##### 



Exhibit 99.1
 TORCH ENERGY ADVISORS INCORPORATED  AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
        1




---



##### 



TORCH ENERGY ADVISORS INCORPORATED  AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
       2




---



##### 



TORCH ENERGY ADVISORS INCORPORATED  AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
      3




---



##### 



TORCH ENERGY ADVISORS INCORPORATED  AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
   2006
    
    2005
    
    2004Income (loss) from continuing operations
before minority interest and income taxes
    
    $
    8,068
    
    
    $
    13,944
    
    
    $
    (1,731
    )Net income
    
    $
    15,202
    
    
    $
    20,719
    
    
    $
    849
     4




---



##### 



TORCH ENERGY ADVISORS INCORPORATED  AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
     5




---



##### 



TORCH ENERGY ADVISORS INCORPORATED  AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
     6




---



##### 



TORCH ENERGY ADVISORS INCORPORATED  AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsLong Term Debt
    
    $
    110,199
    
    
    $
    19,712
    
    
    $
    28,148
    
    
    $
    47,797
    
    
    $
    14,542Operating Leases
    
    
    3,861
    
    
    
    775
    
    
    
    1,427
    
    
    
    1,545
    
    
    
    114Total Contractual Cash
Obligations
    
    $
    114,060
    
    
    $
    20,487
    
    
    $
    29,575
    
    
    $
    49,342
    
    
    $
    14,656
     7




---



##### 



TORCH ENERGY ADVISORS INCORPORATED  AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    8




---



##### 



Consolidated Financial Statements




---



##### 



Contents
 Reports of Independent Auditors
    
    
    1Audited Financial StatementsConsolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    6Consolidated Statements of Stockholders Equity (Deficit)
    
    
    7Consolidated Statements of Cash Flows
    
    
    8Notes to Consolidated Financial Statements
    
    
    10




---



##### 



\s\ UHY LLPHouston, TexasMay 9, 2007
 1




---



##### 



\s\ KPMG LLPDenver, ColoradoApril 8, 2005
 2




---



##### 



December 312006
    
    2005(amounts in thousands exceptshare data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    11,124
    
    
    $
    19,084Restricted cash
    
    
    2,641
    
    
    
    1,499Accounts receivable  product marketing, net
    
    
    990
    
    
    
    871Accounts receivable  joint interest billing, net
    
    
    543
    
    
    
    527Accounts receivable  oil and gas and other, net
    
    
    7,737
    
    
    
    3,679Notes receivable
    
    
    55
    
    
    
    Assets held for sale
    
    
    31,303
    
    
    
    Assets from price risk management
    
    
    826
    
    
    
    Other current assets
    
    
    1,923
    
    
    
    663Current assets of discontinued operations
    
    
    96
    
    
    
    5,089Total current assets
    
    
    57,238
    
    
    
    31,412Property and equipment, at cost:Oil and gas (successful efforts method)
    
    
    70,462
    
    
    
    3,165Oil and gas pipelines
    
    
    17,355
    
    
    
    Other fixed assets
    
    
    8,907
    
    
    
    5,61096,724
    
    
    
    8,775Accumulated depreciation, depletion and amortization
    
    
    (9,572
    )
    
    
    (6,177
    )87,152
    
    
    
    2,598Investments
    
    
    9,974
    
    
    
    9,986Marketable securities
    
    
    1,340
    
    
    
    1,575Equity investment
    
    
    270
    
    
    
    Assets from price risk management
    
    
    1,297
    
    
    
    Other assets
    
    
    5,606
    
    
    
    423Assets of discontinued operations
    
    
    
    
    
    
    2,847Total assets
    
    $
    162,877
    
    
    $
    48,841
 
 See accompanying notes.
 
 4




---



##### 



December 312006
    
    2005(amounts in thousands exceptshare data)Liabilities and stockholders equityCurrent liabilities:Accounts payable  product marketing
    
    $
    3,657
    
    
    $
    3,622Accounts payable and accrued liabilities
    
    
    15,153
    
    
    
    7,097Liabilities of assets held for sale
    
    
    2,267
    
    
    
    Due to affiliates, net
    
    
    1,242
    
    
    
    2,517Current portion of note payable  Bank
    
    
    1,000
    
    
    
    Current portion of senior credit facility
    
    
    15,000
    
    
    
    Current portion of notes payable  other
    
    
    285
    
    
    
    568Current portion of senior subordinated note payable  affiliate
    
    
    3,427
    
    
    
    3,286Revenue, royalty, and production taxes payable
    
    
    1,503
    
    
    
    3,102Current liabilities of discontinued operations
    
    
    772
    
    
    
    2,462Total current liabilities
    
    
    44,306
    
    
    
    22,654Note payable  Bank, net of current portion
    
    
    13,250
    
    
    
