Our price-risk management policy permits the utilization of agreements and financial instruments (such as futures, forward contracts, swaps and options contracts) 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.

Interest Rate Risk. Our senior notes and senior subordinated notes both have fixed interest rates, so consequently we are not exposed to cash flow risk from market interest rate changes on these notes. At December 31, 2007, we had borrowings of $187.0 million under our credit facility, which bears a floating rate of interest and therefore is susceptible to interest rate fluctuations. The result of a 10% fluctuation in the bank’s base rate would constitute 73 basis points and would not have a material adverse effect on our 2008 cash flows based on this same level of borrowing.

Income Tax Carryforwards. During 2007, the Company recorded a write-down and valuation allowance totaling $2.6 million for capital loss carryforwards as detailed in Note 3 of the accompanying consolidated financial statements. The Company has other net tax carryforwards for federal alternative minimum tax credits ($5.1 million) and state tax net operating loss carryforwards ($4.3 million) which in management’s judgment will more likely than not be utilized to offset future taxable earnings.

The Company’s New Zealand subsidiaries have local income tax loss carryovers, a portion of which will offset the sales proceeds from the liquidation of assets. We have estimated a net loss carryover asset of $33.5 million will remain after closing of the pending transaction. In management’s judgment it is less than more likely than not that the remaining carryover will be utilized. Accordingly, this carryover asset has been fully offset by a valuation allowance.

Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, bank borrowings, and senior notes. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the highly liquid or short-term nature of these instruments. The fair values of the bank borrowings approximate the carrying amounts as of December 31, 2007 and 2006, and were determined based upon variable interest rates currently available to us for borrowings with similar terms. Based upon quoted market prices as of December 31, 2007, the fair value of our senior notes due 2017, which were issued during 2007, were $237.5 million, or 95.0% of face value. Based upon quoted market prices as of December 31, 2007 and 2006, the fair values of our senior notes due 2011 were $150.8 million, or 100.5% of face value, and $152.6 million, or 101.75% of face value. The carrying value of our senior notes due 2017 was $250.0 million at December 31, 2007. The carrying value of our senior notes due 2011 was $150.0 million at December 31 for both 2007 and 2006.

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, liabilities, natural gas and NGL sales contracts, and New Zealand income tax calculations, all denominated in New Zealand Dollars. We use the U.S. Dollar as our functional currency in New Zealand and as currency rate changes between the U.S. Dollar and the New Zealand Dollar, we recognize transaction gains and losses in “Income (loss) from discontinued operations, net of taxes” on the accompanying statements of income.

Customer Credit Risk. We are exposed to the risk of financial non-performance by customers. Our ability to collect on sales to our customers is dependent on the liquidity of our customer base. To manage customer credit risk, we monitor credit ratings of customers and seek to minimize exposure to any one customer where other customers are readily available. Due to availability of other purchasers, we do not believe the loss of any single oil or natural gas customer would have a material adverse effect on our results of operations.