hereby, proves untrue in any material
respect as of the date of the issuance or making thereof or omits any statement
necessary to make the statements contained therein, in light of the circumstances
under which they were made, not false or misleading.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall default in the payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) of any amount
owing in respect of any indebtedness in the aggregate principal amount of Two
Hundred Fifty Thousand and no/100 Dollars ($250,000) or more, or shall default in
the performance or observance of any obligation or condition with respect to any
such indebtedness or any other event shall occur or condition exist, if the effect
of such default, event or condition is to accelerate the maturity of any such
indebtedness or to permit the holder or holders thereof, or any trustee or agent
for such holders, to accelerate the maturity of any such indebtedness, or any such
indebtedness shall become or be declared to be due and payable prior to its stated
maturity and such default has not been cured within any grace period provided for
in the instrument under which the default arose.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(i)&nbsp;The Company shall commence a voluntary case concerning itself under
the United States Bankruptcy Code; (ii)&nbsp;an involuntary case is commenced against
the Company and the petition is not contested within fifteen (15)&nbsp;days, or is not
dismissed or stayed within sixty (60)&nbsp;days, after commencement of the case; (iii)&nbsp;a
custodian (as defined in the United States Bankruptcy Code) is appointed for, or
takes charge of, all or substantially all of the property of the Company or the
Company commences any other proceedings under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to the
Company or there is commenced against the Company any such proceeding which remains
undismissed and unstayed for a period of sixty (60)&nbsp;days; (iv)&nbsp;any order of relief
or other order approving any such case or proceeding is entered; (v)&nbsp;the Company is
adjudicated insolvent or bankrupt; (vi)&nbsp;the Company suffers any appointment of any
custodian or the like for it or any substantial part of its property to continue
undischarged and unstayed for a period of fifteen (15)&nbsp;days; (vii)&nbsp;the Company
makes a general assignment for the benefit of creditors; (viii)&nbsp;the Company shall
fail to pay, or shall state that it is unable to pay, or shall be unable to pay,
its debts generally as they become due and such failure or inability to pay shall
not have been cured within fifteen (15)&nbsp;days; (ix)&nbsp;the Company shall call a meeting
of its creditors with a view to arranging a</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>composition or adjustment of its debts; (x)&nbsp;the Company shall by any act or failure
to act consent to, approve of or acquiesce in any of the foregoing; (xi)&nbsp;any
corporate action is taken by the Company for the purpose of effecting any of the
foregoing.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">f)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any judgment, writ or warrant of attachment or of any similar
post-judgment process in an amount in excess of Two Hundred Fifty Thousand and
no/100 Dollars ($250,000) shall be entered or filed against the Company or against
any of its properties or assets and remain unsatisfied and unstayed for a period
of sixty (60)&nbsp;days; provided, that if any such judgment, writ or warrant is not
satisfied or stayed within such sixty (60) &#150; day period, an event of default shall
not exist if prior to the end of such sixty (60) &#150; day period the Company provides
to Lender a statement from Lender&#146;s insurance carrier that the entire amount of
such judgment, writ or warrant is a covered loss under the insurance policies that
the Company maintains with such carrier and that such carrier does not dispute such
coverage and will provide the Company with such proceeds of insurance required to
satisfy such judgment, writ or warrant;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">g)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company dissolves, liquidates or otherwise ceases to actively
conduct business.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">h)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall fail in any material respect to comply with any law,
rule, regulation or order to which it or its assets are subject and such failure to
comply remains uncured for more than thirty (30)&nbsp;days after written notice from
Lender is received by the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the occurrence of any condition, event or act described above, the Company shall give
written notice thereof (a &#147;Default Notice&#148;) to the Lender within five (5)&nbsp;business days of
receiving knowledge of such condition, event or act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the occurrence of any event of default described in section (a)-(d), or (f)-(h) above the
Lender may, at its option upon written notice to the Company, declare the Note to be immediately
due and payable in full. Upon the occurrence of any Event of Default described in section (e)&nbsp;the
Note shall become immediately due and payable without any action on the part of the Lender.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company represents and warrants to the Lender that it has all power and authority to enter
into this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Note shall be governed by and construed in accordance with the laws of the State of New
York.
</DIV>

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</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company hereby agrees, subject only to any limitation imposed by applicable law, to pay
all expenses, including reasonable attorneys&#146; fees and legal expenses, incurred by the Lender in
endeavoring to collect any amounts payable hereunder that are not paid when due, whether by
declaration or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything to the contrary contained in this Note, in no event shall the
interest payable hereon, whether before or after maturity, exceed the maximum interest which, under
applicable law, may be charged on this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company hereby expressly waives presentment, demand for payment, dishonor, notice of
dishonor, protest, notice of protest and any other formality.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will give the Lender written notice of any contemplated &#147;Sales Event,&#148; at least
ten (10)&nbsp;business days prior to the record date for determining which holders of equity securities
may vote with respect to or participate in such Sales Event. Except as set forth below in this
paragraph, &#147;Sales Event&#148; shall mean the sale or distribution of substantially all of the assets of
the Company or a merger or consolidation of the Company with or into another entity or the sale of
a majority of the Company&#146;s stock by its shareholders. If the Lender does not elect to convert this
Note prior to the occurrence of a Sales Event, it may declare the Note due and payable at any time
up to the next business day after consummation of the Sales Event. Notwithstanding the above,
neither the consummation of the Contribution Agreement nor the IPO shall constitute a Sales Event
for purposes of this Note. Upon the consummation of the Contribution Agreement and the IPO, the
conversion of this Note shall be governed by the terms of the fourth full paragraph herein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;So long as this Note is outstanding, the Company will deliver quarterly financial statements
to the Lender within forty-five (45)&nbsp;days after the end of each calendar quarter and audited
financial statements within one hundred twenty (120)&nbsp;days after the end of each calendar year and
the Lender may inspect the books and records of the Company upon reasonable notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned, by its duly authorized and acting executive officer, has
executed this Note as of the date first set forth above.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">APPROACH OIL &#038; GAS INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ J. Ross Craft
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">J. Ross Craft,&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>10
<FILENAME>d47789exv10w8.htm
<DESCRIPTION>CONVERTIBLE PROMISSORY NOTE - LUBAR EQUITY FUND, LLC
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w8</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.8</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CONVERTIBLE PROMISSORY NOTE</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%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">$10,000,000
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">June&nbsp;25, 2007</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR VALUE RECEIVED, Approach Oil &#038; Gas Inc., a Delaware corporation (the &#147;Company&#148;), hereby
promises to pay to the order of LUBAR EQUITY FUND, LLC, a Wisconsin limited liability company (the
&#147;Lender&#148;), the principal sum of Ten Million and no/100 Dollars ($10,000,000), together with
interest thereon from the date of this Convertible Promissory Note (this &#147;Note&#148;) on the unpaid
principal balance. Interest shall accrue at a rate of seven percent (7%) per annum based on a
three hundred sixty-five (365) &#150; day year and compounded annually. Principal and accrued interest
shall be due and payable on the third anniversary of the date of this Note; provided, that the
Company shall have the right to prepay the principal in whole or in part from time to time without
premium or penalty provided that the Company gives the Lender at least fifteen (15)&nbsp;days prior
notice of such prepayment. Lender shall have the right to exercise its conversion rights in whole
or in part prior to such prepayment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All payments shall be made in lawful money of the United States of America at the principal
office of the Lender, or at such other place as the holder hereof may from time to time designate
in writing to the Company. All payments shall be credited first to the accrued interest then due
and payable and the remainder applied to principal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At any time commencing December&nbsp;31, 2007 or earlier in connection with the Company&#146;s
prepayment hereof or the occurrence of a &#147;Sales Event&#148; as defined below, the Lender shall have the
right, in its sole and absolute discretion, to convert all or any portion of the unpaid principal
of and interest on this Note into shares of the equity securities of the Company or any successor
to the Company of any class or classes issued by the Company or its successor prior to the date of
the Lender&#146;s election. Except as provided below with respect to an automatic conversion upon the
occurrence of an IPO (defined below), the number of shares of such equity securities to be issued
upon such conversion shall be equal to the quotient obtained by dividing (a)&nbsp;by (b), where (a)&nbsp;is
the outstanding principal and accrued interest of this Note (or such portion as will be converted),
and (b)&nbsp;is (i)&nbsp;the lowest price per share that equity securities in any such class have been issued
by the Company, or (ii)&nbsp;if no such shares have been issued, then at One Hundred and no/100 Dollars
($100) per share. The conversion price will be subject to adjustment to provide the Lender with
full antidilution protection in the case of any stock splits, recapitalizations or changes in
capital structure of the Company or the issuance of options, warrants, or other rights to acquire
or convertible into equity securities of the Company excluding only options, warrants, rights or
other equity-based awards issued as part of reasonable compensation plans approved by the Company&#146;s
Board of Directors. Shares issued for consideration other than cash shall be deemed to be issued at
the fair market value of the consideration given for them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The first day on which both of the following transactions shall have been consummated shall be
referred to herein as the &#147;IPO Conversion Date&#148;: (a)&nbsp;the initial sale by Approach Resources Inc., a
Delaware corporation, of shares of its common stock, par value $0.01 per share
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(the &#147;Approach Common Stock&#148;), to the public pursuant to a registration statement under the
Securities Act of 1933, as amended (&#147;IPO&#148;), and (b)&nbsp;the exchange of all outstanding shares of
Company Common Stock for shares of Approach Common Stock and the consummation of the other
transactions contemplated by the terms of a contribution agreement by and among Approach, the
Company and certain other parties thereto (the &#147;Contribution Agreement&#148;). Notwithstanding anything
to the contrary contained herein, this Note shall, on the IPO Conversion Date, automatically and
without further action required by any person, convert into shares of Approach Common Stock. The
number of shares of Approach Common Stock to be issued upon such automatic conversion shall be
equal to the quotient obtained by dividing (a)&nbsp;by (b), where (a)&nbsp;is the outstanding principal and
accrued interest of this Note, and (b)&nbsp;is the initial public offering price per share, less any
underwriting discount per share for the shares of Approach Common Stock that are issued in the IPO.
The shares of Approach Common Stock issued to Lender upon any automatic conversion of this Note
shall be entitled to the same registration rights as those provided to holders of shares of Company
Common Stock whose shares are exchanged into shares of Approach Common Stock pursuant to the
Contribution Agreement. Approach shall execute an agreement with the Lender reflecting those rights
on or prior to the IPO Conversion Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Lender shall be granted no less protective rights with regards to such shares of equity
securities (including preferences and voting rights) acquired pursuant to the conversion of this
Note as are granted to any other holder of such shares of equity securities. If only a portion of
this Note is converted into equity securities, the Company shall return this Note to the Lender
with a notation thereon of the remaining outstanding principal of this Note or, at the request of
the Lender, shall issue and deliver to the Lender a replacement convertible secured promissory note
for the remaining outstanding balance hereof, such Note containing the same material terms as set
forth herein. The issuance of certificates for shares of equity securities upon conversion of this
Note will be made without charge to the Lender for any issuance tax in respect thereof or other
cost incurred by the Company in connection with such conversion and the related issuance of shares
of equity securities. Upon conversion of this Note, the Company will take all such actions as are
necessary in order to ensure that the shares issuable with respect to such conversion will be
validly issued, fully paid and nonassessable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following will be deemed to constitute events of default under the Note:
</DIV>

<DIV style="margin-top: 6pt">
<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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall fail to make when due any payment of principal or
interest under this Note and such failure shall remain uncured for a period of five
(5)&nbsp;business days.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall fail to perform or observe, in any material respect,
any provision of this Note or any material agreement or contract to which it is a
party or by which it or its assets are bound, and such default shall continue for
more than thirty (30)&nbsp;days after written notice from Lender is received by Borrower
or,</TD>
</TR>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>notwithstanding the foregoing, the Company fails to give a timely &#147;Default Notice&#148;
as defined below.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any representation or warranty made by the Company herein, or any
statement, written information or certificate furnished by the Company in
connection with the transactions contemplated hereby, proves untrue in any material
respect as of the date of the issuance or making thereof or omits any statement
necessary to make the statements contained therein, in light of the circumstances
under which they were made, not false or misleading.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall default in the payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) of any amount
owing in respect of any indebtedness in the aggregate principal amount of Two
Hundred Fifty Thousand and no/100 Dollars ($250,000) or more, or shall default in
the performance or observance of any obligation or condition with respect to any
such indebtedness or any other event shall occur or condition exist, if the effect
of such default, event or condition is to accelerate the maturity of any such
indebtedness or to permit the holder or holders thereof, or any trustee or agent
for such holders, to accelerate the maturity of any such indebtedness, or any such
indebtedness shall become or be declared to be due and payable prior to its stated
maturity and such default has not been cured within any grace period provided for
in the instrument under which the default arose.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(i)&nbsp;The Company shall commence a voluntary case concerning itself under
the United States Bankruptcy Code; (ii)&nbsp;an involuntary case is commenced against
the Company and the petition is not contested within fifteen (15)&nbsp;days, or is not
dismissed or stayed within sixty (60)&nbsp;days, after commencement of the case; (iii)&nbsp;a
custodian (as defined in the United States Bankruptcy Code) is appointed for, or
takes charge of, all or substantially all of the property of the Company or the
Company commences any other proceedings under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to the
Company or there is commenced against the Company any such proceeding which remains
undismissed and unstayed for a period of sixty (60)&nbsp;days; (iv)&nbsp;any order of relief
or other order approving any such case or proceeding is entered; (v)&nbsp;the Company is
adjudicated insolvent or bankrupt; (vi)&nbsp;the Company suffers any appointment of any
custodian or the like for it or any substantial part of its property to continue
undischarged and unstayed for a period of fifteen (15)&nbsp;days; (vii)&nbsp;the Company
makes a general assignment for the benefit of creditors; (viii)&nbsp;the Company shall
fail to pay, or shall state that it is unable to pay, or shall be unable to pay,
its debts generally as they become due and such failure or inability to pay shall
not have been cured within fifteen (15)&nbsp;days; (ix)&nbsp;the Company shall call a meeting
of its creditors with a view to arranging a</TD>
</TR>

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


<DIV style="margin-top: 6pt"><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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>composition or adjustment of its debts; (x)&nbsp;the Company shall by any act or failure
to act consent to, approve of or acquiesce in any of the foregoing; (xi)&nbsp;any
corporate action is taken by the Company for the purpose of effecting any of the
foregoing.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">f)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any judgment, writ or warrant of attachment or of any similar
post-judgment process in an amount in excess of Two Hundred Fifty Thousand and
no/100 Dollars ($250,000) shall be entered or filed against the Company or against
any of its properties or assets and remain unsatisfied and unstayed for a period
of sixty (60)&nbsp;days; provided, that if any such judgment, writ or warrant is not
satisfied or stayed within such sixty (60) &#150; day period, an event of default shall
not exist if prior to the end of such sixty (60) &#150; day period the Company provides
to Lender a statement from Lender&#146;s insurance carrier that the entire amount of
such judgment, writ or warrant is a covered loss under the insurance policies that
the Company maintains with such carrier and that such carrier does not dispute such
coverage and will provide the Company with such proceeds of insurance required to
satisfy such judgment, writ or warrant;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">g)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company dissolves, liquidates or otherwise ceases to actively
conduct business.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">h)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall fail in any material respect to comply with any law,
rule, regulation or order to which it or its assets are subject and such failure to
comply remains uncured for more than thirty (30)&nbsp;days after written notice from
Lender is received by the Company.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the occurrence of any condition, event or act described above, the Company shall give
written notice thereof (a &#147;Default Notice&#148;) to the Lender within five (5)&nbsp;business days of
receiving knowledge of such condition, event or act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the occurrence of any event of default described in section (a)-(d), or (f)-(h) above the
Lender may, at its option upon written notice to the Company, declare the Note to be immediately
due and payable in full. Upon the occurrence of any Event of Default described in section (e)&nbsp;the
Note shall become immediately due and payable without any action on the part of the Lender.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company represents and warrants to the Lender that it has all power and authority to enter
into this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Note shall be governed by and construed in accordance with the laws of the State of New
York.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company hereby agrees, subject only to any limitation imposed by applicable law, to pay
all expenses, including reasonable attorneys&#146; fees and legal expenses, incurred by the Lender in
endeavoring to collect any amounts payable hereunder that are not paid when due, whether by
declaration or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything to the contrary contained in this Note, in no event shall the
interest payable hereon, whether before or after maturity, exceed the maximum interest which, under
applicable law, may be charged on this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company hereby expressly waives presentment, demand for payment, dishonor, notice of
dishonor, protest, notice of protest and any other formality.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will give the Lender written notice of any contemplated &#147;Sales Event,&#148; at least
ten (10)&nbsp;business days prior to the record date for determining which holders of equity securities
may vote with respect to or participate in such Sales Event. Except as set forth below in this
paragraph, &#147;Sales Event&#148; shall mean the sale or distribution of substantially all of the assets of
the Company or a merger or consolidation of the Company with or into another entity or the sale of
a majority of the Company&#146;s stock by its shareholders. If the Lender does not elect to convert this
Note prior to the occurrence of a Sales Event, it may declare the Note due and payable at any time
up to the next business day after consummation of the Sales Event. Notwithstanding the above,
neither the consummation of the Contribution Agreement nor the IPO shall constitute a Sales Event
for purposes of this Note. Upon the consummation of the Contribution Agreement and the IPO, the
conversion of this Note shall be governed by the terms of the fourth full paragraph herein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;So long as this Note is outstanding, the Company will deliver quarterly financial statements
to the Lender within forty-five (45)&nbsp;days after the end of each calendar quarter and audited
financial statements within one hundred twenty (120)&nbsp;days after the end of each calendar year and
the Lender may inspect the books and records of the Company upon reasonable notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the undersigned, by its duly authorized and acting executive officer, has
executed this Note as of the date first set forth above.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">APPROACH OIL &#038; GAS INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ J. Ross Craft
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">J. Ross Craft,&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>11
<FILENAME>d47789exv10w9.htm
<DESCRIPTION>$100,000,000 REVOLVING AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w9</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">



<DIV align="right" style="font-size: 10pt; margin-top: 6pt"> Exhibit 10.9</div>
<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AMENDED AND RESTATED</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CREDIT AGREEMENT</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>AMONG</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>APPROACH RESOURCES I, LP</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>AS BORROWER,</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>THE FROST NATIONAL BANK</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>AND THE INSTITUTIONS NAMED HEREIN</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>AS LENDERS,</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>AND</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>THE FROST NATIONAL BANK</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>AS ADMINISTRATIVE AGENT</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>FEBRUARY 15, 2007</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>$100,000,000 REVOLVING CREDIT</B>

</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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>Page No.</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD>1.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Definitions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>2.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Commitments of Lenders</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Terms of Commitment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Procedure for Borrowing</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letters of Credit</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Procedure for Obtaining Letters of Credit</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Outstanding Letters of Credit</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(f)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Voluntary Reduction of Borrowing Base</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(g)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mandatory Borrowing Base Reductions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(h)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Several Obligations</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Type and Number of Advances</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>3.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Notes Evidencing Loans</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notes</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Issuance of Additional Notes</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interest Rates</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Payment of Interest</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Payment of Principal</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(f)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Payment to Lenders</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(g)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sharing of Payments, Etc.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(h)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Non-Receipt of Funds by Agent</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>4.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Interest Rates</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Options</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interest Rate Determination</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Conversion Option</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Recoupment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interest Rates Applicable After Default</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>5.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Special Provisions Relating to Loans</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Unavailability of Funds or Inadequacy of Pricing</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Change in Laws</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Increased Cost or Reduced Return</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Discretion of Lender as to Manner of Funding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Breakage Fees</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>6.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Collateral Security</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>7.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Borrowing Base</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Initial Borrowing Base</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsequent Determinations of Borrowing Base</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>8.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Fees</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Up-Front Fee</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Unused Commitment Fee</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>9.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Prepayments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Voluntary Prepayments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mandatory Prepayment For Borrowing Base Deficiency</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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>Page No.</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD>10.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Representations and Warranties</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Organization and Qualification</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power and Authority</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Binding Obligations</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Legal Bar or Resultant Lien</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Consent</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(f)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financial Condition</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(g)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Liabilities</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(h)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Litigation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Taxes; Governmental Charges</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(j)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Titles, Etc.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(k)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Defaults</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(l)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Casualties; Taking of Properties</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(m)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Use of Proceeds; Margin Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(n)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Location of Business and Offices</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(o)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Compliance with the Law</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(p)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Material Misstatements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(q)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Not A Utility</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(r)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ERISA</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(s)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Intentionally Deleted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(t)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">No Subsidiaries</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(u)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Environmental Matters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(v)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Liens</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(w)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Solvency</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(x)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Insurance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>11.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Conditions of Lending</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>12.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Affirmative Covenants</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financial Statements and Reports of Borrower, Guarantor</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hedging Report</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Additional Information</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certificates of Compliance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Taxes and Other Liens</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(f)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Compliance with Laws</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(g)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Further Assurances</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(h)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Performance of Obligations</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Insurance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(j)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Accounts and Records</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(k)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Right of Inspection</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(l)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Notice of Certain Events</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(m)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Environmental Reports and Notices</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(n)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Compliance and Maintenance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(o)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Operation of Properties</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(p)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Compliance with Leases and Other Instruments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(q)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certain Additional Assurances Regarding Maintenance and Operations of</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">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Properties</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(r)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sale of Certain Assets/Prepayment of Proceeds</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(s)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title Matters</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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>Page No.</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(t)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Change of Principal Place of Business</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(u)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Additional Collateral</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>13.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Negative Covenants</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Negative Pledge</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Current Ratio</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consolidations and Mergers</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Limitation on Additional Indebtedness</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Payments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(f)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rate Management Transactions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(g)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certain Transactions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(h)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Intentionally Deleted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Limitation on Investments and New Businesses</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(j)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Limitation on Credit Extensions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(k)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fiscal Year</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(l)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certain Agreements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(m)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lines of Business</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>14.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Events of Default</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>15.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Agent and Lenders</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(a)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Appointment and Authorization</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(b)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Note Holders</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(c)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consultation with Counsel</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(d)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Documents</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(e)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Resignation or Removal of Agent</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(f)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Responsibility of Agent</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(g)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Independent Investigation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(h)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indemnification</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(i)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Benefit of Section 15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(j)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Pro Rata Treatment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(k)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assumption as to Payments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(l)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Other Financings</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(m)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Interests of Lenders</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(n)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(o)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Delegation to Affiliates</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(p)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Execution of Collateral Documents</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(q)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Collateral Releases</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>16.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Exercise of Rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>17.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Notices</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>18.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Expenses</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>19.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Indemnity</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>20.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Non-Liability of Lenders</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>21.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Governing Law</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>22.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Invalid Provisions</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>23.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Maximum Interest Rate</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>24.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Amendments</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>25.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Multiple Counterparts</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>26.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Conflict</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Page No.</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">27.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Survival</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">50</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">28.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Parties Bound</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">50</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">29.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignments and Participations</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">50</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">30.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Choice of Forum: Consent to Service of Process and Jurisdiction</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">52</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">31.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Waiver of Jury Trial</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">52</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">32.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Other Agreements</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">52</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">33.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financial Terms</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">52</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">34.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Tri-Party Loan</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">52</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">35.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">USA Patriot Act Notice</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">52</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">36.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Original Credit Agreement</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">52</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="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibits</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit &#147;A&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Notice of Borrowing</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit &#147;B&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Note</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit &#147;C&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Certificate of Compliance</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Exhibit &#147;D&#148;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Assignment and Acceptance Agreement</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="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Schedules</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Liens</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financial Condition</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;2(e)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Existing Letters of Credit</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Liabilities</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Litigation</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">-
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Environmental Matters</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>AMENDED AND RESTATED CREDIT AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>THIS AMENDED AND RESTATED CREDIT AGREEMENT </B>(the &#147;Agreement&#148;) executed as of the 15th day of
February, 2007, by and among <B>APPROACH RESOURCES I, LP, </B>a Texas limited partnership (&#147;Borrower&#148;),
and each of the financial institutions which is a party hereto (as evidenced by the signature pages
to this Agreement) or which may from time to time become a party hereto pursuant to the provisions
of Section&nbsp;29 hereof or any successor or permitted assignee thereof (collectively, &#147;Lenders&#148;, and
individually, &#147;Lender&#148;), and <B>THE FROST NATIONAL BANK, </B>a national banking association (&#147;Frost&#148;), as
Administrative Agent (&#147;Agent&#148;).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>W I T N E S S E T H:</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In consideration of the mutual covenants and agreements herein contained, the parties hereby
agree as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;<B>Definitions</B>. When used herein the terms &#147;Agent&#148;, &#147;Agreement&#148;, &#147;Borrower&#148;, &#147;Frost&#148;, &#147;Lender&#148; and
&#147;Lenders&#148;, shall have the meanings indicated above. When used herein the following terms shall
have the following meanings:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Accounting Principles</U> means generally accepted accounting principles in effect from
time to time, applied in a manner consistent with prior periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Advance</U> means a borrowing hereunder (i)&nbsp;made by some or all of Lenders on the same
Borrowing Date, or (ii)&nbsp;converted or continued by Lenders on the same date of conversion or
continuation, consisting, in either case, of the aggregate amount of the several Loans of the same
type and, in the case of Eurodollar Loans, for the same Interest Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Affiliate</U> means any Person which, directly or indirectly, controls, is controlled by
or is under common control with the relevant Person. For the purposes of this definition,
&#147;control&#148; (including, with correlative meanings, the terms &#147;controlled by&#148; and &#147;under common
control with&#148;), as used with respect to any Person, shall mean a member of the board of directors,
a partner or an officer of such Person, or any other Person with possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of such
Person, through the ownership (of record, as trustee, or by proxy) of voting shares, partnership
interests or voting rights, through a management contract or otherwise. Any Person owning or
controlling directly or indirectly ten percent or more of the voting shares, partnership interests
or voting rights, or other equity interest of another Person shall be deemed to be an Affiliate of
such Person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Applicable Rate</U> means, for any day, with respect to any Base Rate Loan or Eurodollar
Loan, or with respect to the Unused Commitment Fees payable hereunder, as the case may be, the
applicable rate per annum set forth below under the caption &#147;Base Rate Margin&#148;, &#147;Eurodollar Margin&#148;
or &#147;Unused Commitment Fee Rate&#148;, as the case may be, based upon the Borrowing Base Usage applicable
on such date:
</DIV>

