##### 



Exhibit 99.1




---



##### 



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




---



##### 



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




---



##### 



TORCH ENERGY ADVISORS INCORPORATED
AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
TORCH ENERGY ADVISORS INCORPORATED
       2005
    
    2004
    
    2003Income (loss) from continuing operations
before income taxes and cumulative
effect of change in accounting principal
    
    $
    13,994
    
    
    $
    (1,731
    )
    
    $
    50,322Net income
    
    $
    20,719
    
    
    $
    849
    
    
    $
    46,720
 3




---



##### 



TORCH ENERGY ADVISORS INCORPORATED
AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
TORCH ENERGY ADVISORS INCORPORATED
      4




---



##### 



TORCH ENERGY ADVISORS INCORPORATED
AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
TORCH ENERGY ADVISORS INCORPORATED
     Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsLong Term Debt
    
    $
    23,594
    
    
    $
    4,266
    
    
    $
    18,849
    
    
    $
    479
    
    
    $
    Operating Leases
    
    
    2,315
    
    
    
    572
    
    
    
    997
    
    
    
    626
    
    
    
    120Total Contractual Cash
Obligations
    
    $
    25,909
    
    
    $
    4,838
    
    
    $
    19,846
    
    
    $
    1,105
    
    
    $
    120
  5




---



##### 



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




---



##### 



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 Mann Frankfort Stein & Lipp CPAs, LLP
 1




---



##### 



\s\ Ernst & Young LLP




---



##### 



\s\ KPMG LLP
 3




---



##### 



December 312005
    
    2004(amounts in thousands exceptshare data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    19,084
    
    
    $
    8,459Restricted cash
    
    
    1,499
    
    
    
    173Accounts receivable  product marketing
    
    
    871
    
    
    
    5,834Accounts receivable  joint interest billing
    
    
    527
    
    
    
    325Accounts receivable  oil and gas and other
    
    
    3,679
    
    
    
    381Prepaid drilling costs
    
    
    25
    
    
    
    242Other current assets
    
    
    638
    
    
    
    336Current assets of discontinued operations
    
    
    5,089
    
    
    
    6,592Total current assets
    
    
    31,412
    
    
    
    22,342Property and equipment, at cost:Oil and gas (successful efforts method)
    
    
    3,165
    
    
    
    2,146Other fixed assets
    
    
    5,610
    
    
    
    4,8818,775
    
    
    
    7,027Accumulated depreciation, depletion and amortization
    
    
    (6,177
    )
    
    
    (5,936
    )2,598
    
    
    
    1,091Notes receivable  related parties
    
    
    
    
    
    
    794Notes receivable
    
    
    
    
    
    
    122Investment
    
    
    9,986
    
    
    
    9,359Marketable securities
    
    
    1,575
    
    
    
    Other assets
    
    
    423
    
    
    
    312Assets of discontinued operations
    
    
    2,847
    
    
    
    8,178Total assets
    
    $
    48,841
    
    
    $
    42,198
 4




---



##### 



December 312005
    
    2004(amounts in thousands exceptshare data)Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable  product marketing
    
    $
    3,622
    
    
    $
    5,500Accounts payable and accrued liabilities
    
    
    7,097
    
    
    
    10,028Due to affiliates, net
    
    
    2,517
    
    
    
    1,808Notes payable  other
    
    
    568
    
    
    
    821Senior subordinated note payable  affiliate
    
    
    3,286
    
    
    
    1,819Revenue, royalty, and production taxes payable
    
    
    3,102
    
    
    
    2,909Current liabilities of discontinued operations
    
    
    2,462
    
    
    
    4,262Total current liabilities
    
    
    22,654
    
    
    
    27,147Notes payable  other
    
    
    1,047
    
    
    
    1,331Senior subordinated note payable  affiliate
    
    
    17,914
    
    
    
    21,267Other long-term liabilities
    
    
    198
    
    
    
    198Liabilities of discontinued operations
    
    
    366
    
    
    
    1,843Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    404
    
    
    