    Senior credit facility, net of current portion
    
    
    54,500
    
    
    
    Convertible subordinated debt
    
    
    10,000
    
    
    
    Notes payable  other, net of current portion
    
    
    749
    
    
    
    1,047Senior subordinated note payable  affiliate, net of current portion
    
    
    11,988
    
    
    
    17,914Liabilities from price risk management
    
    
    89
    
    
    
    Asset retirement obligations
    
    
    946Other long-term liabilities
    
    
    198
    
    
    
    198Liabilities of discontinued operations
    
    
    
    
    
    
    366Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    13,326
    
    
    
    404Stockholders equity:Common stock, par value $1.00,
1,000 shares authorized, issued, and outstanding
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    1,999
    
    
    
    1,999Retained earnings
    
    
    25,009
    
    
    
    17,443Due from stockholder
    
    
    (11,339
    )
    
    
    (11,339
    )Notes receivable  related party
    
    
    (1,048
    )
    
    
    (984
    )Accumulated other comprehensive loss
    
    
    (1,097
    )
    
    
    (862
    )Total stockholders equity
    
    
    13,525
    
    
    
    6,258Total liabilities and stockholders equity
    
    $
    162,877
    
    
    $
    48,841
 See accompanying notes.
 5




---



##### 



Year ended December 312006
    
    2005
    
    2004(amounts in thousands)Income:Oil and gas revenues
    
    $
    16,098
    
    
    $
    5,483
    
    
    $
    3,171Gathering system income
    
    
    15,629
    
    
    
    
    
    
    
    Product marketing and other trading, net
    
    
    215
    
    
    
    71
    
    
    
    337Gain from price risk management activities
    
    
    1,981
    
    
    
    
    
    
    
    Service fees
    
    
    9,291
    
    
    
    8,841
    
    
    
    6,413Operating fees
    
    
    1,375
    
    
    
    385
    
    
    
    378Interest and other income
    
    
    6,890
    
    
    
    1,747
    
    
    
    1,001Forgiveness of debt
    
    
    
    
    
    
    1,500
    
    
    
    Gain on sale of assets and investments
    
    
    1,032
    
    
    
    5,335
    
    
    
    1052,511
    
    
    
    23,362
    
    
    
    11,310Costs and expenses:Cost of services
    
    
    15,133
    
    
    
    446
    
    
    
    467Oil and gas operating expenses
    
    
    7,915
    
    
    
    838
    
    
    
    683Gathering system operating expenses
    
    
    1,187
    
    
    
    
    
    
    
    Depreciation, depletion, and amortization
    
    
    2,939
    
    
    
    504
    
    
    
    210Dry hole costs
    
    
    495
    
    
    
    
    
    
    
    495Accretion expense
    
    
    207
    
    
    
    8
    
    
    
    70General and administrative expenses
    
    
    7,516
    
    
    
    6,713
    
    
    
    5,678Provision for credit losses (gains)
    
    
    35
    
    
    
    (987
    )
    
    
    (450
    )Interest expense
    
    
    8,342
    
    
    
    1,893
    
    
    
    2,186Other expense
    
    
    673
    
    
    
    165
    
    
    
    998Total costs and expenses
    
    
    44,442
    
    
    
    9,580
    
    
    
    10,337Impairment and equity in earnings (losses) of investees
    
    
    (1
    )
    
    
    162
    
    
    
    (2,704
    )Income (loss) from continuing operations before
minority interest and income taxes
    
    
    8,068
    
    
    
    13,944
    
    
    
    (1,731
    )Minority interest
    
    
    1,843
    
    
    
    
    
    
    
    Income tax benefit (provision)
    
    
    (274
    )
    
    
    (105
    )
    
    
    1Income (loss) from continuing operations
    
    
    9,637
    
    
    
    13,839
    
    
    
    (1,730
    )Income from discontinued operations
    
    
    5,565
    
    
    
    6,880
    
    
    
    2,579Net income
    
    $
    15,202
    
    
    $
    20,719
    
    
    $
    849
 
 See accompanying notes.
 6




---



##### 



(amounts in thousands)
 Accumulated
    
    
    
    
    
    
    
    
    
    
    Notes
    
    
    TotalAdditional
    
    
    Other
    
    
    Retained
    
    
    
    
    
    
    Receivable 
    
    
    StockholdersCommon Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Earnings
    
    
    Due From
    
    
    Related
    
    
    (Deficit)Shares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    (Deficit)
    
    
    Stockholder
    
    
    Party
    
    
    EquityBalance, December 31, 2003
    
    
    1
    
    
    $
    1
    
    
    $
    1,999
    
    
    $
    
    
    
    $
    (3,555
    )
    
    $
    (9,735
    )
    
