Discretionary Cash Flow is a supplemental financial measure used by the company’s management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the company’s ability to internally fund exploration and development activities. Discretionary cash flow should not be considered as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (“GAAP”). Discretionary cash flow excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, the company’s Discretionary Cash Flow may not be comparable to similarly titled measures used by other companies.

The table below reconciles the most directly comparable GAAP financial measure to Discretionary Cash Flow.

Reconciliation of Net Income (Loss) to Discretionary Cash Flow
    For the Quarter Ended March 31,
2012   2011
Net income (loss) as reported $ (1,219,074) $ 358,237
Exploration expense 57,396 381,432
Loss on plugging and abandonment 1,612,290 -
Dry hole costs 89,874 -
Depreciation, depletion and amortization 4,937,152 3,174,770
Accretion expense 555,504 424,422
Stock-based compensation 261,783 290,684
Debt issuance and discount 301,476 771,292
Income tax provision (benefit)   (768,243)   -

Discretionary Cash Flow
$ 5,828,158 $ 5,400,837

EBITDAX is a non-GAAP financial measure.

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