The following discussion explains the significant factors that have affected the Company's financial condition and results of operations during the periods covered by this report.

GENERAL OVERVIEW

Net Income

Through the three months ended March 31, 2008, the Company generated net income of $6.4 million. Net income was lower than the comparable period in 2007 due to lower equity income from Argentine investments and higher operating and depreciation costs which more than offset the increase in operating revenues. The decrease in our equity income is due to a decrease in the net income of our equity investee, Petrolera Entre Lomas S.A. ("Petrolera"). The decrease in Petrolera's net income is a result of higher costs and expenses attributable to operations in Entre Lomas. Additionally, Petrolera had exploration expenses in 2008 for two areas acquired after the first-quarter 2007, Agua Amarga and Bajada del Palo, and interest expense on borrowings from its line of credit established in the second half of 2007.

Entre Lomas

Since the beginning of 2008, the Company and its Entre Lomas partners have continued executing on the drilling campaign budgeted for the year. In January and February, we completed and put into production four oil wells that commenced drilling in 2007. Of the 35 wells programmed for 2008, 10 oil wells have been drilled, of which six were on production by March 31, with the remaining four wells in different stages of drilling and completion at the end of the quarter. To date all wells drilled in Entre Lomas have either come on line as oil producers, or will be completed and put on production in the second quarter.

Agua Amarga

As mentioned in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, the Company and its partners drilled the Charco del Palenque.x-1001 ("ChdP.x-1001") well late in 2007, and it was completed and tested in January 2008. This well was perforated in more than one interval in the Tordillo formation, testing volumes as high as 269 barrels of oil per day and confirming the existence of a hydrocarbon reservoir with development potential. The well was not put on production from all perforated and tested intervals due to evidence of a high gas to oil ratio. Thus the initial production from this well was limited to a lower section of the Tordillo with an initial production of 90 barrels of oil per day. We plan to come back to this structure later in the year to drill a development well lower on structure.

During the fourth quarter of 2007, the Company and its partners reprocessed existing seismic that was obtained with the Agua Amarga property and also acquired 214 square kilometers of new 3D seismic images. The new seismic information is being processed and interpreted in early 2008. The Charco del Palenque.x-1001 discovery well was drilled on the basis of the reprocessed seismic data. The reprocessed seismic data has also been used to identify a trend of similar fault structures in this sector of the Agua Amarga permit. A second exploration well, the Charco del Palenque x-1002 ("ChdP.x-1002"), has targeted a similar structure nearby. This well spudded in April 2008 reached a total depth of 10,335 feet investigating the Tordillo formation. Two additional wells are expected to be drilled in this area before the end of 2008.

The trend of fault structures observed in Agua Amarga resembles structural closures on which, since 2005, we have successfully drilled several oil discoveries in the southeast sector of the Entre Lomas concession that is adjacent to and northeast of Agua Amarga.

Bajada del Palo

As described in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, the Bajada del Palo concession acquired in the fourth quarter of 2007 is believed to possess well reactivation and development drilling potential in the Borde Montuoso field. In March 2008, the Company and its partners commenced an eight-well workover campaign. The first workover in the program resulted in favorable test results and was put into production in early May at an initial production rate which was better than expected. The results of this reactivation campaign will provide valuable insight into the development potential that is believed to exist in the Borde Montuoso field.

We are also initiating exploration efforts on the block as we are currently acquiring approximately 200 square kilometers of 3D seismic images over the northeast sector of the concession immediately to the west of the Borde Mocho field situated in the southeast region of the Entre Lomas concession. Based on our future interpretation of this seismic information, we anticipate drilling exploration wells on structural closures that may be analogous to Borde Mocho and other structures that have recently been successfully drilled in Entre Lomas. In 2008, we plan to drill five development wells and three exploration wells on the concession.

Due to the greater depths of the wells planned to be drilled in Agua Amarga and Bajada del Palo, a third drilling rig capable of drilling to these depths has been contracted throughout the rest of 2008.

Tierra del Fuego

In September 2007, the Company and its Tierra del Fuego partners commenced their second development and exploration drilling campaign. The Company and its partners have contracted a rig to continue drilling throughout 2008 and into 2009. As of the end of April 2008, the Company had participated in the drilling of 11 wells with a twelfth well in progress. Six of the wells drilled thus far targeted development of an oil rim that surrounds the Los Patos gas field reservoir. Three of these have been completed and put into production. One of the wells tested rates as high as 1,000 barrels of oil per day. By March 2008, production from this well had declined from initial levels and averaged 300 barrels of oil per day for the month. A fourth oil rim well experienced mechanical problems and could not be salvaged. Casing was set on the other two oil rim wells, one of which is awaiting fracture stimulation.