    $
    
    
    
    $
    (11,290
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193
    )
    
    
    
    
    
    
    
    
    
    
    (193
    )Advances to stockholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (216
    )
    
    
    
    
    
    
    (216
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    849
    
    
    
    
    
    
    
    
    
    
    
    849Balance, December 31, 2004
    
    
    1
    
    
    
    1
    
    
    
    1,999
    
    
    
    
    
    
    
    (2,899
    )
    
    
    (9,951
    )
    
    
    
    
    
    
    (10,850
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (377
    )
    
    
    
    
    
    
    
    
    
    
    (377
    )Advances to stockholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,388
    )
    
    
    
    
    
    
    (1,388
    )Notes receivable  related party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (984
    )
    
    
    (984
    )Comprehensive income:Unrealized loss in value of
investment in equity
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (862
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (862
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,719
    
    
    
    
    
    
    
    
    
    
    
    20,719Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,857Balance, December 31, 2005
    
    
    1
    
    
    
    1
    
    
    
    1,999
    
    
    
    (862
    )
    
    
    17,443
    
    
    
    (11,339
    )
    
    
    (984
    )
    
    
    6,258Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,636
    )
    
    
    
    
    
    
    
    
    
    
    (7,636
    )Notes receivable  related party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )Comprehensive income:Unrealized loss in value of
investment in equity
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (235
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (235
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,202
    
    
    
    
    
    
    
    
    
    
    
    15,202Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,967Balance, December 31, 2006
    
    
    1
    
    
    $
    1
    
    
    $
    1,999
    
    
    $
    (1,097
    )
    
    $
    25,009
    
    
    $
    (11,339
    )
    
    $
    (1,048
    )
    
    $
    13,525
 See accompanying notes.
 7




---



##### 



Year ended December 312006
    
    2005
    
    2004(amounts in thousands)Cash flows from operating activitiesNet income
    
    $
    15,202
    
    
    $
    20,719
    
    
    $
    849Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation, depletion, and amortization
    
    
    2,728
    
    
    
    1,303
    
    
    
    2,322Amortization of deferred financing costs
    
    
    332
    
    
    
    
    
    
    
    Impairment and equity in losses (earnings) of
investees
    
    
    1
    
    
    
    (162
    )
    
    
    2,704Accretion expense
    
    
    207
    
    
    
    28
    
    
    
    428Minority interest
    
    
    (1,819
    )
    
    
    4,504
    
    
    
    563Provision for credit losses (gains)
    
    
    
    
    
    
    (707
    )
    
    
    (450
    )Price risk management activities
    
    
    (2,034
    )
    
    
    
    
    
    
    182Gain on sale of assets and investments
    
    
    (8,532
    )
    
    
    (16,300
    )
    
    
    (4,381
    )Other
    
    
    (4,397
    )
    
    
    
    
    
    
    60Noncash forgiveness of debt
    
    
    
    
    
    
    (1,500
    )
    
    
    Changes in operating assets and liabilities, net
of effects of acquisitions accounted for under
the purchase method of accounting:Accounts receivable
    
    
    249
    
    
    
    477
    
    
    
    507Due from/to affiliates
    
    
    (1,275
    )
    
    
    706
    
    
    
    (313
    )Other current assets
    
    
    (685
    )
    
    
    421
    
    
    
    2,397Accounts payable and accrued liabilities
    
    
    7,088
    
    
    
    57
    
    
    
    (766
    )Revenue, royalty, and production taxes
payable
    
    
    (1,599
    )
    
    
    193
    
    
    
    281Other
    
    
    156
    
    
    
    379
    
    
    
    (921
    )Net cash provided by operating activities
    
    
    5,622
    
    
    
    10,118
    
    
    
    3,462
 See accompanying notes.
 8




---



##### 



Year ended December 312006
    
    2005
    
    2004(amounts in thousands)Cash flows from investing activitiesRestricted cash
    
    
    (892
    )
    
    
    (886
    )
    
    $
    (86
    )Notes receivable
    
    
    (55
    )
    
    
    122
    
    
    
    (45
    )Proceeds from the sale of assets
    
    
    11,141
    
    
    
    17,356
    
    
    
    16,750Investment in property and equipment
    
    
    (14,750
    )
    
    
    (2,272
    )
    
    
    (6,349
    )Additions to investments
    
    
    
    
    
    
    (445
    )
    
    
    Marketable securities investment
    
    
    
    
    
    
    (2,437
    )
    
    
    Equity investment
    
    
    (275
    )
    
    
    
    
    
    
    Purchase of Resaca Exploitation LP properties
    
    
    (85,106
    )
    
    
    
    
    
    
    Purchase of Quivira Partners LP
    
    
    (15,826
    )
    
    
    
    
    