    1,262Stockholders equity (deficit):Common stock, par value $1.00,
1,000 shares authorized, issued, and outstanding
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    1,999
    
    
    
    1,999Retained earnings (deficit)
    
    
    17,443
    
    
    
    (2,899
    )Due from stockholder
    
    
    (11,339
    )
    
    
    (9,951
    )Notes receivable  related party
    
    
    (984
    )
    
    
    Accumulated other comprehensive income
    
    
    (862
    )
    
    
    Total stockholders equity (deficit)
    
    
    6,258
    
    
    
    (10,850
    )Total
liabilities and stockholders equity (deficit)
    
    $
    48,841
    
    
    $
    42,198
 See accompanying notes.
 5




---



##### 



Year ended December 312005
    
    2004
    
    2003(amounts in thousands)Income:Oil and gas revenues
    
    $
    5,483
    
    
    $
    3,171
    
    
    $
    1,011Product marketing and other trading, net
    
    
    71
    
    
    
    337
    
    
    
    301Gain (loss) from price risk management activities
    
    
    
    
    
    
    
    
    
    
    (99
    )Service fees
    
    
    8,841
    
    
    
    6,413
    
    
    
    7,487Operating fees
    
    
    385
    
    
    
    378
    
    
    
    505Interest and other income
    
    
    1,747
    
    
    
    1001
    
    
    
    3,658Forgiveness of debt
    
    
    1,500
    
    
    
    
    
    
    
    Gain on sale of assets and investments
    
    
    5,335
    
    
    
    10
    
    
    
    58,87123,362
    
    
    
    11,310
    
    
    
    71,734Costs and expenses:Cost of services
    
    
    446
    
    
    
    467
    
    
    
    2,094Oil and gas operating expenses
    
    
    838
    
    
    
    683
    
    
    
    346Depreciation, depletion, and amortization
    
    
    504
    
    
    
    210
    
    
    
    123Dry hole costs
    
    
    
    
    
    
    495
    
    
    
    459Plugging and abandonment costs
    
    
    
    
    
    
    
    
    
    
    15Provision for impairment of oil & gas properties
    
    
    
    
    
    
    
    
    
    
    45Accretion expense
    
    
    8
    
    
    
    70
    
    
    
    44General and administrative expenses
    
    
    6,713
    
    
    
    5,678
    
    
    
    11,839Provision for credit losses (gains)
    
    
    (987
    )
    
    
    (450
    )
    
    
    23Interest expense
    
    
    1,893
    
    
    
    2,186
    
    
    
    2,958Other expense
    
    
    165
    
    
    
    998
    
    
    
    334Total costs and expenses
    
    
    9,580
    
    
    
    10,337
    
    
    
    18,280Impairment and equity in earnings (losses) of
investees
    
    
    162
    
    
    
    (2,704
    )
    
    
    (3,132
    )Income (loss) from continuing operations before
income taxes and cumulative effect of change in
accounting principle
    
    
    13,944
    
    
    
    (1,731
    )
    
    
    50,322Income tax benefit (provision)
    
    
    (105
    )
    
    
    1
    
    
    
    (13
    )Income (loss) from continuing operations
    
    
    13,839
    
    
    
    (1,730
    )
    
    
    50,309Income (loss) from discontinued operations
    
    
    6,880
    
    
    
    2,579
    
    
    
    (3,437
    )Income before cumulative effect of change in
accounting principle
    
    
    20,719
    
    
    
    849
    
    
    
    46,872Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    152Net income
    
    $
    20,719
    
    
    $
    849
    
    
    $
    46,720
 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
    
    
    Income, Net
    
    
    (Deficit)
    
    
    Stockholder
    
    
    Party
    
    
    EquityBalance, December 31, 2002
    
    
    1
    
    
    $
    1
    
    
    $
    1,999
    
    
    $
    553
    
    
    $
    (42,458
    )
    
    $
    (8,463
    )
    
    $
    
    
    
    $
    (48,368
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,817
    )
    
    
    
    
    
    
    
    
    
    
    (7,817
    )Advances to stockholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,272
    )
    
