Commodity Risk. Our major market risk exposure is the commodity pricing applicable to our oil and natural gas production. Realized commodity prices received for such production are primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to natural gas. The effects of such pricing volatility are expected to continue.

Our price-risk management policy permits the utilization of agreements and financial instruments (such as futures, forward and options contracts, and swaps) to mitigate price risk associated with fluctuations in oil and natural gas prices. Below is a description of the financial instruments we have utilized to hedge our exposure to price risk.

• Price Floors – At March 1, 2004, we had in place price floors in effect through the June 2004 contract month for natural gas, these cover our domestic natural gas production for March 2004 to June 2004. The natural gas price floors cover notional volumes of 2,550,000 MMBtu, with a weighted average floor price of $4.84 per MMBtu. Our hedges in place at March 1, 2004 are expected to cover approximately 55% to 65% of our domestic natural gas production from March 2004 to June 2004.
• New Zealand Gas Contracts – All of our gas production in New Zealand is sold under long-term, fixed-price contracts denominated in New Zealand Dollars. These contracts protect against price volatility, and our revenue from these contracts will vary only due to production fluctuations and foreign exchange rates.

Interest Rate Risk. Our Senior Notes have a fixed interest rate, so consequently we are not exposed to cash flow risk from market interest rate changes on our Senior Notes. At December 31, 2003, we had $15.9 million in outstanding borrowings under our credit facility, which bears a floating rate of interest and therefore susceptible to interest rate fluctuations. The result of a 10% fluctuation in the bank’s base rate would constitute 40 basis points and would reduce 2004 cash flows by $0.1 million based on the December 31, 2003 level of borrowing.

Income Tax Carryforwards. We have significant federal and state net operating loss and capital loss carryforwards at December 31, 2003. The Company has not recorded a valuation allowance against the deferred tax assets attributable to these carryovers at December 31, 2003, as management estimates that it is more likely than not that these assets will be fully utilized before they expire. Significant changes in estimates caused by changes in oil and gas prices, production levels, capital expenditures, and other variables could impact the Company’s ability to utilize the carryover amounts. If we are not able to use our carryforwards, our results of operations and cash flows will be negatively impacted.

Financial Instruments and Debt Maturities. Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank borrowings, and notes. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these instruments. The fair values of the bank borrowings approximate the carrying amounts as of December 31, 2003 and 2002, and were determined based upon interest rates currently available to us for borrowings with similar terms. Based on quoted market prices as of the respective dates, the fair value of our Senior Notes due 2009 was $135.6 million at December 31, 2003, and $129.0 million at December 31, 2002. Based upon quoted market prices as of the respective dates, the fair value of our Senior Notes due 2012 was $218.0 million at December 31, 2003, and $189.2 million at December 31, 2002. Our credit facility with the banks expires October 1, 2005.

Foreign Currency Risk. We are exposed to the risk of fluctuations in foreign currencies, most notably the New Zealand Dollar. Fluctuations in rates between the New Zealand Dollar and U.S. Dollar may impact our financial results from our New Zealand subsidiaries since we have receivables and liabilities denominated in New Zealand Dollars. We use the U.S. Dollar as our functional currency in New Zealand, because of this our results of operations, cash flows and effective tax rate are impacted from fluctuations between the U.S. Dollar the New Zealand Dollar.