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

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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="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&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="left">Unused</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Borrowing Base</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Eurodollar</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Base Rate</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Commitment</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Usage</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Margin</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Margin</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Fee Rate</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><FONT face="symbol">&#179;</FONT> 90%</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">200 b.p.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">0 b.p.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">37.5 b.p.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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><DIV style="margin-left:15px; text-indent:-15px"><FONT face="symbol">&#179;</FONT> 75% and &#060; 90%</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">175 b.p.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">0 b.p.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">37.5 b.p.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><FONT face="symbol">&#179;</FONT> 50% and &#060; 75%</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">150 b.p.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">0 b.p.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">37.5 b.p.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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><DIV style="margin-left:15px; text-indent:-15px">&#060; 50%</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">125 b.p.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">0. b.p.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">37.5 b.p.</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Each change in the Applicable Rate shall apply during the period commencing on the effective
date of such change and ending on the date immediately preceding the effective date of the next
change.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Approach Delaware</U> means Approach Delaware, LLC, a Delaware limited liability company
and the sole limited partner of Borrower.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Approach Operating</U> means Approach Operating, LLC, a Delaware limited liability company
and the sole general partner of Borrower.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Approach Resources</U> means Approach Resources Inc., a Delaware corporation and sole
member of Guarantors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Assignment and Acceptance</U> means a document substantially in the form of Exhibit &#147;D&#148;
hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Available Commitment</U> means, at any time, the Commitment then in effect minus the Total
Outstandings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Base Rate</U> means, as of any date, a rate of interest per annum equal to the Prime Rate
for such date, plus the Applicable Rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Base Rate Loan</U> means any loan during any period which bears interest based upon the
Base Rate or which would bear interest based upon the Base Rate if the Maximum Rate ceiling was not
in effect at that particular time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Borrowing Base</U> means, as of any date, the value assigned by Lenders from time to time
to the Borrowing Base Properties pursuant to Section&nbsp;7 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Borrowing Base Deficiency</U> is used herein as defined in Section 9(b) hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Borrowing Base Properties</U> means the Oil and Gas Properties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Borrowing Date</U> means the date elected by Borrower pursuant to Section 2(b) hereof for
</DIV>

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

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">an Advance on the Loan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Business Day</U> means (i)&nbsp;with respect to any borrowing, payment or note selection of
Eurodollar Loans, a day (other than Saturdays or Sundays) on which banks are legally open for
business in Fort Worth, Texas and on which dealings in United States dollars are carried on in the
London interbank market, and (ii)&nbsp;for all other purposes a day (other than Saturdays and Sundays)
on which banks are legally open for business in Fort Worth, Texas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Capital Lease</U> means any lease of property, real or personal, which would be
capitalized on a balance sheet of the lessee prepared in accordance with Accounting Principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Change of Control</U> means the acquisition by any Person or group of Persons acting
together, of a direct interest in more than a majority of the voting power of the voting stock of
or membership interests in Borrower, by way of merger or consolidation or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Collateral</U> shall have the meaning assigned in Section&nbsp;6 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Collateral Documents</U> is used collectively to mean this Agreement, all Deeds of Trust,
Mortgages, Security Agreements, Assignments of Production and Financing Statements, the Guaranties
and other documents covering the Oil and Gas Properties and related personal property, equipment,
oil and gas inventory and proceeds of the foregoing and other collateral documents, all such
documents to be in form and substance reasonably satisfactory to Agent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Commitment</U> means (A)&nbsp;for all Lenders, the lesser of (i) $100,000,000 or (ii)&nbsp;the
Borrowing Base, as reduced or increased from time to time pursuant to Sections&nbsp;2 and 7 hereof, and
(B)&nbsp;as to any Lender, its obligation to make Advances hereunder in amounts not exceeding, in the
aggregate, an amount equal to such Lender&#146;s Commitment Percentage times the total Commitment as of
any date. The Commitment of each Lender hereunder shall be adjusted from time to time to reflect
assignments made by such Lender pursuant to Section&nbsp;29 hereof. Each reduction in the Commitment
shall result in a Pro Rata reduction in each Lender&#146;s Commitment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Commitment Percentage</U> means for each Lender the percentage set forth opposite the
Lender&#146;s name on the signature page hereto. The Commitment Percentage of each Lender hereunder
shall be adjusted from time to time to reflect assignments made by such Lender pursuant to Section
29 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Current Assets</U> means, as of any date, the current assets which would be reflected on a
balance sheet of Borrower prepared as of such date in accordance with Accounting Principles;
provided that Borrower&#146;s Current Assets shall include the Available Commitment, and Current Assets
shall not include the amount of any non-cash items as a result of the application of Financial
Accounting Standards Board Statement No.&nbsp;133 and any subsequent amendments thereto or the fair
value of any Rate Management Transaction or any non-hedge derivative contract (whether deemed
effective or non-effective).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Current Liabilities</U> means, as of any date, the current liabilities which would be
reflected on a balance sheet of Borrower prepared as of such date in accordance with Accounting
Principles, but excluding any liabilities as a result of the application of Financial Accounting
Standards Board Statement No.&nbsp;133 and any subsequent amendments thereto or the fair value of
</DIV>

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

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">any Rate Management Transaction or any non-hedge derivative contract (whether deemed effective
or non-effective).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Current Ratio</U> means the ratio of Current Assets to Current Liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Dollar or $</U> means United States dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Default</U> means all the events specified in Section&nbsp;14 hereof, regardless of whether
there shall have occurred any passage of time or giving of notice, or both, that would be necessary
in order to constitute such event as an Event of Default.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Default Rate</U> is used herein as defined in Section 4(e) hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Effective Date</U> means the date of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Eligible Assignee</U> means any of (i)&nbsp;a Lender or any Affiliate of a Lender; (ii)&nbsp;a
commercial bank organized under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (iii)&nbsp;a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having a combined capital and
surplus of at least $100,000,000.00, provided that such bank is acting through a branch or agency
located in the United States; and (iv)&nbsp;a Person that is primarily engaged in the business of
commercial lending and that (A)&nbsp;is a subsidiary of a Lender, (B)&nbsp;a subsidiary of a Person of which
a Lender is a subsidiary, or (C)&nbsp;a Person of which a Lender is a subsidiary; provided, however,
that no Affiliate of Borrower shall be an Eligible Assignee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Engineered Value</U> is used herein as defined in Section&nbsp;6 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Environmental Certificate</U> shall have the meaning assigned to it in Section&nbsp;4.2 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Environmental Laws</U> means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C.A. &#167;9601, et seq., the Resource Conservation and Recovery Act, as amended by the Hazardous
Solid Waste Amendment of 1984, 42 U.S.C.A. &#167;6901, et seq., the Clean Water Act, 33 U.S.C.A. &#167;1251,
et seq., the Clean Air Act, 42 U.S.C.A. &#167;1251, et seq., the Toxic Substances Control Act, 15
U.S.C.A. &#167;2601, et seq., The Oil Pollution Act of 1990, 33 U.S.G. &#167;2701, et seq., and all other
laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, orders, permits and restrictions of any federal, state, county, municipal and other
governments, departments, commissions, boards, agencies, courts, authorities, officials and
officers, domestic or foreign, relating to in any way the environment, preservation or reclamation
of natural resources, oil pollution, air pollution, water pollution, noise control and/or the
management, release or threatened release, handling, discharge, disposal or recovery of on-site or
off-site asbestos, radioactive materials, spilled or leaked petroleum products, distillates or
fractions and industrial solid waste or &#147;hazardous substances&#148; as defined by 42 U.S.C. &#167; 9601, et
seq., as amended, as each of the foregoing may be amended from time to time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Environmental Liability</U> means any claim, demand, obligation, cause of action, order,
</DIV>

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

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">violation, damage, injury, judgment, penalty or fine, cost of enforcement, cost of remedial
action or any other costs or expense whatsoever, contingent or otherwise, including reasonable
attorneys&#146; fees and disbursements and any liability for cleanups, costs of environmental
remediation, fines or penalties, resulting from the violation or alleged violation of any
Environmental Law or the release of any substance into the environment which is required to be
remediated by a regulatory agency or governmental authority or the imposition of any Environmental
Lien (as hereinafter defined), which could reasonably be expected to individually or in the
aggregate have a Material Adverse Effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Environmental Lien</U> means a Lien in favor of any court, governmental agency or
instrumentality or any other Person (i)&nbsp;for any Environmental Liability or (ii)&nbsp;for damages arising
from or cost incurred by such court or governmental agency or instrumentality or other person in
response to a release or threatened release of asbestos or &#147;hazardous substance&#148; into the
environment, the imposition of which Lien could reasonably be expected to have a Material Adverse
Effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ERISA</U> means the Employee Retirement Income Security Act of 1974, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Eurodollar Base Rate</U> means the offered rate for the period equal to or greater than
the Interest Period for U.S. dollar deposits of not less than $1,000,000 as of 11:00&nbsp;a.m. City of
London, England time two (2)&nbsp;Business Days prior to the first day of the Interest Period as shown
on the display designated as &#147;British Bankers Association Interest Settlement Rates&#148; on Telerate
for the purpose of displaying such rate. In the event such rate is not available on Telerate, then
such offered rate shall be the comparable rate designated by Reuters or, if such a comparable rate
is not designated by Reuters, such offered rate shall be otherwise independently determined by
Agent from another alternate, substantially independent source available to Agent (such as, but not
limited to, Bloomberg) or shall be calculated by Agent by substantially similar methodology as that
theretofore used to determine such offered rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Eurodollar Loan</U> means any Loan during any period which bears interest at the
Eurodollar Rate, or which would bear interest at such rate if the Maximum Rate ceiling was not in
effect at a particular time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Eurodollar Rate</U> means, with respect to a Eurodollar Loan for the relevant Interest
Period, the sum of the quotient of (A)&nbsp;the Eurodollar Base Rate applicable to such Interest Period,
divided by (B)&nbsp;one minus the Reserve Requirement (expressed as a decimal) applicable to such
Interest Period. The Eurodollar Rate shall be rounded to the next higher multiple of 1/100th of
one percent if the rate is not such a multiple.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Event of Default</U> is used herein as defined in Section&nbsp;14 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Facility Termination Date</U> means the Maturity Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Federal Funds Effective Rate</U> means, for any day, an interest rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as published for such day
(or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which is a
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Business Day, the average of the quotations at approximately 10:00&nbsp;a.m. (Fort Worth, Texas
time) on such day on such transactions received by Agent from three (3)&nbsp;Federal funds brokers of
recognized standing selected by Agent in its sole discretion.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Financial Statements</U> means balance sheets, income statements, statements of cash flow,
stockholder equity and appropriate footnotes and schedules, prepared in accordance with Accounting
Principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Guarantors</U> means Approach Operating and Approach Delaware.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Indebtedness</U> with respect to Borrower means as of any date, all liabilities and
contingent liabilities which would be reflected on a balance sheet and related notes thereto of
Borrower prepared as of such date in accordance with the Accounting Principles, including without
limitation: (i)&nbsp;all obligations for money borrowed; (ii)&nbsp;all obligations under conditional sale or
other title retention agreements and all obligations issued or assumed as full or partial payment
for property, whether or not any such obligations represent obligations for borrowed money; (iii)
all indebtedness secured by any lien existing on property owned or acquired by Borrower subject to
any such lien, whether or not the obligations secured thereby shall have been assumed but only to
the extent of the value of the property so secured; (iv)&nbsp;the proportionate share of Borrower in all
obligations, direct or indirect, to any joint venture, partnership or other entity of which
Borrower is a member; (v)&nbsp;all obligations under guaranties, note purchase agreements and other
documents having similar effect; (vi)&nbsp;all obligations for accounts payable or trade credit; (vii)
indebtedness of any joint venture, partnership or other Person for which Borrower is directly or
indirectly liable; (viii)&nbsp;all obligations and indebtedness arising under a Hedge and (ix)&nbsp;all
obligations under capital leases, operating leases or any other leases only to the extent such
leases would be treated as indebtedness in accordance with the Accounting Principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Interest Payment Date</U> means the last day of each calendar quarter in the case of Base
Rate Loans and, in the case of Eurodollar Loans, the last day of the applicable Interest Period,
and if such Interest Period is longer than three (3)&nbsp;months, at three (3)&nbsp;month intervals following
the first day of such Interest Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Interest Period</U> means with respect to any Eurodollar Loan (i)&nbsp;initially, the period
commencing on the date such Eurodollar Loan is made and ending one (1), two (2), three (3)&nbsp;or six
(6)&nbsp;months thereafter as selected by Borrower pursuant to Section&nbsp;4(a)(ii), and (ii)&nbsp;thereafter,
each period commencing on the day following the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one (1), two (2), three (3)&nbsp;or six (6)&nbsp;months
thereafter, as selected by Borrower pursuant to Section&nbsp;4(a)(ii); provided, however, that (A)&nbsp;if
any Interest Period would otherwise expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day unless the result of such extension would
be to extend such Interest Period into the next calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day, (B)&nbsp;if any Interest Period begins on the last
Business Day of a calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) such Interest Period shall end on the
last Business Day of a calendar month, and (iii)&nbsp;any Interest Period which would otherwise expire
after the Maturity Date shall end on such Maturity Date.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Letters of Credit</U> is used herein as defined in Section 2(c) hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Lien</U> means any mortgage, deed of trust, pledge, security interest, assignment,
encumbrance or lien (statutory or otherwise) of every kind and character.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Loan Documents</U> means this Agreement, the Notes, the Collateral Documents and all other
documents executed by Borrower with Agent or Lenders in connection with the transaction described
in this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Loans</U> means the Revolving Loans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Material Adverse Effect</U> means a material adverse effect on (i)&nbsp;the assets or
properties, liabilities, financial condition, business or operations of Borrower, (ii)&nbsp;the ability
of Borrower to carry out its businesses as of the date of this Agreement or as proposed at the date
of this Agreement to be conducted, (iii)&nbsp;the ability of Borrower to perform fully and on a timely
basis its obligations under any of the Loan Documents, (iv)&nbsp;the validity or enforceability of any
of the Loan Documents or the rights and remedies of Agent or Lenders thereunder or (v)&nbsp;the
Collateral, the Liens on the Collateral created pursuant to the Loan Documents or the priority of
any such Lien.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Maturity Date</U> means January&nbsp;31, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Maximum Rate</U> is used herein as defined in Section&nbsp;23 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notes</U> means the Notes, substantially in the form of Exhibit &#147;B&#148; hereto issued or to be
issued hereunder to each Lender, respectively, to evidence the indebtedness to such Lender arising
by reason of the Advances on the Commitment, together with all modifications, renewals and
extensions thereof or any part thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Oil and Gas Properties</U> means all oil, gas and mineral properties and interests and
related personal properties, in which Borrower owns an interest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Payor</U> is used herein as defined in Section 3(h) hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Permitted Liens</U> means (i)&nbsp;royalties, overriding royalties, reversionary interests,
production payments and similar burdens; (ii)&nbsp;sales contracts or other arrangements for the sale of
production of oil, gas or associated liquid or gaseous hydrocarbons which would not (when
considered cumulatively with the matters discussed in clause (i)&nbsp;above) deprive Borrower of any
material right in respect of Borrower&#146;s assets or properties (except for rights customarily granted
with respect to such contracts and arrangements); (iii)&nbsp;statutory Liens for taxes or other
assessments that are not yet delinquent (or that, if delinquent, are being contested in good faith
by appropriate proceedings, levy and execution thereon having been stayed and continue to be stayed
and for which Borrower has set aside on its books adequate reserves in accordance with Accounting
Principles); (iv)&nbsp;easements, rights of way, servitudes, permits, surface leases and other rights in
respect to surface operations, pipelines, grazing, logging, canals, ditches, reservoirs or the
like, conditions, covenants and other restrictions, and easements of streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other easements and rights of way on, over or
in respect of Borrower&#146;s assets or properties and that do not individually or in
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the aggregate cause a Material Adverse Effect; (v)&nbsp;materialmen&#146;s, mechanic&#146;s, repairman&#146;s,
employee&#146;s, vendor&#146;s, laborer&#146;s, warehousemen&#146;s, landlord&#146;s, carrier&#146;s, pipeline&#146;s, contractor&#146;s,
sub-contractor&#146;s, operator&#146;s, non-operator&#146;s (arising under operating or joint operating
agreements), and other Liens (including any financing statements filed in respect thereof)
incidental to obligations incurred by Borrower in connection with the construction, maintenance,
development, transportation, processing, storage or operation of Borrower&#146;s assets or properties to
the extent not delinquent (or which, if delinquent, are being contested in good faith by
appropriate proceedings and for which Borrower has set aside on its books adequate reserves in
accordance with Accounting Principles); (vi)&nbsp;all contracts, agreements and instruments, and all
defects and irregularities and other matters affecting Borrower&#146;s assets and properties which were
in existence at the time Borrower&#146;s assets and properties were originally acquired by Borrower and
all routine operational agreements entered into in the ordinary course of business, which
contracts, agreements, instruments, defects, irregularities and other matters and routine
operational agreements are not such as to, individually or in the aggregate, interfere materially
with the operation, value or use of Borrower&#146;s assets and properties, considered in the aggregate;
(vii)&nbsp;Liens in connection with workmen&#146;s compensation, unemployment insurance or other social
security, old age pension or public liability obligations; (viii)&nbsp;legal or equitable encumbrances
deemed to exist by reason of the existence of any litigation or other legal proceeding or arising
out of a judgment or award with respect to which an appeal is being prosecuted in good faith and
levy and execution thereon have been stayed and continue to be stayed; (ix)&nbsp;rights reserved to or
vested in any municipality, governmental, statutory or other public authority to control or
regulate Borrower&#146;s assets and properties in any manner, and all applicable laws, rules and orders
from any governmental authority; (x)&nbsp;landlord&#146;s Liens; (xi)&nbsp;Liens incurred pursuant to the
Collateral Documents and Liens that secure obligations under Rate Management Transactions permitted
pursuant to Section 13(f) hereof; (xii)&nbsp;any inconsequential, insignificant or immaterial Liens
against any of the Oil and Gas Properties which do not interfere with or impair Borrower&#146;s
ownership of, or right or ability to receive proceeds of production from, such property, and which,
singularly or collectively with other inconsequential, insignificant or immaterial Liens, do not
result in a Material Adverse Effect on Borrower; and (xiii)&nbsp;Liens existing at the date of this
Agreement which are identified in Schedule &#147;1&#148; hereto.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Person</U> means an individual, a corporation, a partnership, an association, a trust or
any other entity or organization, including a government or political subdivision or an agency or
instrumentality thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Plan</U> means any plan subject to Title IV of ERISA and maintained by Borrower, or any
such plan to which Borrower is required to contribute on behalf of its employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Pre-Approved Contracts</U> means any contracts or agreements entered into in connection
with any Rate Management Transaction which are designed to hedge, provide a price floor for, or
swap crude oil or natural gas or otherwise sell up to 75%, or in the case of Rate Management
Transactions resulting in a floor price per barrel or mcf, not more than 100% of Borrower&#146;s
Projected Production, (with oil and gas calculated separately) for Rate Management Transactions
with Termination Dates of no more than thirty-six (36)&nbsp;months.


</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Prime Rate</U> means the rate per annum equal to the Prime Rate announced from time to time by Agent (which is not necessarily the lowest rate charged to any customer), changing when</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and as said Prime Rate changes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Projected Production</U> means the projected production from Borrower&#146;s proved developed
producing Oil and Gas Properties as of the date on which any calculation is made as forecasted in
the most recent engineering report provided to Lenders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Pro Rata or Pro Rata Part</U> means for each Lender, (i)&nbsp;for all purposes where no Loan is
outstanding, such Lender&#146;s Commitment Percentage and (ii)&nbsp;otherwise, the proportion which the
portion of the outstanding Loans owed to such Lender bears to the aggregate outstanding Loans owed
to all Lenders at the time in question.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Rate Management Transaction</U> means (i)&nbsp;any transaction (including an agreement with
respect thereto) now existing or hereafter entered into by Borrower or any Affiliate 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, forward 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 one or more interest rates, foreign currencies, commodity prices, equity
prices or other financial measures and (ii)&nbsp;any swap, collar, floor, cap, futures or other contract
(including sales contracts with known prices) between Borrower and any Person which is intended to
reduce or eliminate the risk of fluctuations in the price of hydrocarbons, including, without
limitation, the purchase or sale of any hydrocarbons for future delivery, any transaction in a
forward contract for the delivery of any hydrocarbons, any physical or spot transaction in any
hydrocarbons, or any transaction involving the purchase or sale of an option on any of the
foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Redetermination Date</U> is used herein as defined in Section 7(b) hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Regulation&nbsp;D</U> means Regulation&nbsp;D of the Board of Governors of the Federal Reserve
System as from time to time in effect and any successor thereto and other regulation or official
interpretation of said Board of Governors relating to reserve requirements applicable to member
banks of the Federal Reserve System.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Reimbursement Obligations</U> means, at any time, the obligations of Borrower in respect
of all Letters of Credit then outstanding to reimburse amounts paid by any Lender in respect of any
drawing or drawings under a Letter of Credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Release Price</U> is used herein as defined in Section 12(r) hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Required Lenders</U> means Lenders holding 66-2/3% or more of the Commitments or if one or
more of the Commitments has been terminated, Lenders holding 66-2/3% of the outstanding Loans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Required Payment</U> is used herein as defined in Section 3(h) hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Reserve Requirement</U> means, with respect to any Interest Period, the maximum aggregate
reserve requirement (including all basic, supplemental, marginal and other reserves) which is
</DIV>



