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<DIV align="center" style="font-size: 10pt; margin-top: 12pt">As filed with the Securities and Exchange Commission on January&nbsp;30, 2008</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 6pt">Registration Statement No.&nbsp;333-______
</DIV>


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt; MARGIN-TOP: 3PT">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>






<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM S-8</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 12pt"><B>REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 12pt"><B><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></B>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>APPROACH RESOURCES INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
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    <TD width="47%">&nbsp;</TD>
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<TR valign="bottom">
    <TD align="center" valign="top"><B>Delaware</B><BR>
(State or other jurisdiction of incorporation or <BR>
organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>51-0424817</B><BR>
(I.R.S. Employer Identification No.)</TD>
</TR>
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</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>One Ridgmar Centre<BR>
6500 W. Freeway, Suite&nbsp;800<BR>
Fort Worth, Texas 76116</B><BR>
(Address, including Zip Code, of principal<BR>
executive offices)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Approach Resources Inc.<BR>
2007 Stock Incentive Plan</B><BR>
(Full title of the Plan)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>J. Curtis Henderson<BR>
Executive Vice President and General Counsel<BR>
One Ridgmar Centre<BR>
6500 W. Freeway, Suite&nbsp;800<BR>
Fort Worth, Texas 76116<BR>
(817)&nbsp;989-9000</B><BR>
(Name, address and telephone number of agent for service)</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Copy to:</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Joe Dannenmaier<BR>
Wesley P. Williams<BR>
Jessica W. Hammons<BR>
Thompson &#038; Knight LLP<BR>
1700 Pacific Avenue, Suite&nbsp;3300<BR>
Dallas, Texas 75201<BR>
(214)&nbsp;969-1700</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CALCULATION OF REGISTRATION FEE</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="1%">&nbsp;</TD>
</TR><TR style="font-size: 1px" valign="bottom">
    <TD nowrap align="left" colspan="21" style="border-bottom: 3px double #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">    <TD width="1%">&nbsp;</TD>

    <TD nowrap align="center">Title of securities to be</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Amount to be</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Proposed maximum offering</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Proposed maximum</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Amount of</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">    <TD width="1%">&nbsp;</TD>

    <TD nowrap align="center">registered</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Registered (1)</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">price per share(2)</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">aggregate offering price (2)</TD>
    <TD style="border-right: 2px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">registration fee</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

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<TR valign="bottom">
    <TD width="1%" style="border-top: 2px solid #000000">&nbsp;</TD>
                    <TD valign="top" style="border-top: 2px solid #000000"><DIV style="margin-left:0px; text-indent:-0px">Common Stock, par value $0.01 per share
</DIV></TD>
    <TD style="border-right: 2px solid #000000; border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD nowrap align="left" valign="top" style="border-top: 2px solid #000000">2,477,841 shares
</TD>
    <TD style="border-right: 2px solid #000000; border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD nowrap align="right" valign="top" style="border-top: 2px solid #000000">$</TD>
    <TD align="right" valign="top" style="border-top: 2px solid #000000">11.06</TD>
    <TD nowrap valign="top" style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-right: 2px solid #000000; border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD nowrap align="right" valign="top" style="border-top: 2px solid #000000">$</TD>
    <TD align="right" valign="top" style="border-top: 2px solid #000000">27,392,532</TD>
    <TD nowrap valign="top" style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-right: 2px solid #000000; border-top: 2px solid #000000">&nbsp;</TD>
    <TD style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD nowrap align="right" valign="top" style="border-top: 2px solid #000000">$</TD>
    <TD align="right" valign="top" style="border-top: 2px solid #000000">1,076.53</TD>
    <TD nowrap valign="top" style="border-top: 2px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-top: 2px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px" valign="bottom">
    <TD nowrap align="left" colspan="21" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>

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</DIV>



<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>This registration statement on Form S-8 (this &#147;Registration Statement&#148;) covers 2,066,800
shares of common stock, par value $0.01 per share, of Approach Resources Inc. (the
&#147;Registrant&#148;), available for issuance under the Approach Resources Inc. 2007 Stock Incentive
Plan. In addition, this Registration Statement covers the resale by selling stockholders
named in the prospectus included and filed with this Registration Statement of 411,041 shares
of common stock. In accordance with Rule&nbsp;416 under the Securities Act of 1933, as amended
(the &#147;Securities Act&#148;), this Registration Statement shall be deemed to cover any additional
shares of common stock, which may be issued upon recapitalizations, stock dividends, stock
splits or similar transactions. No additional registration fee is included for these shares.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c)
and Rule 457(h) of the Securities Act and based upon the average of the high and low prices of the
Registrant&#146;s common stock as reported on the NASDAQ Global Market on January&nbsp;24, 2008.</TD>
</TR>

</TABLE>
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXPLANATORY NOTE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Registration Statement registers 2,066,800 shares of our common stock that may be issued
and sold under the Approach Resources Inc. 2007 Stock Incentive Plan, or the 2007 Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Registration Statement also registers the reoffer and sale, in accordance with Section&nbsp;C
of the General Instructions to the Form S-8, of 411,041 shares of common stock acquired pursuant to
the 2007 Plan by J. Ross Craft, Steven P. Smart, J. Curtis Henderson, Glenn W. Reed, Ralph P.
Manoushagian, James S. Scott, James H. Brandi, Sheldon B. Lubar, Christopher J. Whyte and James C.
Crain, prior to the date hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Registration Statement contains two parts. The first part contains a &#147;reoffer&#148; prospectus
prepared in accordance with the requirements of Part&nbsp;I of Form S-3 pursuant to Section&nbsp;C of the
General Instructions to the Form S-8. The second part of this Registration Statement contains
information required to be set forth in this Registration Statement pursuant to Part&nbsp;II of Form
S-8.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The document(s) containing the information specified in Part&nbsp;I of Form S-8 (plan information
and registrant information) will be sent or given to plan participants as specified by Rule
428(b)(1) under the Securities Act. In accordance with Rule&nbsp;428 under the Securities Act and the
&#147;Note&#148; to Part&nbsp;I of Form S-8, these documents are not being filed with the SEC either as part of
this Registration Statement or as prospectuses or prospectus supplements pursuant to Rule&nbsp;424 under
the Securities Act. These documents and the documents incorporated by reference in this
Registration Statement pursuant to Item&nbsp;3 of Part&nbsp;II of this Form S-8, taken together, constitute a
prospectus that meets the requirements of Section 10(a) of the Securities Act.
</DIV>

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<!-- link1 "PART I INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS</B>

</DIV>
<!-- link2 "Item&nbsp;1. Plan Information*" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;1. Plan Information*
</DIV>

<!-- link2 "Item&nbsp;2. Registrant Information and Employee Plan Annual Information*" -->

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Item&nbsp;2. Registrant Information and Employee Plan Annual Information*
</DIV>




<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to the Note to Part&nbsp;I of Form S-8, the plan information specified by Part&nbsp;I of Form S-8
is not required to be filed with the Securities and Exchange Commission. We will provide without
charge to any person, upon written or oral request of such person, a copy of each document
incorporated by reference in Item&nbsp;3 of Part&nbsp;II of this Registration Statement (which documents are
incorporated by reference in the reoffer prospectus as set forth in Form S-8), other than exhibits
to such documents that are not specifically incorporated by reference, the other documents required
to be delivered to eligible employees pursuant to Rule 428(b) under the Securities Act and
additional information about the 2007 Plan. Requests should be directed to Corporate Secretary,
Approach Resources Inc., One Ridgmar Centre, 6500 W. Freeway, Suite&nbsp;800, Fort Worth, Texas 76116.</TD>
</TR>
</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Note: The re-offer prospectus referred to in the Explanatory Note follows this page.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>REOFFER PROSPECTUS</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>411,041 Shares</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>APPROACH RESOURCES INC.</B>

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Common Stock<BR>
par value $0.01 per share</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This reoffer prospectus relates to an aggregate of up to 411,041 shares of our common stock,
which may be offered and sold from time to time by certain of our stockholders identified herein.
Such current or former directors, officers or employees are collectively referred to herein as
&#147;Selling Stockholders.&#148; See &#147;Selling Stockholders.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will not receive any of the proceeds from sales of the shares by any Selling Stockholders.
The shares may be offered from time to time by any or all of Selling Stockholders through ordinary
brokerage transactions, in negotiated transactions or in other transactions at such prices they may
determine, which may relate to market prices prevailing at the time of sale or be a negotiated
price. See &#147;Plan of Distribution.&#148; All costs, expenses and fees in connection with the
registration of the shares will be borne by us. Brokerage commissions and similar selling expenses,
if any, attributable to the offer or sale of the shares will be borne by Selling Stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling Stockholders and any broker executing selling orders on behalf of Selling Stockholders
may be deemed to be &#147;underwriters&#148; as defined in the Securities Act of 1933, as amended (the
&#147;Securities Act&#148;). If any broker-dealers are used to effect sales, any commissions paid to
broker-dealers and, if broker-dealers purchase any of the shares as principals, any profits
received by such broker-dealers on the resale of the shares, may be deemed to be underwriting
discounts or commissions under the Securities Act.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is traded on the NASDAQ Global Market under the symbol &#147;AREX.&#148; On January
24, 2008, the last reported sale price of our common stock on the NASDAQ Global Market was $11.09
per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive officers are located at One Ridgmar Centre, 6500 W. Freeway, Suite
800, Fort Worth, Texas 76116. Our telephone number is (817)&nbsp;989-9000.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investing in our common stock involves a high degree of risk. See &#147;Risk factors&#148; beginning on
page 2.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>The date of this prospectus is January&nbsp;30, 2008.</B>
</DIV>


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<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Table of Contents</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="94%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">Our Company</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Forward-Looking Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Selling Stockholders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Plan of Distribution</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Legal Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Experts</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Incorporation of Documents by Reference</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Where You Can Find More Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
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</TABLE>
</DIV>

<DIV align="left">
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</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should rely only on the information contained in this prospectus. We have not authorized
any other person to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. Information contained on our website does
not constitute a part of this prospectus. Selling Stockholders are not making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate only as of the date on the front
cover of this prospectus, regardless of the time this prospectus is delivered or the shares offered
by this prospectus are sold. Our business, financial condition, results of operations and
prospects may have changed since that date.
</DIV>