    
    
    
    
    
    (1,272
    )Comprehensive income:Unrealized loss in value of
investment in equity
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (553
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (553
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,720
    
    
    
    
    
    
    
    
    
    
    
    46,720Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,167Balance, 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
    )
    
    $
    6,258
 See accompanying notes.
 7




---



##### 



Year ended December 312005
    
    2004
    
    2003(amounts in thousands)Cash flows from operating activitiesNet income
    
    $
    20,719
    
    
    $
    849
    
    
    $
    46,720Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation, depletion, and amortization
    
    
    1,303
    
    
    
    2,322
    
    
    
    2,188Impairment and equity losses (earnings) in
investees
    
    
    (162
    )
    
    
    2,704
    
    
    
    3,132Provision for impairment of oil & gas properties
    
    
    
    
    
    
    
    
    
    
    45Accretion expense
    
    
    28
    
    
    
    428
    
    
    
    276Minority interest
    
    
    4,504
    
    
    
    563
    
    
    
    Provision for credit losses (gains)
    
    
    (707
    )
    
    
    (450
    )
    
    
    398Price risk management activities
    
    
    
    
    
    
    182
    
    
    
    (659
    )Gain on sale of assets and investments
    
    
    (16,300
    )
    
    
    (4,381
    )
    
    
    (58,871
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    152Other
    
    
    
    
    
    
    60
    
    
    
    (2,314
    )Noncash assumption of debt
    
    
    
    
    
    
    
    
    
    
    1,756Noncash forgiveness of debt
    
    
    (1,500
    )
    
    
    
    
    
    
    (400
    )Changes in operating assets and liabilities, net
of effects of acquisitions accounted for under
the purchase method of accounting:Accounts receivable
    
    
    477
    
    
    
    507
    
    
    
    2,156Due from/to affiliates
    
    
    706
    
    
    
    (313
    )
    
    
    (547
    )Other current assets
    
    
    421
    
    
    
    2,397
    
    
    
    (2,021
    )Accounts payable and accrued liabilities
    
    
    57
    
    
    
    (766
    )
    
    
    (1,653
    )Revenue, royalty, and production taxes
payable
    
    
    193
    
    
    
    281
    
    
    
    968Other
    
    
    379
    
    
    
    (921
    )
    
    
    (1,829
    )Net cash provided by (used in) operating activities
    
    
    10,118
    
    
    
    3,462
    
    
    
    (10,503
    )
 See accompanying notes.
 8




---



##### 



Year ended December 312005
    
    2004
    
    2003(amounts in thousands)Cash flows from investing activitiesRestricted cash
    
    
    (886
    )
    
    $
    (86
    )
    
    
    (744
    )Notes receivable
    
    
    122
    
    
    
    (45
    )
    
    
    1,840Proceeds from the sale of assets
    
    
    17,356
    
    
    
    16,750
    
    
    
    45,493Investment in property and equipment
    
    
    (2,272
    )
    
    
    (6,349
    )
    
    
    (1,083
    )Additions to investment
    
    
    (445
    )
    
    
    
    
    
    
    Marketable securities investment
    
    
    (2,437
    )
    
    
    
    
    
    
    Purchase price adjustments on PPM Live Oak
Energy LLC
    
    
    
    
    
    
    197
    
    
    
    Net cash provided by investing activities
    
    
    11,438
    
    
    
    10,467
    
    
    
    45,506Cash flows from financing activitiesProceeds from line of credit with bank
    
    $
    
    
    
    $
    1,000
    
    
    $
    Proceeds from note payable
    
    
    1,702
    
    
    
    2,354
    
    
    
    1,976Repayment of senior subordinated note
payable- affiliate
    
    
    
    
    
    
    
    
    
    
    (338
    )Repayment of note payable to bank
    
    
    (835
    )
    
    
    (165
    )
    
    
    (18,740
    )Repayment of note payable
    
    
    (4,681
    )
    
    
    (16,483
    )
    
    
    (4,081
    )Contributions from minority interests
    
    
    