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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">imposed under Regulation&nbsp;D on Eurocurrency liabilities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Revolving Loan or Loans</U> means an Advance or Advances made pursuant to Section 2(a)
hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination Date</U> means, with respect to any Rate Management Transaction, the date of
expiration of that particular Rate Management Transaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Total Outstandings</U> means the total principal balance outstanding on the Notes at any
time plus (ii)&nbsp;the total face amount of all outstanding Letters of Credit, plus (iii)&nbsp;the total
amount of all unpaid Reimbursement Obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Tranche</U> means a set of Eurodollar Loans made by Lenders at the same time and for the
same Interest Period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Unscheduled Redeterminations</U> means a redetermination of the Borrowing Base made at any
time other than on the dates set for the regular semi-annual redetermination of the Borrowing Base
which are made (i)&nbsp;at the request of Borrower (but only once between Redetermination Dates) or (ii)
at the request of Required Lenders (but only once between Redetermination Dates).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;<B>Commitments of Lenders</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Terms of Commitment</U>. On the terms and conditions hereinafter set forth, each
Lender agrees severally to make Advances to Borrower from time to time during the period
beginning on the Effective Date and ending on the Maturity Date in such amounts as Borrower
may request up to an amount not to exceed, in the aggregate principal amount advanced at any
time, its Pro Rata Part of the Available Commitment. Subject to the terms of this
Agreement, Borrower may borrow, repay and reborrow at any time prior to the Maturity Date.
The obligation of Borrower hereunder shall be evidenced by this Agreement and the Notes
issued in connection herewith, said Notes to be as described in Section&nbsp;3 hereof.
Notwithstanding any other provision of this Agreement, no Advance shall be required to be
made hereunder if any Default or Event of Default (as hereinafter defined) has occurred and
is continuing. Each Advance under the Commitment shall be an aggregate amount of at least
$500,000 or any whole multiples of $100,000 in excess thereof. Irrespective of the face
amount of the Note or Notes, Lenders shall never have the obligation to Advance any amount
or amounts in excess of the Commitment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Procedure for Borrowing</U>. Whenever Borrower desires an Advance under the
Commitment, it shall give Agent telegraphic, telex, facsimile or telephonic notice (&#147;Notice
of Borrowing&#148;) of such requested Advance, which in the case of telephonic notice, shall be
promptly confirmed in writing. Each Notice of Borrowing shall be in the form of Exhibit &#147;A&#148;
attached hereto and shall be received by Agent not later than 11:00&nbsp;a.m. Fort Worth, Texas
time, on (i)&nbsp;the Borrowing Date in the case of the Base Rate Loan, or (ii)&nbsp;three Business
Days prior to any proposed Borrowing Date in the case of Eurodollar Loans. Each Notice of
Borrowing shall specify (i)&nbsp;the Borrowing Date (which shall be a Business Day), (ii)&nbsp;the
principal amount to be borrowed, (iii)&nbsp;the portion of the Advance constituting Base Rate
Loans and/or Eurodollar Loans and (iv)&nbsp;if any portion of the proposed Advance is to
constitute Eurodollar Loans, the initial Interest Period
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">selected by Borrower pursuant to Section&nbsp;4 hereof to be applicable thereto. Upon receipt of
such Notice, Agent shall advise each Lender thereof; provided, that if Lenders have received
at least one (1)&nbsp;day&#146;s notice of such Advance prior to funding of a Base Rate Loan, or at
least three (3)&nbsp;days&#146; notice of each Advance prior to funding in the case of a Eurodollar
Loan, each Lender shall provide Agent at its office at 777 Main Street, Suite&nbsp;500, Fort
Worth, Texas, not later than 1:00 p.m., Fort Worth, Texas time, on the Borrowing Date, in
immediately available funds, its Pro Rata share of the requested Advance, but the aggregate
of all such fundings by each Lender shall never exceed such Lender&#146;s Commitment. Not later
than 2:00 p.m., Fort Worth, Texas time, on the Borrowing Date, Agent shall make available to
Borrower at the same office, in like funds, the aggregate amount of such requested Advance.
Neither Agent nor any Lender shall incur any liability to Borrower in acting upon any Notice
of Borrowing referred to above which Agent or such Lender believes in good faith to have
been given by a duly authorized officer or other person authorized to borrow on behalf of
Borrower or for otherwise acting in good faith under this Section&nbsp;2(b). Upon funding of
Advances by Lenders and such funds being made available to Borrower in accordance with this
Agreement, pursuant to any such Notice, Borrower shall have effected Advances hereunder.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Letters of Credit</U>. On the terms and conditions hereinafter set forth, Agent
shall from time to time during the period beginning on the Effective Date and ending on the
Maturity Date upon request of Borrower, issue standby and/or commercial Letters of Credit
for the account of Borrower (the &#147;Letters of Credit&#148;) in such face amounts as Borrower may
request, but not to exceed in the aggregate face amount at any time outstanding ten percent
(10%) of the Borrowing Base then in effect. The face amount of all Letters of Credit issued
and outstanding hereunder shall be considered as Advances on the Commitment for Borrowing
Base purposes and all payments made by Agent on such Letters of Credit shall be considered
as Advances under the Notes. Each Letter of Credit issued for the account of Borrower
hereunder shall (i)&nbsp;be in favor of such beneficiaries as specifically requested by Borrower,
(ii)&nbsp;have an expiration date not exceeding the earlier of (a)&nbsp;one year or (b)&nbsp;the Maturity
Date, (iii)&nbsp;be in a minimum amount of $25,000.00 and (iv)&nbsp;contain such other terms and
provisions as may be reasonable required by issuing Lender. Each Lender (other than Agent)
agrees that, upon issuance of any Letter of Credit hereunder, it shall automatically acquire
a participation in Agent&#146;s liability under such Letter of Credit in an amount equal to such
Lender&#146;s Commitment Percentage of such liability, and each Lender (other than Agent) thereby
shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as
surety, and shall be unconditionally obligated to Agent to pay and discharge when due, its
Commitment Percentage of Agent&#146;s liability under such Letter of Credit. Borrower hereby
unconditionally agrees to pay and reimburse Agent for the amount of each demand for payment
under any Letter of Credit that is in substantial compliance with the provisions of any such
Letter of Credit at or prior to the date on which payment is to be made by Agent to the
beneficiary thereunder, without presentment, demand, protest or other formalities of any
kind. Upon receipt from any beneficiary of any Letter of Credit of any demand for payment
under such Letter of Credit, Agent shall promptly notify Borrower of the demand and the date
upon which such payment is to be made by Agent to such beneficiary in respect of such
demand. Upon receipt of such notice from Agent,
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Borrower shall advise Agent whether or not it intends to borrow hereunder to finance its
obligations to reimburse Agent, and if so, submit a Notice of Borrowing as provided in
Section 2(b) hereof. If Borrower fails to so advise Agent and thereafter fails to reimburse
Agent, Agent shall notify each Lender of the demand and the failure of Borrower to reimburse
Agent, and each Lender shall reimburse Agent for its Commitment Percentage of each such draw
paid by Agent and unreimbursed by Borrower. All such amounts paid by Agent and/or
reimbursed by Lenders shall be treated as an Advance or Advances under the Commitment, which
Advances shall be immediately due and payable and shall bear interest at the Maximum Rate.
Borrower agrees to pay Agent for the benefit of Lenders commissions for issuing the Letters
of Credit (calculated separately for each Letter of Credit) in an amount equal to the
greater of (i) $500 or, (ii)&nbsp;one percent (1.00%) of the maximum face amount of the Letter of
Credit. Such commissions will be calculated on the basis of a year consisting of 360&nbsp;days.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Procedure for Obtaining Letters of Credit</U>. The amount and date of issuance,
renewal, extension or reissuance of a Letter of Credit pursuant to the Commitments shall be
designated by Borrower&#146;s written request delivered to Agent at least three (3)&nbsp;Business Days
prior to the date of such issuance, renewal, extension or reissuance. Concurrently with or
promptly following the delivery of the request for a Letter of Credit, Borrower shall
execute and deliver to Agent an application and agreement with respect to the Letter of
Credit, said application and agreement to be in the form used by Agent (in the event that
there is any conflict between the terms of any such application and agreement for any Letter
of Credit and this Agreement, the terms of this Agreement shall prevail). Agent shall not
be obligated to issue, renew, extend or reissue any Letter of Credit if (i)&nbsp;the amount
thereon when added to the face amount of the outstanding Letters of Credit plus any
Reimbursement Obligations exceeds ten percent (10%) of the Borrowing Base or (ii)&nbsp;the amount
thereof when added to the Total Outstandings would exceed the Commitment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Outstanding Letters of Credit</U>. On the Effective Date, the Letters of Credit
listed on Schedule 2(e) shall be deemed to have been issued under this Agreement by Agent,
without payment of any fees otherwise due upon the issuance of a Letter of Credit, and Agent
shall be deemed, without further action by any party hereto, to have sold to each Lender,
and each Lender shall be deemed, without further action by any party hereto, to have
purchased from Agent, a participation, to the extent of such Lender&#146;s Pro Rata Part, in such
Letters of Credit.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Voluntary Reduction of Borrowing Base</U>. Subject to the provisions of Section
5(c) hereof, Borrower may at any time, or from time to time, upon not less than three (3)
Business Days&#146; prior written notice to Agent, reduce the Borrowing Base; provided, however,
that (i)&nbsp;each reduction in the Borrowing Base must be in the amount of $1,000,000 or more,
in increments of $1,000,000 and (ii)&nbsp;each reduction must be accompanied by a prepayment of
the Notes in the amount by which the Total Outstandings exceed the Borrowing Base as reduced
pursuant to this Section&nbsp;2(f).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Mandatory Borrowing Base Reductions</U>. The Borrowing Base shall be reduced from
time to time by an amount of any prepayment required by Section&nbsp;12(r)
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">hereof upon the sale of assets. If, as a result of any such reduction in the Borrowing
Base, the Total Outstandings ever exceed the Borrowing Base then in effect, Borrower shall
make the mandatory prepayment of principal required pursuant to Section 9(b) hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <U>Several Obligations</U>. The obligations of Lenders under the Commitments are
several and not joint. The failure of any Lender to make an Advance required to be made by
it shall not relieve any other Lender of its obligation to make its Advance, and no Lender
shall be responsible for the failure of any other Lender to make the Advance to be made by
such other Lender. No Lender shall be required to lend hereunder any amount in excess of
its legal lending limit.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Type and Number of Advances</U>. Any Advance on the Commitment may be a Base Rate
Loan or a Eurodollar Loan, or a combination thereof, as selected by Borrower pursuant to
Section&nbsp;4 hereof. The total number of Tranches which may be outstanding at any time shall
never exceed five (5).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;<B>Notes Evidencing Loans</B>. The loans described above in Section&nbsp;2 shall be evidenced by promissory
notes of Borrower as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Form of Notes</U>. The Loans shall be evidenced by a Note or Notes in the aggregate
face amount of $100,000,000, and shall be in the form of Exhibit &#147;B&#148; hereto with appropriate
insertions. Notwithstanding the face amount of the Notes, the actual principal amount due
from Borrower to Lenders on account of the Notes, as of any date of computation, shall be
the sum of Advances then and theretofore made on account thereof, less all principal
payments actually received by Lenders in collected funds with respect thereto. Although the
Notes may be dated as of the Effective Date, interest in respect thereof shall be payable
only for the period during which the loans evidenced thereby are outstanding and, although
the stated amount of the Notes may be higher, the Notes shall be enforceable, with respect
to Borrower&#146;s obligation to pay the principal amount thereof, only to the extent of the
unpaid principal amount of the Loans. Irrespective of the face amount of the Notes, no
Lender shall ever be obligated to advance on the Commitment any amount in excess of its
Commitment then in effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Issuance of Additional Notes</U>. At the Effective Date there shall be outstanding
Notes in the aggregate face amount of $100,000,000 payable to the order of <U>Lenders</U>.
From time to time new Notes may be issued to other Lenders as such Lenders become parties to
this Agreement. Upon request from Agent, Borrower shall execute and deliver to Agent any
such new or additional Notes. From time to time as new Notes are issued Agent shall require
that each Lender exchange its Note(s) for newly issued Note(s) to better reflect the extent
of each Lender&#146;s Commitments hereunder.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Interest Rates</U>. The unpaid principal balance of the Notes shall bear interest
from time to time as set forth in Section&nbsp;4 hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Payment of Interest</U>. Interest on the Notes shall be payable on each Interest
Payment Date unless earlier due in whole or in part as a result of an acceleration
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">of the amount due as a result of an Event of Default or pursuant to the mandatory prepayment
provisions of Section 9(b) or 9(c) hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Payment of Principal</U>. Principal of the Loans shall be due and payable to Agent
for the <U>ratable</U> benefit of Lenders on the Maturity Date unless earlier due in whole
or in part as a result of an acceleration of the amount due or pursuant to the mandatory
prepayment provisions of Section 9(b) or 9(c) hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Payment to Lenders</U>. Each Lender&#146;s Pro Rata Part of payment or prepayment of the
Loans shall be directed by wire transfer to such Lender by Agent at the address provided to
Agent for such Lender for payments no later than 2:00 p.m., Fort Worth, Texas, time on the
Business Day such payments or prepayments are deemed hereunder to have been received by
Agent; provided, however, in the event that any Lender shall have failed to make an Advance
as contemplated under Section&nbsp;2 hereof (a &#147;Defaulting Lender&#148;) and Agent or another Lender
or Lenders shall have made such Advance, payment received by Agent for the account of such
Defaulting Lender or Lenders shall not be distributed to such Defaulting Lender or Lenders
until such Advance or Advances shall have been repaid in full to Lender or Lenders who
funded such Advance or Advances. Any payment or prepayment received by Agent at any time
after 12:00 noon, Fort Worth, Texas, time on a Business Day shall be deemed to have been
received on the next Business Day. Interest shall cease to accrue on any principal as of
the end of the day preceding the Business Day on which any such payment or prepayment is
deemed hereunder to have been received by Agent. If Agent fails to transfer any principal
amount to any Lender as provided above, then Agent shall promptly direct such principal
amount by wire transfer to such Lender.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Sharing of Payments, Etc</U>. If any Lender shall obtain any payment (whether
voluntary, involuntary, or otherwise) on account of the Loans (including, without
limitation, any set-off) which is in excess of its Pro Rata Part of payments on the Loans,
as the case may be, obtained by all Lenders, such Lender shall purchase from the other
Lenders such participation as shall be necessary to cause such purchasing Lender to share
the excess payment Pro Rata with each of them; provided that, if all or any portion of such
excess payment is thereafter recovered from such purchasing <U>Lender</U>, the purchase
shall be rescinded and the purchase price restored to the extent of the recovery. Borrower
agrees that any Lender so purchasing a participation from another Lender pursuant to this
Section may, to the fullest extent permitted by law, exercise all of its rights of payment
(including the right of offset) with respect to such participation as fully as if such
Lender were the direct creditor of Borrower in the amount of such participation.

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)
<U>Non-Receipt of Funds by Agent</U>. Unless Agent shall have been notified by a Lender or
Borrower (the &#147;Payor&#148;) prior to the date on which such Lender is to make payment to Agent of
the proceeds of a Loan to be made by it hereunder Borrower is to make a payment to Agent for
the account of one or more of Lenders, as the case may be (such payment being herein called
the &#147;Required Payment&#148;), which notice shall be effective upon receipt, that Payor does not
intend to <U>make</U> the Required Payment to Agent, Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not be required
to), make the amount thereof available to the intended recipient on such date and, if Payor
has not in fact made the Required
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Payment to Agent, the recipient of such payment shall, on demand, pay to Agent the amount
made available to it together with interest thereon in respect of the period commencing on
the date such amount was made available by Agent until the date Agent recovers such amount
at the rate applicable to such portion of the applicable Loan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">4. <B>Interest Rates</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Options</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Base Rate Loans</U>. On all Base Rate Loans Borrower agrees to pay
interest on the Notes calculated on the basis of a year consisting of 365&nbsp;days or
366&nbsp;days in a leap year, as the case may be, and for the actual number of days
elapsed with respect to the unpaid principal amount of each Base Rate Loan from the
date the proceeds thereof are made available to Borrower until maturity (whether by
acceleration or otherwise), at a varying rate per annum equal to the lesser of (i)
the Maximum Rate, or (ii)&nbsp;the Base Rate plus the Applicable Rate. Subject to the
provisions of this Agreement as to prepayment, the principal of the Notes
representing Base Rate Loans shall be payable as specified in Section 3(e) hereof
and the interest in respect of each Base Rate Loan shall be payable on each Interest
Payment Date applicable thereto. Past due principal and, to the extent permitted by
law, past due interest in respect to each Base Rate Loan, shall bear interest,
payable on demand, at a rate per annum equal to the Default Rate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <U>Eurodollar Loans</U>. On all Eurodollar Loans Borrower agrees to pay
interest calculated on the basis of a year consisting of 365&nbsp;days or 366&nbsp;days in a
leap year, as the case may be, and for the actual number of days elapsed with
respect to the unpaid principal amount of each Eurodollar Loan from the date the
proceeds thereof are made available to Borrower until maturity (whether by
acceleration or otherwise), at a varying rate per annum equal to the lesser of (i)
the Maximum Rate, or (ii)&nbsp;the Eurodollar Rate plus the Applicable Rate. Subject to
the provisions of this Agreement with respect to prepayment, the principal of the
Notes shall be payable as specified in Section 3(e) hereof and the interest with
respect to each Eurodollar Loan shall be payable on each Interest Payment Date
applicable thereto. Past due principal and, to the extent permitted by law, past
due interest shall bear interest, payable on demand, at a rate per annum equal to
the Default Rate. Upon three (3)&nbsp;Business Days&#146; written notice prior to the making
by Lenders of any Eurodollar Loan (in the case of the initial Interest Period
therefor) or the expiration date of each succeeding Interest Period (in the case of
subsequent Interest Periods therefor), Borrower shall have the option, subject to
compliance by Borrower with all of the provisions of this Agreement, as long as no
Event of Default exists, to specify whether the Interest Period commencing on any
such date shall be a one (1), two (2), three (3)&nbsp;or six (6)&nbsp;month period, subject to
availability. If Agent shall not have received timely notice of a designation of
such Interest Period as herein provided, Borrower shall be deemed to have elected to
convert all then maturing Eurodollar Loans to Base Rate Loans.
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Interest Rate Determination</U>. Agent shall determine each interest rate
applicable to the Loans hereunder. Agent shall give prompt written notice to Borrower and
Lenders of each rate of interest so determined and its determination thereof shall be
conclusive absent error.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Conversion Option</U>. Borrower may elect from time to time (i)&nbsp;to convert all or
any part of its Eurodollar Loans to Base Rate Loans by giving Agent irrevocable notice of
such election in writing prior to 10:00&nbsp;a.m. (Fort Worth, Texas time) on the conversion date
and such conversion shall be made on the requested conversion date, provided that any such
conversion of a Eurodollar Loan shall only be made on the last day of the Interest Period
with respect thereto, and (ii)&nbsp;to convert all or any part of its Base Rate Loans to
Eurodollar Loans by giving Agent irrevocable written notice of such election no later than
three (3)&nbsp;Business Days prior to the proposed conversion and such conversion shall be made
on the requested conversion date or, if such requested conversion date is not a Business
Day, on the next succeeding Business Day. Any such conversion shall not be deemed to be a
prepayment of any of the loans for purposes of this Agreement or the Notes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Recoupment</U>. If at any time the applicable rate of interest selected pursuant to
Sections&nbsp;4(a)(i) or 4(a)(ii) above shall exceed the Maximum Rate, thereby causing the
interest on the Notes to be limited to the Maximum Rate, then any subsequent reduction in
the interest rate so selected or subsequently selected shall not reduce the rate of interest
on the Notes below the Maximum Rate until the total amount of interest accrued on the Notes
equals the amount of interest which would have accrued on the Notes if the rate or rates
selected pursuant to Sections&nbsp;4(a)(i) or (ii), as the case may be, had at all times been in
effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Interest Rates Applicable After Defaul</U>t. Notwithstanding anything to the
contrary contained in this Section&nbsp;4, during the continuance of an Event of Default the
Required Lenders may, at their option, by notice from Agent to Borrower (which notice may be
revoked at the option of the Required Lenders notwithstanding the provisions of Section&nbsp;15
hereof, which requires all Lenders to consent to changes in interest rates) declare that no
Advance may be made as, converted into, or continued as a Eurodollar Loan. During the
continuance of an Event of Default, the Required Lenders, may, at their option, by notice
from Agent to Borrower (which notice may be revoked at the option of Required Lenders
notwithstanding the provisions of Section&nbsp;15 hereof, which requires all Lenders to consent
to changes in interest rates) declare that (i)&nbsp;each Eurodollar Loan shall bear interest for
the remainder of the applicable Interest Period at the rate otherwise applicable to such
Interest Period plus two percent (2%) per annum and (ii)&nbsp;each Base Rate Loan shall bear
interest at the rate otherwise applicable to such Base Rate Loan plus two percent (2%),
provided that, during the continuance of an Event of Default under Section 14(g) or 14(h),
the interest rate set forth in clauses (i)&nbsp;and (ii)&nbsp;above (the &#147;Default Rate&#148;) shall be
applicable to all outstanding Loans without any election or action on the part of Agent or
any Lender.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. <B>Special Provisions Relating to Loans</B>.
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Unavailability of Funds or Inadequacy of Pricing</U>. In the event that, in
connection with any proposed Eurodollar Loan, Agent reasonably determines, which
determination shall, absent manifest error, be final, conclusive and binding upon all
parties, due to changes in circumstances since the date hereof, adequate and fair means do
not exist for determining the Eurodollar Rate or such rate will not accurately reflect the
costs to Lenders of funding a Eurodollar Loan for such Interest Period, Agent shall give
notice of such determination to Borrower and Lenders, whereupon, until Agent notifies
Borrower and Lenders that the circumstances giving rise to such suspension no longer exist,
the obligations of Lenders to make, continue or convert Loans into Eurodollar Loans shall be
suspended, and all Loans to Borrower shall be Base Rate Loans during the period of
suspension.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Change in Laws</U>. If at any time hereafter any new law or any change in existing
laws or in the interpretation of any new or existing laws shall make it unlawful for any
Lender to make or continue to maintain or fund Eurodollar Loans hereunder, then such Lender
shall promptly notify Borrower in writing and such Lender&#146;s obligation to make, continue or
convert Loans into Eurodollar Loans under this Agreement shall be suspended until it is no
longer unlawful for such Lender to make or maintain Eurodollar Loans. Upon receipt of such
notice, Borrower shall either repay the outstanding Eurodollar Loans owed to such Lender,
without penalty, on the last day of the current Interest Periods (or, if any Lender may not
lawfully continue to maintain and fund such Eurodollar Loans, immediately), or Borrower may
convert such Eurodollar Loans at such appropriate time to Base Rate Loans.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Increased Cost or Reduced Return</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) If, after the date hereof, the adoption of any applicable law, rule, or
regulation, or any change in any applicable law, rule, or regulation, or any change
in the interpretation or administration thereof by any governmental authority,
central bank, or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender with any request or directive (whether or not
having the force of law) of any such governmental authority, central bank, or
comparable agency:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) shall subject such Lender to any tax, duty, or other charge with
respect to any Eurodollar Loans, its Notes, or its obligation to make
Eurodollar Loans, or change the basis of taxation of any amounts payable to
such Lender under this Agreement or its Notes in respect of any Eurodollar
Loan (other than franchise taxes and taxes imposed on or measured by the
overall net income of such Lender);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) shall impose, modify, or deem applicable any reserve, special
deposit, assessment, or similar requirement (other than reserve
requirements, if any, taken into account in the determination of the
Eurodollar Rate) relating to any extensions of credit or other assets of, or
any deposits with or other liabilities or commitments of, such Lender,
including the Commitment of such Lender hereunder; or
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) shall impose on such Lender or on the London interbank market any
other condition affecting this Agreement or its Notes or any of such
extensions of credit or liabilities or commitments;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">and the result of any of the foregoing is to increase the cost to such Lender of
making, converting into, continuing, or maintaining any Eurodollar Loan or to reduce
any sum received or receivable by such Lender under this Agreement or its Notes with
respect to any Eurodollar Loan, then Borrower shall pay to such Lender on demand
such amount or amounts as will reasonably compensate such Lender for such increased
cost or reduction. If any Lender requests compensation by Borrower under this
Section&nbsp;5(c)(i), Borrower may, by notice to such Lender (with a copy to Agent),
suspend the obligation of such Lender to make or continue Eurodollar Loans, or to
convert all or part of the Base Rate Loans owing to such Lender to Eurodollar Loans,
until the event or condition giving rise to such request ceases to be in effect (in
which case the provisions of Section&nbsp;5(c)(i) shall be applicable); provided that
such suspension shall not affect the right of such Lender to receive the
compensation so requested.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) If, after the date hereof, any Lender shall have reasonably determined
that the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration thereof by
any governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of law) of any such governmental
authority, central bank, or comparable agency, has or would have the effect of
reducing the rate of return on the capital of such Lender or any corporation
controlling such Lender as a consequence of such Lender&#146;s obligations hereunder to a
level below that which such Lender or such corporation could have achieved but for
such adoption, change, request, or directive (taking into consideration its policies
with respect to capital adequacy), then from time to time upon demand Borrower shall
pay to such Lender such additional amount or amounts as will reasonably compensate
such Lender for such reduction. If any Lender requests compensation by Borrower
under this Section&nbsp;5(c)(ii), Borrower may, by notice to such Lender (with a copy to
Agent), suspend the obligation of such Lender to make or continue Eurodollar Loans,
or to convert all or part of the Base Rate Loans owing to such Lender to Eurodollar
Loans, until the event or condition giving rise to such request ceases to be in
effect (in which case the provisions of Section&nbsp;5(c)(ii) shall be applicable);
provided that such suspension shall not affect the right of such Lender to receive
the compensation so requested.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Each Lender shall promptly notify Borrower and Agent of any event of
which it has knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section 5(c) and will designate a separate
lending office, if applicable, if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the judgment of such
Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under
this Section 5(c) shall furnish to Borrower and
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">Agent a statement setting forth the additional amount or amounts to be paid to
it hereunder which shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Any Lender giving notice to Borrower through Agent pursuant to this
Section 5(c) shall give to Borrower a statement signed by an officer of such Lender
setting forth in reasonable detail the basis for, and the calculation of such
additional cost, reduced payments or capital requirements, as the case may be, and
the additional amounts required to compensate such Lender therefor.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) Within five (5)&nbsp;Business Days after receipt by Borrower of any notice
referred to in this Section&nbsp;5(c), Borrower shall pay to Agent for the account of
Lender issuing such notice such additional amounts as are required to compensate
such Lender for the increased cost, reduced payments or increased capital
requirements identified therein, as the case may be.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) Failure or delay on the part of any Lender to demand compensation pursuant
to this Section shall not constitute a waiver of any such Lender&#146;s right to demand
such compensation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Discretion of Lender as to Manner of Funding</U>. Notwithstanding any provisions of
this Agreement to the contrary, each Lender shall be entitled to fund and maintain its
funding of all or any part of its Loan in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations hereunder shall be made
as if each Lender had actually funded and maintained each Eurodollar Loan through the
purchase of deposits having a maturity corresponding to the last day of the Interest Period
applicable to such Eurodollar Loan and bearing an interest rate at the applicable interest
rate for such Interest Period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Breakage Fees</U>. Without duplication under any other provision hereof, if any
Lender incurs any loss, cost or expense including, without limitation, any loss of profit
and loss, cost, expense or premium reasonably incurred by reason of the liquidation or
re-employment of deposits or other funds acquired by such Lender to fund or maintain any
Eurodollar Loan or the relending or reinvesting of such deposits or amounts paid or prepaid
to Lenders as a result of any of the following events other than any such occurrence as a
result in the change of circumstances described in Sections 5(a) and (b):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) any payment, prepayment or conversion of a Eurodollar Loan on a date other
than the last day of its Interest Period (whether by acceleration, prepayment or
otherwise);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) any failure to make a principal payment of a Eurodollar Loan on the due
date thereof, or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) any failure by Borrower to borrow, continue, prepay or convert to a
Eurodollar Loan on the dates specified in a notice given pursuant to Section 2(b) or
4(c) hereof;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">then Borrower shall pay to such Lender such amount as will reimburse such Lender for such loss,
cost or expense. If any Lender makes such a claim for compensation, it shall furnish to Borrower
and Agent a statement setting forth the amount of such loss, cost or expense in reasonable detail
(including an explanation of the basis for and the computation of such loss, cost or expense) and
the amounts shown on such statement shall be conclusive and binding absent manifest error.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">6. <B>Collateral Security</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) To secure performance by Borrower of its obligations under this Agreement and the
Notes, Borrower shall grant to Agent in its capacity as such Agent under this Agreement for
the ratable benefit of Lenders hereunder, a first priority security interest in and Lien
(and only Lien, except for Permitted Liens) on certain of the Oil and Gas Properties of
Borrower as may be selected by Agent, in its capacity as such Agent under this Agreement,
and the oil, gas and mineral production therefrom or attributable thereto, and in all
operating agreements and oil or gas purchase contracts (now existing or hereafter arising)
relating to such Oil and Gas Properties and in related personal properties, fixtures and
other properties, as evidenced by mortgages, deeds of trust, assignments of production,
security agreements, general security agreements, indentures, and other documents to be
executed by Borrower and delivered to or on behalf of Agent, in its capacity as such Agent
under this Agreement for the ratable benefit of Lenders. Obligations arising from
agreements arising from Rate Management Transactions between Borrower and one or more of
Lenders or an Affiliate of any of Lenders shall be secured by the Collateral covering the
Oil and Gas Properties on a pari passu basis with the indebtedness and obligations of
Borrower under the Loan Documents. Once agreements arising from Rate Management
Transactions involving one or more Lenders, or an Affiliate of any Lender, are entered into,
and pursuant to this provision become secured by the Collateral on a pari passu basis, said
Collateral shall continue to secure such obligations until such agreements are no longer in
force and effect irrespective of whether Lender involved in such agreement ceases to be a
Lender under this Agreement. All Oil and Gas Properties and other collateral in which
Borrower grants or hereafter grants to Agent for the ratable benefit of Lenders, a first and
prior Lien (to the satisfaction of Agent) in accordance with this Section&nbsp;6, as such
properties and interests are from time to time constituted, are hereinafter collectively
called the &#147;Collateral&#148;.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The granting and assigning of such security interests and Liens by Borrower shall
be pursuant to Collateral Documents in form and substance reasonably satisfactory to Agent.
Concurrently with the delivery of each of the Collateral Documents or within a reasonable
time thereafter, Borrower shall have furnished or caused to be furnished to Agent mortgage
and title opinions and other title information reasonably satisfactory to Agent with respect
to the title and Lien status of Borrower&#146;s interests in not less than 75% of the Engineered
Value of the mortgaged Borrowing Base Properties. &#147;Engineered Value&#148; for this purpose shall
mean future net revenues discounted at the discount rate being used by Agent as of the date
of any such determination utilizing the pricing parameters used in the engineering report
furnished to Agent pursuant to Sections&nbsp;7 and 12 hereof. Borrower will cause to be executed
and delivered to Agent, in the future, additional Collateral Documents if Agent reasonably
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">deems such are necessary to insure perfection or maintenance of Lenders&#146; security
interests and Liens in not less than 80% of the Engineered Value of Borrower&#146;s Oil and Gas
Properties which are included in the Borrowing Base then in effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Guarantors shall unconditionally guarantee the Notes pursuant to a guaranty
agreement in form and substance satisfactory to Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">7. <B>Borrowing Base</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Initial Borrowing Base</U>. At the Effective Date, the Borrowing Base shall be
$75,000,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Subsequent Determinations of Borrowing Base</U>. Subsequent determinations of the
Borrowing Base shall be made by Lenders semi-annually on or before March 1 and September 1
of each year beginning September&nbsp;1, 2007 (each &#147;Redetermination Date&#148;) or as Unscheduled
Redeterminations. No later than August 1 of each year (for the September 1 Redetermination
Date of such year) Borrower shall furnish to Lenders an engineering report in form and
substance reasonably satisfactory to Agent prepared by DeGolyer and MacNaughton or such
other independent petroleum engineering firm acceptable to Agent, said engineering report to
utilize economic and pricing parameters used by Agent as established from time to time,
together with such other information, reports and data concerning the value of Borrowing
Base Properties as Agent shall deem reasonably necessary to determine the value of such
Borrowing Base Properties. The engineering report prepared for the September 1
Redetermination Date shall be prepared as of the preceding July 1 of such year and the
engineering report prepared for the March 1 Redetermination Date shall be prepared as of
January 1 of such year. In addition to the scheduled semi-annual Borrowing Base
Redeterminations, Borrower and Lenders may each request one Unscheduled Redetermination
between Redetermination Dates. By February 1 of each year (for the March 1 Redetermination
Date for such year) beginning February&nbsp;1, 2008, or within thirty (30)&nbsp;days after either (i)
receipt of notice from Agent that Lenders require an Unscheduled Redetermination, or (ii)
Borrower gives notice to Agent of its desire to have an Unscheduled Redetermination
performed, in each case Borrower shall furnish to Lenders an engineering report prepared by
a petroleum engineer employed by Borrower and updating the most recent engineering report
delivered to Lenders hereunder, in form and substance reasonably satisfactory to Agent, said
engineering report to utilize economic and pricing parameters used by Agent as established
from to time, together with such other information, reports and data concerning the value of
such Borrowing Base Properties. Agent shall by written notice to Borrower within a
reasonable time after each Redetermination Date (the date of such notice being herein called
the &#147;Determination Date&#148;) notify Borrower of the designation by Lenders of the new Borrowing
Base for the period beginning on such Determination Date and continuing until, but not
including, the next Determination Date. If an Unscheduled Redetermination is to be made by
Lenders, Agent shall notify Borrower within a reasonable time after receipt of all requested
information of the new Borrowing Base, and such new Borrowing Base shall continue until the
next Determination Date. If Borrower does not furnish all such information, reports and
data by any date specified in this Section&nbsp;7(b), unless such failure is of no fault of
Borrower, Lenders nonetheless shall
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">designate the Borrowing Base at any amounts which Lenders in their discretion determine and
redesignate the Borrowing Base from time to time thereafter until Lenders receive all such
information, reports and data, whereupon Lenders shall designate a new Borrowing Base as
described above. The procedure for determining the Borrowing Base at each redetermination
shall be that Agent shall determine the Borrowing Base and submit the same to Lenders.
Increases in the Borrowing Base will require approval of all Lenders, but other
reaffirmations or changes in the Borrowing Base will be subject to the approval of Required
Lenders. The failure of any Lender to respond within fifteen (15)&nbsp;days after receipt of the
proposed Borrowing Base shall be deemed to be an approval of the proposed Borrowing Base.
If Required Lenders (or all Lenders in the case of an increase in the Borrowing Base) do not
approve of Agent&#146;s proposed Borrowing Base, Agent shall poll Lenders to determine the
highest Borrowing Base that is acceptable to such Lenders that constitute Required Lenders
(or all Lenders in the case of an increase in the Borrowing Base), and such amount shall
then become the new Borrowing Base. Each Lender shall determine the amount of the Borrowing
Base based upon the loan collateral value which such Lender in its sole discretion (using
such methodology, assumptions and discount rates as such Lender customarily uses in
assigning collateral value to Borrowing Base Properties, oil and gas gathering systems, gas
processing and plant operations) assigns to such Borrowing Base Properties of Borrower at
the time in question and based upon such other credit factors consistently applied
(including, without limitation, the assets, liabilities, cash flow, business, properties,
prospects, management and ownership of Borrower and the effect of Rate Management
Transactions in effect at such time) as such Lender customarily considers in evaluating
similar oil and gas credits. If at any time any of the Borrowing Base Properties are sold,
the Borrowing Base then in effect shall automatically be reduced as required by Section
12(r) hereof. It is expressly understood that Lenders have no obligation to designate the
Borrowing Base at any particular amounts, except in the exercise of their discretion,
whether in relation to the Commitments or otherwise. Provided, however, that Lenders shall
not have the obligation to designate a Borrowing Base in an amount in excess of the
Commitment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">8. <B>Fees</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Up-Front Fee</U>. Upon execution of this Agreement, Borrower shall pay to Agent for
the ratable benefit of Lenders, a fee of $37,500 (calculated as being 25 b.p. times the
increase in the initial Borrowing Base under this Agreement from the Borrowing Base in
effect under the Original Credit Agreement (defined in Section&nbsp;36 below) as reasonable
compensation to Lenders for making the Loans available to Borrower.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Unused Commitment Fee</U>. Borrower shall pay to Agent for the ratable benefit of
Lenders an unused commitment fee (the &#147;Unused Commitment Fee&#148;) equivalent to the Unused
Commitment Fee Rate times the daily average of the sum of the Borrowing Base minus Total
Outstandings. Such Unused Commitment Fee shall be calculated on the basis of a year
consisting of 360&nbsp;days. The Unused Commitment Fee shall be payable in arrears on the last
day of each calendar quarter beginning March&nbsp;31, 2007 with the final fee payment due on the
Maturity Date for any period then ending for which the Unused Commitment Fee shall not have
been theretofore paid. In the event the
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Commitment terminates on any date prior to the end of any such quarterly period, Borrower
shall pay to Agent for the ratable benefit of Lenders, on the date of such termination, the
total Unused Commitment Fee due for the period in which such termination occurs. If a date
for payment of the Unused Commitment Fee shall be other than a Business Day such payment
shall be made on the next succeeding Business Day.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">9. <B>Prepayments</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Voluntary Prepayments</U>. Subject to the provisions of Section 5(e) hereof,
Borrower may at any time and from time to time, without penalty or premium, prepay the
Notes, in whole or in part. Each such prepayment shall be made on at least three (3)
Business Days&#146; notice to Agent in the case of Eurodollar Loan Tranches and without notice in
the case of Base Rate Loans and shall be in a minimum amount of (i) $100,000 or any whole
multiple of $100,000 in excess thereof (or the unpaid balance of the Notes, whichever is
less), for Base Rate Loans, plus accrued interest thereon and (ii) $1,000,000 or any
integral multiple thereof (or the unpaid balance on the Notes, whichever is less) for
Eurodollar Loans, plus accrued interest thereon to the date of prepayment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Mandatory Prepayment For Borrowing Base Deficiency</U>. In the event the Total
Outstandings ever exceed the Borrowing Base as determined by Lenders pursuant to Section
7(b) hereof (a &#147;Borrowing Base Deficiency&#148;), Borrower shall, within fifteen (15)&nbsp;days after
written notification from Agent, either (i)&nbsp;by instruments reasonably satisfactory in form
and substance to Agent, provide Agent with collateral with value and quality in amounts
satisfactory to all of Lenders in their discretion in order to increase the Borrowing Base
by an amount at least equal to such excess, (ii)&nbsp;prepay, without premium or penalty, the
principal amount of the Notes in an amount at least equal to such excess plus accrued
interest thereon to the date of prepayment or (iii)&nbsp;commit to make six (6)&nbsp;equal monthly
installment payments in the aggregate amount of the Borrowing Base Deficiency, with the
first such installment being due on or before thirty (30)&nbsp;days after Borrower&#146;s receipt of
Agent&#146;s notice of the Borrowing Base Deficiency.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;<B>Representations and Warranties</B>. In order to induce Lenders to enter into this Agreement,
Borrower represents and warrants to Lenders (which representations and warranties will survive the
delivery of the Notes) that:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Organization and Qualification</U>. Borrower is a limited partnership duly
organized and validly existing under the laws of the State of Texas and has all limited
partnership power and authority required to own its property and carry on its business as
presently conducted and proposed to be conducted. Each Guarantor is duly organized and
validly existing under the laws of the State of Delaware and has all corporate power and
authority required to own its property and carry on its business as presently conducted and
proposed to be conducted. Approach Operating is authorized to do business in the State of
Texas. Borrower has all power and authority to own its properties and assets and to
transact the business in which it is engaged.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Power and Authority</U>. Borrower has the partnership power and requisite authority
to execute, deliver and perform the necessary Loan Documents, including this
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Agreement; and has taken all partnership action necessary for the due creation and issuance
of the Notes and for the due execution, delivery and performance of the Loan Documents,
including this Agreement. Each Guarantor has the corporate power and requisite authority to
execute, deliver the Loan Documents which it has executed and has taken all company action
necessary to duly authorize (i)&nbsp;the execution, delivery and performance by such Guarantor of
the terms and provisions of the Loan Documents which it has executed and (ii)&nbsp;the
performance by such Guarantor of its obligations under the Loan Documents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Binding Obligations</U>. This Agreement does, and the Notes and other Loan
Documents upon their creation, issuance, execution and delivery will, constitute valid and
binding obligations of Borrower enforceable in accordance with its respective terms (except
that enforcement may be subject to general principles of equity and any applicable
bankruptcy, insolvency, or similar debtor relief laws now or hereafter in effect and
relating to or affecting the enforcement of creditors&#146; rights generally).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>No Legal Bar or Resultant Lien</U>. The Notes and the Loan Documents, including
this Agreement, do not and will not, to the best of Borrower&#146;s and each Guarantor&#146;s
knowledge, violate or conflict with or result in a default under any provisions of
Borrower&#146;s organizational documents or any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which Borrower or any Guarantor is subject, or
result in the creation or imposition of any Lien or other encumbrance upon any assets or
properties of Borrower or any Guarantor, other than those contemplated by this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>No Consent</U>. The execution, delivery and performance by Borrower of the Notes
and the execution, delivery and performance by Borrower and Guarantors of the other Loan
Documents that each has executed, including this Agreement, does not require the consent or
approval of any other person or entity, including without limitation any regulatory
authority or governmental body of the United States or any state thereof or any political
subdivision of the United States or any state thereof except for consents required for
federal, state and, in some instances, private leases, rights-of-ways and other conveyances
or encumbrances of oil and gas leases all of which shall have been obtained.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Financial Condition</U>. The Financial Statements of Borrower and Guarantors which
have been delivered to Lenders pursuant to the terms hereof are complete and correct in all
material respects and fully and accurately reflect in all material respects the financial
conditions and the results of the operations of Borrower and Guarantors as of the dates of
such Financial Statements and no change has occurred between such date and the Effective
Date in the condition, financial or otherwise of Borrower or any Guarantor which is
reasonably expected to have a Material Adverse Effect, except as disclosed to Lenders in
Schedule &#147;2&#148; attached hereto.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Liabilities</U>. Neither Borrower nor any Guarantor has any material liability,
direct or contingent on the Effective Date, except as disclosed to Lenders in the Financial
Statements or on Schedule &#147;3&#148; attached hereto. No unusual or unduly burdensome
restrictions, restraint, or hazard exists by contract, law or governmental regulation or
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">otherwise relative to the business, assets or properties of Borrower or any Guarantor which
is reasonably expected to have a Material Adverse Effect or which involve any of the Loan
Documents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <U>Litigation</U>. Except as described in the Financial Statements, or as otherwise
disclosed to Lenders in Schedule &#147;4&#148; attached hereto, on the Effective Date there is no
litigation, legal or administrative proceeding, investigation or other action of any nature
pending or, to the knowledge of Borrower, threatened against or affecting Borrower or any
Guarantor which involves the possibility of any judgment or liability not fully covered by
insurance, and which is reasonably expected to have a Material Adverse Effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Taxes; Governmental Charges</U>. Borrower and each Guarantor have filed all tax
returns and reports required to be filed and have paid all taxes, assessments, fees and
other governmental charges levied upon Borrower or any Guarantor or Borrower&#146;s or any
Guarantor&#146;s assets, properties or income which are due and payable, including interest and
penalties, the failure of which to pay could reasonably be expected to have a Material
Adverse Effect, except such as are being contested in good faith by appropriate proceedings
and for which adequate reserves for the payment thereof as required by Accounting Principles
has been provided and levy and execution thereon have been stayed and continue to be stayed.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <U>Titles, Etc</U>. Borrower has good and defensible title to all of its material
assets, including without limitation, the Oil and Gas Properties, free and clear of all
Liens except Permitted Liens. Borrower is entitled to receive not less than that percentage
of oil, gas and other hydrocarbons produced from the land covered by the leases pertaining
to the Oil and Gas Properties included in the Borrowing Base (after deduction of all
royalties, overriding royalties and other interests payable from or measured by production)
equal to the &#147;net revenue interest&#148; specified in the evaluation of such Oil and Gas
Properties in the most recent engineering and/or reserve report(s) covering such Oil and Gas
Properties which are delivered to Agent hereunder, with the term &#147;net revenue interest&#148;
meaning the proportionate share of the production of oil, gas or other minerals to which
Borrower is entitled after deduction of all royalties, overriding royalties and other
interests payable from or measured by production. Borrower owns the &#147;working interest&#148; in
the Oil and Gas Properties included in the Borrowing Base specified in the evaluation of
such Oil and Gas Properties in the most recent engineering report(s) and/or reserve reports
covering such Oil and Gas Properties which are delivered to Agent hereunder, with the term
&#147;working interest&#148;, as used herein, meaning the right to explore for, drill and produce oil,
gas or other minerals; and Borrower is not obligated to bear more than that percentage of
the cost of all operations conducted on the Oil and Gas Properties equal to the &#147;working
interest&#148; as above described (other than increases to Borrower&#146;s working interest as a
result of non-operator&#146;s electing to not participate in a proposed operation under an
operating agreement). All material oil, gas and mineral leases which constitute a portion
of the Oil and Gas Properties are in full force and effect, and Borrower has not defaulted
on any of its obligations thereunder so as to materially impair the value of such leases in
the aggregate.
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <U>Defaults</U>. Neither Borrower nor any Guarantor is in default and no event or
circumstance has occurred which, but for the passage of time or the giving of notice, or
both, would constitute a default under any loan or credit agreement, indenture, mortgage,
deed of trust, security agreement or other agreement or instrument to which Borrower or any
Guarantor is a party in any respect that would be reasonably expected to have a Material
Adverse Effect. No Default or Event of Default hereunder has occurred and is continuing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <U>Casualties; Taking of Properties</U>. Since the dates of the latest Financial
Statements of Borrower and Guarantors delivered to Lenders, neither the business nor the
assets or properties of Borrower or any Guarantor has been affected (to the extent it is
reasonably expected to cause a Material Adverse Effect), 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 domestic or foreign government or any agency thereof, riot, activities of armed forces
or acts of God or of any public enemy.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <U>Use of Proceeds; Margin Stock</U>. The proceeds of the Commitment may be used by
Borrower solely for the purposes of (i)&nbsp;refinancing existing indebtedness under the Original
Credit Agreement, (ii)&nbsp;acquisition, exploration and development of Oil and Gas Properties,
including capital expenditures to fund drilling activities on the Oil and Gas Properties,
(iii)&nbsp;working capital; and (iv)&nbsp;other general corporate purposes in the ordinary course of
Borrower&#146;s business. Borrower is not engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or carrying any
&#147;margin stock&#148; as defined in Regulation&nbsp;U of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part&nbsp;221), or for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry a margin stock or for any other purpose
which might constitute this transaction a &#147;purpose credit&#148; within the meaning of said
Regulation&nbsp;U.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither Borrower nor any person or entity acting on behalf of Borrower has taken or will take
any action which might cause the loans hereunder or any of the Loan Documents, including this
Agreement, to violate Regulation&nbsp;U or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <U>Location of Business and Offices</U>. The principal place of business and chief
executive office of Borrower is located at the address as stated in Section&nbsp;17 hereof or
such other places or offices for which notice has been provided to Agent according to
Section&nbsp;13(f).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) <U>Compliance with the Law</U>. To the best of Borrower&#146;s knowledge, Borrower:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) is not in violation of any law, judgment, decree, order, ordinance, or
governmental rule or regulation to which Borrower, or any of its or any Guarantor&#146;s
assets or properties are subject; or
</DIV>