    
    Purchase price adjustments on PPM Live Oak Energy
LLC
    
    
    
    
    
    
    
    
    
    
    197Net cash provided by (used in) investing activities
    
    
    (105,763
    )
    
    
    11,438
    
    
    
    10,467Cash flows from financing activitiesProceeds from line of credit with bank
    
    $
    
    
    
    $
    
    
    
    $
    1,000Proceeds from note payable
    
    
    
    
    
    
    1,702
    
    
    
    2,354Proceeds from note payable to bank
    
    
    15,000
    
    
    
    
    
    
    
    Proceeds from senior debt  tranche A
    
    
    54,500
    
    
    
    
    
    
    
    Proceeds from senior debt  tranche B
    
    
    15,000
    
    
    
    
    
    
    
    Proceeds from convertible subordinated debt
    
    
    10,000
    
    
    
    
    
    
    
    Repayment of note payable to bank
    
    
    (750
    )
    
    
    (835
    )
    
    
    (165
    )Repayment of note payable
    
    
    (7,145
    )
    
    
    (4,681
    )
    
    
    (16,483
    )Payment of deferred financing costs
    
    
    (1,529
    )
    
    
    
    
    
    
    Contributions from minority interests
    
    
    14,830
    
    
    
    
    
    
    
    129Distributions to minority interests
    
    
    (89
    )
    
    
    (5,352
    )
    
    
    (65
    )Payment of dividends
    
    
    (7,636
    )
    
    
    (377
    )
    
    
    (193
    )Advances to stockholder, net
    
    
    
    
    
    
    (1,388
    )
    
    
    (216
    )Net cash provided by (used in) financing activities
    
    
    92,181
    
    
    
    (10,931
    )
    
    
    (13,639
    )Net increase (decrease) in cash and cash equivalents
    
    
    (7,960
    )
    
    
    10,625
    
    
    
    290Cash and cash equivalents at beginning of year
    
    
    19,084
    
    
    
    8,459
    
    
    
    8,169Cash and cash equivalents at end of year
    
    $
    11,124
    
    
    $
    19,084
    
    
    $
    8,459Supplemental disclosures of cash flow informationCash paid during the year for:Interest
    
    $
    8,068
    
    
    $
    869
    
    
    $
    3,341Income taxes
    
    $
    232
    
    
    $
    105
    
    
    $
    3
 See accompanying notes.
 9




---



##### 



1. Organization
   Principles of Consolidation
  2. Summary of Significant Accounting Policies
 Significant Subsidiaries
  10




---



##### 



2. Summary of Significant Accounting Policies (continued)
      11




---



##### 



2. Summary of Significant Accounting Policies (continued)
    Investees
  12




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Cash and Cash Equivalents
   Restricted Cash
    Allowance for Doubtful Accounts
  13




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Assets Held For Sale
  Marketable Securities
    Property and Equipment
  14




---



##### 



2. Summary of Significant Accounting Policies (continued)
     Revenue Recognition
   15




---



##### 



2. Summary of Significant Accounting Policies (continued)
   Gas Balancing
   Accounting for Price Risk Management Activities
 Accounting for Derivative Instruments and
Hedging Activities
 16




---



##### 



2. Summary of Significant Accounting Policies (continued)
  Concentrations of Credit Risk
  Income Taxes
  Reclassifications
  Use of Estimates
  17




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Asset Retirement Obligations
    Asset retirement obligation at December 31, 2004
    
    $
    1,658Liabilities incurred
    
    
    68Liabilities settled
    
    
    (1,686
    )Accretion expense
    
    
    28Revisions in estimated liabilities
    
    
    Asset retirement obligation at December 31, 2005
    
    
    68Liabilities incurred
    
    
    3,006Liabilities settled
    
    
    (68
    )Accretion expense
    
    
    207Revisions in estimated liabilities
    
    
    Asset retirement obligation at December 31, 2006
    
    
    3,213Short-term portion related to assets held for sale
    
    
    2,267Long-term portion
    
    $
    946
 18




---



##### 



2. Summary of Significant Accounting Policies (continued)
  3. Discontinued Operations
    19




---



##### 



3. Discontinued Operations (continued)
   December 312006
    
    2005Restricted cash
    
    $
    
    
    
    $
    250Accounts receivable  oil and gas and other
    
    
    4
    
    
    
    4,446Other current assets
    
    
    92
    
    
    
    393Total current assets
    
    
    96
    
    
    
    5,089Land
    
    
    
    
    
    
    70Other fixed assets
    
    
    
    
    
    
    5,858Accumulated depreciation, depletion and amortization
    
    
    
    
    
    
    (3,698
    )Other assets
    
    
    
    
    