    
    
    
    129
    
    
    
    Distributions to minority interests
    
    
    (5,352
    )
    
    
    (65
    )
    
    
    Payment of dividend
    
    
    (377
    )
    
    
    (193
    )
    
    
    (7,817
    )Advances to stockholder, net
    
    
    (1,388
    )
    
    
    (216
    )
    
    
    (1,272
    )Net cash used in financing activities
    
    
    (10,931
    )
    
    
    (13,639
    )
    
    
    (30,272
    )Net increase in cash and cash equivalents
    
    
    10,625
    
    
    
    290
    
    
    
    4,731Cash and cash equivalents at beginning of year
    
    
    8,459
    
    
    
    8,169
    
    
    
    3,438Cash and cash equivalents at end of year
    
    $
    19,084
    
    
    $
    8,459
    
    
    $
    8,169Supplemental disclosures of cash flow
informationCash paid during the year for:Interest
    
    $
    869
    
    
    $
    3,341
    
    
    $
    5,563Income taxes
    
    $
    105
    
    
    $
    3
    
    
    $
    14
 See accompanying notes.
 9




---



##### 



1. Organization
   2. Summary of Significant Accounting Policies
 Principles of Consolidation
  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
    13




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Allowance for Doubtful Accounts
  Prepaid Drilling Costs
  Marketable Securities
    14




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Property and Equipment
     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
 Accounting for Asset Retirement Obligations
  18




---



##### 



2. Summary of Significant Accounting Policies (continued)
  Asset retirement obligation upon adoption on January 1, 2003
    
    $
    5,759Liabilities incurred
    
    
    212Liabilities settled
    
    
    Accretion expense
    
    
    276Revisions in estimated liabilities
    
    
    Asset retirement obligation at December 31, 2003
    
    
    6,247Liabilities incurred
    
    
    97Liabilities settled
    
    
    (5,347
    )Accretion expense
    
    
    428Revisions in estimated liabilities
    
    
    233Asset 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
    
    $
    68
  19




---



##### 



3. Discontinued Operations
     20




---



##### 



3. Discontinued Operations (continued)
  December 312005
    
    2004Restricted cash
    
    $
    250
    
    
    $
    690Accounts
receivable  oil and gas and other
    
    
    4,446
    
    
    
    4,938Other current assets
    
    
    393
    
    
    
    964Total current assets
    
    
    5,089
    
    
    
    6,592Land
    
    
    70
    
    
    
    70Oil and gas (successful efforts method)
    
    
    
    
    
    
    4,433Other fixed assets
    
    
    5,858
    
    
    
    6,211Accumulated depreciation, depletion and amortization
    
    
    (3,698
    )
    
    
    (3,667
    )Other assets
    
    
    617
    
    
    
    1,131Total assets
    
    $
    7,936
    
    
    $
    14,770Accounts payable and accrued liabilities
    
    $
    2,050
    
    
    $
    2,763Due to affiliates, net
    
    
    
    
    
    
    3Notes payable to bank
    
    
    
    
    
    
    180Notes
payable  other
    
    
    412
    
    
    
    1,316Total current liabilities
    
    
    2,462
    
    
    
    4,262Notes
payable  other
    
    
    366
    
    
    
    1,334Other liabilities
    
    
    
    
    
    
    509Total liabilities
    
    $
    2,828
    
    
    $
    6,105
 21




---



##### 



3. Discontinued Operations (continued)
  Year Ended December 312005
    
    2004
    
    2003Oil and gas revenues
    
    $
    3,048
    
    
    $
    9,410
    
    
    $
    8,658Gas plant fees
    
    
    926
    
    
    
    1,139
    
    
    
    Gain (loss) from price risk management activities
    
    
    
    
    
    
    
    
    
    
    (1,161
    )Service fees
    
    
    13,135
    
    
    
    14,004
    
    
    
    13,789Interest and other income
    
    
    177
    
    
    
    18
    
    
    
    15Gain (loss) on sale of assets
    
    
    10,824
    
    
    
    (1,210
    )
    