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</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) has not failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of its assets or
properties or the conduct of its business;
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">which violation or failure is reasonably expected to have a Material Adverse Effect.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) <U>No Material Misstatements</U>. No information, exhibit or report furnished by
Borrower to Lenders in connection with the negotiation of this Agreement contained any
material misstatement of fact or omitted to state a material fact or any fact necessary to
make the statements contained therein not materially misleading.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) <U>Not A Utility</U>. Neither Borrower nor any Guarantor is a utility subject to
regulation under the laws of the State of Texas as a result of being engaged in the (i)
generation, transmission, or distribution and sale of electric power; (ii)&nbsp;transportation,
distribution and sale through a local distribution system of natural or other gas for
domestic, commercial, industrial, or other use; (iii)&nbsp;provision of telephone or telegraph
service to others; (iv)&nbsp;production, transmission, or distribution and sale of steam or
water; (v)&nbsp;operation of a railroad; or (vi)&nbsp;provision of sewer service to others.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) <U>ERISA</U>. Borrower maintains no employee benefit plan or other plan for employees
of Borrower that are covered by Title IV of ERISA.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) Intentionally Deleted.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t) <U>No Subsidiaries</U>. Borrower has neither formed nor acquired any subsidiaries and,
during the term of the Loan, Borrower shall neither form nor acquire any subsidiary unless
at the time such subsidiary is formed or created, such subsidiary shall unconditionally
guarantee the Notes and the obligations of Borrower under this Agreement pursuant to a
guaranty agreement in form and substance satisfactory to Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u) <U>Environmental Matters</U>. Except as disclosed on Schedule &#147;6&#148;, as of the Effective
Date Borrower has not (i)&nbsp;received notice or otherwise learned or is otherwise aware of any
Environmental Liability which would be reasonably expected to individually or in the
aggregate have a Material Adverse Effect arising in connection with (A)&nbsp;any non-compliance
with or violation of the requirements of any Environmental Law or (B)&nbsp;the release or
threatened release of any toxic or hazardous waste into the environment, (ii)&nbsp;received
notice or otherwise become aware of any threatened or actual liability in connection with
the release or notice of any threatened release of any toxic or hazardous waste into the
environment which would be reasonably expected to individually or in the aggregate have a
Material Adverse Effect or (iii)&nbsp;received notice or otherwise learned of or otherwise become
aware of any federal or state investigation evaluating whether any remedial action is needed
to respond to a release or threatened release of any toxic or hazardous waste into the
environment for which Borrower is or may be liable which would reasonably be expected to
result in a Material Adverse Effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) <U>Liens</U>. Except (i)&nbsp;as disclosed on Schedule &#147;1&#148; hereto and (ii)&nbsp;for Permitted
Liens, the assets and properties of Borrower are free and clear of all liens and
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">encumbrances.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(w) <U>Solvency</U>. Immediately after the consummation of the transactions to occur on
the Effective Date and immediately following the making of each Loan made on the Effective
Date and after giving effect to the application of the proceeds of such Loans, (i)&nbsp;the fair
value of the assets of Borrower will exceed its debts and liabilities, subordinated,
contingent or otherwise; (ii)&nbsp;the present fair saleable value of the property of Borrower
will be greater than the amount that will be required to pay the probable liability of its
debts and other liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; (iii)&nbsp;Borrower will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (iv)&nbsp;Borrower will not have unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted and is
proposed to be conducted following the Effective Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) <U>Insurance</U>. All insurance reasonably necessary in the ordinary course of
Borrower&#146;s business is maintained by or on behalf of Borrower and all premiums in respect of
such insurance have been paid or will be paid prior to the date such premium payments are
due.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;<B>Conditions of Lending.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The effectiveness of this Agreement, and the obligation to make the initial
Advance under the Commitment shall be subject to satisfaction of the following
conditions precedent:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Borrower&#146;s Execution and Delivery</U>. Borrower shall have executed
and delivered to Agent the Agreement, the Notes and other required Loan Documents,
all in form and substance satisfactory to Agent;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <U>Guaranty</U>. Guarantors shall have executed an unconditional
guaranty agreement of the Notes in form and substance satisfactory to Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) <U>Partnership Agreement</U>. Borrower shall have delivered to Agent a
true and correct copy of the limited partnership agreement of Borrower, together
with all amendments thereto, certified as being a true and correct copy thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) <U>Partnership Authority Certificate</U>. Borrower shall have delivered
to Agent a Certificate of Partnership Authority of Borrower, certifying the name,
title and signature of the Person authorized to sign the Loan Documents to which it
is party on behalf of Borrower, duly executed by the partners of Borrower.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) <U>Articles, Bylaws and Regulations</U>. Borrower shall have delivered to
Agent a true and correct copy of its articles of organization, together with all
amendments thereto. Guarantors shall have delivered to Agent a true and correct
copy of each of their regulations and the articles of incorporation and bylaws of
Approach Resources, together with all amendments thereof, and being certified by the
secretary of each Guarantor and Approach Resources as being a true and
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">correct copy thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) <U>Resolutions</U>. Borrower shall have caused to be delivered to Agent
resolutions of the board of directors of Approach Resources and the member of each
Guarantor approving Approach Resources&#146; and each Guarantor&#146;s execution, delivery and
performance of the Loan Documents to which it is a party, duly adopted by such board
of directors, certified by the secretary or member of Approach Resources and each
Guarantor, as being a true and correct copy of such resolutions and that such
resolutions have not been amended or rescinded and remain in full force and effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) <U>Incumbency Certificate</U>. Agent shall have received a signed
certificate of the secretary or member of Approach Resources and each Guarantor
certifying the name, office and signature of the member or officers of Approach
Resources and each Guarantor authorized to sign the Loan Documents to which it is a
party.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) <U>Other Certificates</U>. Agent shall have received certificates of
existence and (in the case of Guarantors and Approach Resources only) of good
standing for Borrower, Approach Resources and each Guarantor issued by the Secretary
of State of Texas (in the case of Borrower) and the Secretary of State of Delaware
(in the case of Guarantors and Approach Resources).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) <U>Mortgage and Title</U>. Agent shall have received the mortgage and
title information required to be delivered by Borrower pursuant to Section&nbsp;6 of this
Agreement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) <U>Representation and Warranties</U>. The representations and warranties
of Borrower under this Agreement and the other Loan Documents shall be true and
correct in all material respects as of such date, as if then made (except to the
extent that such representations and warranties related solely to an earlier date);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi) <U>No Event of Default</U>. No Default or Event of Default shall have
occurred and be continuing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii) <U>Legal Opinions</U>. Agent shall have received from Borrower&#146;s and
each Guarantor&#146;s legal counsel one or more favorable legal opinions in form and
substance reasonably satisfactory to Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii) <U>Other Documents</U>. Agent shall have received such other
instruments and documents incidental and appropriate to the transaction provided for
herein as Agent or its counsel may reasonably request, and all such documents shall
be in form and substance reasonably satisfactory to Agent; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv) <U>Legal Matters Satisfactory</U>. All legal matters incident to the
consummation of the transactions contemplated hereby shall be reasonably
satisfactory to special counsel for Agent retained at the expense of Borrower.
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The obligation of Lenders to make any Advance or issue any Letter of Credit under
the Commitment (other than the initial Advance) shall be subject to the following additional
conditions precedent that, at the date of making each such Advance or issuing such Letter of
Credit and after giving effect thereto:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv) <U>Representations and Warranties</U>. The representations and
warranties of Borrower under this Agreement and the other Loan Documents are true
and correct in all material respects as of such date, as if then made (except to the
extent that such representations and warranties related solely to an earlier date);
and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi) <U>No Event of Default</U>. No Default or Event of Default shall have
occurred and be continuing; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvii) <U>Legal Matters Satisfactory</U>. All legal matters incident to the
consummation of the transactions contemplated hereby shall be reasonably
satisfactory to special counsel for Agent retained at the expense of Borrower; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xviii) <U>Total Outstandings</U>. After giving effect to such Advance or
Letter of Credit, the Total Outstandings do not exceed the Borrowing Base then in
effect.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Each Borrowing Notice shall constitute a representation and warranty by Borrower that the
conditions contained in Sections&nbsp;11(b)(i) and (ii)&nbsp;have been satisfied.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;<B>Affirmative Covenants. </B>A deviation from the provisions of this Section&nbsp;12 shall not constitute
a Default or an Event of Default under this Agreement if such deviation is expressly consented to
in writing by Required Lenders prior to the date of deviation. Borrower will at all times comply
with the covenants contained in this Section&nbsp;12 from the date hereof and for so long as the
Commitments are in existence or any amount is owed to Agent or Lenders under this Agreement or the
other Loan Documents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Financial Statements and Reports of Borrower, Guarantor</U>. Borrower shall furnish
to Agent: (i)&nbsp;as soon as available, but in any event within ninety (90)&nbsp;days after the end
of each fiscal year of Borrower and each Guarantor, commencing with the fiscal year ending
December&nbsp;31, 2006, an audited consolidated balance sheet of Borrower and Guarantors prepared
as of the close of such fiscal year and audited consolidated statements of operations,
changes in partners or shareholders/members equity and statements of cash flows of Borrower
and Guarantors for such year, in each case setting forth in comparative form the figures for
the preceding fiscal year, all in reasonable detail and certified by independent certified
public accountants selected by Borrower and approved by Agent; and (ii)&nbsp;within sixty (60)
days after the end of the first three fiscal quarters of each fiscal year of Borrower and
Guarantors, commencing with the fiscal quarter ending March&nbsp;30, 2007, an unaudited balance
sheet (without footnotes) of Borrower and Guarantors prepared as of the close of such fiscal
quarter and unaudited statements of operations (without footnotes) of Borrower and
Guarantors for such quarter.
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Hedging Report</U>. Concurrently with the furnishing of the Financial Statements
required in (a)&nbsp;above and in connection with each Borrowing Base redetermination and at any
other time when requested by Agent, Borrower will provide to Agent a hedging report in form
and substance satisfactory to Agent which shall contain, without limitation, the Projected
Production for the latest available calendar quarter with supporting data, a description of
outstanding Rate Management Transactions, including the commodity, effective date,
termination date, notional quantity, applicable price, cap, or floor, and such other details
required by Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Additional Information</U>. Promptly upon request of Agent from time to time any
additional financial information or other information that the Agent may reasonably request.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Certificates of Compliance</U>. Concurrently with the furnishing of the Financial Statements pursuant to Subsection 12(a)
hereof for the months coinciding with the end of each fiscal year or quarter, Borrower will
furnish or cause to be furnished to Agent a certificate in the form of Exhibit &#147;C&#148; attached
hereto, signed by the President, Treasurer or Chief Financial Officer of Approach Operating,
as the sole general partner of Borrower, (i)&nbsp;stating that Borrower has fulfilled in all
material respects its obligations under the Notes and the Loan Documents, including this
Agreement, and that all representations and warranties made herein and therein continue
(except to the extent they relate solely to an earlier date) to be true and correct in all
material respects (or specifying the nature of any change), or if a Default has occurred,
specifying the Default and the nature and status thereof, (ii)&nbsp;to the extent requested from
time to time by Agent, specifically affirming compliance of Borrower in all material
respects with any of its representations (except to the extent they relate solely to an
earlier date) or obligations under said instruments; (iii)&nbsp;setting forth the computation, in
reasonable detail as of the end of each period covered by such certificate, of compliance
with Section&nbsp;13(b); and (iv)&nbsp;containing or accompanied by such financial or other details,
information and material as Agent may reasonably request to evidence such compliance.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Taxes and Other Liens</U>. Borrower and each Guarantor will pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon Borrower and
such Guarantor, or upon the income or any assets or property of such Borrower, as well as
all claims of any kind (including claims for labor, materials, supplies and rent) which, if
unpaid, might become a Lien or other encumbrance upon any or all of the assets or property
of Borrower or any Guarantor and which could reasonably be expected to result in a Material
Adverse Effect; provided, however, that neither Borrower nor any Guarantor shall be required
to pay any such tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted, levy and execution thereon have been stayed and continue to be stayed
and if Borrower or Guarantors shall have set up adequate reserves therefor, if required,
under Accounting Principles.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Compliance with Laws</U>. Borrower and Guarantors will observe and comply, in all
material respects, with all applicable laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, orders and restrictions relating
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">to
environmental standards or controls or to energy regulations of all federal, state, county,
municipal and other governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Further Assurances</U>. Borrower will cure promptly any defects in the creation and
issuance of the Notes and the execution and delivery of the Notes and the Loan Documents,
including this
Agreement. Borrower at its sole expense will promptly execute and deliver to Agent upon its
reasonable request all such other and further documents, agreements and instruments in
compliance with or accomplishment of the covenants and agreements in this Agreement, or to
correct any omissions in the Notes or more fully to state the obligations set out herein.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <U>Performance of Obligations</U>. Borrower will pay the Notes and other obligations
incurred by it hereunder according to the reading, tenor and effect thereof and hereof; and
Borrower and Guarantors will do and perform every act and discharge all of the obligations
provided to be performed and discharged by Borrower and Guarantors under the Loan Documents,
including this Agreement, at the time or times and in the manner specified.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Insurance</U>. Borrower now maintains and will continue to maintain insurance with
financially sound and reputable insurers with respect to its assets against such
liabilities, fires, casualties, risks and contingencies and in such types and amounts as is
customary in the case of persons engaged in the same or similar businesses and similarly
situated. Upon request of Agent, Borrower will furnish or cause to be furnished to Agent
from time to time a summary of the respective insurance coverage of Borrower in form and
substance reasonably satisfactory to Agent, and, if requested, will furnish Agent copies of
the applicable policies. Upon demand by Agent any insurance policies covering any such
property shall be endorsed (i)&nbsp;to provide that such policies may not be canceled, reduced or
affected in any manner for any reason without fifteen (15)&nbsp;days prior notice to Agent, (ii)
to provide for insurance against fire, casualty and other hazards normally insured against,
in the amount of the full value (less a reasonable deductible not to exceed amounts
customary in the industry for similarly situated business and properties) of the property
insured, and (iii)&nbsp;to provide for such other matters as Agent may reasonably require.
Borrower shall at all times maintain adequate insurance with respect to all of its other
assets and wells in accordance with prudent business practices.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <U>Accounts and Records</U>. Borrower and Guarantors will keep proper books, records
and accounts in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and activities, prepared in a manner consistent
with prior years, subject to changes suggested by Borrower&#146;s or Guarantors&#146; auditors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <U>Right of Inspection</U>. Borrower and Guarantors will permit, after reasonable
notice to Borrower and Guarantors, any officer, employee or agent of Agent to examine
Borrower&#146;s and Guarantors&#146; books, records and accounts, and take copies and extracts
therefrom, all at such reasonable times during normal business hours and as often as Lenders
may
reasonably request. Lenders will keep all Confidential Information (as herein defined)
confidential and will not disclose or reveal the Confidential Information
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">or any part
thereof other than (i)&nbsp;as required by law, (ii)&nbsp;to Lenders&#146;, and Lenders&#146; subsidiaries,
Affiliates, officers, employees, legal counsel and regulatory authorities or advisors to
whom it is necessary to reveal such information for the purpose of effectuating the
agreements and undertakings specified herein or as otherwise required in connection with the
enforcement of Lenders&#146; and Agent&#146;s rights and remedies under the Notes, this Agreement and
the other Loan Documents and (iii)&nbsp;any assignee of or participant in, or any prospective
assignee of or participant in, any Lender&#146;s rights or obligations under this Agreement. As
used herein, &#147;Confidential Information&#148; means information about Borrower or Guarantors
furnished by Borrower or Guarantors, but does not include information (i)&nbsp;which was publicly
known, or otherwise known to Lenders, at the time of the disclosure, (ii)&nbsp;which subsequently
becomes publicly known through no act or omission by Lenders, or (iii)&nbsp;which otherwise
becomes known to Lenders, other than through disclosure by Borrower and Guarantors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <U>Notice of Certain Events</U>. Borrower shall promptly notify Agent if Borrower
learns of the occurrence of (i)&nbsp;any event which constitutes a Default or Event of Default
together with a detailed statement by Borrower of the steps being taken to cure such Default
or Event of Default; (ii)&nbsp;any legal, judicial or regulatory proceedings affecting Borrower
or any Guarantor or any of the assets or properties of Borrower or any Guarantor which, if
adversely determined, could reasonably be expected to have a Material Adverse Effect; (iii)
any dispute between Borrower or any Guarantor and any governmental or regulatory body or any
other Person or entity which, if adversely determined, would reasonably be expected to cause
a Material Adverse Effect; and (iv)&nbsp;any other matter which in Borrower&#146;s reasonable opinion
could have a Material Adverse Effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <U>Environmental Reports and Notices</U>. Borrower will deliver to Agent (i)&nbsp;promptly
upon its becoming available, one copy of each report (other than routine informational
filings) sent by Borrower to any court, governmental agency or instrumentality pursuant to
any Environmental Law, (ii)&nbsp;notice, in writing, promptly upon Borrower&#146;s receipt of notice
or otherwise learning of any claim, demand, action, event, condition, report or
investigation indicating any potential or actual liability arising in connection with (x)
the non-compliance with or violation of the requirements of any Environmental Law which
reasonably could be expected to have a Material Adverse Effect; (y)&nbsp;the release or
threatened release of any hazardous substance, toxic or hazardous waste into the environment
which reasonably could be expected to have a Material Adverse Effect or which release
Borrower would have a duty to report to any court or government agency or instrumentality,
or (iii)&nbsp;the existence of any Environmental Lien on any properties or assets of Borrower and
Borrower shall promptly deliver a copy of any such notice to Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <U>Compliance and Maintenance</U>. Borrower will, (i)&nbsp;observe and comply in all material respects with all Environmental
Laws; (ii)&nbsp;except as provided in Subsections 12(o) and 12(p) below, maintain the Borrowing
Base Properties and other assets and properties in good and workable condition at all times
and make all repairs, replacements, additions, betterments and improvements to the Borrowing
Base Properties and other assets and properties as are needed and proper so that the
business carried on in
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">connection therewith may be conducted properly and efficiently at all
times in the opinion of Borrower, exercised in good faith; (iii)&nbsp;take or cause to be taken
whatever actions are necessary or desirable to prevent an event or condition of default by
any Borrower under the provisions of any gas purchase or sales contract or any other
contract, agreement or lease comprising a part of the Borrowing Base Properties or other
collateral security hereunder which default could reasonably be expected to result in a
Material Adverse Effect; and (iv)&nbsp;furnish Agent upon request evidence reasonably
satisfactory to Agent that there are no Liens, claims or encumbrances on the Borrowing Base
Properties, except Permitted Liens.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) <U>Operation of Properties</U>. Except as provided in Subsections 12(p) and (q)&nbsp;below,
Borrower will operate, or cause to be operated, all Borrowing Base Properties in a careful
and efficient manner in accordance with the practice of the industry and in compliance in
all material respects with all applicable laws, rules, and regulations, and in compliance in
all material respects with all applicable proration and conservation laws of the
jurisdiction in which the properties are situated, and all applicable laws, rules, and
regulations, of every other agency and authority from time to time constituted to regulate
the development and operation of the properties and the production and sale of hydrocarbons
and other minerals therefrom; provided, however, that Borrower shall have the right to
contest in good faith by appropriate proceedings, the applicability or lawfulness of any
such law, rule or regulation and pending such contest may defer compliance therewith, as
long as such deferment shall not subject the properties or any part thereof to foreclosure
or loss.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) <U>Compliance with Leases and Other Instruments</U>. Borrower will pay or cause to be
paid and discharge all rentals, delay rentals, royalties, production payment, and
indebtedness required to be paid by such party (or required to keep unimpaired in all
material respects the rights of such party in Borrowing Base Properties) accruing under, and
perform or cause to be performed in all material respects each and every act, matter, or
thing required of such party by each and all of the assignments, deeds, leases, subleases,
contracts, and agreements in any way relating to such party or any of the Borrowing Base
Properties and do all other things necessary of such party to keep unimpaired in all
material respects the rights of such party thereunder and to prevent the forfeiture thereof
or default thereunder; provided, however, that nothing in this Agreement shall be deemed to
require Borrower to perpetuate or renew any oil and gas lease or other lease by payment of
rental or delay rental or by commencement or continuation of operations nor to prevent
Borrower from abandoning or releasing any oil and gas lease or other lease or well thereon
when, in any of such events, in the opinion of Borrower exercised in good faith, it is not
in the best interest of
Borrower to perpetuate the same.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) <U>Certain Additional Assurances Regarding Maintenance and Operations of
Properties</U>. With respect to those Borrowing Base Properties which are being operated by
operators other than Borrower, Borrower shall not be obligated to perform any undertakings
contemplated by the covenants and agreement contained in Subsections 12(o) or 12(p) hereof
which are performable only by such operators and are beyond the control of Borrower;
however, Borrower agrees to promptly take, or cause to be taken, all
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">reasonable actions
available under any operating agreements or otherwise to bring about the performance of any
such material undertakings required to be performed thereunder.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) <U>Sale of Certain Assets/Prepayment of Proceeds</U>. Borrower will immediately pay
over to Agent for the ratable benefit of Lenders as a prepayment of principal on the Notes
and a reduction of the Borrowing Base, an amount equal to 100% of the &#147;Release Price&#148; from
the sale of Borrowing Base Properties, which sale has been approved in advance by Required
Lenders (provided, however, that approval of Required Lenders shall not be required for the
sales of Borrowing Base Properties aggregating an Engineered Value of ten percent (10%) or
less of the Borrowing Base then in effect during any calendar year). The term &#147;Release
Price&#148; means the amount by which the Total Outstandings exceed the Borrowing Base after the
Borrowing Base is reduced as a result of the sale of Borrowing Base Properties. Any such
prepayment of principal on the Notes required by this Section&nbsp;12(r), shall not be in lieu
of, but shall be in addition to, any mandatory prepayment of principal required to be paid
pursuant to Section 9(b) hereof. The Borrowing Base shall be reduced by the amount equal to
the Engineered Value of the Borrowing Base Properties sold according to the most recent
reserve report provided to Lender (as determined by Agent) and, in addition thereto, upon
the sale of any Borrowing Base Properties that require the prior approval of Required
Lenders, if requested by Required Lenders, the Borrowing Base will be redetermined pursuant
to an Unscheduled Redetermination, which redetermination will be in addition to any other
Unscheduled Redetermination that may be requested by Required Lenders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) <U>Title Matters</U>. As to any Borrowing Base Properties hereafter mortgaged to
Agent, Borrower will promptly (but in no event more than sixty (60)&nbsp;days following such
mortgaging) furnish, or cause to be furnished to Agent title information reasonably
satisfactory to Agent that is necessary to cause Borrower to be in compliance with its
obligations under Section 12(u) with respect to title information, showing good and
defensible title of Borrower to such Borrowing Base Properties subject only to Permitted
Liens.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t) <U>Change of Principal Place of Business</U>. Borrower shall give Agent at least thirty (30)&nbsp;days prior written notice of its intention
to move its principal place of business and executive offices from the address set forth in
Section&nbsp;17 hereof
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u) <U>Additional Collateral</U>. Borrower agrees to regularly monitor engineering data
covering all producing oil and gas properties and interests owned or acquired by Borrower on
or after the date hereof and to mortgage or cause to be mortgaged such of the same to Agent
for the ratable benefit of Lenders in substantially the form of the Collateral Documents, as
applicable, to the extent that Lenders shall at all times during the existence of the
Commitment be secured by perfected Liens and security interests covering not less than
eighty percent (80%) of the Engineered Value of the Borrowing Base Properties of Borrower.
In addition, Borrower agrees that in connection with the mortgaging of such additional
Borrowing Base Properties, it shall within a reasonable time thereafter, deliver or cause to
be delivered to Agent such mortgage and title opinions and other title information with
respect to the title and Lien status of such Borrowing Base Properties as may be necessary
to maintain at all times a level of such title
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">information (showing good and defensible
title) of not less than seventy-five percent (75%) of the Engineered Value of all Borrowing
Base Properties mortgaged to Agent for the ratable benefit of Lenders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.&nbsp;<B>Negative Covenants. </B>A deviation from the provisions of this Section&nbsp;13 shall not constitute an
Event of Default under this Agreement if such deviation is consented to in writing by Required
Lenders prior to the date of deviation. Borrower will at all times comply with the covenants
contained in this Section&nbsp;13 from the date hereof and for so long as the Commitment is in existence
or any amount is owed to Agent or Lenders under this Agreement or the other Loan Documents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Negative Pledge</U>. Borrower shall not, without the prior written consent of
Required Lenders:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) create, incur, assume or permit to exist any Lien, security interest or
other encumbrance on any of its assets or properties except Permitted Liens; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) during any annual period, sell, convey, exchange, lease or otherwise
dispose of during any annual period any of its Oil and Gas Properties having an
aggregate value as determined in the most recent engineering report delivered to
Agent under Section 7(b) hereof in excess of ten percent (10%) of the Borrowing
Base, excluding (i)&nbsp;obsolete or worn-out equipment and (ii)&nbsp;oil, gas and
hydrocarbons sold in the ordinary course of Borrower&#146;s business and (iii)&nbsp;Oil and
Gas Properties that have been given no Engineered Value in the Borrowing Base then
in effect. After a Borrowing Base has been determined, upon the sale of any oil and
gas properties, the Borrowing Base shall be reduced, effective on the date of
consummation of such sale, by an amount which the Required Lenders determine is the
Borrowing Base value last assigned to such oil and gas properties
according to the most recent reserve report or update thereof delivered to
Agent. Agent shall provide Borrower with written notice of the redetermined
Borrowing Base made in accordance with this Section&nbsp;13(a)(ii), which written notice
shall be sufficient to give effect to such redetermined Borrowing Base without
further amendment to this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Current Ratio</U>. Borrower will not allow the Current Ratio of Borrower to at any
time be less than 1.0 to 1.0.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Consolidations and Mergers</U>. Borrower will not consolidate or merge with or into
any other Person if Borrower is not the surviving entity or, if Borrower is the surviving
entity, such merger or consolidation would cause an Event of Default to occur, or permit any
other Person to consolidate with or merge into it if Borrower is not the surviving entity
or, if Borrower is the surviving entity, such merger or consolidation would cause an Event
of Default to occur or transfer all, or substantially all, of its property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Limitation on Additional Indebtednes</U>s. Borrower will not incur, create, assume
or in any manner become or be liable in respect of any indebtedness, nor will any
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Borrower
guarantee or otherwise in any manner become or be liable in respect of any indebtedness,
liabilities or other obligations of any other person or entity, whether by agreement to
purchase the indebtedness of any other person or entity or agreement for the furnishing of
funds to any other person or entity through the purchase or lease of goods, supplies or
services (or by way of stock purchase, capital contribution, advance or loan) for the
purpose of paying or discharging the indebtedness of any other person or entity, or
otherwise, except that the foregoing restrictions shall not apply to:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the Notes and Letters of Credit, and any renewal or increase thereof, or
other indebtedness of Borrower outstanding at the Effective Date which has
heretofore disclosed to Lenders in Borrower&#146;s Financial Statements or on Schedule
&#147;4&#148; hereto; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) taxes, assessments or other government charges which are not yet due or
are being contested in good faith by appropriate action promptly initiated and
diligently conducted, if such reserve as shall be required by Accounting Principles
shall have been made therefor and levy and execution thereon have been stayed and
continue to be stayed; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) indebtedness (other than in connection with a loan or lending
transaction) incurred in the ordinary course of business, including, but not limited
to indebtedness for drilling, completing, leasing and reworking oil and gas wells;
or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) obligations under permitted Rate Management Transactions; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) such other indebtedness not to exceed $1,000,000; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) trade payables and other accrued liabilities that are incurred in the
ordinary course of business; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) any renewals or extensions of (but, other than in the case of the Notes,
not increases in) any of the foregoing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Restricted Payments</U>. Borrower will not declare or pay any cash dividend or
distribution (whether in cash, securities or other property) purchase, redeem or otherwise
acquire for value any of its stock interest now or hereafter outstanding, return any capital
to its stockholders or make any distribution of its assets to its stockholders as such,
except that, if no Event of Default has occurred and is continuing, Borrower may distribute
to its shareholders an amount equal annually to their tax liability incurred as a result of
their ownership interest in Borrower.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Rate Management Transactions</U>. Borrower will not enter into any Rate Management
Transaction, except the foregoing prohibition shall not apply to (i)&nbsp;transactions consented
to in writing by the Required Lenders which are on terms acceptable to the Required Lenders,
or (ii)&nbsp;Pre-Approved Contracts. Once Borrower enters into a Rate Management Transaction,
the terms and conditions of such Rate Management Transaction may not be materially amended
or modified, nor may such Rate
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Management Transaction be cancelled without Borrower having
given Agent written notice of such amendment, modification or cancellation on the date not
later than three (3)&nbsp;Business Days after the date such action takes place. Borrower further
agrees to give Agent written notice of any bankruptcy, insolvency or similar proceeding
commenced by or against any counterparty to any agreement entered into any such Rate
Management Transaction.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Certain Transactions</U>. With respect to its Oil and Gas Properties, Borrower
shall not enter into any transaction with any Affiliate except for transactions with
Affiliates upon terms not less favorable to Borrower than would be obtainable at the time in
comparable transactions of Borrower in arm&#146;s length dealings with Persons other than
Affiliates.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <U>Intentionally Deleted</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Limitation on Investments and New Businesses</U>. Borrower shall not engage
directly or indirectly in any new business or make any acquisitions, investments, or
commitments, except such businesses, operations,
acquisitions, or investments which are incidental to or reasonably related to the present
businesses and operations conducted by Borrower and except (i)&nbsp;investment in obligations of
the United States government or any agency thereof or obligations guaranteed by the United
States government having a maturity not in excess of one year, (ii)&nbsp;investments in
certificates of deposit of financially sound commercial Bank having a maturity not in excess
of one year, (iii)&nbsp;investments in commercial paper with a rating of at least &#147;Prime 1&#148;
according to Moody&#146;s Investors Service, Inc., or a similar rating of a comparable or
successor service, having a maturity not in excess of one year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <U>Limitation on Credit Extensions</U>. Borrower shall not extend credit, make
advances or make loans to any Person or entity other than normal and prudent extensions of
credit in the ordinary course of business.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <U>Fiscal Year</U>. Borrower shall not change its fiscal year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <U>Certain Agreements</U>. Neither Borrower nor any Guarantor shall enter into any
agreement, which by its terms would expressly restrict its performance of its obligations
pursuant to this Loan Agreement or the other Loan Documents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <U>Lines of Business</U>. Borrower shall not directly or indirectly engage in any
business other than the acquisition, exploration, development, operation, management or
resale of oil, gas and energy properties and the processing, gathering, marketing and
transportation of production therefrom.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.&nbsp;<B>Events of Default. </B>Any one or more of the following events shall be considered an &#147;Event of
Default&#148; as that term is used herein:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Borrower shall fail to pay when due or declared due the principal of the Notes or
any Reimbursement Obligations with respect to any Letter of Credit, including
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">any payment of
principal required under Section&nbsp;9(b), and such failure to pay shall continue unremedied for
a period of one (1)&nbsp;day; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Borrower shall fail to pay when due accrued interest on any of the Notes or any
fees or other amounts payable hereunder or under any other Loan Document and such failure to
pay shall continue unremedied for a period of three (3)&nbsp;days; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Any representation or warranty made by Borrower under this Agreement, or in any
certificate or statement furnished or made to Lenders pursuant hereto, or in
connection herewith, or in connection with any document furnished hereunder, shall
prove to be untrue in any material respect as of the date on which such representation or
warranty is made (or deemed made), or any representation, statement (including financial
statements), certificate, report or other data furnished or to be furnished or made by
Borrower under any Loan Document, including this Agreement, proves to have been untrue in
any material respect; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Default shall be made in the due observance or performance of any of the covenants
or agreements of Borrower contained in the Loan Documents, including this Agreement
(excluding covenants contained in Section&nbsp;13 of the Agreement for which there is no cure
period), and such default shall continue for more than thirty (30)&nbsp;days after written notice
from Agent is received by Borrower; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Default shall be made in the due observance or performance of the covenants of
Borrower contained in Section&nbsp;13 of this Agreement; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Default shall be made in respect of any obligation for borrowed money in excess of
$500,000 other than the Notes, for which Borrower is liable (directly, by assumption, as
guarantor or otherwise), or any obligations secured by any mortgage, pledge or other
consensual security interest with respect thereto, on any asset or property of Borrower or
in respect of any agreement relating to any such obligations, and if such default shall
continue beyond the applicable grace period, if any; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) Borrower or any Guarantor shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or seeking an
appointment of a trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or shall take any
corporate action authorizing the foregoing; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) An involuntary case or other proceeding, shall be commenced against Borrower or any
Guarantor seeking liquidation, reorganization or other relief with respect to its debts
under any bankruptcy, insolvency or similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or other
</DIV>