    
    617Total assets
    
    $
    96
    
    
    $
    7,936Accounts payable and accrued liabilities
    
    $
    772
    
    
    $
    2,050Notes payable  other
    
    
    
    
    
    
    412Total current liabilities
    
    
    772
    
    
    
    2,462Notes payable  other
    
    
    
    
    
    
    366Total liabilities
    
    $
    772
    
    
    $
    2,828
 20




---



##### 



3. Discontinued Operations (continued)
  Year Ended December 312006
    
    2005
    
    2004Oil and gas revenues
    
    $
    
    
    
    $
    3,048
    
    
    $
    9,410Gas plant fees
    
    
    
    
    
    
    926
    
    
    
    1,139Gain (loss) from price risk management activities
    
    
    
    
    
    
    
    
    
    
    Service fees
    
    
    4,377
    
    
    
    13,135
    
    
    
    14,004Interest and other income
    
    
    86
    
    
    
    177
    
    
    
    18Gain (loss) on sale of assets
    
    
    7,500
    
    
    
    10,824
    
    
    
    (1,210
    )Cost of services
    
    
    3,735
    
    
    
    11,711
    
    
    
    13,036Oil and gas operating expenses
    
    
    
    
    
    
    1,641
    
    
    
    3,816Depreciation, depletion and amortization
    
    
    121
    
    
    
    798
    
    
    
    2,112Dry hole costs
    
    
    
    
    
    
    
    
    
    
    2,196Accretion expense
    
    
    
    
    
    
    20
    
    
    
    358General and administrative expense
    
    
    2,153
    
    
    
    2,361
    
    
    
    1,913Provision for credit losses (gains)
    
    
    342
    
    
    
    281
    
    
    
    Interest expense
    
    
    11
    
    
    
    55
    
    
    
    2,368Other expense
    
    
    3
    
    
    
    
    
    
    
    Income tax provision
    
    
    9
    
    
    
    
    
    
    
    Minority interest
    
    
    24
    
    
    
    4,504
    
    
    
    563Gain on forgiveness of debt
    
    
    
    
    
    
    141
    
    
    
    5,580Income (loss) from discontinued operations
    
    $
    5,565
    
    
    $
    6,880
    
    
    $
    2,579
 4. Related Party Transactions
 Due From Stockholder
 21




---



##### 



4. Related Party Transactions (continued)
 Notes Receivable
 Asset Management
  Due to affiliates, net
  Well Operations
  22




---



##### 



5. Investments
  6. Fixed Assets
  2006
    
    2005Computer hardware, software, and office equipment
    
    $
    4,197
    
    
    $
    4,102Rigs and related equipment
    
    
    3,167
    
    
    
    399Furniture, fixtures, leasehold improvements,
art, rental equipment, and vehicles
    
    
    1,543
    
    
    
    1,1098,907
    
    
    
    5,610Less accumulated depreciation
    
    
    (4,877
    )
    
    
    (4,734
    )$
    4,030
    
    
    $
    876
  23




---



##### 



7. Other Assets
  2006
    
    2005Royalty relief funds
    
    $
    4,192
    
    
    $
    Prepaid drilling costs
    
    
    
    
    
    
    235Life insurance cash value
    
    
    135
    
    
    
    110Deferred financing costs
    
    
    1,529
    
    
    
    Other
    
    
    82
    
    
    
    785,938
    
    
    
    423Less accumulated amortization  deferred financing costs
    
    
    (332
    )
    
    
    $
    5,606
    
    
    $
    423
   8. Benefit Plans
  24




---



##### 



9. Acquisitions and Dispositions of Assets
 Resaca Exploitation, L.P.
  Torch Quivira Partners, L.P.
  Milam
  Big Energy, LLC
  25




---



##### 



9. Acquisitions and Dispositions of Assets (continued)
 Person Panna Maria, LLC
  Gas Field
  Art
  Torch Rig Services
  P2ES
  26




---



##### 



10. Torch Energy Royalty Trust
 
  
   27




---



##### 



11. Debt
  2006
    
    2005Senior subordinated note payable  affiliates
    
    $
    15,415
    
    
    $
    21,200Notes payable  options
    
    
    1,007
    
    
    
    1,292Notes payable  Bank
    
    
    14,250
    
    
    
    Senior credit facility
    
    
    69,500
    
    
    
    Convertible subordinated debt
    
    
    10,000
    
    
    
    Other
    
    
    27
    
    
    
    1,102$
    110,199
    
    
    $
    23,594
 Senior Subordinated Note Payable  Affiliate
  Notes Payable  Options
  28