    
    Cost of services
    
    
    11,711
    
    
    
    13,036
    
    
    
    13,843Oil and gas operating expenses
    
    
    1,641
    
    
    
    3,816
    
    
    
    4,282Depreciation, depletion and amortization
    
    
    798
    
    
    
    2,112
    
    
    
    2,065Dry hole costs
    
    
    
    
    
    
    2,196
    
    
    
    Accretion expense
    
    
    20
    
    
    
    358
    
    
    
    232General and administrative expense
    
    
    2,361
    
    
    
    1,913
    
    
    
    1,536Provision for credit losses (gains)
    
    
    281
    
    
    
    
    
    
    
    375Interest expense
    
    
    55
    
    
    
    2,368
    
    
    
    2,405Minority interest
    
    
    4,504
    
    
    
    563
    
    
    
    Gain on forgiveness of debt
    
    
    141
    
    
    
    5,580
    
    
    
    Income (loss) from discontinued operations
    
    $
    6,880
    
    
    $
    2,579
    
    
    $
    (3,437
    )
 4. Related Party Transactions
 Due From Stockholder
  22




---



##### 



4. Related Party Transactions (continued)
 Notes Receivable
  Asset Management
  Due to affiliates, net
  Well Operations
  5. Investments
  23




---



##### 



5. Investments (continued)
   6. Fixed Assets
  2005
    
    2004Computer hardware, software, and office equipment
    
    $
    4,102
    
    
    $
    4,006Rigs and related equipment
    
    
    399
    
    
    
    Furniture, fixtures, leasehold
improvements, art, rental equipment, and
vehicles
    
    
    1,109
    
    
    
    8755,610
    
    
    
    4,881Less accumulated depreciation
    
    
    (4,734
    )
    
    
    (4,546
    )$
    876
    
    
    $
    335
  24




---



##### 



7. Other Assets
  2005
    
    2004Prepaid drilling costs
    
    $
    235
    
    
    $
    Interest on long-term note receivable
    
    
    
    
    
    
    127Life insurance cash value
    
    
    110
    
    
    
    87Other
    
    
    78
    
    
    
    98$
    423
    
    
    $
    312
 8. Benefit Plans
  9. Management Buyout
  25




---



##### 



10. Acquisitions and Dispositions of Assets
 Milam
  Big Energy, LLC
  Person Panna Maria, LLC
  26




---



##### 



10. Acquisitions and Dispositions of Assets (continued)
 Coal Bed Methane Field
  Gas Field
  Art
  RCI Shares
  TEFF
  27




---



##### 



10. Acquisitions and Dispositions of Assets (continued)
 Torch Rig Services
  Novistar and P2ES
  28




---



##### 



11. Torch Energy Royalty Trust
  29




---



##### 



11. Torch Energy Royalty Trust (continued)
   12. Debt
  2005
    
    2004Senior subordinated note payable  affiliates
    
    $
    21,200
    
    
    $
    23,086Notes Payable  options
    
    
    1,292
    
    
    
    1,592Other
    
    
    1,102
    
    
    
    3,390$
    23,594
    
    
    $
    28,068
 Senior Subordinated Note Payable  Affiliate
  30




---



##### 



12. Debt (continued)
  Promissory Note  Third Party
  Note Payable  Grayson
  31




---



##### 



12. Debt (continued)
 Notes Payable  Options
  Line of Credit
   2006
    
    $
    4,2662007
    
    
    3,9622008
    
    
    14,8882009
    
    
    2512010 and thereafter
    
    
    227$
    23,594
 13. Commitments and Contingencies
 Litigation
  32




---



##### 



13. Commitments and Contingencies (continued)
 Lease Obligations
  Year ending December 31,2006
    
    $
    5722007
    
    
    5492008
    
    
    4482009
    
    
    4532010
    
    
    173Thereafter
    
    
    120$
    2,315
 Letters of Credit
  14. Price Risk Management and Financial Instruments
 Non-Trading Activities
   33