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</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">proceeding shall
remain undismissed and unstayed for a period of sixty (60)&nbsp;days; or an order for relief
shall be entered against Borrower or any Guarantor under the federal bankruptcy laws as now
or hereinafter in effect; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) A final judgment or order for the payment of money in excess of $500,000 (or
judgments or orders aggregating in excess of $500,000) shall be rendered against Borrower
and such judgments or orders shall continue unsatisfied and unstayed for a period of thirty
(30)&nbsp;days; provided, however, that if any such judgment order is not satisfied or stayed
within such 30-day period an Event of Default shall not exist if prior to
the end of such 30-day period Borrower provides to Agent an unqualified statement from
Borrower&#146;s insurance carrier addressed to Agent that the entire amount of such judgment or
order is a covered loss under the insurance policies that Borrower maintains with such
insurance carrier and that such insurance carrier does not dispute such insurance coverage
and will provide Borrower with such proceeds of insurance required to satisfy such judgment
or order; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) Borrower shall fail to pay any obligation owed under any Rate Management
Transaction in an amount in excess of $500,000 or in any amount if the obligations of
Borrower under any such Rate Management Transaction are secured by the Collateral Documents
or any event of default (as defined therein) shall occur as a result of the action or
inaction of Borrower under any agreement entered into in connection with any Rate Management
Transaction; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) The Liens securing the Loans cease to be in place and/or effective (other than as a
result of Agent&#146;s actions or inactions); or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) A Change of Control shall occur; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) The dissolution of Borrower or any Guarantor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon occurrence of any Event of Default specified in Subsections 14(g) and (h)&nbsp;hereof, the
entire principal amount due under the Notes and all interest then accrued thereon, and any other
liabilities of Borrower hereunder, shall become automatically and immediately due and payable all
without notice and without presentment, demand, protest, notice of protest or dishonor or any other
notice of default of any kind, all of which are hereby expressly waived by Borrower. Upon the
occurrence of any other Event of Default, Agent, upon request of Required Lenders, shall by written
notice to Borrower terminate the Commitment and declare the principal of, and all interest then
accrued on, the Notes and any other liabilities hereunder to be forthwith due and payable,
whereupon the same shall forthwith become due and payable without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which
Borrower hereby expressly waives, anything contained herein or in the Notes to the contrary
notwithstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the occurrence and during the continuance of any Event of Default, Lenders are hereby
authorized at any time and from time to time, without notice to Borrower (any such notice being
expressly waived by Borrower), to set-off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other indebtedness at any time
</DIV>