Four of the wells drilled to date are gas development wells in the Los Patos, Los Flamencos, and San Luis fields that will be available to put into production when ongoing investments for increasing treating, compression and transportation capacity are completed in the third quarter of 2008 enabling the Company and its partners to increase gas deliverability capacity up to 60 million cubic feet per day. When this work is completed our production facilities will be connected directly to the San Martín pipeline that will give our joint venture a physical outlet for transportation of gas from the island of Tierra del Fuego to continental Argentina. The remaining two wells of the 12 wells drilled to date target continued development of the Las Violets oil field.

Acambuco

The Company and its Acambuco partners commenced drilling the Cerro Tuyunti x-2 ("CTu.x-2") exploration well in October 2007. By the end of April 2008, the well had been drilled to approximately 12,000 feet with the total depth of the well expected to be 19,000 feet. The primary objective of this well is to investigate the Huamampampa formation, the principal producing formation in both the San Pedrito and Maceuta fields that are both currently on production in the Acambuco concession. This exploration well is expected to reach total depth by the fourth quarter of 2008.

Cañadón Ramirez

By April 2008, the exploration drilling program pursuant to the farm-out agreement with CanAmericas Energy ("CanAmericas") had commenced. The agreement allows CanAmericas to earn a 49 percent working interest by exploring over an area of mutual interest covering the western half of the concession. In order to earn their interest, CanAmericas is required to fund a $4.5 million work program to acquire 3D seismic information and drill three wells. The acquisition of 160 square kilometers of 3D seismic images was completed in 2007. Difficulties contracting a drilling rig postponed commencement of drilling until the second quarter of 2008.

The first of the three wells, the Cañadón Ramirez x-11 well is located to the northwest of the oil producing Mata Magallanes field in the Mata Magallanes concession. All three wells are 3D seismic delineated prospects that will investigate the Bajo Barreal and Castillo formations on apparent combination structural-stratigraphic traps. In late April, the first well reached total depth of 5,248 feet. Casing was set in this well based on encouraging oil and gas shows during drilling and favorable interpretation of electric logs. The well is now awaiting arrival of a completion rig. Drilling of the second well, the Cañadón Ramirez x-8, commenced during the last week of April. Unless the cost of the committed work program exceeds $4.5 million, we will bear no portion of the cost of this program. However, our interest over the area of mutual interest will diminish from 81.82 percent to 41.73 percent. The Company is the operator of the Cañadón Ramirez concession.

Capricorn

In late 2007, the Company commenced drilling the Lomas de Guayacán x-1 ("LdG.x-1") well on the Martínez del Tineo Oeste prospect located immediately to the west of the Puesto Guardian concession. This well location was selected based on results of interpretation of 3D seismic acquired pursuant to a farm-out agreement with Gold Point Energy Corp. ("GP Energy"). The well reached total depth of 7,526 feet in January 2008, and we encountered live oil shows and manifestations of gas as we drilled through the Yacorite formation. The well was cased and after delays due to heavy rains, completion and testing operations commenced in April 2008. We expect to know the results of this well later in the second quarter of 2008. The Company is the operator of the Capricorn exploration permit.

Business Development

Although Argentina is where all of our assets are currently located, future growth plans include diversification into other countries, and as such, we are evaluating exploration and production opportunities in other countries in South America. We have recently increased the number of employees dedicated to our strategy to build core areas outside of Argentina, either through drilling farm-in opportunities or acquisitions, which will provide the Company with exposure to production and reserve growth on favorable economic terms.

Oil Prices

As mentioned in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, the Argentine government issued Resolution 394/2007 in November 2007 in response to the increase in world oil prices as WTI approached $100 per barrel in the fourth quarter of 2007. The resolution effectively raised the oil export tax to a rate that establishes a ceiling of $42 per barrel for export net backs when WTI is greater than $61 per barrel. This net back ceiling for exports has impacted the net back on the sale of crude oil in the domestic market.

Refiners in Argentina have interpreted the resolution to also set a ceiling of $42 per barrel for oil sold domestically in Argentina. However, the resolution is not clear with regard to its impact on the different qualities of crude oil produced in the country, and the producers and refiners have not agreed on how to interpret the resolution's impact on domestic net back prices. Since the resolution's effective date we have only been able to collect $42 per barrel for oil produced in our principal area. As a result, our 2008 financial statements reflect sales at a price of $42 per barrel or less depending on the quality of oil produced in our concessions.