---



##### 



14. Price Risk Management and Financial Instruments (continued)
   2005
    
    
    2004Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(in thousands)LiabilitiesCurrent debt
    
    $
    3,854
    
    
    $
    3,854
    
    
    $
    2,640
    
    
    $
    2,640Long-term debt
    
    
    18,961
    
    
    
    18,961
    
    
    
    22,598
    
    
    
    22,512
  15. Subsequent Events
   34




---



##### 



16. SFAS 131: Disclosures about Segments of an Enterprise and Related Information
  
  35




---



##### 



16. SFAS 131: Disclosures about Segments of an Enterprise and Related Information (continued)
  Service
    
    Oil & GasActivities
    
    Properties
    
    TotalsYear 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
 36




---



##### 



16. SFAS 131: Disclosures about Segments of an Enterprise and Related Information (continued)
 Service
    
    
    Oil & GasActivities
    
    
    Properties
    
    
    TotalsYear 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
 Service
    
    
    Oil & GasActivities
    
    
    Properties
    
    
    TotalsYear ended December 31, 2003Revenues from external clients
    
    $
    7,285
    
    
    $
    1,011
    
    
    $
    8,296Intersegment revenues
    
    
    45
    
    
    
    
    
    
    
    45Gain on sale of coal bed methane
field
    
    
    
    
    
    
    40,500
    
    
    
    40,500Interest income
    
    
    
    
    
    
    157
    
    
    
    157Interest expense
    
    
    
    
    
    
    21
    
    
    
    21Depletion, depreciation, and
amortization
    
    
    101
    
    
    
    22
    
    
    
    123Equity in earnings of investees
    
    
    (3,132
    )
    
    
    
    
    
    
    (3,132
    )Loss from discontinued operations
    
    
    (2,936
    )
    
    
    (501
    )
    
    
    (3,437
    )Segment (loss) profit
    
    
    (6,531
    )
    
    
    39,898
    
    
    
    33,367Other significant items:Segment assets
    
    
    12,122
    
    
    
    1,016
    
    
    
    13,138Equity in investees
    
    
    12,063
    
    
    
    
    
    
    
    12,063Expenditures for segment assets
    
    
    30
    
    
    
    239
    
    
    
    269
 37




---



##### 



16. SFAS 131: Disclosures about Segments of an Enterprise and Related Information (continued)
  Year ended December 312005
    
    2004
    
    2003Revenues:Total revenues for reportable segments
    
    $
    15,654
    
    
    $
    10,069
    
    
    $
    48,997Other revenues
    
    
    6,334
    
    
    
    1,428
    
    
    
    22,805Elimination of intersegment revenues
    
    
    (126
    )
    
    
    (187
    )
    
    
    (68
    )Total consolidated revenues
    
    $
    21,862
    
    
    $
    11,310
    
    
    $
    71,734Interest expense:Total interest expense for reportable segments
    
    $
    
    
    
    $
    1
    
    
    $
    21Other interest expense
    
    
    1,893
    
    
    
    2,185
    
    
    
    2,937Total interest expense
    
    $
    1,893
    
    
    $
    2,186
    
    
    $
    2,958Depletion, depreciation, and amortization:Total depletion, depreciation, and amortization
for reportable segments
    
    $
    504
    
    
    $
    210
    
    
    $
    123Total depletion, depreciation, and amortization
    
    $
    504
    
    
    $
    210
    
    
    $
    123Equity in earnings (loss) of investees:Total equity in earnings (loss) of investees for
reportable segments
    
    $
    162
    
    
    $
    (2,704
    )
    
    $
    (3,132
    )Total equity in earnings (loss) of investees
    
    $
    162
    
    
    $
    (2,704
    )
    
    $
    (3,132
    )Profit or loss:Total profit or loss for reportable segments
    
    $
    15,673
    
    
    $
    4,312
    
    
    $
    33,367Other income (loss)
    
    
    5,046
    
    
    
    (3,463
    )
    
    
    13,353Net income
    
    $
    20,719
    
    
    $
    849
    
    
    $
    46,720Assets:Total assets for reportable segments
    
    $
    20,575
    
    
    $
    10,504
    
    
    $
    13,138Other assets
    
    
    28,266
    
    
    