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</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">owing by any Lender to or for the credit or the account of Borrower against any and all of the indebtedness of
Borrower under the Notes and the Loan Documents, including this Agreement, irrespective of whether
or not Lenders shall have made any demand under the Loan Documents, including this Agreement or the
Notes and although such indebtedness may be unmatured. Any amount set-off by any Lender shall be
applied against the indebtedness owed Lenders by Borrower pursuant to this Agreement and the Notes.
Lenders agree promptly to notify Borrower after any such setoff and application, provided that the
failure to give such notice shall not affect the validity of such set-off and application. The
rights of Lenders under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which Lenders may have.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.&nbsp;<B>Agent and Lenders.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <U>Appointment and Authorization</U>. Each Lender hereby appoints Agent as its nominee
and agent, in its name and on its behalf: (i)&nbsp;to act as nominee for and on behalf of such
Lender in and under all Loan Documents; (ii)&nbsp;to arrange the means whereby the funds of
Lenders are to be made available to Borrower under the Loan Documents; (iii)&nbsp;to take such
action as may be requested by any Lender under the Loan Documents (when such Lender is
entitled to make such request under the Loan Documents); (iv)&nbsp;to receive all documents and
items to be furnished to Lenders under the Loan Documents; (v)&nbsp;to be the secured party,
mortgagee, beneficiary, and similar party in respect of, and to receive, as the case may be,
any collateral for the benefit of Lenders; (vi)&nbsp;to promptly distribute to each Lender all
material information, requests, documents and items received from Borrower under the Loan
Documents; (vii)&nbsp;to promptly distribute to each Lender such Lender&#146;s Pro Rata Part of each
payment or prepayment (whether voluntary, as proceeds of insurance thereon, or otherwise) in
accordance with the terms of the Loan Documents and (viii)&nbsp;to deliver to the appropriate
Persons requests, demands, approvals and consents received from Lenders. Each Lender hereby
authorizes Agent to take all actions and to exercise such powers under the Loan Documents as
are specifically delegated to Agent by the terms hereof or thereof, together with all other
powers reasonably incidental thereto. With respect to its Commitment hereunder and the
Notes issued to it, Agent and any successor Agent shall have the same rights under the Loan
Documents as any other Lender and may exercise the same as though it were not Agent; and the
term &#147;Lender&#148; or &#147;Lenders&#148; shall, unless otherwise expressly indicated, include Agent and
any successor Agent in its capacity as a Lender. Agent and any successor Agent and its
Affiliates may accept deposits from, lend money to, act as trustee under indentures of and
generally engage in any kind of business with Borrower, and any person which may do business
with Borrower, all as if Agent and any successor Agent was not Agent hereunder and without
any duty to account therefor to Lenders; provided that, if any payments in respect of any
property (or the proceeds thereof) now or hereafter in the possession or control of Agent
which may be or become security for the obligations of Borrower arising under the Loan
Documents by reason of the general description of indebtedness secured or of property
contained in any other agreements, documents or instruments related to any such other
business shall be applied to reduction of the obligations of Borrower arising under the Loan
Documents, then each Lender shall be entitled to share in such application according to its
Pro Rata Part thereof. Each Lender, upon request of any other Lender, shall disclose to all
other Lenders all
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">indebtedness and liabilities, direct and contingent, of Borrower to such
Lender as of the time of such request.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <U>Note Holders</U>. From time to time as other Lenders become a party to this
Agreement, Agent shall obtain execution by Borrower of additional Notes in amounts
representing the Commitments of each such new Lender, up to an aggregate face amount of all
Notes not exceeding $100,000,000. The obligation of such Lender shall be governed by the provisions
of this Agreement, including but not limited to, the obligations specified in Section&nbsp;2
hereof. From time to time, Agent may require that Lenders exchange their Notes for newly
issued Notes to better reflect the Commitments of Lenders. Agent may treat the payee of any
Note as the holder thereof until written notice of transfer has been filed with it, signed
by such payee and in form satisfactory to Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <U>Consultation with Counsel</U>. Lenders agree that Agent may consult with legal
counsel selected by Agent and shall not be liable for any action taken or suffered in good
faith by it in accordance with the advice of such counsel. <B>LENDERS ACKNOWLEDGE THAT MURPHY
MAHON KEFFLER &#038; FARRIER, L.L.P. IS COUNSEL FOR FROST, BOTH AS AGENT AND AS A LENDER, AND
THAT SUCH FIRM DOES NOT REPRESENT ANY OF THE OTHER LENDERS IN CONNECTION WITH THIS
TRANSACTION.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <U>Documents</U>. Agent shall not be under a duty to examine or pass upon the
validity, effectiveness, enforceability, genuineness or value of any of the Loan Documents
or any other instrument or document furnished pursuant thereto or in connection therewith,
and Agent shall be entitled to assume that the same are valid, effective, enforceable and
genuine and what they purport to be.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <U>Resignation or Removal of Agent</U>. Subject to the appointment and acceptance of a
successor Agent as provided below, Agent may resign at any time by giving written notice
thereof to Lenders and Borrower, and Agent may be removed at any time with or without cause
by Required Lenders (excluding Agent). If no successor Agent has been so appointed by
Required Lenders (and approved by Borrower) and has accepted such appointment within thirty
(30)&nbsp;days after the retiring Agent&#146;s giving of notice of resignation or removal of the
retiring Agent, then the retiring Agent may, on behalf of Lenders, appoint a successor
Agent. Any successor Agent must be approved by Borrower, which approval will not be
unreasonably withheld. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become vested with all
the rights and duties of the retiring Agent, and the retiring Agent, as the case may be,
shall be discharged from its duties and obligations hereunder. After any retiring Agent&#146;s
resignation or removal hereunder as Agent, the provisions of this Section&nbsp;15 shall continue
in effect for its benefit in respect to any actions taken or omitted to be taken by it while
it was acting as Agent. To be eligible to be an Agent hereunder the party serving, or to
serve, in such capacity must own a Pro Rata Part of the Commitments equal to the level of
Commitment required to be held by any Lender pursuant to Section&nbsp;29 hereof.
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <U>Responsibility of Agent</U>. It is expressly understood and agreed that the obligations of Agent under the Loan
Documents are only those expressly set forth in the Loan Documents as to each and that Agent
shall be entitled to assume that no Default or Event of Default has occurred and is
continuing, unless Agent has actual knowledge of such fact or has received notice from a
Lender or Borrower that such Lender or Borrower considers that a Default or an Event of
Default has occurred and is continuing and specifying the nature thereof. Neither Agent nor
any of its directors, officers, attorneys or employees shall be liable for any action taken
or omitted to be taken by them under or in connection with the Loan Documents, except for
its or their own gross negligence or willful misconduct. Agent shall not incur liability
under or in respect of any of the Loan Documents by acting upon any notice, consent,
certificate, warranty or other paper or instrument believed by it to be genuine or authentic
or to be signed by the proper party or parties, or with respect to anything which it may do
or refrain from doing in the reasonable exercise of its judgment, or which may seem to it to
be necessary or desirable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Agent shall not be responsible to Lenders for any of Borrower&#146;s recitals, statements,
representations or warranties contained in any of the Loan Documents, or in any certificate or
other document referred to or provided for in, or received by any Lender under, the Loan Documents,
or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any of the
Loan Documents or for any failure by Borrower to perform any of its obligations hereunder or
thereunder. Agent may employ agents and attorneys-in-fact and shall not be answerable, except as
to money or securities received by it or its authorized agents, for the negligence or misconduct of
any such agents or attorneys-in-fact selected by it with reasonable care.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The relationship between Agent and each Lender is only that of agent and principal and has no
fiduciary aspects. Nothing in the Loan Documents or elsewhere shall be construed to impose on
Agent any duties or responsibilities other than those for which express provision is therein made.
In performing its duties and functions hereunder, Agent does not assume and shall not be deemed to
have assumed, and hereby expressly disclaims, any obligation or responsibility toward or any
relationship of agency or trust with or for Borrower or any of its beneficiaries or other
creditors. As to any matters not expressly provided for by the Loan Documents, Agent shall not be
required to exercise any discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from acting) upon the
instructions of all Lenders and such instructions shall be binding upon all Lenders and all holders
of the Notes; provided, however, that Agent shall not be required to take any action which is
contrary to the Loan Documents or applicable law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Agent shall have the right to exercise or refrain from exercising, without notice or liability
to Lenders, any and all rights afforded to Agent by the Loan Documents or which Agent may have as a
matter of law; provided, however, Agent shall not (i)&nbsp;except as provided herein and in Section 7(b)
hereof, without the consent of Required Lenders approve the sale, release or substitution of
Collateral other than the sale of Collateral permitted pursuant to Section&nbsp;13(a)(ii) hereof, or
(ii)&nbsp;without the consent of Required Lenders, take any other action with regard to amending the
Loan Documents, waiving any Default under the Loan Documents, or taking any other action with
respect to the Loan Documents. Agent shall not have liability to Lenders for failure or delay in
exercising any right or power possessed by Agent pursuant to the Loan
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Documents or otherwise unless such failure or delay is caused by the gross negligence of
Agent, in which case only Agent responsible for such gross negligence shall have liability therefor
to Lenders.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <U>Independent Investigation</U>. Each Lender severally represents and warrants to
Agent that it has made its own independent investigation and assessment of the financial
condition and affairs of Borrower in connection with the making and continuation of its
participation hereunder and has not relied exclusively on any information provided to such
Lender by Agent in connection herewith, and each Lender represents, warrants and undertakes
to Agent that it shall continue to make its own independent appraisal of the
creditworthiness of Borrower while the Notes are outstanding or its commitments hereunder
are in force. Agent shall not be required to keep itself informed as to the performance or
observance by Borrower of this Agreement or any other document referred to or provided for
herein or to inspect the properties or books of Borrower. Other than as provided in this
Agreement, Agent shall not have any duty, responsibility or liability to provide any Lender
with any credit or other information concerning the affairs, financial condition or business
of Borrower which may come into the possession of Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <U>Indemnification</U>. Lenders agree to indemnify Agent, its Affiliates, its
directors, officers, attorneys and employees (the &#147;Indemnified Agents&#148;), from and against
any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any proper and reasonable kind or nature whatsoever
which may be imposed on, incurred by or asserted against Agent in any way relating to or
arising out of the Loan Documents or any action taken or omitted by any Indemnified Agent
under the Loan Documents, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from any Indemnified Agent&#146;s gross negligence or willful
misconduct. Each Lender shall be entitled to be reimbursed by any such Indemnified Agent
for any amount such Lender paid to such Indemnified Agent under this Section 15(h) to the
extent such Indemnified Agent has been reimbursed for such payments by Borrower or any other
Person. <B>THE PARTIES INTEND FOR THE PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT AGENT
FROM THE CONSEQUENCES OF ANY LIABILITY INCLUDING STRICT LIABILITY IMPOSED OR THREATENED TO
BE IMPOSED ON ANY INDEMNIFIED AGENT AS WELL AS FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE,
WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING OR CONCURRING CAUSE OF ANY SUCH
LIABILITY.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <U>Benefit of Section&nbsp;15</U>. The agreements contained in this Section&nbsp;15 are solely
for the benefit of Agent and Lenders and are not for the benefit of, or to be relied upon by, Borrower, any affiliate of
Borrower or any other person.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <U>Pro Rata Treatment</U>. Subject to the provisions of this Agreement, each payment
(including each prepayment) by Borrower and each collection by Lenders (including offsets)
on account of the principal of and interest on the Notes and fees
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">provided for in this Agreement, that are payable by Borrower, shall be made Pro Rata; provided, however, in the
event that any Defaulting Lender shall have failed to make an Advance as contemplated under
Section&nbsp;2 hereof and Agent or another Lender or Lenders shall have made such Advance,
payment received by Agent for the account of such Defaulting Lender or Lenders shall not be
distributed to such Defaulting Lender or Lenders until such Advance or Advances shall have
been repaid in full to the Lender or Lenders who funded such Advance or Advances.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <U>Assumption as to Payments</U>. Except as specifically provided herein, unless Agent
shall have received notice from Borrower prior to the date on which any payment is due to
Lenders hereunder that Borrower will not make such payment in full, Agent may, but shall not
be required to, assume that Borrower has made such payment in full to Agent on such date and
Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the extent Borrower
shall not have so made such payment in full to Agent, each Lender shall repay to Agent
forthwith on demand such amount distributed to such Lender together with interest thereon,
for each day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to Agent, at the interest rate applicable to such portion of the
Loan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <U>Other Financings</U>. Without limiting the rights to which any Lender otherwise is
or may become entitled, such Lender shall have no interest, by virtue of this Agreement or
the Loan Documents, in (a)&nbsp;any present or future loans from, letters of credit issued by, or
leasing or other financial transactions by, any other Lender to, on behalf of, or with
Borrower (collectively referred to herein as &#147;Other Financings&#148;) other than the obligations
hereunder; (b)&nbsp;any present or future guarantees by or for the account of Borrower which are
not contemplated by the Loan Documents; (c)&nbsp;any present or future property taken as security
for any such Other Financings; or (d)&nbsp;any property now or hereafter in the possession or
control of any other Lender which may be or become security for the obligations of Borrower
arising under any loan document by reason of the general description of indebtedness secured
or property contained in any other agreements, documents or instruments relating to any such
Other Financings.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <U>Interests of Lenders</U>. Nothing in this Agreement shall be construed to create a partnership or joint venture
between Lenders for any purpose. Agent, Lenders and Borrower recognize that the respective
obligations of Lenders under the Commitments shall be several and not joint and that neither
Agent nor any of Lenders shall be responsible or liable to perform any of the obligations of
the other under this Agreement. Each Lender is deemed to be the owner of an undivided
interest in and to all rights, titles, benefits and interests belonging and accruing to
Agent under the Security Instruments, including, without limitation, liens and security
interests in any collateral, fees and payments of principal and interest by Borrower under
the Commitments on a Pro Rata basis. Each Lender shall perform all duties and obligations
of Lenders under this Agreement in the same proportion as its ownership interest in the
Loans outstanding at the date of determination thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <U>Investments</U>. Whenever Agent in good faith determines that it is uncertain
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">about how to distribute to Lenders any funds which it has received, or whenever Agent in good
faith determines that there is any dispute among Lenders about how such funds should be
distributed, Agent may choose to defer distribution of the funds which are the subject of
such uncertainty or dispute. If Agent in good faith believes that the uncertainty or
dispute will not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Lenders, Agent may invest such funds pending distribution (at the
risk of Lenders). All interest on any such investment shall be distributed upon the
distribution of such investment and in the same proportions and to the same Persons as such
investment. All monies received by Agent for distribution to Lenders (other than to the
Person who is Agent in its separate capacity as a Lender) shall be held by Agent pending
such distribution solely as Agent for such Lenders, and Agent shall have no equitable title
to any portion thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) <U>Delegation to Affiliates</U>. Borrower and Lenders agree that Agent may delegate
any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and
such Affiliate&#146;s directors, officers, agents and employees) which perform duties in
connection with this Agreement shall be entitled to the same benefits of the
indemnification, waiver and other protective provisions to which Agent is entitled under
Sections&nbsp;15 and 18.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) <U>Execution of Collateral Documents</U>. Lenders hereby empower and authorize Agent
to execute and deliver the Security Instruments and all related financing statements and
other financing statements, agreements, documents or instruments that shall be necessary or
appropriate to effect the purposes of the Security Instruments.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) <U>Collateral Releases</U>. Lenders hereby empower and authorize Agent to execute and
deliver to Borrower on its behalf any agreements, documents, or instruments as shall be necessary or appropriate to
reflect any releases of Collateral which shall be permitted by the terms hereof (including,
without limitation, the release of Collateral that Borrower is permitted to sell pursuant to
Section&nbsp;13 hereof) or of any other Loan Document or which shall otherwise have been approved
by the Required Lenders pursuant to Section&nbsp;15 hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.&nbsp;<B>Exercise of Rights. </B>No failure to exercise, and no delay in exercising, on the part of Agent
or Lenders, any right hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise of any other right.
The rights of Agent and Lenders hereunder shall be in addition to all other rights provided bylaw.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17.&nbsp;<B>Notices. </B>Any notices or other communications required or permitted to be given by this
Agreement or any other documents or instruments referred to herein must be given in writing (which
may be by bank wire, telecopy or similar writing) and shall be given to the party to whom such
notice or communication is directed at the address or telecopy number of such party as follows: (a)
BORROWER: Approach Resources I, LP, 6300 Ridglea Place, Suite&nbsp;1107, Fort Worth, Texas 76116,
Attention: J. Ross Craft, Facsimile No. (817)&nbsp;989-9001; with copy to: Steve Smart, 6300 Ridglea
Place, Suite&nbsp;1107, Fort Worth, Texas 76116, Facsimile No. (817)&nbsp;989-9001; (b)&nbsp;AGENT and LENDERS:
c/o The Frost National Bank, 777 Main Street, Suite
</DIV>

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</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">500, Fort Worth, Texas 76102, Attention: John S. Warren, Facsimile No. (817)&nbsp;420-5250. Any such notice or other communication shall be effective
(a)&nbsp;if given by telecopy, when such telecopy is transmitted to the telecopy number specified in
this Section&nbsp;17 and the appropriate answer back is received or receipt is otherwise confirmed, (b)
if given by mail, three (3)&nbsp;days after deposit in the mails with first-class postage, prepaid, as
addressed as aforesaid or (c)&nbsp;if given by any other method, when delivered at the address specified
in this Section&nbsp;17; provided, however, that notices to Agent under Sections&nbsp;2, 3, 4 or 5 hereof
shall not be effective until received. Any notice required to be given to Lenders shall be given
to Agent and distributed to all Lenders by Agent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18. <B>Expenses. </B>Borrower shall pay (i)&nbsp;all reasonable and necessary out-of-pocket expenses of Agent,
including reasonable fees and disbursements of special counsel for Agent, in connection with the
preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or Event of Default or alleged Default or Event of Default hereunder, (ii)&nbsp;all reasonable
and necessary out-of-pocket expenses of Agent, including reasonable fees and disbursements of
special counsel for Agent in connection with the preparation of any participation agreement for a
participant or participants requested by Borrower or any amendment thereof and (iii)&nbsp;if a Default
or an Event of Default occurs, all reasonable and necessary out-of-pocket expenses incurred by
Lenders, including reasonable fees and disbursements of counsel, in connection with such Default
and Event of Default and collection and other enforcement proceedings resulting therefrom.
<B>BORROWER HEREBY ACKNOWLEDGES THAT MURPHY MAHON KEFFLER &#038; FARRIER, L.L.P. IS SPECIAL COUNSEL TO
FROST, AS AGENT AND AS A LENDER, UNDER THIS AGREEMENT AND THAT IT IS NOT COUNSEL TO,
NOR DOES IT REPRESENT BORROWER IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN THIS AGREEMENT.</B>
Borrower is relying on separate counsel in the transaction described herein. Borrower shall
indemnify Lenders, within thirty (30)&nbsp;days after written demand therefor, against any transfer
taxes, document taxes, assessments or charges made by any governmental authority and paid by
Lenders (or Agent on behalf of Lenders) by reason of the execution, delivery and filing of the Loan
Documents. The obligations of this Section&nbsp;18 shall survive any termination of this Agreement, the
expiration of the Loans and the payment of all indebtedness of Borrower to Lenders hereunder and
under the Notes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19. <B>Indemnity. </B>Borrower hereby agrees to indemnify Agent, each Lender, their respective
Affiliates, and each of their directors, officers, and employees (the &#147;Indemnified Parties&#148;)
against all losses, claims, damages, penalties, judgments, liabilities and expenses (including,
without limitation, all expenses of litigation or preparation therefor of any Indemnified Party,
Agent, any Lender or any Affiliate that is a party thereto) which any of them may pay or incur
arising out of or relating to this Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or proposed application of the proceeds
of any loan hereunder even if any of the foregoing arises out of the ordinary negligence of the
party seeking indemnification except to the extent that they are determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the party seeking indemnification. The indemnity set forth
herein shall be in addition to any other obligations or liabilities of Borrower to any Indemnified
Party, Agent, and each of Lenders hereunder or at common law or otherwise, and shall survive any
termination of this Agreement, the expiration of the Loans and the payment of
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">all indebtedness of Borrower to Lenders hereunder and under the Notes. <B>THE PARTIES INTEND FOR THE PROVISIONS OF THIS
SECTION TO APPLY TO AND PROTECT EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ANY LIABILITY
INCLUDING STRICT LIABILITY IMPOSED OR THREATENED TO BE IMPOSED ON AGENT AS WELL AS FROM THE
CONSEQUENCES OF ITS OWN NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR
CONCURRING CAUSE OF ANY CLAIM.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.&nbsp;<B>Non-Liability of Lenders. </B>The relationship between Borrower on the one hand and Lenders and
Agent on the other hand shall be solely that of borrower and lender. Neither Agent, nor any Lender
shall have any fiduciary responsibility to Borrower. Neither Agent, nor any Lender undertakes any
responsibility to Borrower to review or inform Borrower of any matter in connection with any phase
of Borrower&#146;s businesses or operations. Borrower agrees that neither Agent, nor any Lender shall
have any liability to Borrower (whether sounding in tort, contract or otherwise) for losses
suffered by Borrower in connection with, arising out of, or in any way related to, the transactions
contemplated and the relationship established by this Agreement and the other Loan Documents, or
any act, omission or event occurring in connection therewith, unless it is determined in a final
non-appealable judgment by a court of competent jurisdiction that such loss resulted from the gross
negligence or willful misconduct of the party from which recovery is sought. Neither Agent, nor
any Lender shall have any liability with respect to, and Borrower
hereby waives, releases and agrees not to sue for, any special, indirect, consequential or punitive
damages suffered by Borrower in connection with, arising out of, or in any way related to this
Agreement, the Loan Documents or any transaction contemplated thereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.&nbsp;<B>Governing Law. </B>THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS INTENDED TO BE
PERFORMED, IN FORT WORTH, TARRANT COUNTY, TEXAS, AND THE SUBSTANTIVE LAWS OF TEXAS SHALL GOVERN THE
VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ALL OTHER DOCUMENTS
AND INSTRUMENTS REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED THEREIN.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22.&nbsp;<B>Invalid Provisions. </B>If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term of this Agreement, such
provisions shall be fully severable and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance from this
Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.&nbsp;<B>Maximum Interest Rate. </B>Regardless of any provisions contained in this Agreement or in any
other documents and instruments referred to herein, Lenders shall never be deemed to have
contracted for or be entitled to receive, collect or apply as interest on the Notes any amount in
excess of the Maximum Rate, and in the event any Lender ever receives, collects or applies as
interest any such excess, or if an acceleration of the maturities of any Notes or if any prepayment
by Borrower results in Borrower having paid any interest in excess of the Maximum Rate, such amount
which would be excessive interest shall be applied to the reduction
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">of the unpaid principal balance of the Notes for which such excess was received, collected or applied, and, if the principal
balance of such Note is paid in full, any remaining excess shall forthwith be paid to Borrower.
All sums paid or agreed to be paid to Lenders for the use, forbearance or detention of the
indebtedness evidenced by the Notes and/or this Agreement shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the Maximum Rate. In determining whether or not the interest paid or
payable under any specific contingency exceeds the Maximum Rate of interest permitted by law,
Borrower and Lenders shall, to the maximum extent permitted under applicable law, (i)&nbsp;characterize
any non-principal payment as an expense, fee or premium, rather than as interest; and (ii)&nbsp;exclude
voluntary prepayments and the effect thereof; and (iii)&nbsp;compare the total amount of interest
contracted for, charged or received with the total amount of interest which could be contracted
for, charged or received throughout the entire contemplated term of the Note at the Maximum Rate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of Section&nbsp;303 of the Texas Finance Code, to the extent applicable to any
Lender or Agent, Borrower agrees that the Maximum Rate shall be the &#147;weekly ceiling&#148; as
defined in said Chapter, provided that such Lender or Agent, as applicable, may also rely, to the
extent permitted by applicable laws of the State of Texas and the United States of America, on
alternative maximum rates of interest under the Texas Finance Code or other laws applicable to such
Lender or Agent from time to time if greater (the &#147;Maximum Rate&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24.&nbsp;<B>Amendments. </B>This Agreement may be amended only by an instrument in writing executed by an
authorized officer of the party against whom such amendment is sought to be enforced. No
modification or waiver of any provision of the Loan Documents, including this Agreement, or the
Notes nor consent to departure therefrom, shall be effective unless in writing signed by Borrower
and Required Lenders; provided, however, that no amendment, waiver, or other action shall be
effected pursuant to this Section&nbsp;24 without the consent of all Lenders which: (a)&nbsp;would increase
the Borrowing Base, (b)&nbsp;would reduce any fees hereunder, or the principal of, or the interest on,
any Lender&#146;s Note or Notes, (c)&nbsp;would postpone any date fixed for any payment of any fees
hereunder, or any principal or interest of any Lender&#146;s Note or Notes, (d)&nbsp;would increase the
aggregate Commitments or any Lender&#146;s individual Commitment hereunder or would materially alter
Agent&#146;s obligations to any Lender hereunder, (e)&nbsp;would release Borrower from its obligation to pay
any Lender&#146;s Note or Notes, (f)&nbsp;would release any Collateral (other than the Collateral that is
sold or transferred with the prior consent of Required Lenders pursuant to Section&nbsp;13(a)(ii)), (g)
would change the definition of Required Lenders (or without the prior consent of Required Lenders
if such consent is not required), or (h)&nbsp;would amend this sentence. No such consent or waiver
shall extend beyond the particular case and purpose involved. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same, similar or other
circumstances without such notice or demand. No amendment of any provision of this Agreement
relating to Agent shall be effective without the written consent of Agent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25.&nbsp;<B>Multiple Counterparts. </B>This Agreement may be executed in a number of identical separate
counterparts, each of which for all purposes is to be deemed an original, but all of which shall
constitute, collectively, one agreement. No party to this Agreement shall be bound hereby until a
counterpart of this Agreement has been executed by all parties hereto.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Delivery of an executed counterpart of a signature page of the Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;26.&nbsp;<B>Conflict. </B>In the event any term or provision hereof is inconsistent with or conflicts with any
provision of the Loan Documents, the terms or provisions contained in this Agreement shall be
controlling.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27.&nbsp;<B>Survival. </B>All covenants, agreements, undertakings, representations and warranties made in the
Loan Documents, including this Agreement, the Notes or other documents and instruments referred to
herein shall survive all closings hereunder and shall not be affected by any investigation made by
any party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;28.&nbsp;<B>Parties Bound. </B>This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, provided, however, that Borrower may not,
without the prior written consent of all of Lenders, assign any rights, powers, duties or
obligations hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29.&nbsp;<B>Assignments and Participations</B>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Each Lender shall have the right to sell, assign or transfer all or any part of its
Note or Notes, its Commitment and its rights and obligations hereunder to one or more
Affiliates, Lenders, financial institutions, pension plans, insurance companies, investment
funds, or similar Persons who are Eligible Assignees or to a Federal Reserve Bank; provided,
that each sale, assignment or transfer (other than to an Affiliate or a Federal Reserve
Bank) shall require the consent of Agent and Borrower, which consents will not be
unreasonably withheld; provided, however, that if an Event of Default has occurred and is
continuing, the consent of Borrower shall not be required. Any such assignee, transferee or
recipient shall have, to the extent of such sale, assignment, or transfer, the same rights,
benefits and obligations as it would if it were such Lender and a holder of such Note,
Commitment and rights and obligations, including, without limitation, the right to vote on
decisions requiring consent or approval of all Lenders or Required Lenders and the
obligation to fund its Commitment; provided, that (1)&nbsp;each such sale, assignment, or
transfer (other than to an Affiliate or a Federal Reserve Bank) shall be in an aggregate
principal amount not less than $5,000,000, (2)&nbsp;each remaining Lender shall at all times
maintain Commitment then outstanding in an aggregate principal amount of at least equal to
$5,000,000; (3)&nbsp;each such sale, assignment or transfer shall be of a Pro Rata Part of such
Lender&#146;s Commitment, (4)&nbsp;no Lender may offer to sell its Note or Notes, Commitment, rights
and obligations or interests therein in violation of any securities laws; and (5)&nbsp;no such
assignments (other than to a Federal Reserve Bank) shall become effective until the
assigning Lender and its assignee delivers to Agent and Borrower an Assignment and
Acceptance and the Note or Notes subject to such assignment and other documents evidencing
any such assignment. An assignment fee in the amount of $3,500 for each such assignment
(other than to an Affiliate, a Lender or the Federal Reserve Bank) will be payable by the
transferring Lender to Agent by assignor or assignee. Within five (5)&nbsp;Business Days after
its receipt of copies of the Assignment and Acceptance and the other documents relating
thereto and the Note or Notes, Borrower shall execute and deliver to Agent (for delivery to
the relevant assignee) a new Note or
</DIV>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Notes evidencing such assignee&#146;s assigned Commitment
and if the assignor Lender has retained a portion of its Commitment, a replacement Note in
the principal amount of the Commitment retained by the assignor (except as provided in the
last sentence of this paragraph (a)&nbsp;such Note or Notes to be in exchange for, but not in
payment of, the Note or Notes held by such Lender). On and after the effective date of an
assignment hereunder, the assignee shall for all purposes be a Lender, party to this
Agreement and any other Loan Document executed by Lenders and shall have all the rights and
obligations of a Lender under the Loan Documents, to the same extent as if it were an
original party thereto, and no further consent or action by Borrower, Lenders or Agent shall
be required to release the transferor Lender with respect to its Commitment assigned to such
assignee and the transferor Lender shall henceforth be so released.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each Lender shall have the right to grant participations in all or any part of such
Lender&#146;s Notes and Commitment hereunder to one or more pension plans, investment funds,
insurance companies, financial institutions or other Persons, provided, that:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) each Lender granting a participation shall retain the right to vote
hereunder, and no participant shall be entitled to vote hereunder on decisions
requiring consent or approval of Lender or Required Lenders (except as set forth in
(iii)&nbsp;below);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) in the event any Lender grants a participation hereunder, such Lender&#146;s
obligations under the Loan Documents shall remain unchanged, such Lender shall
remain solely responsible to the other parties hereto for the performance of such
obligations, such Lender shall remain the holder of any such Note or Notes for all
purposes under the Loan Documents, and Agent, each Lender and Borrower shall be
entitled to deal with the Lender granting a participation in the same manner as if
no participation had been granted; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) no participant shall ever have any right by reason of its participation
to exercise any of the rights of Lenders hereunder, except that any Lender may agree
with any participant that such Lender will not, without the consent of such
participant (which consent may not be unreasonably withheld) consent to any
amendment or waiver requiring approval of all Lenders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) It is understood and agreed that any Lender may provide to assignees and
participants and prospective assignees and participants financial information and reports
and data concerning Borrower&#146;s properties and operations which was provided to such Lender
pursuant to this Agreement, provided, that each recipient thereto has first agreed, for the
benefit of Borrower, to hold such information, reports and data in confidence on the terms
set out in Section 12(j) hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Upon the reasonable request of either Agent or Borrower, each Lender will identify
those to whom it has assigned or participated any part of its Notes and Commitment, and
provide the amounts so assigned or participated.
</DIV>


