East Texas/North Louisiana

East Texas/North Louisiana is our largest division in terms of production and reserves, and our primary targets across this region have been the upper and lower Cotton Valley, Travis Peak, Pettet and Hosston formations. While we are continuing our original plan to drill and exploit these formations, we are increasing emphasis and expanding our activity in our Haynesville shale play position. Our 2008 capital spending outlook for the division totals $464 million, with $90 million allocated to Haynesville shale activities (primarily leasing, drilling and completion activity).

A significant amount of our Haynesville shale acreage is held by production (HBP), and is within areas of the play which have been proven productive by both our and our competitors' drilling and completion activities. Our current plans for 2008 include drilling 10 vertical and five horizontal Haynesville tests, of which two of the horizontal wells will be drilled by other operators. We expect two of the Haynesville wells to be completed in 2008. We have strategically focused on adding to our leasehold and on drilling to delineate the shale play rather than focusing on maximizing production from the shales. By the end of the third quarter, we had drilled eight vertical wells and spud two horizontal wells in the play. Our drilling to date in Harrison County, Texas and Caddo and DeSoto Parishes, Louisiana has identified Haynesville/Bossier shale thickness averaging 200 feet of net pay with high porosities and total organic carbon indicating significant gas in place. The shale quality, thickness and overall rock properties across our acreage have been very consistent based on our data and information from competitor activity. Recent tests of our Branch Ranch 31-1 and Lee 19-1 vertical wells located in DeSoto Parish, Louisiana had flowing casing pressures of 6,100 Psi and 6,600 Psi and flow rates from single stage fracture stimulation of approximately 1.3 Mmcfe per day and 1.0 Mmcfe per day, respectively. In our first operated horizontal well in DeSoto Parish, we successfully cored in the Haynesville shale. The core is currently in the evaluation laboratory where rock mechanics testing and other detailed studies are in progress. In the pilot hole we found approximately 200 feet of pay in the Haynesville shale. We drilled the well to a total measured depth of 16,083 feet, including a lateral section of 4,481 feet. We have run casing in the well and plan to complete the well in November 2008. Our second horizontal well in DeSoto Parish is being drilled by another operator and is projected to be completed in late November. Based on our results, we are planning increased activity in the Haynesville shale in 2009, and accordingly have signed long-term commitments with drilling contractors for four additional rigs capable of drilling horizontal Haynesville wells.

In addition to the 15 shale wells mentioned above, we plan to drill 135 conventional wells during 2008 in the East Texas/North Louisiana division. We currently have 13 rigs operating in the region, with four of these rigs drilling in our Vernon Field in Jackson Parish, Louisiana, where we continue to expand our field limits with successful step out drilling. We are evaluating seismic on 35,000 acres immediately north of the Vernon Field, with plans to spud a Cotton Valley test well in early 2009. We have five rigs operating in our Shreveport area, which includes our Holly/Caspiana Field and our Longwood/Greenwood/Waskom area. Our Holly/Caspiana Field has significant drilling activity in the traditional Cotton Valley and Hosston plays and both areas have significant Haynesville opportunities. We have two rigs running in our newly acquired Danville Field in Gregg County, Texas and are currently performing microseismic fracture mapping to aid in well placement to optimize recovery from the field. We plan to spend $20 million and drill nine wells during 2008 in Danville. During the third quarter of 2008, we drilled and completed 42 gross (28.9 net) wells in the East Texas/North Louisiana area with a 100% success rate.


Buck