Overview

We are an independent oil and gas company organized as a Tennessee corporation in 1990 and engaged in and focused exclusively on the exploration, development, production and acquisition of natural gas properties and, to a limited extent, oil in the Appalachian Basin. Our emphasis is on natural gas, which makes up approximately 90% of our production. Starting in January 1997, we shifted our focus from drilling primarily for limited partnerships that we sponsor to developing reserves for our own account. Management believes that this strategic shift has begun to improve our financial condition and results of operations. Daily net paid production for 1999 was approximately 3.6 MMcfed and current production exceeds 6.0 MMcfed. We expect our growth to be driven by development, exploitation and controlled exploration drilling on our existing properties and the continuation of our acquisition strategy in the Appalachian Basin region. We have over 400 developmental well sites to drill on existing leasehold acreage. Most of these sites are located in fields with established production histories.

In June of 1999, we entered into a credit financing transaction with Southern Producer. This credit facility has a credit limit of $30,000,000, upon which $22,996,358 was drawn down as of June 30, 2000. The credit facility is collateralized by a first lien on all of our oil and natural gas properties. Interest is payable at 11% per annum and Southern Producer receives a 3% overriding royalty interest on all of our oil and gas production. The original credit facility specified payment of interest only on the credit facility until July of 2000, at which time certain principal payments become due under an amortization schedule. The payment of interest only has been extended until September 2000. Together with Southern Producer, we are in the process of modifying certain limited terms of the credit agreement including terms relating to principal payments. We expect the modified terms of the credit agreement to be complete by September 2000. We have used the proceeds of the credit facility principally to retire approximately $8,769,776 in bank debt, to acquire oil and gas properties and to fund the drilling of our wells in Ohio and

West Virginia. The credit facility is accompanied by a preferred gas marketing arrangement whereby Southern Producer has the first option to purchase and market all natural gas produced from our wells, provided it can do so on purchase terms no less favorable than we could obtain marketing our own natural gas.

In connection with the credit facility, we granted 100,000 common stock purchase warrants to Southern Producer. These warrants are exercisable at any time until June 23, 2004 at an exercise price of $6.50 per warrant share, subject to downward adjustment if we issue stock in a transaction for less than $6.50 per share, in which case the exercise price will be the same as the lower issue price. We must issue additional warrants to Southern Producer to prevent dilution if we split our stock, declare a stock dividend, recapitalize our company, engage in a business combination or issue new common stock in any other transaction.

In March of 2000, we closed the purchase of approximately 6,500 acres of oil and gas properties from Cabot Oil & Gas Corporation. The property is contiguous to our existing field in Raleigh County, West Virginia and includes 45 producing wells and related gas gathering equipment. We estimate this acquisition will increase production approximately 500 Mcfe per day. We funded the purchase of these properties with proceeds from our Southern Producer credit facility. The effective date of this purchase was January 1, 2000. In connection with this financing, we issued 105,000 shares of common stock to Southern Producer.

In a transaction completed in February 2000, we issued 15,000 shares of our 9% redeemable convertible preferred stock to limited partners in the Energy Search Natural Gas 1998 L.P., which owned interests in various producing oil and gas properties located in southeastern Ohio. We operate all of the wells involved with this partnership. This partnership has been liquidated and dissolved.

We have, pursuant to the terms of a restructuring plan set forth in a confidential disclosure memorandum dated March 3, 2000, amended the partnership agreements for the Energy Search Natural Gas 1997 L.P. and the Energy Search Natural Gas 1997-A L.P. to offer investor partners 9% redeemable convertible preferred stock at $4.00 per share, subject to adjustment, in exchange for their partnership interests. In connection with this transaction, we are offering up to 114,123 shares of our 9% redeemable convertible preferred stock. Currently, we have issued 101,125 shares in connection with consolidation of these partnerships.

In July 2000, we terminated our relationship with McDonald Investments, Inc. after a process of evaluating strategic alternatives. We believe that given the current pricing environment of our primary commodity, natural gas, the alternative most likely to maximize shareholders' value is to aggressively pursue development of our existing inventory of high quality drill sites.

Financial Condition

Total assets increased $4,548,455 or 13.4% from December 31, 1999 to June 30, 2000 primarily due to an increase of $425,783 in current assets, a net increase in oil and gas properties of $3,986,907 and an increase in other assets of $135,765.