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</DIV>



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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>OUR COMPANY</B>
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Overview</B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In this prospectus, unless the context otherwise requires, the terms &#147;Approach Resources,&#148;
&#147;Approach,&#148; &#147;we,&#148; &#147;us&#148; and &#147;our&#148; refer to the combined operations of Approach Resources Inc. and
Approach Oil &#038; Gas Inc. and their respective subsidiaries on a pro forma basis after giving effect
to the acquisition by Approach Resources Inc. from Neo Canyon Exploration, L.P. of Neo Canyon&#146;s 30%
working interest in the Ozona Northeast field. The Neo Canyon acquisition was completed on
November&nbsp;14, 2007.
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are an independent energy company engaged in the exploration, development, exploitation,
production and acquisition of unconventional and conventional natural gas and oil properties. Our
growth efforts are focused primarily on finding and developing natural gas reserves in known tight
gas sands and shale areas onshore in the United States and Canada, where we have assembled
leasehold interests totaling 277,100 gross (189,400 net) acres. Our management team has extensive
experience finding and exploiting unconventional reservoirs through applying advanced completion,
fracturing and drilling techniques. Most of our growth has been through our own drilling effort.
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2006, we owned working interests in 241 gross (226 net) producing wells with
an average net production of approximately 22 MMcfe/d for the month of December&nbsp;2006. At December
31, 2006, our total proved gas and oil reserves were approximately 149 Bcfe with a reserve life
index of approximately 19&nbsp;years. Our proved reserves are 94% gas and 51% proved developed. As the
operator of substantially all of our proved reserves, we have a high degree of control over capital
expenditures and other operating matters. As of July&nbsp;31, 2007, we had identified a total of 833
drilling locations, 644 of which were located in the Ozona Northeast field.
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently operate in five areas: West Texas (Wolfcamp, Canyon Sands and Ellenburger), East
Texas (Cotton Valley Sands, Bossier, Cotton Valley Lime), British Columbia (Triassic Shale and
Tight Gas Sands), Western Kentucky (New Albany Shale) and Northern New Mexico (Mancos Shale). As
of December&nbsp;31, 2006, all of our proved reserves and production were located in West Texas and
substantially all of those reserves and production were located in our Ozona Northeast field.
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a Delaware corporation. Our principal executive offices are located at 6500 W.
Freeway, Suite&nbsp;800, Fort Worth, Texas 76116. Our telephone number is (817)&nbsp;989-9000.
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>RISK FACTORS</B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should carefully consider the risk factors set forth below as well as the other
information contained in this prospectus before investing in our common stock. Any of the following
risks could materially and adversely affect our business, financial condition or results of
operations. In such a case, you may lose all or part of your investment. The risks described below
are not the only risks facing us. Additional risks and uncertainties not currently known to us or
those we currently view to be immaterial may also materially adversely affect our business,
financial condition or results of operations. The future trading price of shares of our common
stock will be affected by the performance of our business relative to, among other things,
competition, market conditions and general economic and industry conditions.
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks related to the oil and natural gas industry and our business</B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Gas and oil prices are volatile, and a decline in gas or oil prices could significantly affect our
business, financial condition or results of operations and our ability to meet our capital
expenditure requirements and financial commitments.</I></B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues, profitability and cash flow depend substantially upon the prices and demand for
gas and oil. The markets for these commodities are volatile, and even relatively modest drops in
prices can affect significantly our financial results and impede our growth. Prices for gas and
oil fluctuate widely in response to relatively minor changes in the supply and demand for gas and
oil, market uncertainty and a variety of additional factors beyond our control, such as:
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    <TD>domestic and foreign supply of gas and oil;</TD>
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    <TD>price and quantity of foreign imports;</TD>
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    <TD>commodity processing, gathering and transportation availability and the availability
of refining capacity;</TD>
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    <TD>domestic and foreign governmental regulations;</TD>
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    <TD>political conditions in or affecting other gas producing and oil producing
countries, including the current conflicts in the Middle East and conditions in South
America and Russia;</TD>
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    <TD>the ability of the members of the Organization of Petroleum Exporting Countries to
agree to and maintain oil price and production controls;</TD>
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    <TD>weather conditions, including unseasonably warm winter weather;</TD>
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    <TD>technological advances affecting gas and oil consumption;</TD>
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    <TD>overall United States and global economic conditions; and</TD>
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    <TD>price and availability of alternative fuels.</TD>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, gas prices and oil prices do not necessarily fluctuate in direct relationship to each
other. Because more than 94% of our estimated proved reserves as of December&nbsp;31, 2006 were gas
reserves, our financial results are more sensitive to movements in gas prices. In the past, the
price of gas has been extremely volatile, and we expect this volatility to continue. During the
year ended December&nbsp;31, 2007, the NYMEX gas spot price ranged from a high of $8.64 per MMBtu to a
low of $5.38 per MMBtu. The NYMEX gas spot price at December&nbsp;31, 2007 was $7.17.
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of higher investment in the exploration for and production of gas and other
factors may cause the price of gas to drop. Lower gas and oil prices may not only cause our
revenues to decrease but also may reduce the amount of gas and oil that we can produce
economically. Substantial decreases in gas and oil prices would
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">render uneconomic some or all of our drilling locations. This may result in our having to
make substantial downward adjustments to our estimated proved reserves and could have a material
adverse effect on our financial condition, results of operations and cash flow.
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Drilling and exploring for, and producing, gas and oil are high risk activities with many
uncertainties that could adversely affect our business, financial condition or results of
operations.</I></B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Drilling and exploration are the main methods we use to replace our reserves. However,
drilling and exploration operations may not result in any increases in reserves for various
reasons. Exploration activities involve numerous risks, including the risk that no commercially
productive gas or oil reservoirs will be discovered. In addition, the future cost and timing of
drilling, completing and producing wells is often uncertain. Furthermore, drilling operations may
be curtailed, delayed or canceled as a result of a variety of factors, including:
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    <TD>lack of acceptable prospective acreage;</TD>
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    <TD>inadequate capital resources;</TD>
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    <TD>unexpected drilling conditions, pressure or irregularities in formations, equipment
failures or accidents;</TD>
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    <TD>adverse weather conditions, including tornados;</TD>
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    <TD>unavailability or high cost of drilling rigs, equipment or labor;</TD>
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    <TD>reductions in gas and oil prices;</TD>
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    <TD>limitations in the market for gas and oil;</TD>
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    <TD>surface access restrictions;</TD>
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    <TD>title problems;</TD>
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    <TD>compliance with governmental regulations; and</TD>
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    <TD>mechanical difficulties.</TD>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our decisions to purchase, explore, develop and exploit prospects or properties depend in part
on data obtained through geophysical and geological analyses, production data and engineering
studies, the results of which are often uncertain. Even when used and properly interpreted, 3-D
seismic data and visualization techniques only assist geoscientists and geologists in identifying
subsurface structures and hydrocarbon indicators. They do not allow the interpreter to know
conclusively if hydrocarbons are present or producible economically. In addition, the use of 3-D
seismic and other advanced technologies require greater predrilling expenditures than traditional
drilling strategies.
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, higher gas and oil prices generally increase the demand for drilling rigs,
equipment and crews and can lead to shortages of, and increasing costs for, such drilling
equipment, services and personnel. Such shortages could restrict our ability to drill the wells
and conduct the operations that we currently have planned. Any delay in the drilling of new wells
or significant increase in drilling costs could adversely affect our ability to increase our
reserves and production and reduce our revenues.
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Currently, the vast majority of our producing properties are located in two counties in Texas, and
our proved reserves are primarily attributable to one field in that area, making us vulnerable to
risks associated with having our production concentrated in a small area.</I></B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The vast majority of our producing properties are geographically concentrated in two counties
in Texas, and our proved reserves are primarily attributable to one field in that area. As a
result of this concentration, we may be
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">disproportionately exposed to the impact of delays or interruptions of production from these
wells caused by significant governmental regulation, transportation capacity constraints,
curtailments of production, natural disasters, interruption of transportation of gas produced from
the wells in these basins or other events that impact these areas.
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Certain of our undeveloped leasehold acreage is subject to leases and options that may expire in
the near future.</I></B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006, we held mineral leases in each of our areas of operations that are
still within their original lease term and are not currently held by production. Unless we
establish commercial production on the properties subject to these leases, most of these leases
will expire between 2008 and 2015. Options covering approximately 12,000 gross acres in our Cinco
Terry project are scheduled to expire before June&nbsp;1, 2008. If these leases or options expire, we
will lose our right to develop the related properties.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Identified drilling locations that we decide to drill may not yield gas or oil in commercially
viable quantities and are susceptible to uncertainties that could materially alter the occurrence
or timing of their drilling.</I></B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our drilling locations are in various stages of evaluation, ranging from locations that are
ready to be drilled to locations that will require substantial additional evaluation and
interpretation. There is no way to predict in advance of drilling and testing whether any
particular drilling location will yield gas or oil in sufficient quantities to recover drilling or
completion costs or to be economically viable. The use of seismic data and other technologies and
the study of producing fields in the same area will not enable us to know conclusively before
drilling whether gas or oil will be present or, if present, whether gas or oil will be present in
commercial quantities. The analysis that we perform may not be useful in predicting the
characteristics and potential reserves associated with our drilling locations. As a result, we may
not find commercially viable quantities of gas and oil.
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our drilling locations represent a significant part of our growth strategy. Our ability to
drill and develop these locations depends on a number of factors, including gas and oil prices,
costs, the availability of capital, seasonal conditions, regulatory approvals and drilling results.
Because of these uncertainties, we do not know when the unproved drilling locations we have
identified will be drilled or if they will ever be drilled or if we will be able to produce gas or
oil from these or any proved drilling locations. As such, our actual drilling activities may be
materially different from those presently identified, which could adversely affect our business,
results of operations or financial condition.
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Unless we replace our gas and oil reserves, our reserves and production will decline.</I></B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future gas and oil production depends on our success in finding or acquiring additional
reserves. If we fail to replace reserves through drilling or acquisitions, our level of production
and cash flows will be affected adversely. In general, production from gas and oil properties
declines as reserves are depleted, with the rate of decline depending on reservoir characteristics.
Our total proved reserves will decline as reserves are produced unless we conduct other successful
exploration and development activities or acquire properties containing proved reserves, or both.
Our ability to make the necessary capital investment to maintain or expand our asset base of gas
and oil reserves would be impaired to the extent cash flow from operations is reduced and external
sources of capital become limited or unavailable. We may not be successful in exploring for,
developing or acquiring additional reserves.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our actual production, revenues and expenditures related to our reserves are likely to differ from
our estimates of our proved reserves. We may experience production that is less than estimated and
drilling costs that are greater than estimated in our reserve reports. These differences may be
material.</I></B>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The proved gas and oil reserve information included in this prospectus represents estimates.
Petroleum engineering is a subjective process of estimating underground accumulations of gas and
oil that cannot be measured in an exact manner. Estimates of economically recoverable gas and oil
reserves and of future net cash flows necessarily depend upon a number of variable factors and
assumptions, including:
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    <TD>historical production from the area compared with production from other similar
producing areas;</TD>
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    <TD>the assumed effects of regulations by governmental agencies;</TD>
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    <TD>assumptions concerning future gas and oil prices; and</TD>
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    <TD>assumptions concerning future operating costs, severance and excise taxes,
development costs and workover and remedial costs.</TD>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because all reserve estimates are to some degree subjective, each of the following items may
differ materially from those assumed in estimating proved reserves:
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    <TD>the quantities of gas and oil that are ultimately recovered;</TD>
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    <TD>the production and operating costs incurred;</TD>
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    <TD>the amount and timing of future development expenditures; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>future gas and oil prices.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006, approximately 49% of our proved reserves were proved undeveloped.
Estimates of proved undeveloped reserves are even less reliable than estimates of proved developed
reserves.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, different reserve engineers may make different estimates of reserves and cash
flows based on the same available data. Our actual production, revenues and expenditures with
respect to reserves will likely be different from estimates and the differences may be material.
As required by the Securities and Exchange Commission, or the SEC, the estimated discounted future
net cash flows from proved reserves are generally based on prices and costs as of the date of the
measurement (December&nbsp;31, 2006), while actual future prices and costs may be materially higher or
lower. Actual future net cash flows also will be affected by factors such as:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the amount and timing of actual production;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>supply and demand for gas and oil;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increases or decreases in consumption; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in governmental regulations or taxation.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the 10% discount factor, which is required by the SEC to be used to calculate
discounted future net cash flows for reporting purposes, is not necessarily the most appropriate
discount factor based on interest rates in effect from time to time and risks associated with us or
the oil and gas industry in general.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should not assume that the present value of future net revenues from our proved reserves
referred to or incorporated by reference in this prospectus is the current market value of our
estimated gas and oil reserves. In accordance with SEC requirements, we generally base the
estimated discounted future net cash flows from our proved reserves on prices and costs on the date
of the estimate. Actual future prices and costs may differ materially from those used in the
present value estimate. If gas prices decline by $1.00 per Mcf from $6.55 per Mcf to $5.55 per Mcf,
then our PV-10 as of December&nbsp;31, 2006 would decrease from $179.9&nbsp;million to $110.1&nbsp;million. The
average market price received for our natural gas production on December&nbsp;31, 2006, after basis and
Btu adjustments, was $6.55 per Mcf. The average market price received for our natural gas
production on August&nbsp;31, 2007, after basis and Btu adjustments, was $6.05 per Mcf.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oilfield
services could adversely affect our ability to execute our exploration and development plans on a
timely basis and within our budget.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our industry is cyclical, and from time to time there is a shortage of drilling rigs,
equipment, supplies and qualified personnel. During these periods, the costs and delivery times of
rigs, equipment and supplies are substantially greater. As a result of historically strong prices
of gas, the demand for oilfield and drilling services has risen, and the costs of these services
are increasing. For example, average day rates for land based rigs have
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">increased substantially during the last two years. We are particularly sensitive to higher rig
costs and drilling rig availability, as we presently have two rigs under contract, one of which is
on a well-to-well basis. If the unavailability or high cost of drilling rigs, equipment, supplies
or qualified personnel were particularly severe in the areas where we operate, we could be
materially and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Competition in the oil and gas industry is intense, and many of our competitors have resources that
are greater than ours.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate in a highly competitive environment for acquiring prospects and productive
properties, marketing gas and oil and securing equipment and trained personnel. Many of our
competitors are major and large independent oil and gas companies that possess and employ
financial, technical and personnel resources substantially greater than ours. Those companies may
be able to develop and acquire more prospects and productive properties than our financial or
personnel resources permit. Our ability to acquire additional prospects and discover reserves in
the future will depend on our ability to evaluate and select suitable properties and consummate
transactions in a highly competitive environment. Also, there is substantial competition for
capital available for investment in the oil and gas industry. Larger competitors may be better
able to withstand sustained periods of unsuccessful drilling and absorb the burden of changes in
laws and regulations more easily than we can, which would adversely affect our competitive
position. We may not be able to compete successfully in the future in acquiring prospective
reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel
and raising additional capital.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our customer base is concentrated, and the loss of our key customer could, therefore, adversely
affect our financial results.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2006, Ozona Pipeline Energy Company, which we refer to as Ozona Pipeline, accounted for
approximately 89.6% of our total gas and oil sales excluding realized commodity derivative
settlements. To the extent that Ozona Pipeline reduces its purchases in gas or oil or defaults on
its obligations to us, we would be adversely affected unless we were able to make comparably
favorable arrangements with other customers. Ozona Pipeline&#146;s default or non-performance could be
caused by factors beyond our control. A default could occur as a result of circumstances relating
directly to the customer, or due to circumstances related to other market participants with which
the customer has a direct or indirect relationship.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>We depend on our management team and other key personnel. Accordingly, the loss of any of these
individuals could adversely affect our business, financial condition and the results of operations
and future growth.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success largely depends on the skills, experience and efforts of our management team and
other key personnel. The loss of the services of one or more members of our senior management team
or of our other employees with critical skills needed to operate our business could have a negative
effect on our business, financial condition, results of operations and future growth. We have
entered into employment agreements with J. Ross Craft, our President and Chief Executive Officer,
Steven P. Smart, our Executive Vice President and Chief Financial Officer and Glenn W. Reed, our
Senior Vice President&#151;Operations. If any of these officers or other key personnel resign or
become unable to continue in their present roles and are not adequately replaced, our business
operations could be materially adversely affected. Our ability to manage our growth, if any, will
require us to continue to train, motivate and manage our employees and to attract, motivate and
retain additional qualified personnel. Competition for these types of personnel is intense, and we
may not be successful in attracting, assimilating and retaining the personnel required to grow and
operate our business profitably.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>We have three affiliated stockholders with a controlling interest in our company, whose interests
may differ from your interests and who will be able to determine the outcome of matters voted upon
by our stockholders.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P. and Yorktown Energy
Partners VII, L.P., or collectively, Yorktown, which are under common management, beneficially own
approximately 44.8% of our outstanding common stock in the aggregate. In addition, one Yorktown
representative serves on our board of directors, and our management team and employees beneficially
own or control approximately 6.9% of our common stock outstanding. As a result of this ownership,
Yorktown has the ability to substantially control the vote in any election of directors. Yorktown
also has control over our decisions to enter into significant corporate transactions and, in its
capacity as our majority stockholder, has the ability to prevent any transactions that it does not
believe are
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">in Yorktown&#146;s best interest. As a result, Yorktown is be able to control, directly or
indirectly and subject to applicable law, all matters affecting us, including the following:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any determination with respect to our business direction and policies, including the
appointment and removal of officers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any determinations with respect to mergers, business combinations or dispositions of
assets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our capital structure;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>compensation, option programs and other human resources policy decisions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes to other agreements that may adversely affect us; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the payment, or nonpayment, of dividends on our common stock.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yorktown also may have an interest in pursuing transactions that, in their judgment, enhance
the value of their respective equity investments in our company, even though those transactions may
involve risks to you as a minority stockholder. In addition, circumstances could arise under which
their interests could be in conflict with the interests of our other stockholders or you, a
minority stockholder. Also, Yorktown and their affiliates have and may in the future make
significant investments in other companies, some of which may be competitors. Yorktown and its
affiliates are not obligated to advise us of any investment or business opportunities of which they
are aware, and they are not restricted or prohibited from competing with us.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>We have renounced any interest in specified business opportunities, and certain members of our
board of directors and certain of our stockholders generally have no obligation to offer us those
opportunities.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Delaware law, we have renounced any interest or expectancy in any business
opportunity, transaction or other matter in which our non-employee directors and certain of our
stockholders, each referred to as a Designated Party, participates or desires to participate in
that involves any aspect of the exploration and production business in the oil and industry. If any
such business opportunity is presented to a Designated Person who also serves as a member of our
board of directors, the Designated Party has no obligation to communicate or offer that opportunity
to us, and the Designated Party may pursue the opportunity as he sees fit, unless:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>it was presented to the Designated Party solely in that person&#146;s capacity as a
director of our company and with respect to which, at the time of such presentment, no
other Designated Party has independently received notice of or otherwise identified the
business opportunity; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the opportunity was identified by the Designated Party solely through the disclosure
of information by or on behalf of us.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of this renunciation, our non-employee directors should not be deemed to be
breaching any fiduciary duty to us if they or their affiliates or associates pursue opportunities
as described above and our future competitive position and growth potential could be adversely
affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>We are subject to complex governmental laws and regulations that may adversely affect the cost,
manner or feasibility of doing business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operations and facilities are subject to extensive federal, state and local laws and
regulations relating to the exploration for, and the development, production and transportation of,
gas and oil, and operating safety, and protection of the environment, including those relating to
air emissions, wastewater discharges, land use, storage and disposal of wastes and remediation of
contaminated soil and groundwater. Future laws or regulations, any adverse changes in the
interpretation of existing laws and regulations or our failure to comply with existing legal
requirements may harm our business, results of operations and financial condition. We may encounter
reductions in reserves or be required to make large and unanticipated capital expenditures to
comply with governmental laws and regulations, such as:
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>price control;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>taxation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>lease permit restrictions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>drilling bonds and other financial responsibility requirements, such as plug and
abandonment bonds;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>spacing of wells;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unitization and pooling of properties;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>safety precautions; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>permitting requirements.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under these laws and regulations, we could be liable for:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>personal injuries;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>property and natural resource damages;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>well reclamation costs, soil and groundwater remediation costs; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>governmental sanctions, such as fines and penalties.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operations could be significantly delayed or curtailed, and our cost of operations could
significantly increase as a result of environmental safety and other regulatory requirements or
restrictions. We are unable to predict the ultimate cost of compliance with these requirements or
their effect on our operations. We may be unable to obtain all necessary licenses, permits,
approvals and certificates for proposed projects. Intricate and changing environmental and other
regulatory requirements may require substantial expenditures to obtain and maintain permits. If a
project is unable to function as planned, for example, due to costly or changing requirements or
local opposition, it may create expensive delays, extended periods of non-operation or significant
loss of value in a project.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Operating hazards, natural disasters or other interruptions of our operations could result in
potential liabilities, which may not be fully covered by our insurance.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The oil and gas business involves certain operating hazards such as:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>well blowouts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>cratering;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>explosions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>uncontrollable flows of gas, oil or well fluids;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>fires;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pollution; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>releases of toxic gas.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The occurrence of one of the above may result in injury, loss of life, suspension of
operations, environmental damage and remediation and/or governmental investigations and penalties.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, our operations in Texas are especially susceptible to damage from natural
disasters such as tornados and involve increased risks of personal injury, property damage and
marketing interruptions. Any of these operating hazards could cause serious injuries, fatalities or
property damage, which could expose us to liabilities. The payment of any of these liabilities
could reduce, or even eliminate, the funds available for exploration, development, exploitation and
acquisition, or could result in a loss of our properties. Consistent with insurance coverage
generally available to the industry, our insurance policies provide limited coverage for losses or
liabilities relating to pollution, with broader coverage for sudden and accidental occurrences. Our
insurance might be inadequate to cover our liabilities. The insurance market in general and the
energy insurance market in particular have been difficult markets over the past several years.
Insurance costs are expected to continue to increase over the next few years and we may decrease
coverage and retain more risk to mitigate future cost increases. If we incur substantial liability
and the damages are not covered by insurance or are in excess of policy limits, or if we incur
liability at a time when we are not able to obtain liability insurance, then our business, results
of operations and financial condition could be materially adversely affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our results are subject to quarterly and seasonal fluctuations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our quarterly operating results have fluctuated in the past and could be negatively impacted
in the future as a result of a number of factors, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>seasonal variations in gas and oil prices;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>variations in levels of production; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the completion of exploration and production projects.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Market conditions or transportation impediments may hinder our access to gas and oil markets or
delay our production.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Market conditions, the unavailability of satisfactory gas and oil processing and
transportation may hinder our access to gas and oil markets or delay our production. Although
