1Q11 Financial Results

For the three months ended March 31, 2011 the Company reported oil and gas revenues of $1,911,000 compared to $623,000 for the first quarter of 2010. EBITDAX for the quarter ended March 31, 2011 was $175,837. Net loss for the period was $3,743,000 compared to a net loss of $2,821,000 for the same period in 2010. This included non-cash charges of depreciation, depletion, amortization and accretion of $1,075,930, stock issued for services of $126,483, stock based compensation of $546,530, amortization of deferred financing costs of $837,376, cash interest expense of $854,862, and an unrealized loss on commodity hedges of $477,912. EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income, income from operations, or cash flow provided by (used in) operating activities prepared in accordance with GAAP. A more detailed description of EBITDAX is below.

The Company’s production volume on a BOE basis increased 285% from 8,897 BOE during the first quarter of 2010 to 25,328 BOE during the first quarter of 2011. This increase is primarily attributable to the State Line Field acquisition that was completed subsequent to March 31, 2010. In addition, the Company realized increased prices during the first quarter of 2011 versus the first quarter of 2010. Oil price realization increased by 24% to $86.49 per barrel for the first quarter of 2011, compared to $69.98 per barrel for the same period in 2010. This increase in price realization during the first quarter of 2011 was partially offset by a realized loss on hedges of approximately $167,000 and a non-cash charge of approximately $478,000 for the change in value of commodity derivatives that the Company uses to mitigate its exposure to oil price volatility. There was no realized gain or loss for such risk management activities during the first quarter of 2010, but the Company did experience a non-cash charge of approximately $133,000 for the change in value of commodity derivatives during the same period.

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