Current assets for the six-month period ended June 30, 2000 increased $425,783 to $2,568,467, or a 19.9% increase compared to current assets for the year ended December 31, 1999. The increase in current assets is due primarily to the increase in cash (unrestricted and restricted) of $388,899 or 31.3%. This increase is due to the timing of the payment of accounts payable at the end of thequarter. Under the terms of the Southern Producer credit facility, we were required to establish a restricted cash account,

which is maintained by Southern Producer. All oil and gas revenue proceeds and amounts from any loans are deposited to this account. We may submit requests for reimbursement from the bank for certain operating expenses and principal and interest payments twice a month. Accounts receivable increased $64,424 from the amount reported for the year ended December 31, 1999 to $845,966 for the six-month period ended June 30, 2000 or 8.2%. The increase is due primarily to a net increase in the oil and gas revenue accrual due to an increase in oil and gas production and an increase in the average oil and gas prices that we received. Other current assets decreased $27,540 from the amount reported for the year ended December 31, 1999 to $91,507 or 23.1% for the six-month period ended June 30, 2000 due to a decrease in prepaid expenses.

Net oil and gas properties for the six-month period ended June 30, 2000 increased $3,986,907 to $33,805,604 or 13.4% from the amount reported at December 31, 1999. The increase is primarily a result of continued successful drilling activity for our own account, and our purchase of oil and gas lease interests in proven properties. Oil and gas properties, both tangible and intangible, are depreciated and depleted by the units of production method using estimates of proven reserves. Accumulated depreciation, depletion and amortization at June 30, 2000 increased approximately $1,516,243 to $8,241,425 or 22.5% from the amount reported at December 31, 1999. The increase is due primarily to an increase in drilling activity, acquisitions of proven properties, and an increase in production.

In 1998, we began to implement a consolidation strategy that involved acquiring the oil and gas reserves held by certain affiliated drilling partnerships for cash or our stock based on an independent valuation. The strategy is beneficial because it allows us to consolidate the ownership of wells we operate and also should eliminate the administrative burden of managing, administrating, and in some cases, supporting the affiliated drilling partnerships. All of the 16 prior affiliated drilling partnerships have been or are in the process of being liquidated.

Proven properties for the six-month period ended June 30, 2000 increased $3,728,936 to $25,008,835 or 17.5% from the amount reported at December 31, 1999. The increase is primarily due to our purchase of producing properties from Cabot Oil & Gas Corporation of approximately $854,000, our purchase of oil and gas lease interests in proven properties of approximately $467,000, the cost of drilling wells of approximately $1,669,000, and the capitalization of certain company costs directly related to the drilling of our wells of approximately $739,000. These costs are related to the sixteen wells drilled in the first six months of 2000 and the costs of wells drilled in the fourth quarter of 1999 (five wells) and completed in the first quarter of 2000.

We increased capital expenditures for drilling and well related equipment from December 31, 1999 to June 30, 2000 in the amount of $1,685,259. The increase is primarily due to our purchase of well equipment from Cabot Oil & Gas Corporation for approximately $874,000 and the cost of drilling and completing wells of approximately $811,000. We drilled sixteen net gas wells in the first six months of 2000.

Other assets for the six-month period ended June 30, 2000 increased $135,765 to $2,062,311 or 7.0% from the amount reported at December 31, 1999. This net increase is due primarily to a decrease in other property and equipment of approximately $36,000 to $250,690 due to current year depreciation, and an increase in other assets of approximately $173,000 due to the capitalization of net loan cost related to the cost of financing the purchase of oil and gas properties from Cabot Oil & Gas Corporation as discussed above.

Total liabilities increased $5,182,140 or 26.2% from December 31, 1999 to June 30, 2000 due primarily to an increase in current liabilities and long-term debt of $2,524,722 and 2,657,418, respectively. In June 1999 we entered into the Southern Producer credit facility which has an aggregate credit limit of

$30,000,000. The credit facility is secured by a pledge of all of our oil and gas assets. At June 30, 2000, we had borrowed approximately $22,996,358 against the credit facility. See "--Cash Flows from Operations, Investing and Financing Activities" for further discussion.

Current liabilities increased $2,524,722 to $5,966,960 or 73.3% from December 31, 1999 to June 30, 2000. The increase primarily is due to an increase in the current portion of long term debt of $2,105,805 due to the increase in debt as a result of the Southern Producer credit facility. Accounts payable and accrued expenses increased $418,917 to $1,523,782 at June 30, 2000, an increase of 37.9%. See "--Liquidity and Capital Resources" for further discussion.