In order to give guidance for the calculation of provincial production taxes, the Argentine Secretary of Combustibles issued Resolution 1/2008 in January 2008, which states that for the purposes of calculating provincial production taxes, the $42 reference price per Resolution 394/2007 pertains to the lowest quality of crude oil produced in the country. As almost all of the Company's production is high quality crude oil in great demand in Argentina, we believe it is possible, depending on the outcome of negotiations between producers and refiners in Argentina, that our oil sale net backs may return to $45 per barrel, or to similar price levels we experienced before Resolution 394/2007 was issued.

FINANCIAL CONDITION

We have historically funded capital programs and past property acquisitions with our internally generated cash flow. We have not relied on other sources of capital, such as debt or equity, due to the turmoil that has periodically affected Argentina's economy making financing difficult to obtain at reasonable terms, but also because the Entre Lomas concession, our primary source of liquidity, has had the ability to fund the Company's development and exploration expenditures. Given the Company's financial health, should the need arise, market financing terms may be available to us if it is judged that financial leverage would improve our capital efficiency.

Although we have interests in several oil and gas properties in Argentina, our direct participation in the Entre Lomas concession and our equity interest in Petrolera generate most of our cash flow.

As of March 31, 3008, we had cash and cash equivalents of $45.6 million, representing a decrease of $392 thousand during the quarter. The following table summarizes the change in cash and cash equivalents for the periods shown.

Sources (Uses) of Cash                       Three months ended March 31,
                                               2008                 2007
                                                      (Thousands)
Net cash provided (used) by:
Operating activities                      $        7,791       $        6,011
Investing activities                              (5,605 )             (4,027 )
Financing activities                              (2,578 )             (2,578 )
(Decrease) in cash and cash equivalents   $         (392 )     $         (594 )

Operating Activities

Our net cash provided by operating activities totaled $7.8 million for the three months ended March 31, 2008, an increase of $1.8 million compared to the same period in 2007. The increase in net cash provided by operating activities is largely due to an increase in cash provided by our direct operations combined with an increase in dividends from our equity investee, partially offset by fluctuations in working capital.

Investing Activities

During the first quarter of 2008, capital expenditures totaled $6.7 million, of which almost the entire amount was invested in exploration and development drilling. In the first quarter of 2007, capital expenditures totaled $4.0 million.

We typically have a net change in cash and cash equivalents due to the purchase and receipt of proceeds from short-term investments depending on working capital needs. During the current quarter, we invested in investments that had a shorter term than in 2007, and thus we had an increase of $1.1 million to cash during the period.

Financing Activities

During the first quarter of 2008 and 2007, $2.6 million was paid to the Company's shareholders in the form of dividends.

RESULTS OF OPERATIONS

The following table reflects our sales volumes, average sales prices, and our
average production costs per unit for the periods presented:

Volume, Price and Cost Statistics                  Three months ended March 31,

                                                      2008                2007

Sales Volumes (1):
Consolidated interests
Crude oil and condensate (bbls)                          296,364           287,447
Gas (mcf)                                              1,212,179         1,092,458
LPG (tons)                                                 2,345             2,354
Barrels of oil equivalent (boe)                          525,913           497,148
Equity interests
Crude oil and condensate (bbls)                          328,318           324,851
Gas (mcf)                                                449,708           514,526
LPG (tons)                                                 2,379             2,342
Barrels of oil equivalent (boe)                          431,189           438,089
Total volumes
Crude oil and condensate (bbls)                          624,682           612,298
Gas (mcf)                                              1,661,887         1,606,984
LPG (tons)                                                 4,724             4,696
Barrels of oil equivalent (boe)                          957,103           935,236


Average Sales Prices:
Consolidated interests
Oil (per bbl)                                    $         41.99       $     40.15
Gas (per mcf)                                               1.38              1.58
LPG (per ton)                                             469.80            393.67
Equity interests
Oil (per bbl)                                    $         42.03       $     39.13
Gas (per mcf)                                               1.42              1.86
LPG (per ton)                                             439.17            396.01
Total
Oil (per bbl)                                    $         42.01       $     39.61
Gas (per mcf)                                               1.39              1.67
LPG (per ton)                                             454.37            394.84


Average Production Costs (2):

Oil, gas, and LPG operating expense per boe      $          5.93       $      4.05

Oil, gas, and LPG depreciation expense per boe   $          5.59       $      4.13

(1) Volumes presented in the above table represent those sold to customers and have not been reduced by the 12 percent provincial production tax that is paid separately and is accounted for as an expense by the Company. In calculating provincial production tax payments, Argentine producers are entitled to deduct gathering, storage, treatment, and compression costs.

