The Oil & Natural Gas Industry

The Company earns revenues and income and generates operation cash flows primarily from the sale of natural gas and crude oil at market prices of those products at the time of sale. An important element in understanding the Company's future operating performance are trends and uncertainties in natural gas and crude oil prices that may have a material impact on future cash flows. Trends in energy supply and demand are affected by many factors that are difficult to predict, such as energy prices, U.S. economic growth, advances in technology, changes in weather patterns, and future public policy decisions.

The Energy Information Administration "EIA" of the U.S. Government in its Short-Term Energy Outlook released March 11, 2008 states, "Tight fundamentals, reflected by low available crude oil surplus production capacity, combined with supply concerns in several oil exporting countries, have continued to put upward pressure on world crude oil prices. The outlook over the next 2 years points to some easing of the oil market balance due to increased production outside of the Organization of the Petroleum Exporting Countries (OPEC) and planned additions to OPEC capacity. The annual average WTI [West Texas Intermediate] price, which was $72 per barrel in 207, is projected to average $94 per barrel in 2008, but ease somewhat to about $86 per barrel in 2009." Regarding natural gas, the EIA's current projection calls for the average U.S. wellhead price for natural gas to be "8.18 per Mcf in 2008 and $7.95 per Mcf in 2009."

With uncertainties in production prices, and possible changes in sales volumes that may increase or decrease as a result of future operations, these factors can impact cash flow from operating activities in the short and long term. If there are significant changes in crude oil or natural gas prices in 2008 and 2009 beyond those projected by the EIA, this factor may have a material impact on future revenues, income and operating cash flows for the company.

The discussion found below describes our activities and operations in more detail.

NCEY Business Strategy for 2008 & 2009

As a part of our corporate strategy, we expect to remain focused in the following operational and project areas:

1. Remain focused in Texas Gulf Coast onshore region;
   


2. Acquire properties and proven reserves where we believed additional value can be created through a combination of exploitation, development, exploration drilling and expanding marketing opportunities;
   


3. Acquire properties that give us a majority working interest and operational control or where we believe we can ultimately obtain it;
   


4. Maximize the value of our properties by increasing production and reserves while reducing operating costs;
   


5. Maintain a highly experienced team of operations and exploration consultants using state of the art 3D seismic technology to prepare detailed field geological studies; and
   


6. Develop drilling prospects and acquire acreage positions over new drilling areas, for future drilling by the Company or farm out to qualified industry partners. In connection with this strategy, new projects are being evaluated in Texas.