Long-term debt increased $2,657,418 from the amount reported at December 31, 1999 to $18,957,442 or 16.3% for the six-month period ended June 30, 2000 primarily due to the advances on the Southern Producer credit facility of approximately $4,977,014 less an increase in the current portion of long term debt of $2,105,805, and after an offsetting decrease in notes payable to our officers of $180,000. Under their employment agreements, Messrs. Torrey, Cooper and Remine were entitled to certain rights and working interests in wells drilled and to be drilled by us. We purchased all existing working interests as well as all rights to participate in any future wells for a total of $225,000. We paid the purchase price to these officers by issuing three promissory notes of $75,000 each, which bear interest at 10% per annum. The promissory notes were paid in full in the second quarter of 2000.

Results of Operations

For the six-month period ended June 30, 2000, we had a net loss after tax of $1,320,261, compared to a net loss after tax of $672,854 for the six-month period ended June 30, 1999. For the three-month period ended June 30, 2000 we had a net loss after tax of $704,169, compared to a net loss after tax of $449,175 for the three-month period ended June 30, 1999.

For the six-month period ended June 30, 2000, total net revenues increased $1,849,546 or 127.6% from $1,449,897 to $3,299,443 for the same period in 1999 due primarily to an increase in oil and gas revenue, other revenue and after an offsetting decrease in management fees.

Oil and gas revenue increased $1,827,591 to $2,983,782 for the six-month period ended June 30, 2000, an increase of 158.1% over that reported for the six-month period ended June 30, 1999. The increase in revenue is principally due to our significant investments in and our development of proved properties which has resulted in an increase in oil and natural gas production and an increase in the average oil and gas prices that we received. Net production increased 86.2% from approximately 2.9 MMcfed for the six-month period ended June 30, 1999 to 5.4 MMcfed for the same period in 2000. Average natural gas prices realized increased approximately 41.4% from $2.15 per Mcfe for the six-month period ended June 30, 1999 to $3.04 per Mcfe for the same period in 2000.

Pursuant to the terms of the Credit Agreement with Southern Producer Services, L.P., we initiated a financial hedging program with respect to our sales of natural gas. We entered into a costless collar agreement to sell 3,850 MMBTU per day (January-March) and 4,900 MMBTU per day (April-June) with a put option of $2.45 and a call option of $2.88. We paid approximately $279,000, which reduced oil and gas revenues, in the first six months of 2000.

Currently we have entered a financial hedging program with respect to 4,000 MMBTU per day, which is approximately 67% of our current production, at a fixed price of $3.72 per MMBTU based on the TCO Appalachian Index. The hedge is for a period of two years beginning July 1, 2000.

Total net revenues increased $1,032,698 or 153.8% from $671,653 for the three-month period ended June 30, 1999 to $1,704,351 for the three-month period ended June 30, 2000 due primarily to an increase in oil and gas revenue, other revenue and after an offsetting decrease in management fees.

Oil and gas revenue increased $1,003,865 to $1,532,372 for the three-month period ended June 30, 2000, an increase of 189.9% over the amount reported for the three-month period ended June 30, 1999. Net production increased 96.4% from approximately 2.8 MMcfed for the three-month period ended June 30, 1999 to 5.5 MMcfed for the same period in 2000. Average natural gas prices realized increased approximately 48.8% from $2.07 per Mcfe for the three-month period ended June 30, 1999 to $3.08 per Mcfe for the same period in 2000.

Given the credit facility, the resulting aggressive drilling activity and the recent acquisitions, management anticipates continued growth in oil and gas revenues. The continued growth of our oil and gas revenues and reserves will depend on future drilling success, access to capital and the pricing of our primary commodity product, natural gas.

Management fees for the six-month period ended June 30, 2000 decreased $40,440 to $5,160, a decrease of 88.7% from the amount reported for the six-month period ended June 30, 1999. This decrease is a result of our purchase in 1999 of the working interests owned by certain affiliated drilling partnerships. Currently, all of the 16 prior affiliated drilling partnerships have been or are in the process of being liquidated by us. Management fees are derived from services provided to affiliated drilling partnerships, and we expect management fees to continue to decrease.

Management fees for the three-month period ended June 30, 2000 decreased $20,640 to $1,960, a decrease of 91.3% over that reported for the same period in 1999 as discussed above.

We did not sponsor an affiliated drilling partnership in 1999 and do not intend to do so in 2000.