currently we control the pipeline operations for a majority of our production in the Ozona
Northeast field, we do not have such control in other areas in which we expect to conduct
operations. The availability of a ready market for our gas and oil production depends on a number
of factors, including the demand for and supply of gas and oil and the proximity of reserves to
pipelines or trucking and terminal facilities. In addition, the amount of gas and oil that can be
produced and sold is subject to curtailment in certain circumstances, such as pipeline
interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage to
the gathering or transportation system or lack of contracted capacity on such systems. The
curtailments arising from these and similar circumstances may last from a few days to several
months, and in many cases we are provided with limited, if any, notice as to when these
circumstances will arise and their duration. As a result, we may not be able to sell, or may have
to transport by more expensive means, the gas and oil production from wells or we may be required
to shut in gas wells or delay initial production until the necessary gathering and transportation
systems are available. Any significant curtailment in gathering system or pipeline capacity, or
significant delay in construction of necessary gathering and transportation facilities, could
adversely affect our business, financial condition or results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Environmental liabilities may expose us to significant costs and liabilities.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is inherent risk of incurring significant environmental costs and liabilities in our gas
and oil operations due to the handling of petroleum hydrocarbons and generated wastes, the
occurrence of air emissions and water discharges from work-related activities and the legacy of
pollution from historical industry operations and waste disposal practices. We may incur joint and
several or strict liability under these environmental laws and regulations in connection with
spills, leaks or releases of petroleum hydrocarbons and wastes on, under or from our properties and
facilities, many of which have been used for exploration, production or development activities for
many years, oftentimes by third parties not under our control. Private parties, including the
owners of properties upon which we conduct drilling and production activities as well as facilities
where our petroleum hydrocarbons or wastes are taken for reclamation or disposal, may also have the
right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for
personal injury or property damage. In addition, changes in environmental laws and regulations
occur frequently, and any such changes
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">that result in more stringent and costly waste handling,
storage, transport, disposal or remediation requirements could have a material adverse effect on
our production or our operations or financial position. We may not be able to recover some or any
of these costs from insurance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our growth strategy could fail or present unanticipated problems for our business in the future,
which could adversely affect our ability to make acquisitions or realize anticipated benefits of
those acquisitions.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our growth strategy may include acquiring oil and gas businesses and properties. We may not be
able to identify suitable acquisition opportunities or finance and complete any particular
acquisition successfully.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, acquisitions involve a number of risks and challenges, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>diversion of management&#146;s attention;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the need to integrate acquired operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potential loss of key employees of the acquired companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potential lack of operating experience in a geographic market of the acquired
business; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an increase in our expenses and working capital requirements.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any of these factors could adversely affect our ability to achieve anticipated levels of cash
flows from the acquired businesses or realize other anticipated benefits of those acquisitions.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Severe weather could have a material adverse impact on our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business could be materially and adversely affected by severe weather. Repercussions of
severe weather conditions may include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>curtailment of services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>weather-related damage to drilling rigs, resulting in suspension of operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>weather-related damage to our facilities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to deliver materials to jobsites in accordance with contract schedules;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>loss of productivity.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>A terrorist attack or armed conflict could harm our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Terrorist activities, anti-terrorist efforts and other armed conflict involving the United
States may adversely affect the United States and global economies and could prevent us from
meeting our financial and other obligations. If any of these events occur or escalate, the
resulting political instability and societal disruption could reduce overall demand for gas and
oil, potentially putting downward pressure on demand for our services and causing a reduction in
our revenue. Gas and oil related facilities could be direct targets for terrorist attacks, and our
operations could be adversely impacted if significant infrastructure or facilities we use for the
production, transportation or marketing of our gas and oil production are destroyed or damaged.
Costs for insurance and other security may increase as a result of these threats, and some
insurance coverage may become difficult to obtain, if available at all.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks related to our financial condition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We will require additional capital to fund our future activities. If we fail to obtain additional
capital, we may not be able to implement fully our business plan, which could lead to a decline in
reserves.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend on our ability to obtain financing beyond our cash flow from operations.
Historically, we have financed our business plan and operations primarily with internally generated
cash flows, borrowings under our revolving credit facility and issuances of common stock. We also
require capital to fund our capital budget, which is expected to be approximately $64.3&nbsp;million for
2008. As of December&nbsp;31, 2006, approximately 49% of our total estimated proved reserves were
undeveloped. Recovery of such reserves will require significant capital expenditures and
successful drilling operations. We will be required to meet our needs from our internally
generated cash flows, debt financings and equity financings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If our revenues decrease as a result of lower commodity prices, operating difficulties,
declines in reserves or for any other reason, we may have limited ability to obtain the capital
necessary to sustain our operations at current levels. We may, from time to time, need to seek
additional financing. Our revolving credit facility contains covenants restricting our ability to
incur additional indebtedness without lender consent. There can be no assurance that our bank
lenders will provide this consent or as to the availability or terms of any additional financing.
If we incur additional debt, the related risks that we now face could intensify.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even if additional capital is needed, we may not be able to obtain debt or equity financing on
terms favorable to us, or at all. If cash generated by operations and available under our
revolving credit facility is not sufficient to meet our capital requirements, the failure to obtain
additional financing could result in a curtailment of our operations relating to exploration and
development of our projects, which in turn could lead to a possible loss of properties and a
decline in our gas reserves.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our bank lenders can limit our borrowing capabilities, which may materially impact our operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2007, we had no outstanding borrowings under our revolving credit facility.
The borrowing base limitation under our revolving credit facility is redetermined semi-annually.
Redeterminations are based upon information contained in an engineering report prepared by an
independent petroleum engineering firm, including, without limitation, commodity prices and reserve
levels. In addition, as is typical in the oil and gas industry, our bank lenders have substantial
flexibility to reduce our borrowing base on the basis of subjective factors. Upon a
redetermination, we could be required to repay a portion of our outstanding borrowings, including
the total face amounts of all outstanding letters of credit and the amount of all unpaid
reimbursement obligations, to the extent such amounts exceed the redetermined borrowing base. We
may not have sufficient funds to make such required repayment, which could result in a default
under the terms of the revolving credit facility and an acceleration of the loan. We intend to
finance our development, acquisition and exploration activities with cash flow from operations,
borrowings under our revolving credit facility and other financing activities. In addition, we may
significantly alter our capitalization to make future acquisitions or develop our properties.
These changes in capitalization may significantly increase our level of debt. If we incur
additional debt for these or other purposes, the related risks that we now face could intensify. A
higher level of debt also increases the risk that we may default on our debt obligations. Our
ability to meet our debt obligations and to reduce our level of debt depends on our future
performance which will be affected by general economic conditions and financial, business and other
factors. Many of these factors are beyond our control. Our level of debt affects our operations
in several important ways, including the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a portion of our cash flow from operations is used to pay interest on borrowings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the covenants contained in the agreements governing our debt limit our ability to
borrow additional funds, pay dividends, dispose of assets or issue shares of preferred
stock and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a high level of debt may impair our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general corporate
purposes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a leveraged financial position would make us more vulnerable to economic downturns
and could limit our ability to withstand competitive pressures; and</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any debt that we incur under our revolving credit facility will be at variable rates
which makes us vulnerable to increases in interest rates.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>We engage in commodity derivative transactions which involve risks that can harm our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To manage our exposure to price risks in the marketing of our gas and oil production, we enter
into gas and oil price commodity derivative agreements. While intended to reduce the effects of
volatile oil and gas prices, such transactions may limit our potential gains and increase our
potential losses if gas and oil prices were to rise substantially over the price established by the
commodity derivative. In addition, such transactions may expose us to the risk of loss in certain
circumstances, including instances in which our production is less than expected, there is a
widening of price differentials between delivery points for our production and the delivery point
assumed in the commodity derivative arrangement or the counterparties to the commodity derivative
agreements fail to perform under the contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks related to our common stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We do not anticipate paying any dividends on our common stock in the foreseeable future.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not expect to declare or pay any cash or other dividends in the foreseeable future on
our common stock, as we intend to use cash flow generated by operations to expand our business. Our
revolving credit facility will restrict our ability to pay cash dividends on our common stock, and
we may also enter into credit agreements or other borrowing arrangements in the future that
restrict or limit our ability to pay cash dividends on our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>You may experience dilution of your ownership interests due to the future issuance of additional
shares of our common stock.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may in the future issue our previously authorized and unissued securities, resulting in the
dilution of the ownership interests of our present stockholders and purchasers of common stock
offered hereby. We are currently authorized to issue 90&nbsp;million shares of common stock and 10
million shares of preferred stock with preferences and rights as determined by our board of
directors. The potential issuance of such additional shares of common stock may create downward
pressure on the trading price of our common stock. We may also issue additional shares of our
common stock or other securities that are convertible into or exercisable for common stock in
connection with the hiring of personnel, future acquisitions, future public offerings or private
placements of our securities for capital raising purposes, or for other business purposes. Any of
these events may dilute your ownership interest in us and have an adverse impact on the price of
our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, sales of a substantial amount of our common stock in the public market, or the
perception that these sales may occur, could reduce the market price of our common stock. This
could also impair our ability to raise additional capital through the sale of our securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Certain provisions of Delaware law, our restated certificate of incorporation and our restated
bylaws could hinder, delay or prevent a change in control of our company, which could adversely
affect the price of our common stock.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain provisions of Delaware law, our restated certificate of incorporation and our restated
bylaws have the effect of discouraging, delaying or preventing transactions that involve an actual
or threatened change in control of our company. Delaware law imposes restrictions on mergers and
other business combinations between us and any holder of 15% or more of our outstanding common
stock. In addition, our restated certificate of incorporation and restated bylaws include the
following provisions:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Written consent of stockholders</I>. Our restated certificate of incorporation and
restated bylaws provide that any action required or permitted to be taken by our
stockholders must be taken at a duly called meeting of stockholders and not by written
consent.</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Call of special meetings of stockholders</I>. Our restated bylaws provide that special
meetings of stockholders may be called at any time only by our board of directors,
chairman or Chief Executive Officer and not the stockholders.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Classified board of directors</I>. Our board of directors is divided into three classes
with staggered terms of office of three years each. The classification and staggered
terms of office of our directors make it more difficult for a third party to gain
control of our board of directors. At least two annual meetings of stockholders,
instead of one, generally would be required to effect a change in a majority of the
board of directors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Removal of directors</I>. Under our restated certificate of incorporation, a director
may be removed only for cause and only by the affirmative vote of at least 67% of the
voting power of the outstanding shares of our capital stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Number of directors, board vacancies, term of office</I>. Our restated certificate of
incorporation and our restated bylaws provide that only the board of directors may set
the number of directors. We have elected to be subject to certain provisions of
Delaware law which vest in the board of directors the exclusive right, by the
affirmative vote of a majority of the remaining directors, to fill vacancies on the
board even if the remaining directors do not constitute a quorum. When effective, these
provisions of Delaware law, which are applicable even if other provisions of Delaware
law or the charter or bylaws provide to the contrary, also provide that any director
elected to fill a vacancy shall hold office for the remainder of the full term of the
class of directors in which the vacancy occurred, rather than the next annual meeting
of stockholders as would otherwise be the case, and until his or her successor is
elected and qualifies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Advance notice provisions for stockholder nominations and proposals</I>. Our restated
bylaws require advance written notice for stockholders to nominate persons for election
as directors at, or to bring other business before, any meeting of stockholders. This
bylaw provision limits the ability of stockholders to make nominations of persons for
election as directors or to introduce other proposals unless we are notified in a
timely manner prior to the meeting.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Amending the bylaws</I>. Our restated certificate of incorporation permits our board of
directors to adopt, alter or repeal any provision of the restated bylaws or to make new
bylaws. Our restated certificate of incorporation also provides that our restated
bylaws may be amended by the affirmative vote of the holders of at least 67% of the
voting power of the outstanding shares of our capital stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Authorized but unissued shares</I>. Under our restated certificate of incorporation, our
board of directors has authority to cause the issuance of preferred stock from time to
time in one or more series and to establish the terms, preferences and rights of any
such series of preferred stock, all without approval of our stockholders. Nothing in
our restated certificate of incorporation precludes future issuances without
stockholder approval of the authorized but unissued shares of our common stock.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any one or more of these factors could have the effect of delaying or preventing a change in
control or the removal of management, and deterring potential acquirers from making an offer to our
stockholders, even if that event potentially would be favorable to the interests of our
stockholders.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>FORWARD-LOOKING INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of the statements made or incorporated by reference in this prospectus discuss future
events and developments, including our future business strategy and our ability to generate
revenue, income and cash flow. In some cases, you can identify forward-looking statements by words
or phrases such as &#147;may,&#148; &#147;might,&#148; &#147;should,&#148; &#147;expect,&#148; &#147;plan,&#148; &#147;outlook,&#148; &#147;intend,&#148; &#147;project,&#148;
&#147;anticipate,&#148; &#147;believe,&#148; &#147;estimate,&#148; &#147;predict,&#148; &#147;potential,&#148; &#147;continue,&#148; &#147;our future success
depend,&#148; &#147;seek to continue,&#148; or the negative of these words or phrases, or comparable words or
phrases. These statements are only predictions that are based, in part, on assumptions involving
judgments about future economic, competitive and market conditions and future business decisions,
all of which are difficult or impossible to predict accurately and many of which are beyond our
control. Actual events or results may differ materially. In evaluating these statements, you
should specifically consider various facts, including the risks identified under the caption &#147;Risk
Factors&#148; in this prospectus. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are made.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not undertake to update any of the forward-looking statements after the date of this
prospectus to conform these statements to actual results, except as otherwise required by law.
Reference is also made to such risks and uncertainties detained from time to time in our filings
with the Securities and Exchange Commission.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>USE OF PROCEEDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will not receive any proceeds from the sale by Selling Stockholders of any of the shares
offered hereby. We will pay all of the costs of this offering other than brokerage and
underwriting fees and commissions.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SELLING STOCKHOLDERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 411,041 shares of our common stock to which this reoffer prospectus relates is comprised
of 411,041 restricted shares and are being registered for reoffers and resales by our directors,
officers and employees named below, who acquired the shares pursuant to one of our &#147;employee
benefit plans&#148; as that term is defined in Rule&nbsp;405 of Regulation&nbsp;C under the Securities Act. The
Selling Stockholders may resell all, a portion, or none of the shares of common stock from time to
time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The inclusion in the table of the individuals named therein shall not be deemed to be an
admission that any such individual is one of our affiliates.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares Eligible</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>the Class</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>to be Offered by</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned After</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned After</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Owned Prior to the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Selling</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Completion of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Position</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Offering(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Stockholders</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Offering(2)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>the Offering(2)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">J. Ross Craft</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">President, Chief
Executive Officer
and Class&nbsp;III
Director (Principal
Executive Officer)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">681,129</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">90,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">591,129</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.9</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">Steven P. Smart</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">Executive Vice
President, Chief
Financial Officer
and Treasurer
(Principal
Financial and
Accounting Officer)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">171,540</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">60,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">111,540</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">J. Curtis Henderson</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">Executive Vice
President and
General Counsel</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">146,250</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">146,250</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">Glenn W. Reed</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">Senior Vice
President&#151;Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">163,908</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">30,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">133,908</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="1" valign="top" align="left" nowrap>Ralph P.
Manoushagian</TD>
    <TD>&nbsp;</TD>
    <TD colspan="1" align="left">Senior Vice
President-Land</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">141,690</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">30,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">111,690</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">James S. Scott</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">Vice
President-Geology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">141,540</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">30,000</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">111,540</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">*</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">James H. Brandi</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">Class&nbsp;II Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,083</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,083</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">Sheldon B. Lubar(3)</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">Class&nbsp;I Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">927,714</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,083</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">920,631</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.5</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">Christopher J. Whyte</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">Class&nbsp;I Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,083</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7,083</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">James C. Crain</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:0px; text-indent:-0px">Class&nbsp;II Director</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,542</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,542</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Less than one percent.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes shares of our common stock beneficially owned or that may be acquired through exercise
of stock options within 60&nbsp;days of January&nbsp;30, 2008.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Assumes that all shares offered hereby are sold but no other securities held by Selling
Stockholders are sold.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Includes attribution of shares held by Lubar Equity Fund, LLC.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PLAN OF DISTRIBUTION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares covered by this prospectus may be offered and sold from time to time by the Selling
Stockholders. We will not receive any proceeds from sales of any shares by Selling Stockholders.
The term &#147;Selling Stockholders&#148; includes the Selling Stockholders listed in the table above and any
donees, pledgees, transferees or other successors-in-interest selling shares received after the
date of this prospectus from a Selling Stockholder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Selling Stockholders or their pledgees, donees, transferees or other successors in
interest may sell shares pursuant to this prospectus from time to time:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in transactions (including one or more block transactions) on the NASDAQ Global
Market;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the public market off the NASDAQ;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in privately negotiated transactions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>through put or call options transactions relating to the shares; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in a combination of such transactions.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each sale may be made either at the market price prevailing at the time of sale or at a
negotiated price. Sales may be made through brokers or to dealers, and such brokers or dealers may
receive compensation in the form of commissions or discounts not exceeding those customary in
similar transactions. Any shares covered by this prospectus that qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule&nbsp;144 rather than pursuant to this prospectus.
All expenses of registration incurred in connection with this offering are being borne by the
Company, but all brokerage commissions and other expenses incurred by a Selling Stockholder will be
borne by that Selling Stockholder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Selling Stockholders and any dealer acting in connection with the offering or any broker
executing a sell order on behalf of a Selling Stockholder may be deemed to be &#147;underwriters&#148; within
the meaning of the Securities Act, in which event any profit on the sale of shares by a Selling
Stockholder and any commissions or discounts received by any such broker or dealer may be deemed to
be underwriting compensation under the Securities Act. In addition, any such broker or dealer may
be required to deliver a copy of this prospectus to any person who purchases any of the shares from
or through such broker or dealer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to comply with the securities laws of certain states, if applicable, the shares will
be sold only through registered or licensed brokers or dealers.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>LEGAL MATTERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The validity of our shares of common stock offered by this prospectus will be passed upon for
us by Thompson &#038; Knight LLP, Dallas, Texas.
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXPERTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The combined financial statements of Approach Resources Inc. and affiliated entities appearing
in Approach Resources Inc.&#146;s 424(b) prospectus filed November&nbsp;8, 2007 with respect to the
Registration Statement on Form S-1 (Registration No.&nbsp;333-144512), have been audited by Hein &#038;
Associates LLP, independent registered public accountants, as stated in their report appearing
therein, and incorporated herein by reference. Such combined financial statements are incorporated
herein by reference in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INCORPORATION OF DOCUMENTS BY REFERENCE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus is part of a registration statement on Form S-8. The prospectus is prepared
in accordance with the requirements of Part&nbsp;I of Form S-3 and General Instruction C of the
instructions to Form S-8. The Securities and Exchange Commission allows this filing to
&#147;incorporate by reference&#148; information that we have previously filed with the Commission. This
means we can disclose important information to you by referring you to other documents that we have
filed with the Commission. The information that is incorporated by reference is considered part of
this prospectus, and information that we file later will automatically update and may supersede
this information. For further information about us and the securities being offered, you should
refer to the registration statement and the following documents that are incorporated by reference:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our Quarterly Report on Form 10-Q for the fiscal quarter ended September&nbsp;30, 2007,
filed December&nbsp;13, 2007;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the 424(b) prospectus filed November&nbsp;8, 2007 with respect to the Registration
Statement on Form S-1 (Registration No.&nbsp;333-144512);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our Current Reports on Form 8-K filed November&nbsp;13, 2007, November&nbsp;28, 2007, as
amended December&nbsp;3, 2007, December&nbsp;12, 2007 and January&nbsp;23, 2008; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the description of our common stock contained in the Registration Statement on Form
8-A filed November&nbsp;5, 2007, relating to Securities Act registration statement file
number 333-143566.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All documents filed by the Company subsequent to those listed above with the SEC pursuant to
Section&nbsp;13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the &#147;Exchange Act&#148;),
prior to the termination of the offering, shall be deemed to be incorporated by reference into this
prospectus and to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this prospectus. You may
request a copy of all documents that are incorporated by reference in this prospectus by writing or
telephoning us at the following address and number: You may also request a copy of these filings at
no cost, by writing or telephoning us at: Approach Resources Inc., One Ridgmar Centre, 6500 W.
Freeway, Suite&nbsp;800, Fort Worth, Texas 76116, (817)&nbsp;989-9000. We will provide copies of all
documents requested (not including exhibits to those documents, unless the exhibits are
specifically incorporated by reference into those documents or this prospectus) without charge.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>WHERE YOU CAN FIND MORE INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed with the Commission, a Registration Statement on Form S-8 (including a Form S-3
Prospectus) under the Securities Act with respect to the shares of common stock offered by this
prospectus. A copy of any document incorporated by reference in the registration statement (not
including exhibits to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that the registration statement
incorporates) will be provided by us without charge to any person (including any beneficial owner)
to whom this prospectus has been delivered upon the oral or written request of such person. Such
requests should be directed to Approach Resources Inc., One Ridgmar Centre, 6500 W. Freeway, Suite
800, Fort Worth, Texas 76116. Our telephone number at that address is (817)&nbsp;989-9000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also subject to the informational requirements of the Exchange Act and are required to
file annual and quarterly reports, proxy statements and other information with the Commission. You
can inspect and copy reports and other information filed by us with the Commission at the
Commission&#146;s Public Reference Room at 100 F Street, N.E., Room&nbsp;1580, Washington, D.C. 20549. You
may also obtain information on the operation of the Public Reference Room by calling the Commission
at 1-800-SEC-0300. The Commission also maintains an Internet site at http://www.sec.gov that
contains reports, proxy and information statements regarding issuers, including us, that file
electronically with the Commission. Our website is at http://www.approachresources.com. You
should only rely on the information incorporated by reference or provided in this prospectus or any
supplement. We have not authorized anyone else to provide you with different information. The
common stock is not being offered in any state where the offer is not permitted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should not assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of this prospectus.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- link1 "PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>INFORMATION REQUIRED IN THE REGISTRATION STATEMENT</B>