(2) Average production costs including oil inventory fluctuation expense and depreciation costs are calculated using total costs divided by consolidated interest sales volumes expressed in barrels of oil equivalent ("boe"). Six mcf of gas are equivalent to one barrel of oil equivalent and one ton of LPG is equivalent to 11.735 barrels of oil equivalent.

Product Volumes

During the three months ended March 31, 2008, oil sales volumes, net to our consolidated and equity interests, totaled 624.7 thousand barrels ("mbbls"), an increase of 12.4 mbbls, or two percent compared with 612.3 mbbls sold during the comparable period in 2007. The increase is due to greater sales volumes from the Tierra del Fuego and Acambuco concessions, and sales volumes contributed by the Bajada del Palo and Agua Amarga areas, which together more than offset marginally lower oil sales volumes from Entre Lomas.

Natural gas sales volumes, net to our consolidated and equity interests, totaled 1.662 billion cubic feet ("bcf") during the quarter, an increase of 55 million cubic feet, or three percent compared with 1.607 bcf sold during the first quarter of 2007. The increase relates to higher production volumes from the Macueta field in Acambuco and greater Tierra del Fuego gas volumes.

Liquefied petroleum gas ("LPG") sales volumes, net to our consolidated and equity interest, totaled 4.7 thousand tons, approximating the volume sold during the comparable period in 2007.

Average Sales Prices

Although the price of West Texas Intermediate ("WTI"), the crude oil type that serves as the reference price for crude oil sales contracts in Argentina, has averaged approximately $100 per barrel during the first quarter of 2008, our per barrel crude oil sales price, including our equity interest, averaged $42.01, as a result of the impact of Resolution 394/2007 issued by the Argentine government in late 2007. For the first three months of 2007, our crude oil sales price, including our equity interest, averaged $39.61.

Our average natural gas sales price, including our equity interest, was $1.39 per mcf for the first three months of 2008, compared to $1.67 for the same period in 2007. The decrease is a result of being required to deliver more of our natural gas volumes to lower priced residential markets during the current quarter.

Our average LPG sales price, including our equity interest, was $454.37 per ton for the first three months of 2008, compared to $394.84 for the same period in 2007.

Comparative results of operations for the three months ended March 31, 2008 vs. March 31, 2007

As previously mentioned, the Company generated net income of $6.4 million during the three months ended March 31, 2008, representing a decrease of $1.3 million compared to $7.7 million for the comparable period in 2007. Net income was lower than the comparable period in 2007 primarily due to lower equity income from Argentine investments and higher operating and depreciation costs which more than offset the increase in operating revenues.

Equity income from Argentine investments decreased by $1.6 million during the current quarter compared with the same quarter in 2007. The decrease in our equity income is due to a decrease in the net income of our equity investee, Petrolera. The decrease in Petrolera's net income is a result of higher costs and expenses attributable to operations in Entre Lomas. Additionally, Petrolera had exploration expenses in 2008 for two areas acquired after the first-quarter 2007, Agua Amarga and Bajada del Palo, and interest expense on borrowings from its line of credit established in the second half of 2007.

Operating revenues increased by $1 million primarily due to higher average oil and LPG sales prices combined with greater oil and natural gas sales volumes.

Operating expense increased by $1.1 million during the current quarter compared with the same quarter in 2007, primarily due to increased workover activity in Entre Lomas and the impact of continued increases in oil-field service costs and field office salaries and wages. A portion of the increase, or $200 thousand, is related to operations in Bajada del Palo and Agua Amarga, two areas acquired after the first quarter of 2007.

Selling and administrative expense increased by $381 thousand due to higher business development activity reflecting management's strategy to search for and evaluate growth opportunities, increased staffing in our Buenos Aires office, and increased salaries and wages in response to trending-higher compensation levels in the industry, and greater administrative expenses charged by our joint venture operators.

Depreciation, depletion and amortization expense increased by $885 thousand compared to the first quarter of 2007 due to the impact of rising drilling costs, combined with increased production volumes, and the effect of calculating depreciation for new wells using proved producing reserve volumes that with each year that passes as the year 2016 approaches, have one less year in their remaining concession life. If the concession extensions are obtained, expected future production from existing producing wells projected beyond the current expiration date, that is currently classified as non-proved reserves, will be added to proved producing reserves resulting in a favorable future impact on our depreciation expense.