February 12, 2001


Dear Shareholders:

      Last  year at this time we had completed acquisitions  that
caused  the company's net daily production to increase  to  1,000
barrels  of oil equivalent per day ("BOEPD").  During the  course
of  the  past  12  months we have completed three new  production
acquisitions  and  one  leasehold/prospect  acquisition  that  we
believe contains excellent potential for natural gas development.
The  production acquisitions and some new drilling activity  have
caused  production to increase to a current rate of approximately
1,750  BOEPD.  At this production level and at current  commodity
prices  for  oil  and natural gas, we foresee  gross  revenue  in
excess  of $13,000,000 for fiscal 2001.  This represents  a  350%
increase  over last year.  More importantly, we are  experiencing
increasing  net  income and net cash flow in the  first  half  of
fiscal  year  2001 and, based upon current industry  and  company
circumstances, we believe this trend will continue.

      With  the expectation of sustained higher commodity prices,
we  will be concentrating a significant portion of our efforts on
expanding reserves and production through drilling activity  this
year.  We have recently entered into agreements to cause wells to
be  drilled on our East Carlsbad Field in Eddy County, New Mexico
with the first well just beginning recently.

      We have also acquired a 50% working interest and operations
under 52,000 acres of leasehold in a new exploratory prospect  in
Harding and Butte Counties, South Dakota.  This is a shallow  gas
play  that  we should begin to drill in March of this  year.   If
successful  on  the initial wells, this project could  become  an
area of substantial activity for us in the near future.

     We have many newly proposed wells for our producing offshore
California  properties which are anticipated  to  increase  daily
production  by  a  good margin this year.  In addition,  we  have
hopes  that we may have some sort of meaningful determination  as
to our undeveloped interests in offshore California.  While there
are  numerous  possible  outcomes, we are actively  pursuing  two
primary  avenues.   The  interest owners, including  Delta,  have
jointly   filed  development  plans  as  required  by  the   U.S.
Department of Interior with the intention of obtaining  approval.
At  the same time, we have been exploring negotiations that would
ultimately  prevent  new  development  on  some  or  all  of  the
properties   but  would  cause  the  lease  owners   to   receive
compensatory  relief.   There  are no  assurances  that  we  will
achieve   either  result,  although,  we  believe  the  political
atmosphere is now more favorable.

      The domestic industry for energy producers is very positive
and  should persist.  We will continue to do our best to increase
reserves,  production  and shareholder  value  as  carefully  and
expeditiously as possible.  We are excited about the coming  year
and hope that you are as well.

     Very truly yours,                     Very truly yours,

     s/Aleron H. Larson, Jr.                s/Roger A. Parker

     Aleron H. Larson, Jr.                 Roger A. Parker
         Chairman                             President