Annual incentive bonuses for 2004 and prior periods have been paid in cash and also were determined by the Compensation Committee. Bonus awards for 2004 were based upon the Company reaching specified pre-determined growth targets in four areas, each with a one-sixth weighting: earnings per share, cash flow per share, volumes of proved oil and gas reserves and volumes of probable oil and gas reserves. The other factor with a one-third weighting was subjective, and measured an individual executive’s personal performance based upon individual goals set at the beginning of the year. Other than the subjective analysis of individual performance, success was measured for all executive officers by the same factors. Success in these five areas was then measured against maximum target bonus ranges as percentages of base salaries.

For 2005, the four objective factors have been expanded to additionally include: net margin per oil and gas equivalent produced, production growth, controllable lease operating expenses per oil and gas equivalent produced and finding costs per oil and gas equivalent reserves added, and the former two reserve growth categories have been combined to measure growth in proved and probable reserves taken together. The application of these seven factors has also been modified so that different factors and different percentages of base salary apply to different executive officers, with each executive officer given different weightings of these seven factors to measure performance. The one-third weighting based upon individual performance remains in place for 2005 and will continue to be monitored against individual goals determined at the beginning of the year.

Long-term incentives, currently consisting of stock options and/or restricted stock, are awarded by the Compensation Committee historically toward the end of each year, although beginning in 2005 long-term incentives are anticipated to be awarded early in the following year, using different percentages of base salary for different level executive officers, with stock options valued using a Black-Scholes model, and restricted stock valued based upon prevailing market prices at the date of grant. Stock options to executive officers typically contain the same vesting provisions as stock options granted to all employees, with the exception of accelerated vesting provisions in specified circumstances for those executive and other officers with employment agreements. The only time restricted stock has been granted was in late 2004, with 20% to vest over 5 years, with the first 20% to vest February 8, 2006 and an additional 20% to vest on each February 7 thereafter until fully vested. It is currently anticipated that restricted stock awards will continue to be made in the future.