Management Comment

H. Baird Whitehead, President and Chief Executive Officer stated, “In the fourth quarter, our operating cash flows remained strong and our margins continued to improve as a result of increased oil production, attractive oil prices and lower operating expenses. We expect oil production to increase further in 2013 and comprise over 85 percent of product revenues and over 60 percent of production.

“We also strengthened our balance sheet in 2012. At year-end 2012, we had over $300 million of financial liquidity and a leverage ratio of approximately 2.3 times Adjusted EBITDAX, so that we expect to be able to fund our 2013 capital program from operating cash flows and borrowings under our revolver. Moreover, we are considering the sale of a portion of our working interest in our Lavaca County Eagle Ford Shale acreage, which would further improve liquidity and reduce the outspend of cash flows.”

Mr. Whitehead concluded, “Our steadily improving results have been driven primarily by our oily Eagle Ford Shale play where we significantly increased our acreage and drilling inventory during 2012. Building on this success, we plan to commit approximately 88 percent of estimated 2013 capital expenditures to the Eagle Ford Shale, drilling approximately 38 (28.8 net) wells and focusing on expanding our Eagle Ford Shale position.”

Full-Year 2012 Financial Results

For the year ended December 31, 2012, we incurred an operating loss of $147.1 million, which included impairment charges and loss on firm transportation obligations of $121.8 million, compared to a loss in 2011 of $155.4 million, which included impairment charges of $104.7 million. Adjusted loss attributable to common shareholders, excluding the effects of changes in derivatives fair value, impairments, restructuring costs and other gains or losses that affect comparability to the prior year period, and including the preferred stock dividend of $1.7 million, was $36.6 million, or $0.76 per diluted share, in 2012 compared to a loss of $47.7 million, or $1.04 per diluted share, in 2011. Loss attributable to common shareholders (which includes our preferred stock dividend) was $106.3 million, or $2.22 per diluted share, in 2012 compared to a loss of $132.9 million, or $2.90 per diluted share, in 2011. The decrease was due primarily to the $8.3 million decrease in operating loss, a $22.3 million decrease in the loss on the extinguishment of debt and a $20.5 million increase in derivatives income.

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