GeoResources’ business strategy includes the acquisition of oil and gas reserves, along with field re-engineering, development, exploitation and exploration activities, intended to increase estimated quantities of proved reserves, and increase production and share values.

In implementing its strategy, management seeks to increase oil and gas production volumes, lower per-unit operating expenses, and thereby increase cash flow and operating net income. The Company operates in three core oil and gas areas; the Gulf Coast of Texas and Louisiana, the Rocky Mountain region of Colorado and Wyoming and the Williston Basin in North Dakota and Montana. GeoResources manages its Gulf Coast operations through its Southern Division headquarters in Houston. Activities in the Rocky Mountains and the Williston Basin are administered from the Northern Division headquarters in Denver.

Initially GeoResources expects to continue, and in some instances accelerate, development of existing properties. Management further intends to expand its portfolio of oil and gas properties in both the Southern and Northern Divisions to include producing reserves that generate current cash flow and net income and  exploration and development opportunities that can significantly increase reserves and production. GeoResources may solicit industry partners and institutional investors into acquisition, development or exploration projects, on a promoted basis, in order to diversify and stay within capital budgets and earn carried or reversionary interests, in addition to its direct ownership. This should lower GeoResources acquisition, finding and development costs and may generate operating or management fee income to offset overhead.     

Separately or in connection with acquisition opportunities, exploration opportunities will be explored, and, where appropriate, drilled, with industry partners or institutional investors being solicited for higher risk prospects on a promoted basis.  GeoResources will emphasize prospects it originates or generates internally and can operate, but may also participate with selected independent oil and gas companies on a non-operated basis.  Projects may include, individually or in tandem, acquisitions, workovers, re-completions, development drilling and other developmental activities such as secondary recovery, prospect participation and exploration.  Management believes that a strategy involving a combination of acquisition, re-engineering, development and exploration activities is the preferable strategy to build shareholder value.  
  
Acquisitions and Divestitures

Acquisitions.  The acquisition focus is expected to be on oil and gas properties with the potential for meaningful economic returns resulting from the application of operational and technical attention, development of non-producing proved reserves and realization of exploration potential. Acquired interests will generally have the characteristics of manageable risk, predictable production and value enhancement potential.

Divestitures.  An ongoing part of the business strategy will to be to divest existing or acquired assets for cash or on a tax-free exchange basis where such assets do not have adequate “upside” potential, are staff intensive or costly to operate in relation to production, are geographically separated from major operations or have other characteristics which are not compatible with the stage of the company’s operations.  Divestitures are an active part of any acquisition and any asset high-grading program.

Development Activities

An ongoing part of the business strategy will be to focus on development and exploitation of non-producing reserves through re-engineering activities such as installing down-hole and surface equipment, installing salt-water disposal wells, well workovers and recompletions, infill and development drilling (conventional and horizontal), secondary recovery and other related projects.  Operations, engineering and geological expertise with emphasis on cost control will be important to this part of the program.  The risks associated with development drilling are greater than operating and owning producing oil and gas, but more moderate than exploration activities.  In connection with field-wide development activities, typically comprehensive operations and reservoir engineering reviews will be made and integrated with geological and geophysical studies, to define development opportunities.  A development plan and capital budget can then be implemented.  The use of 3-D seismic technology and computer aided engineering systems will typically be utilized to recover bypassed or undeveloped reserves.  Management believes the combined entity will have the required technical systems and personnel to successfully evaluate and develop non-producing reserves in its areas of operations.  

Exploration

Exploration activities will focus on acquired properties or company generated prospects.  This part of the strategy has two distinct purposes: 1) to develop acquisitions fully, and 2) to realize substantive returns from exploration.  All acquisitions will be thoroughly evaluated for exploration potential through the review of available technical data, including well control, seismic, production, pressure and other data.  Where applicable, 3-D seismic imaging may be acquired or shot to further define opportunities.  GeoResources will actively drill and/or promote such opportunities to industry partners.  As the geological objectives move to a higher risk profile, industry partners will be solicited on a promoted basis.  

While exploration expenditures may not comprise a large part of the Company’s capital commitment, these activities are an important and integral part of the business strategy.  Financial returns can be enhanced and risk can be mitigated by generating or participating in prospects prior to sale to industry partners; that is, developing the prospect to a point where the combined entity will retain a direct working interest and a portion of the prospect can be sold to industry partners for a “front-end” cash profit and an additional promoted interest, such as an overriding royalty interest, carried interest or back-in-after payout.

Corporate Mergers and Acquisitions

GeoResources management has substantial merger and acquisition experience. This capability is enhanced by relationships with investment and commercial bankers, institutional investors, brokers and principals.  Management intends to actively pursue merger and acquisition opportunities with other private and public oil and gas companies.  If any such opportunities become available, acquisition or merger criteria would include, but not be limited to: (1) the potential for growth in a core area; (2) the opportunity to increase current cash flow; (3) development and exploration potential; (4) the ability to refinance debt at lower cost of capital; (5) realization of administrative savings; and (6) an opportunity to realize value of proved assets and prospects.