    31,694
    
    
    
    52,471Total consolidated assets
    
    $
    48,841
    
    
    $
    42,198
    
    
    $
    65,609Equity in investees:Total equity in investees for reportable segments
    
    $
    
    
    
    $
    9,359
    
    
    $
    12,063Consolidated equity in investees
    
    $
    
    
    
    $
    9,359
    
    
    $
    12,063
 38




---



##### 



17. Supplementary Oil and Gas Data (Unaudited)
 Oil and Gas Producing Activities
  Disclosures about Oil and Gas Producing Activities
 39




---



##### 



17. Supplementary Oil and Gas Data (Unaudited) (continued)
 Costs Incurred
  2005
    
    2004
    
    2003Property acquisition
    
    $
    813
    
    
    $
    2,203
    
    
    $
    217Development
    
    
    699
    
    
    
    2,761
    
    
    
    985Asset retirement obligation costs (1)
    
    
    66
    
    
    
    264
    
    
    
    466Costs incurred during the year
    
    $
    1,578
    
    
    $
    5,228
    
    
    $
    1,668
 
 (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 31,2005
    
    
    2004
    
    
    2003Capitalized costs:Proved properties
    
    $
    3,099
    
    
    $
    5,849
    
    
    $
    30,283Asset retirement obligation costs (1)
    
    
    66
    
    
    
    730
    
    
    
    466Accumulated depreciation, depletion,
and amortization
    
    
    (1,444
    )
    
    
    (1,693
    )
    
    
    (8,615
    )Net capitalized costs
    
    $
    1,721
    
    
    $
    4,886
    
    
    $
    22,134
 
 (1)
    
    Effective January 1, 2003, the Company adopted SFAS No. 143 Asset Retirement Obligations.
 40




---



##### 



17. Supplementary Oil and Gas Data (Unaudited) (continued)
 Results of Operations for Producing Activities
 Year ended December 31,2005
    
    2004
    
    2003(amounts in thousands)Revenues from oil and gas producing activities
    
    $
    7,678
    
    
    $
    11,574
    
    
    $
    9,152Loss on price risk management activities
    
    
    
    
    
    
    
    
    
    
    (1,161
    )Production costs
    
    
    (2,333
    )
    
    
    (4,313
    )
    
    
    (4,533
    )Depreciation, depletion, and amortization
    
    
    (667
    )
    
    
    (1,281
    )
    
    
    (951
    )Asset retirement obligation accretion (1)
    
    
    
    
    
    
    (428
    )
    
    
    (276
    )Results of operations from producing
activities (excluding corporate overhead and
interest costs)
    
    $
    4,678
    
    
    $
    5,552
    
    
    $
    2,231
 
 (1)
    
    Effective January 1, 2003, the Company adopted SFAS No. 143 Asset Retirement Obligations.
  41




---



##### 



17. Supplementary Oil and Gas Data (Unaudited) (continued)
 Reserves
  2005
    
    2004
    
    2003Oil
    
    Gas
    
    Oil
    
    Gas
    
    Oil
    
    Gas(Mbbl)
    
    (Mmcf)
    
    (Mbbl)
    
    (Mmcf)
    
    (Mbbl)
    
    (Mmcf)Proved reserves at
beginning of year
    
    
    1,300
    
    
    
    13,303
    
    
    
    1,573
    
    
    
    19,606
    
    
    
    1,477
    
    
    
    77,125Purchases of reserves in
place
    
    
    
    
    
    
    
    
    
    
    604
    
    
    
    393
    
    
    
    429
    
    
    
    8,404Sales of reserves in
place
    
    
    (1,224
    )
    
    
    (10,753
    )
    
    
    (1,065
    )
    
    
    (10,083
    )
    
    
    
    
    
    
    (65,836
    )Revisions of previous
estimates
    
    
    41
    
    
    
    (858
    )
    
    
    330
    
    
    
    4,378
    
    
    