---



##### 



11. Debt (continued)
 Note Payable  Bank
   Senior Credit Facility  Resaca
  29




---



##### 



11. Debt (continued)
  Subordinated Convertible Debt  Resaca
  Note Payable  Grayson
  30




---



##### 



11. Debt (continued)
 Promissory
Note  Third Party
  Line of Credit
   2007
    
    $
    19,7122008
    
    
    13,2722009
    
    
    14,8762010
    
    
    29,6302011
    
    
    18,1672012 and thereafter
    
    
    14,542$
    110,199
 31




---



##### 



12. Commitments and Contingencies
 Litigation
  Lease Obligations
  Year ending December 31,2007
    
    $
    7752008
    
    
    7312009
    
    
    6962010
    
    
    7572011
    
    
    788Thereafter
    
    
    114$
    3,861
 Letters of Credit
  32




---



##### 



13. Price Risk Management and Financial Instruments
 Non-Trading Activities
    14. Subsequent Events
  33




---



##### 



15. SFAS 131: Disclosures about Segments of an Enterprise and Related Information
     Oil & GasService
    
    Oil & Gas
    
    MidstreamActivities
    
    Activities
    
    Activities
    
    TotalYear ended December 31, 2006Revenues from external clients
    
    $
    10,147
    
    
    $
    17,445
    
    
    $
    16,263
    
    
    $
    43,855Gain on sale of gas field
    
    
    
    
    
    
    1,032
    
    
    
    
    
    
    
    1,032Interest income
    
    
    
    
    
    
    359
    
    
    
    
    
    
    
    359Interest expense
    
    
    
    
    
    
    5,566
    
    
    
    989
    
    
    
    6,555Depletion, depreciation, and
amortization
    
    
    445
    
    
    
    1,695
    
    
    
    799
    
    
    
    2,939Income from discontinued
operations
    
    
    5,577
    
    
    
    (12
    )
    
    
    
    
    
    
    5,565Segment profit
    
    
    8,130
    
    
    
    3,561
    
    
    
    267
    
    
    
    11,958Other significant items:Segment assets
    
    
    13,627
    
    
    
    104,839
    
    
    
    16,174
    
    
    
    134,640Expenditures for segment
assets
    
    
    3,040
    
    
    
    96,063
    
    
    
    16,140
    
    
    
    115,243
 34




---



##### 



15. SFAS 131: Disclosures about Segments of an Enterprise and Related Information (continued)
 Service
    
    Oil & GasActivities
    
    Activities
    
    TotalYear ended December 31, 2005Revenues from external clients
    
    $
    8,766
    
    
    $
    5,483
    
    
    $
    14,249Intersegment revenues
    
    
    126
    
    
    
    
    
    
    
    126Gain on sale of gas field
    
    
    
    
    
    
    1,158
    
    
    
    1,158Interest income
    
    
    
    
    
    
    120
    
    
    
    120Depletion, depreciation, and
amortization
    
    
    108
    
    
    
    396
    
    
    
    504Equity in earnings of investees
    
    
    162
    
    
    
    
    
    
    
    162Income from discontinued
operations
    
    
    (213
    )
    
    
    7,093
    
    
    
    6,880Segment profit
    
    
    3,219
    
    
    
    12,454
    
    
    
    15,673Other significant items:Segment assets
    
    
    18,240
    
    
    
    2,335
    
    
    
    20,575Expenditures for segment
assets
    
    
    811
    
    
    
    1,133
    
    
    
    1,944
 Service
    
    Oil & GasActivities
    
    Activities
    
    TotalYear ended December 31, 2004Revenues from external clients
    
    $
    6,506
    
    
    $
    3,171
    
    
    $
    9,677Intersegment revenues
    
    
    177
    
    
    
    
    
    
    
    177Interest income
    
    
    
    
    
    
    45
    
    
    
    45Interest expense
    
    
    1
    
    
    
    
    
    
    
    1Depletion, depreciation, and
amortization
    
    
    73
    
    
    
    137
    
    
    
    210Equity in losses of investee
    
    
    2,704
    
    
    
    
    
    
    
    2,704Income from discontinued
operations
    
    
    (624
    )
    
    
    3,203
    
    
    
    2,579Segment profit (loss)
    
    
    (687
    )
    
    
    4,999
    
    
    
    4,312Other significant items:Segment assets
    
    
    9,394
    
    
    
    1,110
    
    
    
    10,504Equity in investee
    
    
    9,359
    
    
    
    
    
    
    
    9,359Expenditures for segment
assets
    
    
    15
    
    
    
    612
    
    
    
    627
 35




---



##### 



15. SFAS 131: Disclosures about Segments of an Enterprise and Related Information (continued)
  Year ended December 312006
    
    2005
    
    2004Revenues:Total revenues for reportable segments
    
    $
    45,479
    
    
    $
    15,654
    
    
    $
    10,069Other revenues
    
    
    7,032
    
    
    
    6,334
    
    
    
    1,428Elimination of intersegment revenues
    
    
    