</DIV>
<!-- link2 "Item&nbsp;3. <U>Incorporation of Documents by Reference</U>." -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;3. <U>Incorporation of Documents by Reference</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following documents, all of which were previously filed by the Company with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (&#147;Exchange Act&#148;), are hereby
incorporated by reference:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our Quarterly Report on Form 10-Q for the fiscal quarter ended September&nbsp;30, 2007,
filed December&nbsp;13, 2007;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the 424(b) prospectus filed November&nbsp;8, 2007 with respect to the Registration
Statement on Form S-1 (Registration No.&nbsp;333-144512);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our Current Reports on Form 8-K filed November&nbsp;13, 2007, November&nbsp;28, 2007, as
amended December&nbsp;3, 2007, December&nbsp;12, 2007 and January&nbsp;23, 2008; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the description of our common stock contained in the Registration Statement on Form
8-A filed November&nbsp;5, 2007, relating to Securities Act registration statement file
number 333-143566.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the foregoing, all documents subsequently filed by the Company pursuant to
Sections&nbsp;13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment indicating that all securities offered hereby have been sold or deregistering all
securities then remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Registration Statement.
</DIV>
<!-- link2 "Item&nbsp;4. <U>Description of Securities</U>." -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;4. <U>Description of Securities</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>

<!-- link2 "Item&nbsp;5. <U>Interests of Named Experts and Counsel</U>." -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;5. <U>Interests of Named Experts and Counsel</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Not applicable.
</DIV>

<!-- link2 "Item&nbsp;6. <U>Indemnification of Directors and Officers</U>." -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;6. <U>Indemnification of Directors and Officers</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our restated certificate of incorporation provides that no director or officer will be liable
to the corporation or any of its stockholders for damages for breach of fiduciary duty as a
director or officer occurring on or after the date of incorporation; provided, however, that the
foregoing provision shall not eliminate or limit the liability of a director or officer (i)&nbsp;for any
breach of the director&#146;s duty of loyalty to the corporation or its stockholders, (ii)&nbsp;for acts or
omissions not in good faith or which involved intentional misconduct, fraud or a knowing violation
of the law, (iii)&nbsp;the payment of dividends in violation of Section&nbsp;174 of the General Corporation
Law of the State of Delaware or (iv)&nbsp;for any transaction from which the director derived an
improper personal benefit. In addition, if the General Corporation Law of the State of Delaware is
amended to authorize corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of Delaware, as so
amended. Our restated bylaws provide that the corporation will indemnify, and advance expenses to,
any officer or director to the fullest extent authorized by the General Corporation Law of the
State of Delaware.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II-1<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;145 of the General Corporation Law of the State of Delaware provides that a
corporation may indemnify directors and officers as well as other employees and individuals against expenses,
including attorneys&#146; fees, judgments, fines and amounts paid in settlement in connection with
specified actions, suits and proceedings whether civil, criminal, administrative or investigative,
other than a derivative action by or in the right of the corporation, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification extends only to expenses, including attorneys&#146; fees, incurred
in connection with the defense or settlement of such action and the statute requires court approval
before there can be any indemnification where the person seeking indemnification has been found
liable to the corporation. The statute provides that it is not exclusive of other indemnification
that may be granted by a corporation&#146;s charter, bylaws, disinterested director vote, stockholder
vote, agreement or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our restated certificate of incorporation also contains indemnification rights for our
directors and our officers. Specifically, our restated certificate of incorporation provides that
we shall indemnify our officers and directors to the fullest extent authorized by the General
Corporation Law of the State of Delaware. Further, we may maintain insurance on behalf of our
officers and directors against expenses, liability or loss asserted incurred by them in their
capacities as officers and directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have obtained directors&#146; and officers&#146; insurance to cover our directors, officers and some
of our employees for certain liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into written indemnification agreements with our directors and executive
officers. Under these agreements, if an officer or director makes a claim of indemnification to us,
either a majority of the independent directors or independent legal counsel selected by the
independent directors must review the relevant facts and make a determination whether the officer
or director has met the standards of conduct under Delaware law that would permit (under Delaware
law) and require (under the indemnification agreement) us to indemnify the officer or director.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registration rights agreement we entered into in connection with our earlier financings
provide for the indemnification by the investors in those financings of our officers and directors
for certain liabilities.
</DIV>
<!-- link2 "Item&nbsp;7. <U>Exemption from Registration Claimed</U>." -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;7. <U>Exemption from Registration Claimed</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The sales and issuances of securities to the Selling Stockholders were deemed to be exempt from
registration under the Securities Act by virtue of Section&nbsp;4(2) of the Securities Act.
</DIV>

<!-- link2 "Item&nbsp;8. <U>Exhibits</U>." -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;8. <U>Exhibits</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Reference is made to the Index to Exhibits.
</DIV>