    (173
    )
    
    
    650Extensions and
discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    (61
    )
    
    
    (572
    )
    
    
    (142
    )
    
    
    (991
    )
    
    
    (160
    )
    
    
    (737
    )Proved reserves at end
of year
    
    
    56
    
    
    
    1,120
    
    
    
    1,300
    
    
    
    13,303
    
    
    
    1,573
    
    
    
    19,606-Proved developed
reserves:Beginning of year
    
    
    801
    
    
    
    6,029
    
    
    
    659
    
    
    
    8,535
    
    
    
    172
    
    
    
    71,195End of year
    
    
    56
    
    
    
    1,120
    
    
    
    801
    
    
    
    6,029
    
    
    
    659
    
    
    
    8,535
 42




---



##### 



17. Supplementary Oil and Gas Data (Unaudited) (continued)
 Discounted Future Net Cash Flows
  Year ended December 31,2005
    
    2004
    
    2003Future cash inflows
    
    $
    13,311
    
    
    $
    127,209
    
    
    $
    169,126Future production costs
    
    
    (1,698
    )
    
    
    (35,354
    )
    
    
    (61,760
    )Future development costs
    
    
    (73
    )
    
    
    (11,458
    )
    
    
    (21,895
    )Future net inflows before income tax
    
    
    11,540
    
    
    
    80,397
    
    
    
    85,471Future income taxes
    
    
    
    
    
    
    
    
    
    
    Future net cash flows
    
    
    11,540
    
    
    
    80,397
    
    
    
    85,47110% discount factor
    
    
    (2,421
    )
    
    
    (31,708
    )
    
    
    (28,860
    )Standardized measure of discounted
future net cash flows
    
    $
    9,119
    
    
    $
    48,689
    
    
    $
    56,611
  43




---



##### 



17. Supplementary Oil and Gas Data (Unaudited) (continued)
  Year ended December 31,2005
    
    2004
    
    2003Standardized measure:Beginning of year
    
    $
    48,689
    
    
    $
    56,611
    
    
    $
    105,866Sales, net of production costs
    
    
    (5,344
    )
    
    
    (7,261
    )
    
    
    (3,458
    )Net change in prices and production costs
    
    
    3,512
    
    
    
    18,553
    
    
    
    6,112Changes in estimated future development costs
    
    
    (344
    )
    
    
    (3,394
    )
    
    
    (247
    )Development costs incurred during the period
    
    
    699
    
    
    
    2,663
    
    
    
    985Revisions of quantity estimates
    
    
    (2,946
    )
    
    
    19,611
    
    
    
    (1,033
    )Accretion of discount
    
    
    4,869
    
    
    
    5,661
    
    
    
    10,587Purchases of reserves in-place
    
    
    
    
    
    
    7,141
    
    
    
    8,889Sales of reserves in-place
    
    
    (36,817
    )
    
    
    (42,859
    )
    
    
    (62,729
    )Changes in production rates and other
    
    
    (3,199
    )
    
    
    (8,037
    )
    
    
    (8,361
    )Standardized measure  end of year
    
    $
    9,119
    
    
    $
    48,689
    
    
    $
    56,611
 44




---



##### 



18. Investment
  September 30,2004
    
    2003Current assets
    
    $
    21,966
    
    
    $
    8,636Other assets
    
    
    31,868
    
    
    
    16,858$
    53,834
    
    
    $
    25,494Current liabilities
    
    $
    22,513
    
    
    $
    10,393Stockholders equity
    
    
    31,321
    
    
    
    15,101$
    53,834
    
    
    $
    25,494
 Year
Ended September 30,2004
    
    
    2003Net sales
    
    $
    53,320
    
    
    $
    30,795Gross profit
    
    
    15,582
    
    
    
    12,559Net loss
    
    
    (15,582
    )
    
    
    (16,127
    )
 Year
Ended December 31,2004
    
    
    2003Companys equity loss
    
    
    (2,704
    )
    
    
    (3,132
    )
  45




---



##### 



18. Investment (continued)
  46