Other revenue increased $62,395 for the six-month period ended June 30, 2000, an increase of 25.1% over the amount reported for the same period in 1999. The increase in other revenue is due to an increase in the gross operating commission revenue earned by Equity Financial Corporation for the six-month period ended June 30, 2000 of approximately $52,581 to $287,870, an increase of 22.3% over the amount reported for the same period in 1999. Other revenue increased $49,473 for the three-month period ended June 30, 2000, an increase of 41.0% over the amount reported for the same period in 1999. The increase in other revenue is due to an increase in the gross operating commission revenue earned by Equity Financial Corporation for the three-month period ended June 30, 2000 of approximately $45,163 to $159,557, an increase of 39.5% over the amount reported for the same period in 1999.

For the six-month period ended June 30, 2000, Equity Financial had net income of approximately $12,150 compared to a net loss of $14,937 for the six-month period ended June 30, 1999. For the three-month period ended June 30, 2000, Equity Financial had a net loss of approximately $11,499 compared to a net loss of $8,095 for the three-month period ended June 30, 1999. We cannot predict whether Equity Financial will continue to be profitable in 2000. If it is not profitable at year end 2000, management will evaluate the continued viability of Equity Financial.

Interest income increased approximately $10,309 during the six-month period ended June 30, 2000 compared to the same period in 1999 due to the increase in our interest-bearing cash balances. Interest income increased approximately $6,842 during the three-month period ended June 30, 2000 compared to the same period in 1999.

Total operating expenses increased $2,324,309 or 101.3% for the six-month period ended June 30, 2000 over the amount reported for the six-month period ended June 30, 1999. Total operating expenses increased $1,188,679 to $2,408,520 or 97.4% for the three-month period ended June 30, 2000 over the amount reported for the same period in 1999. The increase in operating expenses is primarily due to an increase in production costs, depreciation, depletion and amortization, general and administrative expenses and interest expense.

Production expenses increased $591,205 to $814,819 or 264.4% for the six-month period ended June 30, 2000 over the amount reported for the same period in 1999. Production expenses increased primarily due to an increase in direct operating expenses, severance taxes due to increased production, and an increase in pipeline and compressor repairs and maintenance for the six-month period ending June 30, 2000 due to our acquisition of the Natural Gas Pipeline L.P. in December 1999. Our aggressive drilling activity, our acquisitions of oil and gas proven properties, and our consolidation of certain partnerships have increased direct operating expenses in the first six months of 2000. We now operate approximately 300 more wells at June 30, 2000 than we operated at June 30, 1999. In September 1999, we hired a production supervisor. This has increased wages allocated to production costs. We utilize two contract pumper services that operate the properties acquired from Mitchell Energy Corporation and our West Virginia properties including the properties acquired in January 2000 from Cabot Oil & Gas Corporation. The use of these services has increased production costs. Beginning in November 1999, we added two additional compressors that we rent on a month-to-month basis, which has increased production costs for the six months ended June 30, 2000. Production expenses increased $303,417 to $430,465 or 238.8% for the three-month period ended June 30, 2000 over the amount reported for the same period in 1999

Depreciation, depletion and amortization expense increased $791,261 or 98.1% for the six-month period ended June 30, 2000 over the amount reported for the same period in 1999 primarily due to our larger number of wells and increased production of net wells that we now own, which results in increased depletion rates for proved properties. Exploration expenses increased $8,667 or 33.2% over the amount reported at June 30, 1999. Depreciation, depletion and amortization expense increased $377,898 or 90.3% for the three-month period ended June 30, 2000 over the amount reported for the same period in 1999

General and administrative expenses increased $262,090 to $1,122,373 or 30.5% for the six-month period ended June 30, 2000 compared to the amount reported for the same period in 1999. This increase primarily is a result of an increase in professional fees, advertising fees, wages and salaries and after a decrease in the amount of general and administrative expenses capitalized to proved properties in the first six months of 2000. General and administrative expenses increased $205,400 to $650,565 or 46.1% for the three-month period ended June 30, 2000 compared to the amount reported for the same period in 1999.

The increase in interest expense in 2000 reflects the increase in debt as a result of the Southern Producer credit facility.

There was no other income and expense recognized in 2000 compared to a net expense of $49,656 for the six-month period ended June 30, 1999. The change primarily is a result of a decrease in the income of affiliated drilling partnerships of $10,041 and an offsetting decrease in affiliated drilling partnership reimbursements of $59,697. We expect this trend to continue because all of the 16 prior affiliated drilling partnerships have been or are in the process of being liquidated by us. There was no other income and expense recognized in the second quarter of 2000 compared to a net expense of $27,287 for the three-month period ended June 30, 1999.