<!-- link2 "Item&nbsp;9. <U>Undertakings</U>." -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;9. <U>Undertakings</U>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The undersigned Registrant hereby undertakes:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) To include any prospectus required by Section&nbsp;10(a)(3) of the Securities
Act;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if,
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II-2<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set for the in the
&#147;Calculation of Registration Fee&#148; table in this Registration Statement; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any material
change to such information in this Registration Statement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><I>provided</I>, <I>however</I>, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information
required to be included in a post-effective amendment by those information required to be
included in a post-effective amendment by those paragraphs is contained in reports filed
with or furnished to the Commission by the registrant pursuant to section 13 or section
15(d) of the Exchange Act that are incorporated by reference in this Registration Statement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) That, for the purpose of determining any liability under the Securities Act, each
such post-effective amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that time shall be
deemed to be the initial <I>bona fide </I>offering thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The undersigned Registrant hereby undertakes that, for purposes of determining liability
under the Securities Act, each filing of the Registrant&#146;s annual report pursuant to Section 13(a)
or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan&#146;s
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed a new registration
statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial <I>bona fide </I>offering thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Insofar as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->II-3<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<!-- link1 "SIGNATURES" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Act, the Registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has
duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Worth, State of Texas on January&nbsp;29, 2008.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">APPROACH RESOURCES INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ J. Ross Craft
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">J. Ross Craft&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>POWER OF ATTORNEY</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities indicated on January&nbsp;29, 2008.
Each person whose signature appears below constitutes and appoints J. Ross Craft and Steven P.
Smart, and each of them individually, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments) to this
registration statement under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof. This document may be executed by the
signatories hereto on any number of counterparts, all of which constitute one and the same
instrument.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Title</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ J. Ross Craft
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Ross Craft
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President, Chief Executive Officer and Director
(Principal Executive Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Steven P. Smart
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Steven P. Smart
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Bryan H. Lawrence
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Bryan H. Lawrence
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director
and Chairman of the Board of Directors</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ James H. Brandi
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
James H. Brandi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ James C. Crain
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
James C. Crain
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Sheldon B. Lubar
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Sheldon B. Lubar
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Christopher J. Whyte
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Christopher J. Whyte
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->II-4<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<!-- link1 "INDEX TO EXHIBITS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INDEX TO EXHIBITS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of Approach Resources Inc., filed on December&nbsp;13, 2007
as Exhibit&nbsp;3.1 to Registrant&#146;s Quarterly Report on Form&nbsp;10-Q for the fiscal quarter ended
September&nbsp;30, 2007, is incorporated herein by reference.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Bylaws of Approach Resources Inc., filed on December&nbsp;13, 2007 as Exhibit&nbsp;3.2 to
Registrant&#146;s Quarterly Report on Form&nbsp;10-Q for the fiscal quarter ended September&nbsp;30, 2007, is
incorporated herein by reference.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen of Common Stock Certificate, filed on October&nbsp;18, 2007 as Exhibit&nbsp;4.1 to
Registrant&#146;s Registration Statement on Form&nbsp;S-1, as amended (No.&nbsp;333-144512), is incorporated
herein by reference.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Approach Resources Inc. 2007 Stock Incentive Plan, effective as of June&nbsp;28, 2007, filed on
July&nbsp;12, 2007 as Exhibit&nbsp;10.6 to Registrant&#146;s Registration Statement on Form&nbsp;S-1, as amended
(No.&nbsp;333-144512), is incorporated herein by reference.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Option Agreement under 2003 Stock Option Plan, filed on July&nbsp;12, 2007 as Exhibit
10.12 to Registrant&#146;s Registration Statement on Form&nbsp;S-1, as amended (No.&nbsp;333-144512), is
incorporated herein by reference.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Award Agreement by and between Approach Resources Inc. and J. Curtis
Henderson dated March&nbsp;14, 2007, filed on July&nbsp;12, 2007 as Exhibit&nbsp;10.13 to Registrant&#146;s
Registration Statement on Form&nbsp;S-1, as amended (No.&nbsp;333-144512), is incorporated herein by
reference.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Summary of Stock Option Grant under Approach Resources Inc. 2007 Stock Incentive
Plan, filed on October&nbsp;18, 2007 as Exhibit&nbsp;10.14 to Registrant&#146;s Registration Statement on
Form&nbsp;S-1, as amended (No.&nbsp;333-144512), is incorporated herein by reference.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Award Agreement under Approach Resources Inc. 2007 Stock Incentive Plan filed
on October&nbsp;18, 2007 as Exhibit&nbsp;10.15 to Registrant&#146;s Registration Statement on Form&nbsp;S-1, as
amended (No.&nbsp;333-144512), is incorporated herein by reference.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">5.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Opinion of Thompson &#038; Knight LLP.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
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    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Hein &#038; Associates LLP.</TD>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Thompson &#038; Knight LLP (included in their opinion filed as Exhibit&nbsp;5.1).</TD>
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</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power of Attorney (included on signature page of this Registration Statement).</TD>
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sv8
As filed with the Securities and Exchange Commission on January 30, 2008
Registration Statement No. 333-______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
APPROACH RESOURCES INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or
organization)
51-0424817
(I.R.S. Employer Identification No.)
One Ridgmar Centre
6500 W. Freeway, Suite 800
Fort Worth, Texas 76116
(Address, including Zip Code, of principal
executive offices)
Approach Resources Inc.
2007 Stock Incentive Plan
(Full title of the Plan)
J. Curtis Henderson
Executive Vice President and General Counsel
One Ridgmar Centre
6500 W. Freeway, Suite 800
Fort Worth, Texas 76116
(817) 989-9000
(Name, address and telephone number of agent for service)
Copy to:
Joe Dannenmaier
Wesley P. Williams
Jessica W. Hammons
Thompson & Knight LLP
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
(214) 969-1700
CALCULATION OF REGISTRATION FEE
Title of securities to be
Amount to be
Proposed maximum offering
Proposed maximum
Amount of
registered
Registered (1)
price per share(2)
aggregate offering price (2)
registration fee
Common Stock, par value $0.01 per share
2,477,841 shares
$
11.06
$
27,392,532
$
1,076.53
(1)
This registration statement on Form S-8 (this "Registration Statement") covers 2,066,800
shares of common stock, par value $0.01 per share, of Approach Resources Inc. (the
"Registrant"), available for issuance under the Approach Resources Inc. 2007 Stock Incentive
Plan. In addition, this Registration Statement covers the resale by selling stockholders
named in the prospectus included and filed with this Registration Statement of 411,041 shares
of common stock. In accordance with Rule 416 under the Securities Act of 1933, as amended
(the "Securities Act"), this Registration Statement shall be deemed to cover any additional
shares of common stock, which may be issued upon recapitalizations, stock dividends, stock
splits or similar transactions. No additional registration fee is included for these shares.
(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c)
and Rule 457(h) of the Securities Act and based upon the average of the high and low prices of the
Registrant's common stock as reported on the NASDAQ Global Market on January 24, 2008.
EXPLANATORY NOTE
This Registration Statement registers 2,066,800 shares of our common stock that may be issued
and sold under the Approach Resources Inc. 2007 Stock Incentive Plan, or the 2007 Plan.
This Registration Statement also registers the reoffer and sale, in accordance with Section C
of the General Instructions to the Form S-8, of 411,041 shares of common stock acquired pursuant to
the 2007 Plan by J. Ross Craft, Steven P. Smart, J. Curtis Henderson, Glenn W. Reed, Ralph P.
Manoushagian, James S. Scott, James H. Brandi, Sheldon B. Lubar, Christopher J. Whyte and James C.
Crain, prior to the date hereof.
This Registration Statement contains two parts. The first part contains a "reoffer" prospectus
prepared in accordance with the requirements of Part I of Form S-3 pursuant to Section C of the
General Instructions to the Form S-8. The second part of this Registration Statement contains
information required to be set forth in this Registration Statement pursuant to Part II of Form
S-8.
The document(s) containing the information specified in Part I of Form S-8 (plan information
and registrant information) will be sent or given to plan participants as specified by Rule
428(b)(1) under the Securities Act. In accordance with Rule 428 under the Securities Act and the
"Note" to Part I of Form S-8, these documents are not being filed with the SEC either as part of
this Registration Statement or as prospectuses or prospectus supplements pursuant to Rule 424 under
the Securities Act. These documents and the documents incorporated by reference in this
Registration Statement pursuant to Item 3 of Part II of this Form S-8, taken together, constitute a
prospectus that meets the requirements of Section 10(a) of the Securities Act.
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item 1. Plan Information*
Item 2. Registrant Information and Employee Plan Annual Information*
*
Pursuant to the Note to Part I of Form S-8, the plan information specified by Part I of Form S-8
is not required to be filed with the Securities and Exchange Commission. We will provide without
charge to any person, upon written or oral request of such person, a copy of each document
incorporated by reference in Item 3 of Part II of this Registration Statement (which documents are
incorporated by reference in the reoffer prospectus as set forth in Form S-8), other than exhibits
to such documents that are not specifically incorporated by reference, the other documents required
to be delivered to eligible employees pursuant to Rule 428(b) under the Securities Act and
additional information about the 2007 Plan. Requests should be directed to Corporate Secretary,
Approach Resources Inc., One Ridgmar Centre, 6500 W. Freeway, Suite 800, Fort Worth, Texas 76116.
Note: The re-offer prospectus referred to in the Explanatory Note follows this page.
REOFFER PROSPECTUS
411,041 Shares
APPROACH RESOURCES INC.
Common Stock
par value $0.01 per share
This reoffer prospectus relates to an aggregate of up to 411,041 shares of our common stock,
which may be offered and sold from time to time by certain of our stockholders identified herein.
Such current or former directors, officers or employees are collectively referred to herein as
"Selling Stockholders." See "Selling Stockholders."
We will not receive any of the proceeds from sales of the shares by any Selling Stockholders.
The shares may be offered from time to time by any or all of Selling Stockholders through ordinary
brokerage transactions, in negotiated transactions or in other transactions at such prices they may
determine, which may relate to market prices prevailing at the time of sale or be a negotiated
price. See "Plan of Distribution." All costs, expenses and fees in connection with the
registration of the shares will be borne by us. Brokerage commissions and similar selling expenses,
if any, attributable to the offer or sale of the shares will be borne by Selling Stockholders.
Selling Stockholders and any broker executing selling orders on behalf of Selling Stockholders
may be deemed to be "underwriters" as defined in the Securities Act of 1933, as amended (the
"Securities Act"). If any broker-dealers are used to effect sales, any commissions paid to
broker-dealers and, if broker-dealers purchase any of the shares as principals, any profits
received by such broker-dealers on the resale of the shares, may be deemed to be underwriting
discounts or commissions under the Securities Act.
Our common stock is traded on the NASDAQ Global Market under the symbol "AREX." On January
24, 2008, the last reported sale price of our common stock on the NASDAQ Global Market was $11.09
per share.
Our principal executive officers are located at One Ridgmar Centre, 6500 W. Freeway, Suite
800, Fort Worth, Texas 76116. Our telephone number is (817) 989-9000.
Investing in our common stock involves a high degree of risk. See "Risk factors" beginning on
page 2.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is January 30, 2008.
Table of Contents
Our Company
1
Risk Factors
2
Forward-Looking Information
14
Use of Proceeds
14
Selling Stockholders
15
Plan of Distribution
16
Legal Matters
17
Experts
17
Incorporation of Documents by Reference
17
Where You Can Find More Information
18
You should rely only on the information contained in this prospectus. We have not authorized
any other person to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. Information contained on our website does
not constitute a part of this prospectus. Selling Stockholders are not making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate only as of the date on the front
cover of this prospectus, regardless of the time this prospectus is delivered or the shares offered
by this prospectus are sold. Our business, financial condition, results of operations and
prospects may have changed since that date.
OUR COMPANY
Overview
In this prospectus, unless the context otherwise requires, the terms "Approach Resources,"
"Approach," "we," "us" and "our" refer to the combined operations of Approach Resources Inc. and
Approach Oil & Gas Inc. and their respective subsidiaries on a pro forma basis after giving effect
to the acquisition by Approach Resources Inc. from Neo Canyon Exploration, L.P. of Neo Canyon's 30%
working interest in the Ozona Northeast field. The Neo Canyon acquisition was completed on
November 14, 2007.
We are an independent energy company engaged in the exploration, development, exploitation,
production and acquisition of unconventional and conventional natural gas and oil properties. Our
growth efforts are focused primarily on finding and developing natural gas reserves in known tight
gas sands and shale areas onshore in the United States and Canada, where we have assembled
leasehold interests totaling 277,100 gross (189,400 net) acres. Our management team has extensive
experience finding and exploiting unconventional reservoirs through applying advanced completion,
fracturing and drilling techniques. Most of our growth has been through our own drilling effort.
At December 31, 2006, we owned working interests in 241 gross (226 net) producing wells with
an average net production of approximately 22 MMcfe/d for the month of December 2006. At December
31, 2006, our total proved gas and oil reserves were approximately 149 Bcfe with a reserve life
index of approximately 19 years. Our proved reserves are 94% gas and 51% proved developed. As the
operator of substantially all of our proved reserves, we have a high degree of control over capital
expenditures and other operating matters. As of July 31, 2007, we had identified a total of 833
drilling locations, 644 of which were located in the Ozona Northeast field.
We currently operate in five areas: West Texas (Wolfcamp, Canyon Sands and Ellenburger), East
Texas (Cotton Valley Sands, Bossier, Cotton Valley Lime), British Columbia (Triassic Shale and
Tight Gas Sands), Western Kentucky (New Albany Shale) and Northern New Mexico (Mancos Shale). As
of December 31, 2006, all of our proved reserves and production were located in West Texas and
substantially all of those reserves and production were located in our Ozona Northeast field.
We are a Delaware corporation. Our principal executive offices are located at 6500 W.
Freeway, Suite 800, Fort Worth, Texas 76116. Our telephone number is (817) 989-9000.
1
RISK FACTORS
You should carefully consider the risk factors set forth below as well as the other
information contained in this prospectus before investing in our common stock. Any of the following
risks could materially and adversely affect our business, financial condition or results of
operations. In such a case, you may lose all or part of your investment. The risks described below
are not the only risks facing us. Additional risks and uncertainties not currently known to us or
those we currently view to be immaterial may also materially adversely affect our business,
financial condition or results of operations. The future trading price of shares of our common
stock will be affected by the performance of our business relative to, among other things,
competition, market conditions and general economic and industry conditions.
Risks related to the oil and natural gas industry and our business
Gas and oil prices are volatile, and a decline in gas or oil prices could significantly affect our
business, financial condition or results of operations and our ability to meet our capital
expenditure requirements and financial commitments.
Our revenues, profitability and cash flow depend substantially upon the prices and demand for
gas and oil. The markets for these commodities are volatile, and even relatively modest drops in
prices can affect significantly our financial results and impede our growth. Prices for gas and
oil fluctuate widely in response to relatively minor changes in the supply and demand for gas and
oil, market uncertainty and a variety of additional factors beyond our control, such as:
•
domestic and foreign supply of gas and oil;
•
price and quantity of foreign imports;
•
commodity processing, gathering and transportation availability and the availability
of refining capacity;
•
domestic and foreign governmental regulations;
•
political conditions in or affecting other gas producing and oil producing
countries, including the current conflicts in the Middle East and conditions in South
America and Russia;
•
the ability of the members of the Organization of Petroleum Exporting Countries to
agree to and maintain oil price and production controls;
•
weather conditions, including unseasonably warm winter weather;
•
technological advances affecting gas and oil consumption;
•
overall United States and global economic conditions; and
•
price and availability of alternative fuels.
Further, gas prices and oil prices do not necessarily fluctuate in direct relationship to each
other. Because more than 94% of our estimated proved reserves as of December 31, 2006 were gas