    
    
    
    (126
    )
    
    
    (187
    )Total consolidated revenues
    
    $
    52,511
    
    
    $
    21,862
    
    
    $
    11,310Interest expense:Total interest expense for reportable segments
    
    $
    6,555
    
    
    $
    
    
    
    $
    1Other interest expense
    
    
    1,787
    
    
    
    1,893
    
    
    
    2,185Total interest expense
    
    $
    8,342
    
    
    $
    1,893
    
    
    $
    2,186Depletion, depreciation, and amortization:Total depletion, depreciation, and
amortization for reportable segments
    
    $
    2,939
    
    
    $
    504
    
    
    $
    210Total depletion, depreciation, and amortization
    
    $
    2,939
    
    
    $
    504
    
    
    $
    210Equity in earnings (loss) of investees:Total equity in earnings (loss) of investees
for reportable segments
    
    $
    
    
    
    $
    162
    
    
    $
    (2,704
    )Other equity in earnings (loss) of investees
    
    
    (1
    )
    
    
    
    
    
    
    Total equity in earnings (loss) of investees
    
    $
    (1
    )
    
    $
    162
    
    
    $
    (2,704
    )Profit or loss:Total profit or loss for reportable segments
    
    $
    11,958
    
    
    $
    15,673
    
    
    $
    4,312Other income (loss)
    
    
    3,244
    
    
    
    5,046
    
    
    
    (3,463
    )Net income
    
    $
    15,202
    
    
    $
    20,719
    
    
    $
    849Assets:Total assets for reportable segments
    
    $
    134,640
    
    
    $
    20,575
    
    
    $
    10,504Other assets
    
    
    31,317
    
    
    
    28,266
    
    
    
    31,694Total consolidated assets
    
    $
    165,957
    
    
    $
    48,841
    
    
    $
    42,198Equity in investees:Total equity in investees for reportable
segments
    
    $
    
    
    
    $
    
    
    
    $
    9,359Other equity in investees
    
    
    270
    
    
    
    
    
    
    
    Consolidated equity in investees
    
    $
    270
    
    
    $
    
    
    
    $
    9,359
 36




---



##### 



15. SFAS 131: Disclosures about Segments of an Enterprise and Related Information (continued)
 Major Customer
  16. Supplementary Oil and Gas Data (Unaudited)
 Oil and Gas Producing Activities
  Disclosures about Oil and Gas Producing Activities
 37




---



##### 



16. Supplementary Oil and Gas Data (Unaudited) (continued)
 Costs Incurred
  2006
    
    2005
    
    2004Property acquisition
    
    $
    55,691
    
    
    $
    813
    
    
    $
    2,203Development
    
    
    9,066
    
    
    
    699
    
    
    
    2,761Asset retirement obligation costs (1)
    
    
    2,881
    
    
    
    66
    
    
    
    264Costs incurred during the year
    
    $
    67,638
    
    
    $
    1,578
    
    
    $
    5,228
 
 (1)
    
    Effective January 1, 2003, the Company adopted SFAS No. 143 Asset Retirement Obligations.
The asset retirement obligation costs reflect abandonment obligations assumed during the year and
related revisions. Capitalized Costs Relating to Oil and Gas Activities
  December 31,2006
    
    2005
    
    2004Capitalized costs:Proved properties
    
    $
    67,382
    
    
    $
    3,099
    
    
    $
    5,849Asset retirement obligation costs (1)
    
    
    3,080
    
    
    
    66
    
    
    
    730Accumulated depreciation, depletion,
and amortization
    
    
    (2,877
    )
    
    
    (1,444
    )
    
    
    (1,693
    )Net capitalized costs
    
    $
    67,585
    
    
    $
    1,721
    
    
    $
    4,886
 
 (1)
    
    Effective January 1, 2003, the Company adopted SFAS No. 143 Asset Retirement Obligations. 38




---



##### 



16. Supplementary Oil and Gas Data (Unaudited) (continued)
 Results of Operations for Producing Activities
 Year ended December 31,2006
    
    2005
    
    2004(amounts in thousands)Revenues from oil and gas producing activities
    
    $
    13,921
    
    
    $
    7,678
    
    
    $
    11,574Gain on price risk management activities
    
    
    1,346
    
    
    
    
    
    
    
    Production costs
    
    
    (7,492
    )
    
    
    (2,333
    )
    
    
    (4,313
    )Depreciation, depletion, and amortization
    
    
    (1,433
    )
    
    
    (667
    )
    
    
    (1,281
    )Asset retirement obligation accretion (1)
    
    
    (198
    )
    
    
    
    
    
    
    (428
    )Results of operations from producing
activities (excluding corporate overhead and
interest costs)
    