There was no income tax benefit or expense recognized in 2000 compared to an income tax benefit of $222,300 and $126,300 for the six-month period and three-month period ended June 30, 1999, respectively. Management believes that the time horizon for the realization of the deferred tax asset has become less certain and will not report additional deferred tax asset until the certainty is clarified. The income tax benefit recognized in 1999 was reduced by the recognition of a valuation allowance for deferred tax assets of $1,100,600.

Cash Flow from Operations, Investing and Financing Activities

We provided $750,371 of net cash flow from operating activities for the six-month period ended June 30, 2000 and used $461,554 of net cash flow from operating activities for the same period in 1999 an increase in net cash flow of $1,211,925. Cash was absorbed by a loss of $1,320,261 for the six-month period ended June 30, 2000 and a loss of $672,854 for the six-month period ended June 30, 1999. These amounts are adjusted for certain non-cash items including depreciation, depletion and amortization of $1,597,613 and stock compensation expense of $89,308 for the six-month period ended June 30, 2000, which have reduced the net loss in arriving at net cash provided by operating activities. Depreciation, depletion and amortization of $806,352 have reduced the net loss in arriving at net cash used by operating activities for the six-month period ended June 30, 1999. The amount for the six-month period ended June 30, 1999 was also adjusted for an increase in the deferred tax asset of $222,300. This has increased the net loss in arriving at net cash used in operating activities. Cash was used by an increase in accounts receivable of $64,424 for the six-month period ended June 30, 2000 due to an increase in the oil and gas revenue receivable. Cash was provided by a decrease in other current assets of $27,540, a decrease in other assets of $1,678, and an increase in accounts payable and accrued expenses of $418,917 for the six-month period ended June 30, 2000. Cash was used by an increase in accounts receivable of $18,790, in other current assets of $29,587, and in other assets of $253,596, and a decrease in accounts payable and accrued expenses of $60,738 for the six-month period ended June 30, 1999.

Cash flows used for investing activities increased from $1,424,575 the six-month period ended June 30, 1999 to $5,043,862 for the six-month period ended June 30, 2000. The primary investment activities for the six-month period ended June 30, 2000 were purchases of proven properties of $3,264,435, purchases of wells and related equipment of $1,685,259, purchases of other property and equipment of $5,328 and purchases of other oil and gas leases of $88,955. The primary investment activities for the six-month period ended June 30, 1999 were purchases of proven properties of $1,166,874, purchases of wells and related equipment of $281,770, purchases of other property and equipment of $27,348 and purchases of other oil and gas leases of $1,699. For that same period, the cash flow from investing activities were increased by distributions from affiliated drilling partnerships of $32,490, and proceeds from the issuance of common stock of $20,626.

Cash flows from financing activities increased $3,031,560 from the amount reported at June 30, 1999 to $4,682,390 for the six-month period ended June 30, 2000. The significant sources of financing activities in 1999 were proceeds in the amount of $1,020,000 from long-term debt from Bank One before payoff of the Bank One credit facility with the proceeds of the SPS Credit facility in June of 1999 for continued expenditures for drilling and development of wells and the closing and initial funding of the SPS Credit Facility in the amount of $9,490,086. The significant source of financing activities in 2000 was the funding of the Southern Producer credit facility in the amount of $4,977,014. The Southern Producer funds were used to fund the purchase of producing properties from Cabot Oil & Gas Corporation and to fund operations and developmental drilling on oil and gas properties in Ohio and West Virginia. See "--Liquidity and Capital Resources" for further discussion. The other significant uses of cash flows from financing activities in the six-month period ended June 30, 2000 were the payments on long-term debt of $33,791 and payments on notes payable of $180,000 to each of Messrs. Torrey, Cooper and Remine. The notes payable to these officers were for their 1% working interests or rights to working interests in

company wells and was paid in full in the second quarter of 2000. Other uses of cash flows from financing activities were the payment of loan issue costs of $3,601 and the payment of dividends on preferred stock of $77,232 for the six-month period ended June 30, 2000. Other uses of cash flows from financing activities were the payment of stock issuance costs of $16,636 and the payment of dividends on preferred stock of $43,091 for the six-month period ended June 30, 1999.

Liquidity and Capital Resources

The primary source of funds has been from borrowing against the Southern Producer credit facility. The proceeds from this source have been used to fund our operations, acquisitions and developmental drilling activities in the southeastern Ohio and Southern West Virginia areas.