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</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;30.&nbsp;<B>Choice
of Forum: Consent to Service of Process and Jurisdiction.</B> THE OBLIGATIONS OF
BORROWER UNDER THE LOAN DOCUMENTS ARE PERFORMABLE IN TARRANT COUNTY, TEXAS. ANY SUIT, ACTION OR
PROCEEDING AGAINST BORROWER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT
IN RESPECT THEREOF, MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY OF TARRANT, OR IN
THE UNITED STATES COURTS LOCATED IN TARRANT COUNTY, TEXAS AND BORROWER HEREBY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH SUIT, ACTION OR PROCEEDING.
BORROWER HEREBY IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN
SAID COURT BY THE MAILING THEREOF BY LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
BORROWER, AT THE ADDRESS FOR NOTICES AS PROVIDED IN SECTION 17. BORROWER HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE
STATE OF TEXAS, COUNTY OF TARRANT, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;31.&nbsp;<B>Waiver of Jury Trial. </B>BORROWER, AGENT AND LENDERS HEREBY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32.&nbsp;<B>Other Agreements. </B>THIS WRITTEN CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;33.&nbsp;<B>Financial Terms. </B>All accounting terms used in this Agreement which are not specifically
defined herein shall be construed in accordance with Accounting Principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;34.&nbsp;<B>Tri-Party Loan. </B>Texas Finance Code, Section&nbsp;346 shall not apply to loans evidenced by this
Agreement or the Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;35.&nbsp;<B>USA Patriot Act Notice. </B>Each Lender hereby notifies Borrower that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October&nbsp;26,
2001)) (the &#147;Act&#148;), it is required to obtain, verify and record information that identifies
Borrower, which information includes the name and address of Borrower and other information that
will allow such Lender to identify Borrower in accordance with the Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;36.&nbsp;<B>Original Credit Agreement. </B>Effective upon the Effective Date, this Agreement shall supersede
in its entirety the Credit Agreement dated November&nbsp;23, 2004 between Borrower
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and Frost (as
amended, the &#147;Original Credit Agreement&#148;); provided, however, that all loans, letters of credit,
and other indebtedness, obligations and liabilities outstanding under the Original Credit Agreement
on such date shall continue to constitute Loans, Letters of Credit and other indebtedness,
obligations and liabilities under this Agreement and the execution and delivery of this Agreement
or any of the Loan Documents hereunder shall not constitute a novation, refinancing or any other
fundamental change in the relationship among the parties and the Loans, Letters of Credit, and
other indebtedness, obligations and liabilities outstanding hereunder, to the extent outstanding
under the Original Credit Agreement immediately prior to the date hereof, shall constitute the same
loans, letters of credit, and other indebtedness, obligations and liabilities as outstanding under
the Original Credit Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;Signature Pages to Follow&#093;
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->53<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</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="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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"><B>BORROWER:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>APPROACH RESOURCES I, LP,</B><BR>
a Texas limited partnership</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Operating, LLC,<BR>
a Delaware limited liability company,<BR>
its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources Inc., <BR>
a Delaware corporation, its sole member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft</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"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft, President
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left:48%"><U><B>AGENT</B></U><B>:</B>
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><BR>
<BR>
<B>THE FROST NATIONAL BANK</B><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ John S. Warren
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">John S. Warren, Senior Vice President&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&nbsp;<B><U>LENDERS</U>:</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="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><B>Commitment Percentage <BR>
50%</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>THE FROST NATIONAL BANK</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ John S. Warren</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">John S. Warren, Senior Vice President</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->56<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</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="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><B>Commitment Percentage <BR>
50%</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>JPMORGAN CHASE BANK, NA</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Wm. Mark Cranmer</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">Wm. Mark Cranmer, Senior Vice President</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->57<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT &#147;A&#148;</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>NOTICE OF BORROWING</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned APPROACH RESOURCES I, LP, a Texas limited partnership (&#147;Borrower&#148;), is
authorized to execute this Notice of Borrowing in the capacity stated below. With reference to
that certain Amended and Restated Credit Agreement dated as of
February&nbsp;___, 2007 (as same may be
amended, modified, increased, supplemented and/or restated from time to time, the &#147;Agreement&#148;)
entered into by and among Borrower and THE FROST NATIONAL BANK (&#147;Agent&#148;), and the financial
institutions parties thereto (the &#147;Lenders&#148;), Borrower further certifies, represents and warrants
that all of the foregoing statements are true and correct (each capitalized term used herein having
the same meaning given to it in the Agreement unless otherwise specified):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Borrower requests that Lenders advance Borrower on the Loan the aggregate sum of $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
by no later than <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>. Immediately following such Advance, the aggregate outstanding balance of
Advances shall equal $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> on the Loan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
This Advance shall be a: Base Rate Loan <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> , or a Eurodollar Loan <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, (if Eurodollar
please state requested Interest Period <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> months).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) As of the date hereof, and as a result of the making of the requested Advance,
there does not and will not exist any Default or Event of Default.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Borrower has performed and complied in all material respects with all agreements
and conditions contained in the Agreement which are required to be performed or complied
with by Borrower before or on the date hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The representations and warranties contained in the Agreement are true and correct
in all material respects as of the date hereof and shall be true and correct in all material
respects upon the making of the Advance, with the same force and effect as though made on
and as of the date hereof and thereof (except to the extent such representations and
warranties related solely to an earlier date).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) No change that would cause a Material Adverse Effect to the condition, financial or
otherwise, of Borrower has occurred since the most recent Financial Statement provided to
Lenders.
</DIV>

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

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EXECUTED AND DELIVERED this <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>day of <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> , 200 &#95;&#95;&#95;.
</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="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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"><B>APPROACH RESOURCES I, LP,</B><BR>
a Texas limited partnership</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Operating, LLC,</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">a Delaware limited liability company,<BR>
its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources Inc.,</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">a Delaware corporation, its sole member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:</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"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft, President
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT &#147;B&#148;</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>REVOLVING NOTE</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="34%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">$100,000,000.00
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Fort Worth, Texas
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">February &#95;&#95;&#95;, 2007</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR VALUE RECEIVED, the undersigned APPROACH RESOURCES I, LP, a Texas limited partnership
(&#147;Borrower&#148;), hereby unconditionally promises to pay to the order of THE FROST NATIONAL BANK and
the other financial institutions named in the Credit Agreement (as hereinafter defined) (the
&#147;Lenders&#148;) at the offices of THE FROST NATIONAL BANK (the &#147;Agent&#148;) in Tarrant County, Texas, the
principal sum of ONE HUNDRED MILLION AND NO/100 DOLLARS ($100,000,000.00), or so much thereof as
may be advanced and outstanding at any time or from time to time pursuant to the Credit Agreement
in lawful money of the United States of America together with interest from the date hereof until
paid at the rates specified in the Credit Agreement. All payments of principal and interest due
hereunder are payable at the offices of Agent at 777 Main Street,
Suite ____, Fort Worth, Texas 76102,
Attention: John S. Warren, or at such other address as Agent shall designate in writing to
Borrower.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal and all accrued interest on this Note shall be due and payable in accordance
with the terms and provisions of the Credit Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Note is executed pursuant to that certain Credit Agreement (the &#147;Credit Agreement&#148;) dated
of even date herewith by and among Borrower, the Agent and Lenders, and is one of the Notes
referred to therein. Reference is made to the Credit Agreement and the Loan Documents (as that
term is defined in the Credit Agreement) for a statement of prepayment rights and obligations of
Borrower, for a statement of the terms and conditions under which the due date of this Note may be
accelerated and for statements regarding other matters affecting this Note (including without
limitation the obligations of the holder hereof to advance funds hereunder, principal and interest
payment due dates, voluntary and mandatory prepayments, exercise of rights and remedies, payment of
attorneys&#146; fees, court costs and other costs of collection and certain waivers by Borrower and
others now or hereafter obligated for payment of any sums due hereunder). Upon the occurrence of
an Event of Default (as that term is defined in the Credit Agreement and Loan Documents) the Agent
may declare forthwith to be entirely and immediately due and payable the principal balance hereof
and the interest accrued hereon, and the Lender shall have all rights and remedies of the Lender
under the Credit Agreement and Loan Documents. This Note may be prepaid in accordance with the
terms and provisions of the Credit Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Regardless of any provision contained in this Note, the holder hereof shall never be entitled
to receive, collect or apply, as interest on this Note, any amount in excess of the Maximum Rate
(as such term is defined in the Credit Agreement), and, if the holder hereof ever receives,
collects, or applies as interest any such amount which would be excessive interest, it shall be
deemed a partial prepayment of principal and treated hereunder as such; and, if the indebtedness
evidenced hereby is paid in full, any remaining excess shall forthwith be paid to Borrower. In
determining whether or not the interest paid or payable under any specific contingency exceeds the
Maximum Rate, Borrower and the holder hereof shall, to the maximum extent permitted under
applicable law (i)&nbsp;characterize any non-principal payment as an expense,
</DIV>

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

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">fee or premium rather than as interest, (ii)&nbsp;exclude voluntary prepayments and the effects
thereof, and (iii)&nbsp;spread the total amount of interest throughout the entire contemplated term of
the obligations evidenced by this Note and/or referred to in the Credit Agreement so that the
interest rate is uniform throughout the entire term of this Note; provided that, if this Note is
paid and performed in full prior to the end of the full contemplated term thereof and if the
interest received for the actual period of existence thereof exceeds the Maximum Rate, the holder
hereof shall refund to Borrower the amount of such excess or credit the amount of such excess
against the indebtedness evidenced hereby, and, in such event, the holder hereof shall not be
subject to any penalties provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of the Maximum Rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any payment of principal or interest on this Note shall become due on a day other than a
Business Day (as such term is defined in the Credit Agreement), such payment shall be made on the
next succeeding Business Day and such extension of time shall in such case be included in computing
interest in connection with such payment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Note is placed in the hands of an attorney for collection, or if it is collected
through any legal proceeding at law or in equity or in bankruptcy, receivership or other court
proceedings, Borrower agrees to pay all costs of collection, including, but not limited to, court
costs and reasonable attorneys&#146; fees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrower and each surety, endorser, guarantor and other party ever liable for payment of any
sums of money payable on this Note, jointly and severally waive presentment and demand for payment,
notice of intention to accelerate the maturity, protest, notice of protest and nonpayment, as to
this Note and as to each and all installments hereof, and agree that their liability under this
Note shall not be affected by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases or changes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA AND THE LAWS OF THE STATE OF TEXAS. BORROWER AGREES THAT THIS NOTE IS
PERFORMABLE IN TARRANT COUNTY, TEXAS AND THAT SUCH COUNTY IS PROPER VENUE FOR ANY ACTION OR
PROCEEDING INVOLVING THIS NOTE TO THE EXCLUSION OF ALL OTHER VENUES.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>THIS INSTRUMENT SECURES A LINE OF CREDIT USED PRIMARILY FOR BUSINESS, COMMERCIAL OR
AGRICULTURAL PURPOSES.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS WRITTEN NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EXECUTED as of the date and year first above written.
</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="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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"><U>BORROWER</U>:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>APPROACH RESOURCES I, LP,</B><BR>
a Texas limited partnership</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Operating, LLC,</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">a Delaware limited liability company,<BR>
its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources Inc.,</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">a Delaware corporation, its sole member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:</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"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft, President
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT &#147;C&#148;</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CERTIFICATE OF COMPLIANCE</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned APPROACH RESOURCES I, LP, a Texas limited partnership (&#147;Borrowers&#148;), hereby
certifies that J. Ross Craft is authorized to execute this Certificate of Compliance (in the
capacity stated in his signature below). With reference to that certain Amended and Restated
Credit Agreement, dated as of February&nbsp;&nbsp;, 2007 (as same may be amended, modified, increased,
supplemented and/or restated from time to time, the &#147;Agreement&#148;) entered into between the Borrower
and THE FROST NATIONAL BANK as &#147;Agent&#148; and Lender, for itself and the Lenders signatory thereto
(the &#147;Lenders&#148;), the undersigned further certifies, represents and warrants on behalf of Borrower
that all of the following statements are true and correct (each capitalized term used herein having
the same meaning given to it in the Agreement unless otherwise specified):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Borrower has fulfilled in all material respects its obligations under the Notes and
Loan Documents, including the Agreement, and all representations and warranties made herein
and therein continue (except to the extent they relate solely to an earlier date) to be true
and correct in all material respects.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) No Default or Event of Default has occurred under the Loan Documents, including the
Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) To the extent requested from time to time by the Agent, the certifying party shall
specifically affirm compliance of Borrower in all material respects with any of its
representations and warranties (except to the extent they relate solely to an earlier date)
or obligations under said instruments.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)
Financial Computations for the period ending _____.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Current Ratio:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EXECUTED,
DELIVERED AND CERTIFIED TO this ___ day of ______, 200_.
</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="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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"><B>APPROACH RESOURCES I, LP,</B><BR>
a Texas limited partnership</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Operating, LLC,</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">a Delaware limited liability company,<BR>
its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources Inc.,</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">a Delaware corporation, its sole member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:</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"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft, President
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->1<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT &#147;D&#148;</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>ASSIGNMENT AND ACCEPTANCE AGREEMENT</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Assignment Agreement (&#147;Assignment Agreement&#148;) between <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (the &#147;Assignor&#148;) and
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (the &#147;Assignee&#148;) is dated as of <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2007. The parties hereto agree as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;<U>PRELIMINARY STATEMENT</U>. The Assignor is a party to a Credit Agreement (which, as it
may be amended, modified, renewed or extended from time to time is herein called the &#147;Credit
Agreement&#148;) described in Item&nbsp;1 of Schedule&nbsp;1 attached hereto (&#147;Schedule&nbsp;1&#148;). Capitalized terms
used herein and not otherwise defined herein shall have the meanings attributed to them in the
Credit Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;<U>ASSIGNMENT AND ASSUMPTION</U>. The Assignor hereby sells and assigns to the Assignee,
and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the
Assignor&#146;s rights and obligations under the Credit Agreement and the other Loan Documents, such
that after giving effect to such assignment the Assignee shall have purchased pursuant to this
Assignment Agreement the percentage interest specified in Item&nbsp;3 of Schedule&nbsp;1 of all outstanding
rights and obligations under the Credit Agreement and the other Loan Documents relating to the
facilities listed in Item&nbsp;3 of Schedule&nbsp;1. The aggregate Commitment (or Loans, if the applicable
Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item&nbsp;4 of
Schedule&nbsp;1.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;<U>EFFECTIVE DATE</U>. The effective date of this Assignment Agreement (the &#147;Effective
Date&#148;) shall be the later of the date specified in Item&nbsp;5 of Schedule&nbsp;1 or two Business Days (or
such shorter period agreed to by the Agent) after this Assignment Agreement, together with any
consents required under the Credit Agreement, are delivered to the Agent. In no event will the
Effective Date occur if the payments required to be made by the Assignee to the Assignor on the
Effective Date are not made on the proposed Effective Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;<U>PAYMENT OBLIGATIONS</U>. In consideration for the sale and assignment of Loans
hereunder, the Assignee shall pay the Assignor, on the Effective Date, the amount agreed to by the
Assignor and the Assignee. On and after the Effective Date, the Assignee shall be entitled to
receive from the Agent all payments of principal, interest and fees with respect to the interest
assigned hereby. The Assignee will promptly remit to the Assignor any interest on Loans and fees
received from the Agent which relate to the portion of the Commitment or Loans assigned to the
Assignee hereunder for periods prior to the Effective Date and not previously paid by the Assignee
to the Assignor. In the event that either party hereto receives any payment to which the other
party hereto is entitled under this Assignment Agreement, then the party receiving such amount
shall promptly remit it to the other party hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;<U>RECORDATION FEE</U>. The Assignor and Assignee each agree to pay one-half of the
recordation fee required to be paid to the Agent in connection with this Assignment Agreement
unless otherwise specified in Item&nbsp;6 of Schedule&nbsp;1.
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;<U>REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR&#146;S LIABILITY</U>. The
Assignor represents and warrants that (i)&nbsp;it is the legal and beneficial owner of the interest
being assigned by it hereunder, (ii)&nbsp;such interest is free and clear of any adverse claim created
by the Assignor and (iii)&nbsp;the execution and delivery of this Assignment Agreement by the Assignor
is duly authorized. It is understood and agreed that the assignment and assumption hereunder are
made without recourse to the Assignor and that the Assignor makes no other representation or
warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors,
employees, agents or attorneys shall be responsible for (i)&nbsp;the due execution, legality, validity,
enforceability, genuineness, sufficiency or collectability of any Loan Document, including without
limitation, documents granting the Assignor and the other Lenders a security interest in assets of
the Borrower <B>&#091;or Guarantor&#093;</B>, (ii)&nbsp;any representation, warranty or statement made in or in
connection with any of the Loan Documents, (iii)&nbsp;the financial condition or creditworthiness of the
Borrower <B>&#091;or Guarantor&#093;</B>, (iv)&nbsp;the performance of or compliance with any of the terms or provisions
of any of the Loan Documents, (v)&nbsp;inspecting any of the property, books or records of the Borrower,
(vi)&nbsp;the validity, enforceability, perfection, priority, condition, value or sufficiency of any
collateral securing or purporting to secure the Loans or (vii)&nbsp;any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the Loan Documents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;<U>REPRESENTATIONS AND UNDERTAKINGS OF THE ASSIGNEE</U>. The Assignee (i)&nbsp;confirms that
it has received a copy of the Credit Agreement and other Loan Documents, together with copies of
the financial statements requested by the Assignee and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter into this Assignment
Agreement, (ii)&nbsp;agrees that it will, independently and without reliance upon the Agent, the
Assignor or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action
under the Loan Documents, (iii)&nbsp;appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by
the terms thereof, together with such powers as are reasonably incidental thereto, (iv)&nbsp;confirms
that the execution and delivery of this Assignment Agreement by the Assignee is duly authorized,
(v)&nbsp;agrees that it will perform in accordance with its terms all of the obligations which by the
terms of the Loan Documents are required to be performed by it as a Lender, (vi)&nbsp;agrees that its
payment instructions and notice instructions are as set forth in the attachment to Schedule&nbsp;1,
(vii)&nbsp;confirms that none of the funds, monies, assets or other consideration being used to make the
purchase and assumption hereunder are &#147;plan assets&#148; as defined under ERISA and that its rights,
benefits and interests in and under the Loan Documents will not be &#147;plan assets&#148; under ERISA,
(viii)&nbsp;agrees to indemnify and hold the Assignor harmless against all losses, costs and expenses
(including, without limitation, reasonable attorneys&#146; fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee&#146;s non-performance of the
obligations assumed under this Assignment Agreement, and (ix)&nbsp;if applicable, attaches the forms
prescribed by the Internal Revenue Service of the United States certifying that the Assignee is
entitled to receive payments under the Loan Documents without deduction or withholding of any
United States federal income taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;<U>GOVERNING LAW</U>. This Assignment Agreement shall be governed by the internal law,
and not the law of conflicts, of the State of Texas
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;<U>NOTICES</U>. Notices shall be given under this Assignment Agreement in the manner set
forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until
notice of a change is delivered) shall be the address set forth in the attachment to Schedule&nbsp;1.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;<U>COUNTERPARTS; DELIVERY BY FACSIMILE</U>. This Assignment Agreement may be executed in
counterparts. Transmission by facsimile of an executed counterpart of this Assignment Agreement
shall be deemed to constitute due and sufficient delivery of such counterpart and such facsimile
shall be deemed to be an original counterpart of this Assignment Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have executed this
Assignment Agreement by executing Schedule&nbsp;1 hereto as of the date first above written.
</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="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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" colspan="3">&#091;ASSIGNOR&#093;
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">Title:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Address:&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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 style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">&#091;ASSIGNEE&#093;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">Title:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Address:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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 style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(If required)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ACKNOWLEDGED AND CONSENTED TO:

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>THE FROST NATIONAL BANK,</B><BR>
as Agent

</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="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
John S. Warren, Senior Vice President
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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 colspan="3" valign="top" align="left"><B>APPROACH RESOURCES I, LP,</B><BR>
a Texas limited partnership</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Operating, LLC,<BR>
a Delaware limited liability company,<BR>
its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources Inc., <BR>
a Delaware corporation, its sole member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">By:</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft, President
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">SCHEDULE 1<BR>
to Assignment Agreement
</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="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="57%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD>1.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" valign="top" align="left">Description and Date of Credit Agreement: $100,000,000 Amended and Restated Credit Agreement dated February ____,
2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>2.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" valign="top" align="left">Date of Assignment Agreement:<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> , 2007</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">3.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Amounts (As of Date of Item&nbsp;2 above):</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="center">Facility</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="center">Facility</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="center">Facility</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="center">Facility</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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 nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="center" valign="top">1*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="center" valign="top">2*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="center" valign="top">3*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">&nbsp;</TD>
    <TD align="center" valign="top">4*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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 nowrap colspan="3" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">a.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignee&#146;s percentage of each</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facility purchased under the</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignment Agreement**</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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 nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">b.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amount of each Facility purchased</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">under the Assignment Agreement***</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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 nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD  valign="top">4.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Assignee&#146;s Commitment (or Loans with
respect to terminated Commitments)
purchased hereunder:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>5.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Proposed Effective Date:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>6.</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Non-standard Recordation Fee Arrangement</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</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>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" valign="top" align="left">&#091;Assignor/Assignee to pay 100% of fee&#093;<br> &#091;Fee waived by Agent&#093;</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="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">Accepted and Agreed:</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"><!-- Blank Space -->
    <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>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">&#091;NAME OF ASSIGNOR&#093;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">&#091;NAME OF ASSIGNEE&#093;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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>
    <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">By:
</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">By:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;
</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" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Title:
</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">Title:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;
</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" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD valign="top" colspan="3"><DIV style="margin-left:0px; text-indent:-0px">ACCEPTED
AND CONSENTED TO BY <BR>APPROACH RESOURCES I, LP, <BR>a Texas limited
partnership
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD valign="top" colspan="3"><DIV style="margin-left:0px; text-indent:-0px">ACCEPTED
AND CONSENTED TO BY <BR>THE FROST NATIONAL BANK</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" 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="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">By:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Operating, LLC,<BR>
a Delaware limited liability company,<BR>
its general partner
</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">John S. Warren, Senior Vice President</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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>
    <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">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources, Inc., <BR>
a Delaware corporation, its sole member</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"><!-- Blank Space -->
    <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>
    <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">By:</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>
    <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"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft, President
</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>
<!-- End Table Body -->
</TABLE>
</DIV>


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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>12
<FILENAME>d47789exv10w10.htm
<DESCRIPTION>AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w10</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">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.10</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">June&nbsp;14, 2007
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Frost National Bank<BR>
777 Main Street, Suite&nbsp;500<BR>
Fort Worth, Texas 76102

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Attention: Mr.&nbsp;John S. Warren

</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="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">Re:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Amended and Restated Credit Agreement dated as of February&nbsp;15,
2007 between Approach Resources I, LP, The Frost National Bank, as Administrative
Agent, and the Lenders parties thereto</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gentlemen:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reference is hereby made to that certain Amended and Restated Credit Agreement dated as of
February&nbsp;15, 2007 between Approach Resources I, LP (&#147;Borrower&#148;), The Frost National Bank, as
Administrative Agent (&#147;Agent&#148;), and the Lenders parties thereto (as amended hereby, the &#147;Loan
Agreement&#148;). All capitalized terms herein shall have the meanings ascribed to them in the Loan
Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to this letter amendment (the &#147;Amendment&#148;), Agent, Lenders and Borrower agree,
effective as of June&nbsp;14, 2007, to amend the Loan Agreement according to the terms and provisions
set forth below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;<U>Amendment to Definition of Maturity Date</U>. The defined term &#147;Maturity Date&#148; as set
forth in Section&nbsp;1.1 of the Loan Agreement is amended in its entirety to read as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Maturity Date</U>&#148; shall mean July&nbsp;31, 2010.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;<U>Extension Fee</U>. As consideration for, and as a condition precedent to, Lenders&#146;
agreement to extend the Maturity Date according to this Amendment, Borrower agrees to pay to Agent
upon its execution of this Amendment, for the ratable benefit of Lenders, a fee in the amount of
$62,500.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;<U>Ratification by Guarantors</U>. Each Guarantor hereby ratifies and reaffirms all of
its obligations under its Guaranty Agreement (the &#147;Guaranty&#148;) of Borrower&#146;s obligations under the
Loan Agreement, as amended hereby. Each Guarantor also hereby agrees that nothing in this
Amendment shall adversely affect any right or remedy of Bank under the Guaranty and that the
execution and delivery of this Amendment shall in no way change or modify its obligations as
guarantor under the Guaranty. Although each Guarantor has been informed by Borrower of the matters
set forth in this Amendment and such Guarantor has acknowledged and agreed to the same, such
Guarantor understands that Bank has no duty to notify such Guarantor or to seek such Guarantor&#146;s
acknowledgment or agreement, and nothing contained herein shall create such a duty as to any
transaction hereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;<U>Confirmation and Ratification</U>. Except as affected by the provisions set forth
herein, the Loan Agreement shall remain in full force and effect and is hereby ratified and
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">confirmed by Borrower. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right, power or remedy of
the Bank under the Loan Agreement or the other Loan Documents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;<U>Reference to Loan Agreement</U>. Each of the Loan Agreement and the Loan Documents,
and any and all other agreements, documents or instruments now or hereafter executed and delivered
pursuant to the terms hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are
hereby amended so that any reference in the Loan Agreement, the Loan Documents and such other
documents to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;<U>Final Agreement</U>. THE LOAN AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND ALL
PROMISSORY NOTES AND OTHER LOAN DOCUMENTS EXECUTED PURSUANT THERETO OR HERETO, REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Please signify your acceptance to the foregoing terms and provisions by executing a copy of
this Amendment at the space provided below.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;SIGNATURE PAGES TO FOLLOW&#093;
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</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="47%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Very truly yours,</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><U>BORROWER</U>:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH RESOURCES I, LP,<BR>
a Texas limited partnership</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Operating LLC.,<br>
a Delaware limited liability<br>
company, its general partner</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources, Inc.,<br>
a Delaware corporation,<br>
its sole member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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>
<!-- 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="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">J. Ross Craft, President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" 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="47%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><U>GUARANTORS</U>:</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH OPERATING, LLC,<br>
a Delaware limited liability company</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources, Inc., a Delaware<br>
corporation, its sole member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" 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="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">J. Ross Craft, President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" 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="47%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH DELAWARE, LLC,<BR>
a Delaware limited liability company</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources, Inc., a<br>Delaware
corporation, its sole member</TD>
    <TD>&nbsp;</TD>
    <TD align="left" 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="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&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">J. Ross Craft, President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

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


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ACCEPTED AND AGREED TO<BR>
effective as of the date and year<BR>
first above written:

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>AGENT</U>:

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">THE FROST NATIONAL BANK

</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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ John S. Warren
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&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">John S. Warren, Senior Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>LENDERS</U>:

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">THE FROST NATIONAL BANK

</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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ John S. Warren</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&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">John S. Warren, Senior Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">JPMORGAN CHASE BANK, NA