reserves, our financial results are more sensitive to movements in gas prices. In the past, the
price of gas has been extremely volatile, and we expect this volatility to continue. During the
year ended December 31, 2007, the NYMEX gas spot price ranged from a high of $8.64 per MMBtu to a
low of $5.38 per MMBtu. The NYMEX gas spot price at December 31, 2007 was $7.17.
The results of higher investment in the exploration for and production of gas and other
factors may cause the price of gas to drop. Lower gas and oil prices may not only cause our
revenues to decrease but also may reduce the amount of gas and oil that we can produce
economically. Substantial decreases in gas and oil prices would
2
render uneconomic some or all of our drilling locations. This may result in our having to
make substantial downward adjustments to our estimated proved reserves and could have a material
adverse effect on our financial condition, results of operations and cash flow.
Drilling and exploring for, and producing, gas and oil are high risk activities with many
uncertainties that could adversely affect our business, financial condition or results of
operations.
Drilling and exploration are the main methods we use to replace our reserves. However,
drilling and exploration operations may not result in any increases in reserves for various
reasons. Exploration activities involve numerous risks, including the risk that no commercially
productive gas or oil reservoirs will be discovered. In addition, the future cost and timing of
drilling, completing and producing wells is often uncertain. Furthermore, drilling operations may
be curtailed, delayed or canceled as a result of a variety of factors, including:
•
lack of acceptable prospective acreage;
•
inadequate capital resources;
•
unexpected drilling conditions, pressure or irregularities in formations, equipment
failures or accidents;
•
adverse weather conditions, including tornados;
•
unavailability or high cost of drilling rigs, equipment or labor;
•
reductions in gas and oil prices;
•
limitations in the market for gas and oil;
•
surface access restrictions;
•
title problems;
•
compliance with governmental regulations; and
•
mechanical difficulties.
Our decisions to purchase, explore, develop and exploit prospects or properties depend in part
on data obtained through geophysical and geological analyses, production data and engineering
studies, the results of which are often uncertain. Even when used and properly interpreted, 3-D
seismic data and visualization techniques only assist geoscientists and geologists in identifying
subsurface structures and hydrocarbon indicators. They do not allow the interpreter to know
conclusively if hydrocarbons are present or producible economically. In addition, the use of 3-D
seismic and other advanced technologies require greater predrilling expenditures than traditional
drilling strategies.
In addition, higher gas and oil prices generally increase the demand for drilling rigs,
equipment and crews and can lead to shortages of, and increasing costs for, such drilling
equipment, services and personnel. Such shortages could restrict our ability to drill the wells
and conduct the operations that we currently have planned. Any delay in the drilling of new wells
or significant increase in drilling costs could adversely affect our ability to increase our
reserves and production and reduce our revenues.
Currently, the vast majority of our producing properties are located in two counties in Texas, and
our proved reserves are primarily attributable to one field in that area, making us vulnerable to
risks associated with having our production concentrated in a small area.
The vast majority of our producing properties are geographically concentrated in two counties
in Texas, and our proved reserves are primarily attributable to one field in that area. As a
result of this concentration, we may be
3
disproportionately exposed to the impact of delays or interruptions of production from these
wells caused by significant governmental regulation, transportation capacity constraints,
curtailments of production, natural disasters, interruption of transportation of gas produced from
the wells in these basins or other events that impact these areas.
Certain of our undeveloped leasehold acreage is subject to leases and options that may expire in
the near future.
As of December 31, 2006, we held mineral leases in each of our areas of operations that are
still within their original lease term and are not currently held by production. Unless we
establish commercial production on the properties subject to these leases, most of these leases
will expire between 2008 and 2015. Options covering approximately 12,000 gross acres in our Cinco
Terry project are scheduled to expire before June 1, 2008. If these leases or options expire, we
will lose our right to develop the related properties.
Identified drilling locations that we decide to drill may not yield gas or oil in commercially
viable quantities and are susceptible to uncertainties that could materially alter the occurrence
or timing of their drilling.
Our drilling locations are in various stages of evaluation, ranging from locations that are
ready to be drilled to locations that will require substantial additional evaluation and
interpretation. There is no way to predict in advance of drilling and testing whether any
particular drilling location will yield gas or oil in sufficient quantities to recover drilling or
completion costs or to be economically viable. The use of seismic data and other technologies and
the study of producing fields in the same area will not enable us to know conclusively before
drilling whether gas or oil will be present or, if present, whether gas or oil will be present in
commercial quantities. The analysis that we perform may not be useful in predicting the
characteristics and potential reserves associated with our drilling locations. As a result, we may
not find commercially viable quantities of gas and oil.
Our drilling locations represent a significant part of our growth strategy. Our ability to
drill and develop these locations depends on a number of factors, including gas and oil prices,
costs, the availability of capital, seasonal conditions, regulatory approvals and drilling results.
Because of these uncertainties, we do not know when the unproved drilling locations we have
identified will be drilled or if they will ever be drilled or if we will be able to produce gas or
oil from these or any proved drilling locations. As such, our actual drilling activities may be
materially different from those presently identified, which could adversely affect our business,
results of operations or financial condition.
Unless we replace our gas and oil reserves, our reserves and production will decline.
Our future gas and oil production depends on our success in finding or acquiring additional
reserves. If we fail to replace reserves through drilling or acquisitions, our level of production
and cash flows will be affected adversely. In general, production from gas and oil properties
declines as reserves are depleted, with the rate of decline depending on reservoir characteristics.
Our total proved reserves will decline as reserves are produced unless we conduct other successful
exploration and development activities or acquire properties containing proved reserves, or both.
Our ability to make the necessary capital investment to maintain or expand our asset base of gas
and oil reserves would be impaired to the extent cash flow from operations is reduced and external
sources of capital become limited or unavailable. We may not be successful in exploring for,
developing or acquiring additional reserves.
Our actual production, revenues and expenditures related to our reserves are likely to differ from
our estimates of our proved reserves. We may experience production that is less than estimated and
drilling costs that are greater than estimated in our reserve reports. These differences may be
material.
The proved gas and oil reserve information included in this prospectus represents estimates.
Petroleum engineering is a subjective process of estimating underground accumulations of gas and
oil that cannot be measured in an exact manner. Estimates of economically recoverable gas and oil
reserves and of future net cash flows necessarily depend upon a number of variable factors and
assumptions, including:
•
historical production from the area compared with production from other similar
producing areas;
•
the assumed effects of regulations by governmental agencies;
4
•
assumptions concerning future gas and oil prices; and
•
assumptions concerning future operating costs, severance and excise taxes,
development costs and workover and remedial costs.
Because all reserve estimates are to some degree subjective, each of the following items may
differ materially from those assumed in estimating proved reserves:
•
the quantities of gas and oil that are ultimately recovered;
•
the production and operating costs incurred;
•
the amount and timing of future development expenditures; and
•
future gas and oil prices.
As of December 31, 2006, approximately 49% of our proved reserves were proved undeveloped.
Estimates of proved undeveloped reserves are even less reliable than estimates of proved developed
reserves.
Furthermore, different reserve engineers may make different estimates of reserves and cash
flows based on the same available data. Our actual production, revenues and expenditures with
respect to reserves will likely be different from estimates and the differences may be material.
As required by the Securities and Exchange Commission, or the SEC, the estimated discounted future
net cash flows from proved reserves are generally based on prices and costs as of the date of the
measurement (December 31, 2006), while actual future prices and costs may be materially higher or
lower. Actual future net cash flows also will be affected by factors such as:
•
the amount and timing of actual production;
•
supply and demand for gas and oil;
•
increases or decreases in consumption; and
•
changes in governmental regulations or taxation.
In addition, the 10% discount factor, which is required by the SEC to be used to calculate
discounted future net cash flows for reporting purposes, is not necessarily the most appropriate
discount factor based on interest rates in effect from time to time and risks associated with us or
the oil and gas industry in general.
You should not assume that the present value of future net revenues from our proved reserves
referred to or incorporated by reference in this prospectus is the current market value of our
estimated gas and oil reserves. In accordance with SEC requirements, we generally base the
estimated discounted future net cash flows from our proved reserves on prices and costs on the date
of the estimate. Actual future prices and costs may differ materially from those used in the
present value estimate. If gas prices decline by $1.00 per Mcf from $6.55 per Mcf to $5.55 per Mcf,
then our PV-10 as of December 31, 2006 would decrease from $179.9 million to $110.1 million. The
average market price received for our natural gas production on December 31, 2006, after basis and
Btu adjustments, was $6.55 per Mcf. The average market price received for our natural gas
production on August 31, 2007, after basis and Btu adjustments, was $6.05 per Mcf.
The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oilfield
services could adversely affect our ability to execute our exploration and development plans on a
timely basis and within our budget.
Our industry is cyclical, and from time to time there is a shortage of drilling rigs,
equipment, supplies and qualified personnel. During these periods, the costs and delivery times of
rigs, equipment and supplies are substantially greater. As a result of historically strong prices
of gas, the demand for oilfield and drilling services has risen, and the costs of these services
are increasing. For example, average day rates for land based rigs have
5
increased substantially during the last two years. We are particularly sensitive to higher rig
costs and drilling rig availability, as we presently have two rigs under contract, one of which is
on a well-to-well basis. If the unavailability or high cost of drilling rigs, equipment, supplies
or qualified personnel were particularly severe in the areas where we operate, we could be
materially and adversely affected.
Competition in the oil and gas industry is intense, and many of our competitors have resources that
are greater than ours.
We operate in a highly competitive environment for acquiring prospects and productive
properties, marketing gas and oil and securing equipment and trained personnel. Many of our
competitors are major and large independent oil and gas companies that possess and employ
financial, technical and personnel resources substantially greater than ours. Those companies may
be able to develop and acquire more prospects and productive properties than our financial or
personnel resources permit. Our ability to acquire additional prospects and discover reserves in
the future will depend on our ability to evaluate and select suitable properties and consummate
transactions in a highly competitive environment. Also, there is substantial competition for
capital available for investment in the oil and gas industry. Larger competitors may be better
able to withstand sustained periods of unsuccessful drilling and absorb the burden of changes in
laws and regulations more easily than we can, which would adversely affect our competitive
position. We may not be able to compete successfully in the future in acquiring prospective
reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel
and raising additional capital.
Our customer base is concentrated, and the loss of our key customer could, therefore, adversely
affect our financial results.
In 2006, Ozona Pipeline Energy Company, which we refer to as Ozona Pipeline, accounted for
approximately 89.6% of our total gas and oil sales excluding realized commodity derivative
settlements. To the extent that Ozona Pipeline reduces its purchases in gas or oil or defaults on
its obligations to us, we would be adversely affected unless we were able to make comparably
favorable arrangements with other customers. Ozona Pipeline's default or non-performance could be
caused by factors beyond our control. A default could occur as a result of circumstances relating
directly to the customer, or due to circumstances related to other market participants with which
the customer has a direct or indirect relationship.
We depend on our management team and other key personnel. Accordingly, the loss of any of these
individuals could adversely affect our business, financial condition and the results of operations
and future growth.
Our success largely depends on the skills, experience and efforts of our management team and
other key personnel. The loss of the services of one or more members of our senior management team
or of our other employees with critical skills needed to operate our business could have a negative
effect on our business, financial condition, results of operations and future growth. We have
entered into employment agreements with J. Ross Craft, our President and Chief Executive Officer,
Steven P. Smart, our Executive Vice President and Chief Financial Officer and Glenn W. Reed, our
Senior Vice President—Operations. If any of these officers or other key personnel resign or
become unable to continue in their present roles and are not adequately replaced, our business
operations could be materially adversely affected. Our ability to manage our growth, if any, will
require us to continue to train, motivate and manage our employees and to attract, motivate and
retain additional qualified personnel. Competition for these types of personnel is intense, and we
may not be successful in attracting, assimilating and retaining the personnel required to grow and
operate our business profitably.
We have three affiliated stockholders with a controlling interest in our company, whose interests
may differ from your interests and who will be able to determine the outcome of matters voted upon
by our stockholders.
Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P. and Yorktown Energy
Partners VII, L.P., or collectively, Yorktown, which are under common management, beneficially own
approximately 44.8% of our outstanding common stock in the aggregate. In addition, one Yorktown
representative serves on our board of directors, and our management team and employees beneficially
own or control approximately 6.9% of our common stock outstanding. As a result of this ownership,
Yorktown has the ability to substantially control the vote in any election of directors. Yorktown
also has control over our decisions to enter into significant corporate transactions and, in its
capacity as our majority stockholder, has the ability to prevent any transactions that it does not
believe are
6
in Yorktown's best interest. As a result, Yorktown is be able to control, directly or
indirectly and subject to applicable law, all matters affecting us, including the following:
•
any determination with respect to our business direction and policies, including the
appointment and removal of officers;
•
any determinations with respect to mergers, business combinations or dispositions of
assets;
•
our capital structure;
•
compensation, option programs and other human resources policy decisions;
•
changes to other agreements that may adversely affect us; and
•
the payment, or nonpayment, of dividends on our common stock.
Yorktown also may have an interest in pursuing transactions that, in their judgment, enhance
the value of their respective equity investments in our company, even though those transactions may
involve risks to you as a minority stockholder. In addition, circumstances could arise under which
their interests could be in conflict with the interests of our other stockholders or you, a
minority stockholder. Also, Yorktown and their affiliates have and may in the future make
significant investments in other companies, some of which may be competitors. Yorktown and its
affiliates are not obligated to advise us of any investment or business opportunities of which they
are aware, and they are not restricted or prohibited from competing with us.
We have renounced any interest in specified business opportunities, and certain members of our
board of directors and certain of our stockholders generally have no obligation to offer us those
opportunities.
In accordance with Delaware law, we have renounced any interest or expectancy in any business
opportunity, transaction or other matter in which our non-employee directors and certain of our
stockholders, each referred to as a Designated Party, participates or desires to participate in
that involves any aspect of the exploration and production business in the oil and industry. If any
such business opportunity is presented to a Designated Person who also serves as a member of our
board of directors, the Designated Party has no obligation to communicate or offer that opportunity
to us, and the Designated Party may pursue the opportunity as he sees fit, unless:
•
it was presented to the Designated Party solely in that person's capacity as a
director of our company and with respect to which, at the time of such presentment, no
other Designated Party has independently received notice of or otherwise identified the
business opportunity; or
•
the opportunity was identified by the Designated Party solely through the disclosure
of information by or on behalf of us.
As a result of this renunciation, our non-employee directors should not be deemed to be
breaching any fiduciary duty to us if they or their affiliates or associates pursue opportunities
as described above and our future competitive position and growth potential could be adversely
affected.
We are subject to complex governmental laws and regulations that may adversely affect the cost,
manner or feasibility of doing business.
Our operations and facilities are subject to extensive federal, state and local laws and
regulations relating to the exploration for, and the development, production and transportation of,
gas and oil, and operating safety, and protection of the environment, including those relating to
air emissions, wastewater discharges, land use, storage and disposal of wastes and remediation of
contaminated soil and groundwater. Future laws or regulations, any adverse changes in the
interpretation of existing laws and regulations or our failure to comply with existing legal
requirements may harm our business, results of operations and financial condition. We may encounter
reductions in reserves or be required to make large and unanticipated capital expenditures to
comply with governmental laws and regulations, such as:
7
•
price control;
•
taxation;
•
lease permit restrictions;
•
drilling bonds and other financial responsibility requirements, such as plug and
abandonment bonds;
•
spacing of wells;
•
unitization and pooling of properties;
•
safety precautions; and
•
permitting requirements.
Under these laws and regulations, we could be liable for:
•
personal injuries;
•
property and natural resource damages;
•
well reclamation costs, soil and groundwater remediation costs; and
•
governmental sanctions, such as fines and penalties.
Our operations could be significantly delayed or curtailed, and our cost of operations could
significantly increase as a result of environmental safety and other regulatory requirements or
restrictions. We are unable to predict the ultimate cost of compliance with these requirements or
their effect on our operations. We may be unable to obtain all necessary licenses, permits,
approvals and certificates for proposed projects. Intricate and changing environmental and other
regulatory requirements may require substantial expenditures to obtain and maintain permits. If a
project is unable to function as planned, for example, due to costly or changing requirements or
local opposition, it may create expensive delays, extended periods of non-operation or significant
loss of value in a project.
Operating hazards, natural disasters or other interruptions of our operations could result in
potential liabilities, which may not be fully covered by our insurance.
The oil and gas business involves certain operating hazards such as:
•
well blowouts;
•
cratering;
•
explosions;
•
uncontrollable flows of gas, oil or well fluids;
•
fires;
•
pollution; and
•
releases of toxic gas.
The occurrence of one of the above may result in injury, loss of life, suspension of
operations, environmental damage and remediation and/or governmental investigations and penalties.
8
In addition, our operations in Texas are especially susceptible to damage from natural
disasters such as tornados and involve increased risks of personal injury, property damage and
marketing interruptions. Any of these operating hazards could cause serious injuries, fatalities or
property damage, which could expose us to liabilities. The payment of any of these liabilities
could reduce, or even eliminate, the funds available for exploration, development, exploitation and
acquisition, or could result in a loss of our properties. Consistent with insurance coverage
generally available to the industry, our insurance policies provide limited coverage for losses or
liabilities relating to pollution, with broader coverage for sudden and accidental occurrences. Our
insurance might be inadequate to cover our liabilities. The insurance market in general and the
energy insurance market in particular have been difficult markets over the past several years.
Insurance costs are expected to continue to increase over the next few years and we may decrease
coverage and retain more risk to mitigate future cost increases. If we incur substantial liability
and the damages are not covered by insurance or are in excess of policy limits, or if we incur
liability at a time when we are not able to obtain liability insurance, then our business, results
of operations and financial condition could be materially adversely affected.
Our results are subject to quarterly and seasonal fluctuations.
Our quarterly operating results have fluctuated in the past and could be negatively impacted
in the future as a result of a number of factors, including:
•
seasonal variations in gas and oil prices;
•
variations in levels of production; and
•
the completion of exploration and production projects.
Market conditions or transportation impediments may hinder our access to gas and oil markets or
delay our production.
Market conditions, the unavailability of satisfactory gas and oil processing and
transportation may hinder our access to gas and oil markets or delay our production. Although
currently we control the pipeline operations for a majority of our production in the Ozona
Northeast field, we do not have such control in other areas in which we expect to conduct
operations. The availability of a ready market for our gas and oil production depends on a number
of factors, including the demand for and supply of gas and oil and the proximity of reserves to
pipelines or trucking and terminal facilities. In addition, the amount of gas and oil that can be
produced and sold is subject to curtailment in certain circumstances, such as pipeline
interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage to
the gathering or transportation system or lack of contracted capacity on such systems. The
curtailments arising from these and similar circumstances may last from a few days to several
months, and in many cases we are provided with limited, if any, notice as to when these
circumstances will arise and their duration. As a result, we may not be able to sell, or may have
to transport by more expensive means, the gas and oil production from wells or we may be required
to shut in gas wells or delay initial production until the necessary gathering and transportation
systems are available. Any significant curtailment in gathering system or pipeline capacity, or
significant delay in construction of necessary gathering and transportation facilities, could
adversely affect our business, financial condition or results of operations.
Environmental liabilities may expose us to significant costs and liabilities.
There is inherent risk of incurring significant environmental costs and liabilities in our gas
and oil operations due to the handling of petroleum hydrocarbons and generated wastes, the
occurrence of air emissions and water discharges from work-related activities and the legacy of
pollution from historical industry operations and waste disposal practices. We may incur joint and
several or strict liability under these environmental laws and regulations in connection with
spills, leaks or releases of petroleum hydrocarbons and wastes on, under or from our properties and
facilities, many of which have been used for exploration, production or development activities for
many years, oftentimes by third parties not under our control. Private parties, including the
owners of properties upon which we conduct drilling and production activities as well as facilities
where our petroleum hydrocarbons or wastes are taken for reclamation or disposal, may also have the
right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for
personal injury or property damage. In addition, changes in environmental laws and regulations
occur frequently, and any such changes
9
that result in more stringent and costly waste handling,
storage, transport, disposal or remediation requirements could have a material adverse effect on
our production or our operations or financial position. We may not be able to recover some or any
of these costs from insurance.
Our growth strategy could fail or present unanticipated problems for our business in the future,
which could adversely affect our ability to make acquisitions or realize anticipated benefits of
those acquisitions.
Our growth strategy may include acquiring oil and gas businesses and properties. We may not be
able to identify suitable acquisition opportunities or finance and complete any particular
acquisition successfully.
Furthermore, acquisitions involve a number of risks and challenges, including:
•
diversion of management's attention;
•
the need to integrate acquired operations;
•
potential loss of key employees of the acquired companies;
•
potential lack of operating experience in a geographic market of the acquired
business; and
•
an increase in our expenses and working capital requirements.
Any of these factors could adversely affect our ability to achieve anticipated levels of cash
flows from the acquired businesses or realize other anticipated benefits of those acquisitions.
Severe weather could have a material adverse impact on our business.
Our business could be materially and adversely affected by severe weather. Repercussions of
severe weather conditions may include:
•
curtailment of services;
•
weather-related damage to drilling rigs, resulting in suspension of operations;
•
weather-related damage to our facilities;
•
inability to deliver materials to jobsites in accordance with contract schedules;
and
•
loss of productivity.
A terrorist attack or armed conflict could harm our business.
Terrorist activities, anti-terrorist efforts and other armed conflict involving the United
States may adversely affect the United States and global economies and could prevent us from
meeting our financial and other obligations. If any of these events occur or escalate, the
resulting political instability and societal disruption could reduce overall demand for gas and
oil, potentially putting downward pressure on demand for our services and causing a reduction in
our revenue. Gas and oil related facilities could be direct targets for terrorist attacks, and our
operations could be adversely impacted if significant infrastructure or facilities we use for the
production, transportation or marketing of our gas and oil production are destroyed or damaged.
Costs for insurance and other security may increase as a result of these threats, and some
insurance coverage may become difficult to obtain, if available at all.
10
Risks related to our financial condition
We will require additional capital to fund our future activities. If we fail to obtain additional
capital, we may not be able to implement fully our business plan, which could lead to a decline in
reserves.
We depend on our ability to obtain financing beyond our cash flow from operations.
Historically, we have financed our business plan and operations primarily with internally generated
cash flows, borrowings under our revolving credit facility and issuances of common stock. We also
require capital to fund our capital budget, which is expected to be approximately $64.3 million for
2008. As of December 31, 2006, approximately 49% of our total estimated proved reserves were
undeveloped. Recovery of such reserves will require significant capital expenditures and
successful drilling operations. We will be required to meet our needs from our internally
generated cash flows, debt financings and equity financings.
If our revenues decrease as a result of lower commodity prices, operating difficulties,
declines in reserves or for any other reason, we may have limited ability to obtain the capital
necessary to sustain our operations at current levels. We may, from time to time, need to seek
additional financing. Our revolving credit facility contains covenants restricting our ability to
incur additional indebtedness without lender consent. There can be no assurance that our bank
lenders will provide this consent or as to the availability or terms of any additional financing.
If we incur additional debt, the related risks that we now face could intensify.
Even if additional capital is needed, we may not be able to obtain debt or equity financing on
terms favorable to us, or at all. If cash generated by operations and available under our
revolving credit facility is not sufficient to meet our capital requirements, the failure to obtain
additional financing could result in a curtailment of our operations relating to exploration and
development of our projects, which in turn could lead to a possible loss of properties and a
decline in our gas reserves.
Our bank lenders can limit our borrowing capabilities, which may materially impact our operations.
At December 31, 2007, we had no outstanding borrowings under our revolving credit facility.
The borrowing base limitation under our revolving credit facility is redetermined semi-annually.
Redeterminations are based upon information contained in an engineering report prepared by an
independent petroleum engineering firm, including, without limitation, commodity prices and reserve
levels. In addition, as is typical in the oil and gas industry, our bank lenders have substantial
flexibility to reduce our borrowing base on the basis of subjective factors. Upon a
redetermination, we could be required to repay a portion of our outstanding borrowings, including
the total face amounts of all outstanding letters of credit and the amount of all unpaid
reimbursement obligations, to the extent such amounts exceed the redetermined borrowing base. We
may not have sufficient funds to make such required repayment, which could result in a default
under the terms of the revolving credit facility and an acceleration of the loan. We intend to
finance our development, acquisition and exploration activities with cash flow from operations,
borrowings under our revolving credit facility and other financing activities. In addition, we may
significantly alter our capitalization to make future acquisitions or develop our properties.
These changes in capitalization may significantly increase our level of debt. If we incur
additional debt for these or other purposes, the related risks that we now face could intensify. A
higher level of debt also increases the risk that we may default on our debt obligations. Our
ability to meet our debt obligations and to reduce our level of debt depends on our future
performance which will be affected by general economic conditions and financial, business and other
factors. Many of these factors are beyond our control. Our level of debt affects our operations
in several important ways, including the following:
•
a portion of our cash flow from operations is used to pay interest on borrowings;
•
the covenants contained in the agreements governing our debt limit our ability to
borrow additional funds, pay dividends, dispose of assets or issue shares of preferred
stock and
•
a high level of debt may impair our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general corporate
purposes;
•
a leveraged financial position would make us more vulnerable to economic downturns
and could limit our ability to withstand competitive pressures; and
11
•
any debt that we incur under our revolving credit facility will be at variable rates
which makes us vulnerable to increases in interest rates.
We engage in commodity derivative transactions which involve risks that can harm our business.
To manage our exposure to price risks in the marketing of our gas and oil production, we enter
into gas and oil price commodity derivative agreements. While intended to reduce the effects of
volatile oil and gas prices, such transactions may limit our potential gains and increase our
potential losses if gas and oil prices were to rise substantially over the price established by the
commodity derivative. In addition, such transactions may expose us to the risk of loss in certain
circumstances, including instances in which our production is less than expected, there is a
widening of price differentials between delivery points for our production and the delivery point
assumed in the commodity derivative arrangement or the counterparties to the commodity derivative
agreements fail to perform under the contracts.
Risks related to our common stock
We do not anticipate paying any dividends on our common stock in the foreseeable future.
We do not expect to declare or pay any cash or other dividends in the foreseeable future on
our common stock, as we intend to use cash flow generated by operations to expand our business. Our
revolving credit facility will restrict our ability to pay cash dividends on our common stock, and
we may also enter into credit agreements or other borrowing arrangements in the future that
restrict or limit our ability to pay cash dividends on our common stock.
You may experience dilution of your ownership interests due to the future issuance of additional
shares of our common stock.
We may in the future issue our previously authorized and unissued securities, resulting in the
dilution of the ownership interests of our present stockholders and purchasers of common stock
offered hereby. We are currently authorized to issue 90 million shares of common stock and 10
million shares of preferred stock with preferences and rights as determined by our board of
directors. The potential issuance of such additional shares of common stock may create downward
pressure on the trading price of our common stock. We may also issue additional shares of our
common stock or other securities that are convertible into or exercisable for common stock in
connection with the hiring of personnel, future acquisitions, future public offerings or private
placements of our securities for capital raising purposes, or for other business purposes. Any of
these events may dilute your ownership interest in us and have an adverse impact on the price of
our common stock.
In addition, sales of a substantial amount of our common stock in the public market, or the
perception that these sales may occur, could reduce the market price of our common stock. This
could also impair our ability to raise additional capital through the sale of our securities.
Certain provisions of Delaware law, our restated certificate of incorporation and our restated
bylaws could hinder, delay or prevent a change in control of our company, which could adversely
affect the price of our common stock.
Certain provisions of Delaware law, our restated certificate of incorporation and our restated
bylaws have the effect of discouraging, delaying or preventing transactions that involve an actual
or threatened change in control of our company. Delaware law imposes restrictions on mergers and
other business combinations between us and any holder of 15% or more of our outstanding common
stock. In addition, our restated certificate of incorporation and restated bylaws include the
following provisions:
•
Written consent of stockholders
. Our restated certificate of incorporation and
restated bylaws provide that any action required or permitted to be taken by our
stockholders must be taken at a duly called meeting of stockholders and not by written
consent.
12
•
Call of special meetings of stockholders
. Our restated bylaws provide that special
meetings of stockholders may be called at any time only by our board of directors,
chairman or Chief Executive Officer and not the stockholders.
•
Classified board of directors
. Our board of directors is divided into three classes
with staggered terms of office of three years each. The classification and staggered
terms of office of our directors make it more difficult for a third party to gain
control of our board of directors. At least two annual meetings of stockholders,
instead of one, generally would be required to effect a change in a majority of the
board of directors.
•
Removal of directors
. Under our restated certificate of incorporation, a director
may be removed only for cause and only by the affirmative vote of at least 67% of the
voting power of the outstanding shares of our capital stock.
•
Number of directors, board vacancies, term of office
. Our restated certificate of
incorporation and our restated bylaws provide that only the board of directors may set
the number of directors. We have elected to be subject to certain provisions of
Delaware law which vest in the board of directors the exclusive right, by the
affirmative vote of a majority of the remaining directors, to fill vacancies on the
board even if the remaining directors do not constitute a quorum. When effective, these
provisions of Delaware law, which are applicable even if other provisions of Delaware
law or the charter or bylaws provide to the contrary, also provide that any director
elected to fill a vacancy shall hold office for the remainder of the full term of the
class of directors in which the vacancy occurred, rather than the next annual meeting
of stockholders as would otherwise be the case, and until his or her successor is
elected and qualifies.
•
Advance notice provisions for stockholder nominations and proposals
. Our restated
bylaws require advance written notice for stockholders to nominate persons for election
as directors at, or to bring other business before, any meeting of stockholders. This
bylaw provision limits the ability of stockholders to make nominations of persons for
election as directors or to introduce other proposals unless we are notified in a
timely manner prior to the meeting.
•
Amending the bylaws
. Our restated certificate of incorporation permits our board of
directors to adopt, alter or repeal any provision of the restated bylaws or to make new
bylaws. Our restated certificate of incorporation also provides that our restated
bylaws may be amended by the affirmative vote of the holders of at least 67% of the
voting power of the outstanding shares of our capital stock.
•
Authorized but unissued shares
. Under our restated certificate of incorporation, our
board of directors has authority to cause the issuance of preferred stock from time to
time in one or more series and to establish the terms, preferences and rights of any