We intend to fund budgeted capital expenditures in 2000 primarily from cash flow from operations and borrowings. We have in place the Southern Producer credit facility with a credit limit of $30,000,000 and upon which $22,996,358 was drawn down as of June 30, 2000. The Southern Producer credit facility is collateralized by a first lien on all of our oil and natural gas properties. Interest is payable at 11% per annum and Southern Producer receives a 3% overriding royalty interest on all of our oil and gas production. Southern Producer also received warrants to purchase 100,000 shares of our common stock at $6.50 per share. The Southern Producer credit facility is accompanied by a preferred gas marketing arrangement which gives Southern Producer the first option to purchase and market all natural gas produced from our wells, provided it can do so on purchase terms no less favorable than we could obtain if we marketed our own natural gas.

We also have a note payable to SunTrust Bank with an outstanding principal balance of $404,262 as of June 30, 2000. The note is collateralized by non oil and gas equipment, payable in monthly installments of principal and interest at 7.75% per annum, with unpaid principal balance due December 5, 2003. We are subject to various loan covenants in connection with our credit facilities including requirements on tangible net worth, working capital, debt to tangible net worth, limits on partnership subsidies, restrictions on payment of dividends and general and administrative expenses.

We do not anticipate that we will realize any funds by the sponsoring of an affiliated drilling partnership in 2000.

We have experienced and expect to continue to experience substantial working capital requirements due primarily to our active exploration and development programs.

We believe that cash flow from operations and borrowings under existing or contemplated additional credit facilities should allow us to implement our present business strategy in 2000. If sufficient capital resources are not available to us, our drilling of new wells and property development activities would be substantially reduced.

Effects of Commodity Pricing and Inflation

Our revenues, profitability, future growth and ability to borrow funds or obtain additional capital, and the carrying value of our properties, substantially depend on prevailing prices of natural gas and oil. We cannot predict future natural gas and oil price movements. Declines in prices received for natural gas and oil may harm our financial condition, liquidity, ability to finance capital expenditures and results of operations. Lower prices also may impact the amount of reserves we can economically produce. If the price of natural gas and oil increases (decreases), there could be a corresponding increase (decrease) in the operating cost that we are required to bear for operations, as well as an increase (decrease) in revenues. Recent rates of inflation have had a minimal effect on us.

Environmental and Other Regulatory Matters

Our business is subject to federal, state and local laws and regulations relating to the exploration for, and the development, production and transportation of, natural gas and oil, as well as environmental and safety matters. Many of these laws and regulations have become more stringent in recent years. Although we believe we substantially comply with all applicable laws and regulations, the requirements imposed by laws and regulations may change. We cannot predict the ultimate cost of compliance with these requirements. Our business, financial condition and results of operations would be harmed if we do not meet environmental requirements. Compliance with applicable governmental laws and regulations has not materially harmed our earnings or competitive position to date. Future regulations may add to the cost of, or limit, drilling activity.

Part II. Other Information

Item 2.  Changes in Securities and Use of Proceeds

In January of 2000, we issued 105,000 shares of our common stock to Southern Producer as consideration in connection with certain extensions of credit under the Southern Producer credit facility. The issuance of these shares was exempt from registration under Section 4(2) of the Securities Act of 1933.

In February of 2000, we issued 27,500 shares of our 9% redeemable convertible preferred stock to certain persons who were limited partners in various affiliated drilling partnerships and the Energy Search Natural Gas Pipeline Income L.P., which, along with other affiliated drilling partnerships, have been subject to a plan of consolidation with us. The preferred stock had an issue value of $4.00 per share and are convertible into shares of our common stock on a share-for-share basis. The issuance of these shares of preferred stock was exempt from registration under Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

In April of 2000, we issued 5,654 shares of our common stock and 106,125 shares of our 9% redeemable convertible preferred stock to certain persons who were limited partners in various affiliated drilling partnerships and the Energy Search Natural Gas Pipeline Income L.P., which, along with other affiliated drilling partnerships, have been subject to a plan of consolidation with us. The preferred stock had an issue value of $4.00 per share and are convertible into shares of our common stock on a share-for-share basis. The issuance of these shares of preferred stock was exempt from registration under Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

Item 6.  Exhibits and Reports on Form 8-K

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* Management contract or compensatory plan or arrangement

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EXHIBIT INDEX

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* Management contract or compensatory plan or arrangement