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Wm. Mark Cranmer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&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">Wm. Mark Cranmer, Senior Vice President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
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</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->- 4 -<!-- /Folio -->
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>13
<FILENAME>d47789exv10w12.htm
<DESCRIPTION>FORM OF OPTION AGREEMENT
<TEXT>
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.12</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>OPTION AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Option Agreement (&#147;Agreement&#148;), made and entered into as of <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (the &#147;Date of
Grant&#148;), is by and between Approach Resources Inc., a Delaware corporation (the &#147;Company&#148;), and
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (the &#147;Optionee&#148;).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">WITNESSETH:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Company has adopted that certain 2003 Stock Option Plan (the &#147;Plan&#148;) effective as
of January&nbsp;1, 2003 (the &#147;Plan Date&#148;) for certain employees of the Company; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Optionee is an employee of the Company eligible to participate in the Plan and
the Board of Directors of the Company, as administrator of the Plan, has determined that the
Company should recognize the potential contributions that the Optionee may make to the success of
the Company by granting him an option to purchase shares of Common Stock in the Company pursuant to
the Plan and upon the terms set forth herein;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements
hereinafter set forth, the Company and Optionee hereby agree as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;<U>Certain Definitions</U>. Terms used in this Agreement and not otherwise defined shall
have the respective meanings assigned to such terms in the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;<U>The Plan</U>. The terms and provisions of the Plan are hereby incorporated into this
Agreement as if set forth herein in their entirety. In the event of a conflict between any
provision of this Agreement and the Plan, the provisions of the Plan shall control. A copy of the
Plan may be obtained from the Company by the Optionee upon request. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed thereto in the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;<U>Grant of Option</U>. Subject to the terms and conditions hereinafter set forth, the
Company hereby irrevocably grants to the Optionee the right and option (the &#147;Option&#148;) to purchase
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>shares (&#147;Option Shares&#148;) of Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;<U>Option Price</U>. The price to be paid by Optionee to the Company for each Option
Share purchased pursuant to the exercise of this Option (&#147;Option Price&#148;) shall be $<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;<U>Vesting of Right to Exercise Option</U>. Subject to earlier vesting of the Option
Shares pursuant to the Plan, 33<SUP style="font-size: 85%; vertical-align: text-top">1</sup>/<SUB style="font-size: 85%; vertical-align: text-bottom">3</sub>% of the Option Shares shall vest immediately, 33<SUP style="font-size: 85%; vertical-align: text-top">1</sup>/<SUB style="font-size: 85%; vertical-align: text-bottom">3</sub>% of the Option
Shares shall vest on <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> and the remaining 33<SUP style="font-size: 85%; vertical-align: text-top">1</sup>/<SUB style="font-size: 85%; vertical-align: text-bottom">3</sub>% of the Option Shares shall vest on <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;<U>Restrictions on Exercise</U>. The right to exercise the Option shall be subject to the
following restrictions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;<U>Vesting</U>. Optionee shall have no right to exercise this Option to purchase any
Option Shares for which Optionee&#146;s rights have not yet vested in accordance with Section&nbsp;5.
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;<U>No Fractional Option Shares</U>. The Option may be exercised only with respect to
full Option Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;<U>Compliance with Law</U>. The Option may not be exercised in whole or in part, and no
Option Shares shall be issued nor certificates representing such Option Shares delivered pursuant
to any exercise of the Option, if any requisite approval or consent of any governmental authority
of any kind having jurisdiction over the exercise of options or the issuance and sale of Option
Shares shall not have been obtained or if such exercise or issuance would violate any applicable
law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;<U>Exercise by Optionee</U>. The Option shall be exercisable only by the Optionee, any
representative of the Optionee, and by any transferee who has received such Option in accordance
with the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;<U>Exercise of Option</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Subject to the other terms and provisions of this Agreement, the Option shall be
exercisable by written notice timely given to the Company by the Optionee, which notice (i)&nbsp;shall
state the number of Option Shares that the Optionee then desires to purchase, and (ii)&nbsp;shall be
accompanied by payment in full of the Option Price for each of such Option Shares, which such
payment shall be made in cash or certified check.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company shall be entitled to require the Optionee to deliver to the Company
such documents as the Company in its discretion shall deem necessary to confirm that (i)&nbsp;such
exercise and the Company&#146;s issuance and sale of such Option Shares are in compliance with the
requirements of any applicable laws (including, but not limited to, the Securities Act of 1933, as
amended (the &#147;Securities Act&#148;) all applicable state securities or &#147;blue sky&#148; laws (&#147;State Law&#148;)),
and (ii)&nbsp;the Optionee shall be bound by and comply with all of the terms and provisions of the
Stockholders Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Unless the Company and Optionee shall make mutually acceptable alternative arrangements,
at the time of exercise of the Option, Optionee shall pay to the Company, in cash, any federal,
state and local taxes required by law to be paid or withheld in connection with such exercise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;<U>Recapitalization or Reorganization</U>. The existence of this Option shall not affect
in any way the right or power of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company&#146;s capital structure or its business, any merger or
consolidation of, or share exchange involving, the Company, any issuance of additional Company
securities with priority over the Common Stock or otherwise affecting the Common Stock or the
rights thereof, the dissolution or liquidation of the Company&#146;s Common Stock or any sale, lease,
exchange or other disposition of all or any part of its assets or business or any other corporate
act or proceeding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;<U>Termination of Option</U>. The Option shall terminate at such time as set forth in the
Plan.
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;<U>Restriction on Transfer of Option</U>. The Option may not be sold, assigned,
hypothecated or transferred, except by will or by the laws of descent and distribution or to a
trust of which the Optionee is the sole trustee who retains all rights regarding the exercise and
disposition of the Option. Any attempted transfer of the Option in violation of this provision or
the other provisions of the Plan shall be void and of no effect whatsoever.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;<U>Certain Rights Incident to Divorce</U>. If an interest in the Option is
required by law to be transferred to a spouse of Optionee pursuant to an order of a court in a
divorce proceeding (notwithstanding the provisions of Section&nbsp;10 hereof), Optionee shall
nevertheless retain all rights with respect to the exercise of the Option and any interest of such
spouse shall be subject to such rights of Optionee. In addition, if it is determined that Optionee
will be required to pay any taxes attributable to the interest of the spouse in the Option, any tax
liability of Optionee which is attributable to such spouse&#146;s interest shall be taken into
account, and shall reduce such spouse&#146;s interest in this Option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;<U>Rights as a Stockholder</U>. Optionee shall have no rights as a stockholder of the
Company with respect to any Option Shares covered by the Option until the exercise of the Option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.&nbsp;<U>Additional Documents</U>. The Company and the Optionee will, upon request of the
other party, promptly execute and deliver all additional documents, and take all such further
action, reasonably deemed by such party to be necessary, appropriate or desirable to complete and
evidence the sale, assignment and transfer of the Option Shares pursuant to this Agreement,
including without limitation and if required by the Board, a counterpart signature page to the
Stockholders Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.&nbsp;<U>Representations, Warranties and Covenants of Optionee</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Optionee acknowledges that neither the Option nor the Option Shares covered thereby
have been registered under the Securities Act or State Law on the grounds that the issuance of the
Option is, and the sale of any Option Shares pursuant to the exercise of the Option will be, exempt
from registration under one or more provisions of each of such acts. The Optionee further
understands that in determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Option Shares upon exercise
of the Option, the Company has relied and will rely upon the representations, warranties and
covenants made by the Optionee herein and in any other documents which he may hereafter deliver to
the Company. Accordingly, the Optionee represents and warrants to and covenants and agrees with
the Company as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the Optionee is acquiring and will hold the Option, and will acquire and hold all
securities which he acquires upon exercise of the Option, for his own account for investment
and not with a view to or in connection with any sale or distribution of all or any part
thereof; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the Optionee will hold all securities acquired by him upon exercise of the Option,
as well as any and all other securities issued in respect thereof, subject to all applicable
provisions of the Stockholders&#146; Agreement, the 1933 Act and State Law, and
will not at any time make any sale, transfer, pledge or other disposition or
encumbrance
</DIV>

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

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">of any of such securities in violation
of the Stockholders&#146; Agreement or
in the absence of an effective registration statement for such securities under the 1933 Act
and State Law or an applicable exemption from the registration requirements therefrom.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Optionee agrees (i)&nbsp;that the certificates representing the Option Shares or
other securities purchased under this Option may bear such legend or legends as the Company deems
appropriate in order to assure compliance with applicable securities laws, (ii)&nbsp;that the Company
may refuse to register the transfer of the Option Shares or other securities purchased under this
Option on the transfer records of the Company if such proposed transfer would in the opinion of
counsel satisfactory to the Company constitute a violation of any applicable securities laws, (iii)
that the Company may give related instructions to its transfer agent, if any, to stop registration
of the transfer of the Option Shares or other securities purchased under this Option, (iv)&nbsp;that the
Option Shares or other securities acquired upon exercise of this Option shall be subject, in all
respects, to the Stockholders&#146; Agreement and (v)&nbsp;Optionee shall become party to the Stockholders&#146;
Agreement prior to issuance of any certificate representing the Option Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Optionee acknowledges that the value of the Option over its life will be speculative and
uncertain, that there is no market for the Option or the Option Shares or other securities that may
be acquired upon exercise of the Option and it is unlikely that any market will develop, and
consequently, the Optionee may ultimately realize no value from the Option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.&nbsp;<U>Tax Withholding</U>. Whenever under the Plan securities are to be delivered by an
Optionee upon exercise of an Option, the Company shall be entitled to require as a condition of
delivery that the Optionee remit or, in appropriate cases, agree to remit when due, an amount
sufficient to satisfy all current or estimated future federal, state and local withholding tax and
employment tax requirements relating thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.&nbsp;<U>Optionee&#146;s Employment</U>. Nothing contained in the Plan or in this Agreement shall
confer upon the Optionee any right with respect to the continuation of his employment by or service
with the Company or interfere in any way with the right of the Company (subject to the terms of any
separate agreement to the contrary) at any time to terminate such employment or service or to
increase or decrease the compensation of the Optionee from the rate in existence at the date of
this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17.&nbsp;<U>Notices</U>. All notices required or permitted to be given hereunder shall be in
writing and shall be deemed to have been given on the earlier of the date of receipt by the party
to whom the notice is given or five days after being mailed by certified or registered United
States mail, postage prepaid, addressed to the appropriate party at the address shown beside such
party&#146;s signature below or at such other address as such party shall have theretofore
designated by written notice given to the other party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.&nbsp;<U>Entirety and Modification</U>. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, between such parties relating to such subject matter. No
modification, alteration, amendment or supplement to this Agreement shall be valid or
effective unless the same is in writing and signed by the party against whom it is sought to
be enforced.
</DIV>

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

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.&nbsp;<U>Severability</U>. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision shall be deemed
inoperative to the extent it is unenforceable, and in all other respects this Agreement shall
remain in full force and effect; provided, however, that if any such provision may be made
enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall
be enforceable to the maximum extent permitted by applicable law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.&nbsp;<U>Gender</U>. Words used in this Agreement that refer to Optionee and denote the male
gender shall also be deemed to include the female gender or the neuter gender when appropriate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.&nbsp;<U>Headings</U>. The headings of the various sections and subsections of this Agreement
have been inserted for convenient reference only and shall not be construed to enlarge, diminish or
otherwise change the express provisions hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22.&nbsp;<U><B>GOVERNING LAW</B></U><B>. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE DELAWARE PRINCIPLES OF CONFLICTS OF LAW).</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.&nbsp;<U>Counterparts</U>. This Agreement may be signed in counterparts, each of which shall
be deemed an original and all of which shall constitute one and the same agreement.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">* * * * * * * * * *

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;Remainder of page intentionally left blank&#093;
</DIV>


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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set
forth above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Addresses</U>:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <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>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
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    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left"><B>THE COMPANY:</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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>
    <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">6300 Ridglea <BR>
Fort Worth, Texas 76116</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left">APPROACH RESOURCES INC.</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;
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<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>14
<FILENAME>d47789exv10w13.htm
<DESCRIPTION>RESTRICTED STOCK AWARD AGREEMENT
<TEXT>
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.13</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>APPROACH RESOURCES INC.<BR>
RESTRICTED STOCK AWARD AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Restricted Stock Award Agreement (the &#147;Agreement&#148;) is made this 14th day of March&nbsp;2007,
between APPROACH RESOURCES INC., a Delaware corporation (the &#147;Company&#148;), and J. Curtis Henderson,
an employee of the Company or one of its affiliates (&#147;Employee&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Company desires to afford Employee the opportunity to obtain shares of the
Company&#146;s common stock, $0.01 par value per share (the &#147;Shares&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other
good and valuable consideration, the parties hereto agree as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;<U>Grant of Award</U>. The Company hereby grants to Employee as of the date set forth
above (the &#147;Date of Grant&#148;) an aggregate of 21,250 Shares, such number of Shares being subject to
adjustment as provided in paragraph 7 hereof, and on the terms and conditions herein set forth.
The Shares granted pursuant to this Agreement are granted as restricted stock (the &#147;Restricted
Shares&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;<U>Restricted Period; Other</U>. (a)&nbsp;Except as otherwise provided in Paragraph&nbsp;6, this
award of Restricted Shares shall be subject to the following vesting periods: (i)&nbsp;One third (1/3)
shall vest upon the closing of the first underwritten public offering (the &#147;IPO&#148;) of the Common
Stock of the Company that is pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended
(the &#147;Securities Act&#148;), covering the offer and sale of any Common Stock to the public for the
Company&#146;s account, or on February&nbsp;21, 2008, whichever occurs earlier (the &#147;Initial Vesting Date&#148;);
(ii)&nbsp;one third (1/3) shall vest one year following the Initial Vesting Date; and (iii)&nbsp;one third
(1/3) shall vest two years following the Initial Vesting Date; provided Employee remains employed
by the Company through each vesting date. Notwithstanding the foregoing, if Employee is terminated
by the Company for reasons other than Cause or if events giving rise to Good Reason occur, the
Employee shall vest as of the date of such termination by the Company or the date the event giving
rise to Good Reason occurs, as applicable, in all unvested Restricted Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;For purposes of this Agreement, &#147;Cause&#148; shall be defined as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the willful and continued failure by Employee to substantially perform his duties
as an officer of the Company (other than any such failure resulting from Employee becoming
Disabled);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the willful engaging by Employee in misconduct that is materially injurious to the
Company;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) any misconduct in the course and scope of Employee&#146;s employment, including but
not limited to dishonesty, disloyalty, disorderly conduct, insubordination, harassment of
other employees or third parties, abuse of alcohol or controlled substances, or other
violations of the Company&#146;s rules;
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Employee&#146;s conviction of a felony or other crime involving moral turpitude; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) any material violation of any agreement between Employee and the Company, including
without limitation the Stockholders&#146; Agreement (defined below).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this paragraph, no act, or failure to act, on Employee&#146;s part shall be
considered &#147;willful&#148; unless done, or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the best interest of the
Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Company believes Cause exists for terminating Employee&#146;s employment and
forfeiting all unvested Restricted Shares, it shall give Employee written notice of the acts
or omissions constituting Cause, and no termination of employment and related forfeiture of
unvested Restricted Shares shall be effective unless and until Employee fails to cure such
acts or omissions within 10&nbsp;days after receiving such notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;For purposes of this Agreement, &#147;Good Reason&#148; shall mean:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a material adverse change in the nature or scope of Employee&#146;s authorities, powers,
functions, duties, or responsibilities (it being recognized that neither the IPO nor the
purchase or sale of oil and gas properties by the Company, regardless of the location of
such properties, will constitute a material adverse change for this purpose);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) any demotion of Employee to a non-officer position or an officer position junior
to Employee&#146;s position on the date of this Agreement, except for Cause; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) any material adverse change in the Employee&#146;s salary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee shall give the Company written notice of any actions alleged to constitute
Good Reason and the Company shall have 10&nbsp;days to cure any such alleged Good Reason.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;For purposes of this Agreement, a &#147;Disability&#148; shall be deemed to have occurred when:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Employee is determined to be eligible to receive long-term disability benefits
under either Social Security or the Company&#146;s long-term disability plan, if any;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the Board of Directors of the Company, upon the written report of a qualified
physician designated by the Board or its insurers, shall have determined (after a complete
physical examination of Employee at any time after he has been absent from the Company for a
period of at least 120 calendar days since the date of this Agreement), that Employee has
become physically and/or mentally incapable of performing his essential job functions with
or without reasonable accommodation as required by law; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Employee is otherwise unable for a continuous period of 180 calendar days to
perform his essential job functions with or without reasonable accommodation as required by
law due to injury, illness, or other incapacity (physical or mental).
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Determination of Cause, Good Reason or Disability shall be made by the Board of Directors
in its good faith discretion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;<U>Delivery of Shares</U>. Certificate(s) representing the Restricted Shares shall be
issued in the name of Employee (or, at the option of the Company, in the name of a nominee of the
Company) as of the Date of Grant and delivered to Employee on the Date of Grant or as soon
thereafter as practicable. Employee shall cause the certificate(s) representing the Restricted
Shares, upon receipt thereof by Employee, to be deposited, together with stock powers and any other
instrument of transfer reasonably requested by the Company duly endorsed in blank, with the
Company, to be held by the Company in escrow for Employee&#146;s benefit until such time as the
Restricted Shares represented by such certificate(s) are either forfeited by Employee to the
Company or the restrictions thereon terminate as set forth in this Agreement. If the restrictions
terminate as set forth in this Agreement, the certificate(s) representing the vested shares shall
be released from escrow to Employee. The Restricted Shares shall be subject in all respects to the
terms and conditions of that certain Voting and Stockholders&#146; Agreement dated as of January&nbsp;1, 2003
by and among the Company and the other stockholders of the Company (the &#147;Stockholders&#146; Agreement&#148;),
which are incorporated by reference hereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;<U>Forfeiture</U>. All Restricted Shares granted pursuant to this Agreement that have not
vested in accordance with Paragraph&nbsp;2 or Paragraph&nbsp;6, as the case may be, shall be forfeited to the
Company upon the date Employee is no longer employed by the Company or any of its affiliates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;<U>Taxes</U>. The Company will take any steps it deems necessary or desirable to satisfy
its withholding tax obligations, if any; provided that the Employee shall have the right (by
delivering written notice to the Secretary of the Company no less than 30&nbsp;days nor more than 60
days prior to the date the restrictions are to be removed) to have Shares withheld from the
certificate(s) to be delivered to Employee upon removal of the restrictions or to tender other
Shares of Common Stock to meet such obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;<U>Acceleration of Vesting and Delivery Dates</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Notwithstanding the provisions of Paragraph&nbsp;2 above relating to the vesting periods, the
Restricted Shares shall be 100% vested upon a Change of Control (as defined below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;For purposes of this Agreement, a &#147;Change of Control&#148; shall mean any of the following
events: (a)&nbsp;the dissolution or liquidation of the Company; (b)&nbsp;a reorganization, merger or
consolidation (other than a merger or consolidation effecting a reincorporation of the Company in
another state or any other merger or consolidation in which the stockholders of the surviving
corporation and their proportionate interests therein immediately after the merger or consolidation
are substantially identical to the stockholders of the Company and their proportionate interests
therein immediately prior to the merger or consolidation) of the Company with one or more
corporations, following which the Company is not the surviving corporation (or survives only as a
subsidiary of another corporation in a transaction in which the stockholders of the parent of the
Company and their proportionate interests therein immediately after the transaction are not
substantially identical to the stockholders of the Company and their proportionate interests
therein immediately prior to the transaction); (c)&nbsp;the sale of all or substantially all the assets
of the Company; or (d)&nbsp;any person or group of persons (as defined in Rule&nbsp;13d-5 under the
Securities
</DIV>

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



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Exchange Act of 1934, as amended) together with such person or its affiliates, becomes
the owner, directly or indirectly, of 50% or more of the total fair market value or total voting
power of the Company; provided that if one or more persons acting as a group currently owns more
than 50% of the Company, the acquisition of additional stock by the same person or persons is not
considered to cause a Change in Control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;<U>Adjustments of Shares Subject to Award</U>. If any Shares shall at any time be changed
or exchanged by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination of shares or a dividend payable in stock, then the
aggregate number of Restricted Shares subject to this Agreement shall be automatically adjusted
such that Employee&#146;s proportionate interest shall be maintained as before the occurrence of such
event. The determination of any such adjustment by the Company shall be final, binding and
conclusive. Shares distributed in connection with or resulting from any such adjustment with
respect to Restricted Shares that have not yet vested shall enjoy the same privileges and be
subject to the same restrictions pursuant to this Agreement that are applicable to the related
Restricted Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;<U>No Contract for Employment</U>. Notwithstanding anything to the contrary contained
herein, this Agreement does not constitute a contract for employment and shall not affect the right
of the Company to terminate Employee&#146;s employment for any reason whatsoever or for no reason.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;<U>Restrictions on Transfer; Rights as Shareholder</U>. None of the Restricted Shares may
be sold, transferred, assigned, pledged or otherwise encumbered or disposed of prior to vesting.
The Restricted Shares are also be subject to such other restrictions on transfer as set forth in
the Stockholders&#146; Agreement. Subject to the restrictions referenced in the preceding sentences,
and except as otherwise provided in this Agreement, Employee shall for all purposes be the record
and beneficial owner of the Restricted Shares. Employee shall be entitled to vote the Shares at all
meetings of stockholders and be entitled to receive and retain all cash dividends that may be paid
with respect to the Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;<U>Restriction on Issuance of Shares</U>. The Company shall not be required to issue or
deliver any certificates for Shares covered by this Agreement prior to the obtaining of any
approval from any governmental agency that the Company shall, in its sole discretion, determine to
be necessary or advisable, and the completion of any registration or other qualification of such
Shares or their offering or sale under any state or federal law or ruling or regulations of any
governmental body that the Company shall, in its sole discretion, determine to be necessary or
advisable. In addition, if the offering and sale of Shares reserved for issuance pursuant to this
Agreement shall not then be registered under the Securities Act of 1933, as amended, the Company
may, upon Employee&#146;s receipt of Shares issued pursuant to this Agreement, require Employee or his
permitted transferee to represent in writing that the Shares being acquired are for investment and
not with a view to distribution, and may mark the certificate(s) for the Shares with a legend
restricting transfer and may issue stop transfer orders relating to such certificate(s) to the
transfer agent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;<U>Acknowledgment</U>. Employee acknowledges that Thompson &#038; Knight LLP has not
represented such Employee in connection with the preparation and negotiation of this Agreement, and
such counsel shall owe no duties directly to Employee. Employee confirms that Employee has been
advised to consult with Employee&#146;s own attorney regarding legal matters concerning the
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Company and
to consult with independent tax advisors regarding the tax consequences of receiving the Restricted
Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;<U>Binding Effect</U>. This Agreement shall be binding upon the heirs, executors,
administrators, and successors of the parties hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.&nbsp;<U>Modification</U>. No change or modification of this Agreement shall be valid or
binding upon the parties unless the change or modification is in writing and signed by the parties;
provided, however, that the Company may change or modify this Agreement without Employee&#146;s consent
or signature if the Company determines, in its sole discretion, that such change or modification is
necessary for purposes of compliance with or exemption from the requirements of Section&nbsp;409A of the
Internal Revenue Code of 1986, as amended, or any regulations or other guidance issued thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.&nbsp;<U>Governing Instrument and Law</U>. This Agreement shall be governed by the laws of the
State of Delaware, without regard to its conflict of laws principles.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;Signature Page Follows&#093;
</DIV>


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    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">APPROACH RESOURCES INC.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">J. Ross Craft, President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">Accepted and Agreed:</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"><!-- Blank Space -->
    <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">/s/ J. Curtis Henderson</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Date: March&nbsp;14, 2007</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top" style="border-top: 1px solid #000000"><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">J. Curtis Henderson</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>
<!-- End Table Body -->
</TABLE>
</DIV>



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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>15
<FILENAME>d47789exv21w1.htm
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
<HTML>
<HEAD>
<TITLE>exv21w1</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">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;21.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Subsidiaries of Approach Resources Inc.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Approach Operating, LLC<BR>
Approach Delaware, LLC<BR>
Approach Resources I, LP<BR>
Approach Oil &#038; Gas Inc.<BR>
AOG Operating, LLC<BR>
AOG Delaware, LLC<BR>
AO&#038;G, LP

</DIV>

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>16
<FILENAME>d47789exv23w1.htm
<DESCRIPTION>CONSENT OF HEIN & ASSOCIATES LLP
<TEXT>
<HTML>
<HEAD>
<TITLE>exv23w1</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">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;23.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We consent
to the use in this Registration Statement on Form S-1 of Approach Resources Inc. of our
report dated May&nbsp;7, 2007 relating to our audits of the combined financial statements of Approach
Resources Inc. and affiliated entities as of December&nbsp;31, 2005 and 2006 and for each of the three
years in the period ended December&nbsp;31, 2006, appearing in the Prospectus, which is part of this
Registration Statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We consent
to the use in this Registration Statement on Form S-1 of Approach Resources Inc. of our
report dated May&nbsp;7, 2007 relating to our audits of the Historical Summaries of Revenues and Direct
Operating Expenses of Properties to be Acquired by Approach Resources Inc. for the years ended
December&nbsp;31, 2005 and 2006, appearing in the Prospectus, which is part of this Registration
Statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also consent to the reference to our firm under the caption &#147;Experts&#148; in such Prospectus.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Hein &#038; Associates LLP<BR>
Dallas, Texas<BR>
July&nbsp;10, 2007

</DIV>

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>17
<FILENAME>d47789exv23w2.htm
<DESCRIPTION>CONSENT OF DEGOLYER & MACNAUGHTON
<TEXT>
<HTML>
<HEAD>
<TITLE>exv23w2</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">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;23.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><FONT style="font-variant: SMALL-CAPS"><B>DeGolyer
and MacNaughton</B></FONT><BR><B>5001 S</B><FONT style="font-variant: SMALL-CAPS"><B>pring</B></FONT> V<FONT style="font-variant: SMALL-CAPS"><B>alley</B></FONT><B> R</B><FONT style="font-variant: SMALL-CAPS"><B>oad</B></FONT><BR>
<B>S</B><FONT style="font-variant: SMALL-CAPS"><B>uite</B></FONT> <B>800 E</B><FONT style="font-variant: SMALL-CAPS"><B>ast</B></FONT><BR>
<B>D</B><FONT style="font-variant: SMALL-CAPS"><B>allas</B></FONT><B>, T</B><FONT style="font-variant: SMALL-CAPS"><B>exas</B></FONT> <B>75244</B><BR>
July&nbsp;11, 2007
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Approach Resources Inc.<BR>
6300 Ridglea Place<BR>
Suite&nbsp;1107<BR>
Fort Worth, Texas 76116

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Ladies and Gentlemen:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We hereby consent to the use of the name DeGolyer and MacNaughton; to the inclusion of
information taken from our &#147;Appraisal Report as of December&nbsp;31, 2006 on Certain Properties owned by
Approach Resources and J Cleo Thompson&#148; and &#147;Appraisal Report as of December&nbsp;31, 2006 on Certain
Properties owned by Approach Oil and Gas, Inc.&#148; (Our Reports) in the Registration Statement on Form
S-1 of Approach Resources Inc. and the related prospectus that is part thereof dated on or about
July&nbsp;12, 2007 (Form S-1). We further consent to the reference to DeGolyer and MacNaughton under
the heading &#147;Experts&#148; in the Form S-1.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 50%">Very truly yours,

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 50%">/s/ DeGOLYER and MacNAUGHTON

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 50%">DeGOLYER and MacNAUGHTON

</DIV>


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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.3
<SEQUENCE>18
<FILENAME>d47789exv23w3.htm
<DESCRIPTION>CONSENT OF CAWLEY, GILLESPIE & ASSOCIATES, INC
<TEXT>
<HTML>
<HEAD>
<TITLE>exv23w3</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">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;23.3</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><FONT style="font-variant: SMALL-CAPS">Cawley, Gillespie &#038; Associates, Inc.</FONT><BR>
PETROLEUM CONSULTANTS<BR>
302 FORT WORTH CLUB BUILDING<BR>
306 WEST SEVENTH STREET<BR>
FORT WORTH, TEXAS 76102-4987<BR>
(817)&nbsp;336-2461
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSENT OF CAWLEY, GILLESPIE &#038; ASSOCIATES, INC.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby consents to the references to our firm in the form and context in which
they appear in this Registration Statement on Form S-1 of Approach Resources Inc. and the related
prospectus that is a part thereof. We hereby further consent to the use in such Registration
Statement and prospectus of information contained in our report setting forth the estimates of
revenues from Approach Resources Inc.&#146;s oil and gas reserves as of December&nbsp;31, 2004 and December
31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We further consent to the reference to this firm under heading &#147;Experts.&#148;
</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="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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"><IMG src="d47789d4778901.gif" alt="-s- Cawley, Gillespie &#038; Associates, Inc."></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">CAWLEY, GILLESPIE &#038; ASSOCIATES, INC.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fort Worth, Texas<BR>
July&nbsp;11, 2007</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"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>20
<FILENAME>d47789d4778910.gif
<DESCRIPTION>GRAPHIC
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