Permian

We drilled and completed 9 gross (8.8 net) wells in our Sugg Ranch area during the second quarter 2012 with 100% drilling success. We are currently running two operated rigs and plan to drill and complete 36 gross (34.9 net) wells in 2012. Economics for this drilling activity typically have rates-of-return in excess of 50%. In the second quarter, our production averaged approximately 4,200 barrels per day of net oil equivalents which was a 5% increase over the second quarter of 2011. This average production rate consisted of 1,600 net barrels of oil, 7.0 net Mmcf of natural gas, and 1,400 net barrels of natural gas liquids per day.

Based on industry results surrounding our Permian acreage position, we are continuing to evaluate our shale potential. We are testing potential formations vertically in addition to routine core sample analysis. Based on those results, we may spud a horizontal test well during the second half of 2012.

Midstream

Our jointly held midstream company, TGGT, had total throughput which averaged approximately 1.5 Bcf per day for the second quarter of 2012. TGGT’s adjusted EBITDA of $42 million for the second quarter of 2012 was a 22% increase over TGGT’s adjusted EBITDA for the first quarter of 2012.

The EBITDA increase in the second quarter of 2012 is primarily attributable to the significant reduction in operating expenses as TGGT released rental units, canceled equipment leases and discontinued use of third party treating following TGGT's treating facilities becoming fully operational. TGGT continues to evaluate additional operational opportunities to maximize efficiencies and further reduce operating expenses.

In our Shelby area, a major pipeline and treating facility capable of treating all the current Shelby volumes became operational in the second quarter of 2012. Following the completion of the pipeline and the treating facility, TGGT's major infrastructure development and capital projects in the Shelby area are concluded for 2012.

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