Operations

Since we acquired our first carbon dioxide tertiary flood in Mississippi in 1999, we have gradually increased our emphasis on these types of operations. During this time, we have learned a considerable amount about tertiary operations and working with carbon dioxide. Our tertiary operations have grown to the point that approximately 50% of our December 31, 2008 proved reserves are proved tertiary oil reserves, almost 50% of our forecasted 2009 production is expected to come from tertiary oil operations (on a BOE basis), and almost all of our 2009 capital expenditures are related to our current or future tertiary operations. We particularly like this play as (i) it has a lower risk and is more predictable than most traditional exploration and development activities, (ii) it provides a reasonable rate of return at relatively low oil prices (we estimate our economic per barrel dollar cost on these projects at current oil prices is in the range of the mid-twenties, depending on the specific field and area), and (iii) we have virtually no competition for this type of activity in our geographic area. Generally, from East Texas to Florida, there are no known significant natural sources of CO2 except our own, and these large volumes of CO2 that we own drive the play. In addition, we are pursuing anthropogenic (man-made) sources of CO2 to use in our tertiary operations, which we believe will not only help us recover additional oil, but will provide an economical way to sequester CO2. We have acquired several old oil fields in our areas of operations with potential for tertiary recovery and plan to acquire additional fields, and we are continuing to expand our CO2 pipeline infrastructure to transport CO2.