Piceance Basin

Our core asset and primary area of activity is in the Vega Area of the Piceance Basin in western Colorado. The Williams Fork member of the Mesa Verde formation is the primary producing interval and has been successfully developed throughout the Piceance Basin. The geology of the Piceance Basin is characterized as highly consistent and predictable over large areas, which generally equates to reliable timing and cost expectations during drilling and completion activities, as well as minimal well-to-well variance in production and reserves when completed with the same methodology.

Vega Area. Since 2005 we have dedicated significant financial capital and human resources to the development of our Vega Unit and surrounding leasehold in Mesa County, Colorado, which in combination is referred to as the Vega Area. The Vega Area is comprised of the Vega Unit, the Buzzard Creek Unit, the North Vega leasehold, and the North Buzzard Creek leasehold. Our working interest in the Vega Area varies between 95-100%. In 2008, we acquired an additional 17,300 net acres, which increased our position to approximately 22,375 net acres, which has over 1,900 net drilling locations based on 10-acre spacing. During fiscal 2008, we increased proved reserves in the Vega Area over 295% to 719.9 Bcfe and increased production from approximately 25.0 Mmcf/d at the beginning of the year to approximately 48.0 Mmcf/d at the end of 2008. However, during 2009, as a result of the combined effect of lower gas prices through the year and the new SEC reserve pricing rules and our limited capital development plan, proved reserves decreased to 84.7 Bcfe. At December 31, 2010, proved reserves in the Vega Area totaled 112.6 Bcfe. Net production in the Vega Area currently exceeds 30.0 Mmcfe/d. We ended 2010 with 190 wells producing. Despite our large inventory of over 1,900 drilling locations and efficient reserve growth, we decreased our drilling program from four rigs to one rig at year end 2008, and further to zero rigs in 2009 and 2010, primarily due to the decrease in natural gas prices and liquidity concerns. Since 2005 we have experienced significant reductions in drill time, and drilling and completion costs. We reinitiated completion activities in the latter half of 2010 on previously drilled wells. These recently completed wells utilized a larger fracture stimulation design, called “generation four” or “Gen IV”, which has proven to increase the initial production and recoverable reserves per well over our prior completion designs. Additionally, we drilled a well in the Vega Area to test the sections that are located deeper than the Williams Fork section. We began completion activities on this deep test well subsequent to year end. We also began drilling another well, which will target the section immediately beneath the Williams Fork section. Our drilling and completion capital budget for the Vega Area for 2011 has not yet been determined beyond the exploratory test wells, lease preservation well, and drilled but not completed wells described elsewhere, pending the results of the exploratory test wells.

Non-Operated Assets

South Piceance. We have a 5% working interest in 153 producing wells in the southern region of the Piceance Basin. We also have a 5% working interest in an additional 75 wells remaining to be drilled, but will not incur any capital expenditures on these wells in accordance with the carry provisions of the February 2008 agreement with Encana.