Strategy

Core Beliefs

Our exploration strategy is predicated upon two core beliefs:

1. The only competitive advantage in the commodity-based natural gas and oil business is to be among the lowest cost producers;
2. Virtually all the exploration and production industry's value creation occurs through the drilling of successful exploratory wells.

Our Strategy

Our business strategy includes the following elements:

• Funding exploration prospects generated by our alliance partner.
  We depend totally upon our alliance partner for prospect generation expertise. Our alliance partner, Juneau Exploration, L.P. (“JEX”) is experienced and has a successful track record in exploration.
• Using our limited capital availability to increase our reward/risk potential on selective prospects.
  We have concentrated our risk investment capital in our offshore Gulf of Mexico prospects. Offshore exploration prospects are inherently risky as they require large amounts of capital with no guarantee of success. COI drills and operates our offshore prospects. Should we be successful in any of our offshore prospects, we will have the opportunity to spend significantly more capital to complete development and bring the discovery to producing status.
• Operating in the Gulf of Mexico.
  COI was formed for the purpose of drilling and operating exploration wells in the Gulf of Mexico. Assuming the role of an operator represents a significant increase in the risk profile of the Company since the Company has limited operating experience. While COI has historically drilled turnkey wells, adverse weather conditions as well as difficulties encountered while drilling our offshore wells could cause our contracts to come off turnkey and thus lead to significantly higher drilling costs.
• Sale of proved properties.
  From time-to-time as part of our business strategy, we have sold and in the future expect to continue to sell some or a substantial portion of our proved reserves and assets to capture current value, using the sales proceeds to further our exploration, and investment activities. Since its inception, the Company has sold approximately $484 million worth of natural gas and oil properties, and views periodic reserve sales as an opportunity to capture value, reduce reserve and price risk, and as a source of funds for potentially higher rate of return natural gas and oil exploration opportunities.
• Controlling general and administrative and geological and geophysical costs.
  Our goal is to be among the most efficient in the industry in revenue and profit per employee and among the lowest in general and administrative costs. With respect to our onshore prospects, we plan to continue outsourcing our geological, geophysical, and reservoir engineering and land functions, and partnering with cost efficient operators. We have seven employees.
• Structuring transactions to share risk.
  Our alliance partner shares in the upfront costs and the risk of our exploration prospects.
• Structuring incentives to drive behavior.
  We believe that equity ownership aligns the interests of our partners, employees, and stockholders. Our directors and executive officers beneficially own or have voting control over approximately 23% of our common stock.
• Value creation per share.
  Our goal is to maximize value creation per share. Since this is a ratio, the denominator is just as important as the numerator. Since creation of the Company in 1999 we have raised $60.5 million in equity capital. In this same time frame we have also repurchased $65.0 million in market value of our shares (3.9 million shares). We have the same number of fully diluted shares in June 2009 as we did in June 2006.