    $
    6,144
    
    
    $
    4,678
    
    
    $
    5,552
 
 (1)
    
    Effective January 1, 2003, the Company adopted SFAS No. 143 Asset Retirement Obligations.  39




---



##### 



16. Supplementary Oil and Gas Data (Unaudited) (continued)
 Reserves
  2006
    
    2005
    
    2004Oil
    
    Gas
    
    Oil
    
    Gas
    
    Oil
    
    Gas(Mbbl)
    
    (Mmcf)
    
    (Mbbl)
    
    (Mmcf)
    
    (Mbbl)
    
    (Mmcf)Proved reserves at
beginning of year
    
    
    56
    
    
    
    1,120
    
    
    
    1,300
    
    
    
    13,303
    
    
    
    1,573
    
    
    
    19,606Purchases of reserves in
place
    
    
    17,665
    
    
    
    17,192
    
    
    
    
    
    
    
    
    
    
    
    604
    
    
    
    393Sales of reserves in
place
    
    
    
    
    
    
    (47
    )
    
    
    (1,224
    )
    
    
    (10,753
    )
    
    
    (1,065
    )
    
    
    (10,083
    )Revisions of previous
estimates
    
    
    (29
    )
    
    
    1,073
    
    
    
    41
    
    
    
    (858
    )
    
    
    330
    
    
    
    4,378Extensions and
discoveries
    
    
    4
    
    
    
    1,072
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    (160
    )
    
    
    (534
    )
    
    
    (61
    )
    
    
    (572
    )
    
    
    (142
    )
    
    
    (991
    )Proved reserves at end
of year
    
    
    17,536
    
    
    
    19,876
    
    
    
    56
    
    
    
    1,120
    
    
    
    1,300
    
    
    
    13,303Proved developed
reserves:Beginning of year
    
    
    56
    
    
    
    1,120
    
    
    
    801
    
    
    
    6,029
    
    
    
    659
    
    
    
    8,535End of year
    
    
    2,851
    
    
    
    4,500
    
    
    
    56
    
    
    
    1,120
    
    
    
    801
    
    
    
    6,029
 40




---



##### 



16. Supplementary Oil and Gas Data (Unaudited) (continued)
 Discounted Future Net Cash Flows
  Year ended December 31,2006
    
    2005
    
    2004Future cash inflows
    
    $
    1,062,559
    
    
    $
    13,311
    
    
    $
    127,209Future production costs
    
    
    (263,271
    )
    
    
    (1,698
    )
    
    
    (35,354
    )Future development costs
    
    
    (106,713
    )
    
    
    (73
    )
    
    
    (11,458
    )Future net inflows before income tax
    
    
    692,575
    
    
    
    11,540
    
    
    
    80,397Future income taxes
    
    
    
    
    
    
    
    
    
    
    Future net cash flows
    
    
    692,575
    
    
    
    11,540
    
    
    
    80,39710% discount factor
    
    
    (404,247
    )
    
    
    (2,421
    )
    
    
    (31,708
    )Standardized measure of discounted
future net cash flows
    
    $
    288,328
    
    
    $
    9,119
    
    
    $
    48,689
  41




---



##### 



16. Supplementary Oil and Gas Data (Unaudited) (continued)
  Year ended December 31,2006
    
    2005
    
    2004Standardized measure:Beginning of year
    
    $
    9,119
    
    
    $
    48,689
    
    
    $
    56,611Sales, net of production costs
    
    
    (6,429
    )
    
    
    (5,344
    )
    
    
    (7,261
    )Extensions and discoveries
    
    
    1,807
    
    
    
    
    
    
    
    Net change in prices and production costs
    
    
    (4,561
    )
    
    
    3,512
    
    
    
    18,553Changes in estimated future development
costs
    
    
    (418
    )
    
    
    (344
    )
    
    
    (3,394
    )Development costs incurred during the period
    
    
    8,837
    
    
    
    699
    
    
    
    2,663Revisions of quantity estimates
    
    
    2,025
    
    
    
    (2,946
    )
    
    
    19,611Accretion of discount
    
    
    912
    
    
    
    4,869
    
    
    
    5,661Purchases of reserves in-place
    
    
    277,590
    
    
    
    
    
    
    
    7,141Sales of reserves in-place
    
    
    (402
    )
    
    
    (36,817
    )
    
    
    (42,859
    )Changes in production rates and other
    
    
    (152
    )
    
    
    (3,199
    )
    
    
    (8,037
    )Standardized measure  end of year
    
    $
    288,328
    
    
    $
    9,119
    
    
    $
    48,689
 42




---



##### 



17. Investment
  Year EndedSeptember 30,2004Total Revenue
    
    $
    53,320Loss From Operations
    
    
    (15,430
    )Net loss
    
    
    (15,582
    )
   43