such series of preferred stock, all without approval of our stockholders. Nothing in
our restated certificate of incorporation precludes future issuances without
stockholder approval of the authorized but unissued shares of our common stock.
Any one or more of these factors could have the effect of delaying or preventing a change in
control or the removal of management, and deterring potential acquirers from making an offer to our
stockholders, even if that event potentially would be favorable to the interests of our
stockholders.
13
FORWARD-LOOKING INFORMATION
Some of the statements made or incorporated by reference in this prospectus discuss future
events and developments, including our future business strategy and our ability to generate
revenue, income and cash flow. In some cases, you can identify forward-looking statements by words
or phrases such as "may," "might," "should," "expect," "plan," "outlook," "intend," "project,"
"anticipate," "believe," "estimate," "predict," "potential," "continue," "our future success
depend," "seek to continue," or the negative of these words or phrases, or comparable words or
phrases. These statements are only predictions that are based, in part, on assumptions involving
judgments about future economic, competitive and market conditions and future business decisions,
all of which are difficult or impossible to predict accurately and many of which are beyond our
control. Actual events or results may differ materially. In evaluating these statements, you
should specifically consider various facts, including the risks identified under the caption "Risk
Factors" in this prospectus. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are made.
We do not undertake to update any of the forward-looking statements after the date of this
prospectus to conform these statements to actual results, except as otherwise required by law.
Reference is also made to such risks and uncertainties detained from time to time in our filings
with the Securities and Exchange Commission.
USE OF PROCEEDS
We will not receive any proceeds from the sale by Selling Stockholders of any of the shares
offered hereby. We will pay all of the costs of this offering other than brokerage and
underwriting fees and commissions.
14
SELLING STOCKHOLDERS
The 411,041 shares of our common stock to which this reoffer prospectus relates is comprised
of 411,041 restricted shares and are being registered for reoffers and resales by our directors,
officers and employees named below, who acquired the shares pursuant to one of our "employee
benefit plans" as that term is defined in Rule 405 of Regulation C under the Securities Act. The
Selling Stockholders may resell all, a portion, or none of the shares of common stock from time to
time.
The inclusion in the table of the individuals named therein shall not be deemed to be an
admission that any such individual is one of our affiliates.
Number of
Number of Shares
Percentage of
Number of Shares
Shares Eligible
Beneficially
the Class
Beneficially
to be Offered by
Owned After
Owned After
Owned Prior to the
Selling
Completion of the
Completion of
Name
Position
Offering(1)
Stockholders
Offering(2)
the Offering(2)
J. Ross Craft
President, Chief
Executive Officer
and Class III
Director (Principal
Executive Officer)
681,129
90,000
591,129
2.9
Steven P. Smart
Executive Vice
President, Chief
Financial Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
171,540
60,000
111,540
*
J. Curtis Henderson
Executive Vice
President and
General Counsel
146,250
146,250
—
—
Glenn W. Reed
Senior Vice
President—Operations
163,908
30,000
133,908
*
Ralph P.
Manoushagian
Senior Vice
President-Land
141,690
30,000
111,690
*
James S. Scott
Vice
President-Geology
141,540
30,000
111,540
*
James H. Brandi
Class II Director
7,083
7,083
—
—
Sheldon B. Lubar(3)
Class I Director
927,714
7,083
920,631
4.5
Christopher J. Whyte
Class I Director
7,083
7,083
—
—
James C. Crain
Class II Director
3,542
3,542
—
—
*
Less than one percent.
(1)
Includes shares of our common stock beneficially owned or that may be acquired through exercise
of stock options within 60 days of January 30, 2008.
(2)
Assumes that all shares offered hereby are sold but no other securities held by Selling
Stockholders are sold.
(3)
Includes attribution of shares held by Lubar Equity Fund, LLC.
15
PLAN OF DISTRIBUTION
Shares covered by this prospectus may be offered and sold from time to time by the Selling
Stockholders. We will not receive any proceeds from sales of any shares by Selling Stockholders.
The term "Selling Stockholders" includes the Selling Stockholders listed in the table above and any
donees, pledgees, transferees or other successors-in-interest selling shares received after the
date of this prospectus from a Selling Stockholder.
The Selling Stockholders or their pledgees, donees, transferees or other successors in
interest may sell shares pursuant to this prospectus from time to time:
•
in transactions (including one or more block transactions) on the NASDAQ Global
Market;
•
in the public market off the NASDAQ;
•
in privately negotiated transactions;
•
through put or call options transactions relating to the shares; or
•
in a combination of such transactions.
Each sale may be made either at the market price prevailing at the time of sale or at a
negotiated price. Sales may be made through brokers or to dealers, and such brokers or dealers may
receive compensation in the form of commissions or discounts not exceeding those customary in
similar transactions. Any shares covered by this prospectus that qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus.
All expenses of registration incurred in connection with this offering are being borne by the
Company, but all brokerage commissions and other expenses incurred by a Selling Stockholder will be
borne by that Selling Stockholder.
The Selling Stockholders and any dealer acting in connection with the offering or any broker
executing a sell order on behalf of a Selling Stockholder may be deemed to be "underwriters" within
the meaning of the Securities Act, in which event any profit on the sale of shares by a Selling
Stockholder and any commissions or discounts received by any such broker or dealer may be deemed to
be underwriting compensation under the Securities Act. In addition, any such broker or dealer may
be required to deliver a copy of this prospectus to any person who purchases any of the shares from
or through such broker or dealer.
In order to comply with the securities laws of certain states, if applicable, the shares will
be sold only through registered or licensed brokers or dealers.
16
LEGAL MATTERS
The validity of our shares of common stock offered by this prospectus will be passed upon for
us by Thompson & Knight LLP, Dallas, Texas.
EXPERTS
The combined financial statements of Approach Resources Inc. and affiliated entities appearing
in Approach Resources Inc.'s 424(b) prospectus filed November 8, 2007 with respect to the
Registration Statement on Form S-1 (Registration No. 333-144512), have been audited by Hein &
Associates LLP, independent registered public accountants, as stated in their report appearing
therein, and incorporated herein by reference. Such combined financial statements are incorporated
herein by reference in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
This prospectus is part of a registration statement on Form S-8. The prospectus is prepared
in accordance with the requirements of Part I of Form S-3 and General Instruction C of the
instructions to Form S-8. The Securities and Exchange Commission allows this filing to
"incorporate by reference" information that we have previously filed with the Commission. This
means we can disclose important information to you by referring you to other documents that we have
filed with the Commission. The information that is incorporated by reference is considered part of
this prospectus, and information that we file later will automatically update and may supersede
this information. For further information about us and the securities being offered, you should
refer to the registration statement and the following documents that are incorporated by reference:
•
our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007,
filed December 13, 2007;
•
the 424(b) prospectus filed November 8, 2007 with respect to the Registration
Statement on Form S-1 (Registration No. 333-144512);
•
our Current Reports on Form 8-K filed November 13, 2007, November 28, 2007, as
amended December 3, 2007, December 12, 2007 and January 23, 2008; and
•
the description of our common stock contained in the Registration Statement on Form
8-A filed November 5, 2007, relating to Securities Act registration statement file
number 333-143566.
All documents filed by the Company subsequent to those listed above with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
prior to the termination of the offering, shall be deemed to be incorporated by reference into this
prospectus and to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this prospectus. You may
request a copy of all documents that are incorporated by reference in this prospectus by writing or
telephoning us at the following address and number: You may also request a copy of these filings at
no cost, by writing or telephoning us at: Approach Resources Inc., One Ridgmar Centre, 6500 W.
Freeway, Suite 800, Fort Worth, Texas 76116, (817) 989-9000. We will provide copies of all
documents requested (not including exhibits to those documents, unless the exhibits are
specifically incorporated by reference into those documents or this prospectus) without charge.
17
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission, a Registration Statement on Form S-8 (including a Form S-3
Prospectus) under the Securities Act with respect to the shares of common stock offered by this
prospectus. A copy of any document incorporated by reference in the registration statement (not
including exhibits to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that the registration statement
incorporates) will be provided by us without charge to any person (including any beneficial owner)
to whom this prospectus has been delivered upon the oral or written request of such person. Such
requests should be directed to Approach Resources Inc., One Ridgmar Centre, 6500 W. Freeway, Suite
800, Fort Worth, Texas 76116. Our telephone number at that address is (817) 989-9000.
We are also subject to the informational requirements of the Exchange Act and are required to
file annual and quarterly reports, proxy statements and other information with the Commission. You
can inspect and copy reports and other information filed by us with the Commission at the
Commission's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You
may also obtain information on the operation of the Public Reference Room by calling the Commission
at 1-800-SEC-0300. The Commission also maintains an Internet site at http://www.sec.gov that
contains reports, proxy and information statements regarding issuers, including us, that file
electronically with the Commission. Our website is at http://www.approachresources.com. You
should only rely on the information incorporated by reference or provided in this prospectus or any
supplement. We have not authorized anyone else to provide you with different information. The
common stock is not being offered in any state where the offer is not permitted.
You should not assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of this prospectus.
18
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3.
Incorporation of Documents by Reference
.
The following documents, all of which were previously filed by the Company with the Commission
pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act"), are hereby
incorporated by reference:
•
our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007,
filed December 13, 2007;
•
the 424(b) prospectus filed November 8, 2007 with respect to the Registration
Statement on Form S-1 (Registration No. 333-144512);
•
our Current Reports on Form 8-K filed November 13, 2007, November 28, 2007, as
amended December 3, 2007, December 12, 2007 and January 23, 2008; and
•
the description of our common stock contained in the Registration Statement on Form
8-A filed November 5, 2007, relating to Securities Act registration statement file
number 333-143566.
In addition to the foregoing, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment indicating that all securities offered hereby have been sold or deregistering all
securities then remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Registration Statement.
Item 4.
Description of Securities
.
Not applicable.
Item 5.
Interests of Named Experts and Counsel
.
Not applicable.
Item 6.
Indemnification of Directors and Officers
.
Our restated certificate of incorporation provides that no director or officer will be liable
to the corporation or any of its stockholders for damages for breach of fiduciary duty as a
director or officer occurring on or after the date of incorporation; provided, however, that the
foregoing provision shall not eliminate or limit the liability of a director or officer (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct, fraud or a knowing violation
of the law, (iii) the payment of dividends in violation of Section 174 of the General Corporation
Law of the State of Delaware or (iv) for any transaction from which the director derived an
improper personal benefit. In addition, if the General Corporation Law of the State of Delaware is
amended to authorize corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of Delaware, as so
amended. Our restated bylaws provide that the corporation will indemnify, and advance expenses to,
any officer or director to the fullest extent authorized by the General Corporation Law of the
State of Delaware.
II-1
Section 145 of the General Corporation Law of the State of Delaware provides that a
corporation may indemnify directors and officers as well as other employees and individuals against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement in connection with
specified actions, suits and proceedings whether civil, criminal, administrative or investigative,
other than a derivative action by or in the right of the corporation, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification extends only to expenses, including attorneys' fees, incurred
in connection with the defense or settlement of such action and the statute requires court approval
before there can be any indemnification where the person seeking indemnification has been found
liable to the corporation. The statute provides that it is not exclusive of other indemnification
that may be granted by a corporation's charter, bylaws, disinterested director vote, stockholder
vote, agreement or otherwise.
Our restated certificate of incorporation also contains indemnification rights for our
directors and our officers. Specifically, our restated certificate of incorporation provides that
we shall indemnify our officers and directors to the fullest extent authorized by the General
Corporation Law of the State of Delaware. Further, we may maintain insurance on behalf of our
officers and directors against expenses, liability or loss asserted incurred by them in their
capacities as officers and directors.
We have obtained directors' and officers' insurance to cover our directors, officers and some
of our employees for certain liabilities.
We have entered into written indemnification agreements with our directors and executive
officers. Under these agreements, if an officer or director makes a claim of indemnification to us,
either a majority of the independent directors or independent legal counsel selected by the
independent directors must review the relevant facts and make a determination whether the officer
or director has met the standards of conduct under Delaware law that would permit (under Delaware
law) and require (under the indemnification agreement) us to indemnify the officer or director.
The registration rights agreement we entered into in connection with our earlier financings
provide for the indemnification by the investors in those financings of our officers and directors
for certain liabilities.
Item 7.
Exemption from Registration Claimed
.
The sales and issuances of securities to the Selling Stockholders were deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the Securities Act.
Item 8.
Exhibits
.
Reference is made to the Index to Exhibits.
Item 9.
Undertakings
.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if,
II-2
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set for the in the
"Calculation of Registration Fee" table in this Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any material
change to such information in this Registration Statement;
provided
,
however
, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information
required to be included in a post-effective amendment by those information required to be
included in a post-effective amendment by those paragraphs is contained in reports filed
with or furnished to the Commission by the registrant pursuant to section 13 or section
15(d) of the Exchange Act that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act, each
such post-effective amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that time shall be
deemed to be the initial
bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of determining liability
under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed a new registration
statement relating to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial
bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has
duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Worth, State of Texas on January 29, 2008.
APPROACH RESOURCES INC.
By:
/s/ J. Ross Craft
J. Ross Craft
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities indicated on January 29, 2008.
Each person whose signature appears below constitutes and appoints J. Ross Craft and Steven P.
Smart, and each of them individually, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments) to this
registration statement under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof. This document may be executed by the
signatories hereto on any number of counterparts, all of which constitute one and the same
instrument.
Signature
Title
/s/ J. Ross Craft
J. Ross Craft
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Steven P. Smart
Steven P. Smart
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Bryan H. Lawrence
Bryan H. Lawrence
Director
and Chairman of the Board of Directors
/s/ James H. Brandi
James H. Brandi
Director
/s/ James C. Crain
James C. Crain
Director
/s/ Sheldon B. Lubar
Sheldon B. Lubar
Director
/s/ Christopher J. Whyte
Christopher J. Whyte
Director
II-4
INDEX TO EXHIBITS
Exhibit
Number
Exhibit
4.1
Restated Certificate of Incorporation of Approach Resources Inc., filed on December 13, 2007
as Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2007, is incorporated herein by reference.
4.2
Restated Bylaws of Approach Resources Inc., filed on December 13, 2007 as Exhibit 3.2 to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007, is
incorporated herein by reference.
4.3
Specimen of Common Stock Certificate, filed on October 18, 2007 as Exhibit 4.1 to
Registrant's Registration Statement on Form S-1, as amended (No. 333-144512), is incorporated
herein by reference.
4.4
Approach Resources Inc. 2007 Stock Incentive Plan, effective as of June 28, 2007, filed on
July 12, 2007 as Exhibit 10.6 to Registrant's Registration Statement on Form S-1, as amended
(No. 333-144512), is incorporated herein by reference.
4.5
Form of Option Agreement under 2003 Stock Option Plan, filed on July 12, 2007 as Exhibit
10.12 to Registrant's Registration Statement on Form S-1, as amended (No. 333-144512), is
incorporated herein by reference.
4.6
Restricted Stock Award Agreement by and between Approach Resources Inc. and J. Curtis
Henderson dated March 14, 2007, filed on July 12, 2007 as Exhibit 10.13 to Registrant's
Registration Statement on Form S-1, as amended (No. 333-144512), is incorporated herein by
reference.
4.7
Form of Summary of Stock Option Grant under Approach Resources Inc. 2007 Stock Incentive
Plan, filed on October 18, 2007 as Exhibit 10.14 to Registrant's Registration Statement on
Form S-1, as amended (No. 333-144512), is incorporated herein by reference.
4.8
Form of Stock Award Agreement under Approach Resources Inc. 2007 Stock Incentive Plan filed
on October 18, 2007 as Exhibit 10.15 to Registrant's Registration Statement on Form S-1, as
amended (No. 333-144512), is incorporated herein by reference.
5.1
Opinion of Thompson & Knight LLP.
23.1
Consent of Hein & Associates LLP.
23.2
Consent of Thompson & Knight LLP (included in their opinion filed as Exhibit 5.1).
24.1
Power of Attorney (included on signature page of this Registration Statement).