This discussion should be read in conjunction with the financial statements of the Company and notes thereto.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow provided by operations for the three month period ended March 31, 2009 was $10,959,000. Excluding the effects of significant unforeseen expenses or other income, our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts. Our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control. Hurricanes in the Gulf of Mexico may shut down our production for the duration of the storm's presence in the Gulf or damage production facilities so that we cannot produce from a particular property for an extended amount of time. In addition, downstream activities on major pipelines in the Gulf of Mexico can also cause us to shut-in production for various lengths of time.

Our realized oil and gas prices vary due to world political events, supply and demand of products, product storage levels, and weather patterns. We sell the vast majority of our production at spot market prices. Accordingly, product price volatility will affect our cash flow from operations. To mitigate price volatility we sometimes lock in prices for some portion of our production through the use of financial instruments.

The Company's activities include development and exploratory drilling. The Company's strategy is to develop a balanced portfolio of drilling prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential.

The Company's strategy in 2009 is to continue to reduce its outstanding debt which decreased by $30,860,000 in 2008. This decreased leveraged position will better provide the Company the ability to participate in a significant acquisition, should the opportunity arise this year.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

The Company has in place both a stock repurchase program and a limited partnership interest repurchase program. Spending under these programs in 2008 was $5.03 million. The Company expects to expend substantially less in 2009 because of the drop in energy prices. During the first quarter of 2009 the Company spent only $225,000 under these programs.

The Company currently maintains two credit facilities totaling $360 million, with a combined current borrowing base of $126.37 million. The bank reviews the borrowing base semi-annually and, at their discretion, may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves. Our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial covenants defined in the agreement. We are currently in compliance with these financial covenants. If we do not comply with these covenants on a continuing basis, the lenders have the right to refuse to advance additional funds under the facility and/or declare all principal and interest immediately due and payable.

In April 2008, the Company entered into an amended and restated credit agreement related to the offshore credit facility allowing for a subordinated credit facility with a private lender and the release of certain collateral which was then pledged to the new lender under a separate credit agreement.

Pursuant to these agreements the offshore credit facility with the bank is $14.37 million which matures in 2009 and the subordinated credit facility is $20 million due January 2010. The subordinated credit facility was provided by a related party and bears interest at the rate of 10% per annum. Currently, the private lender has agreed to release the pledged collateral under this credit facility in favor of the offshore credit facility in exchange for a second lien position on all of the assets of the offshore subsidiary and a pledge from PEC to not take on any additional debt on its existing asset base. This amended facility will mature in January 2012, which will be accelerated if there is a change in control, and bears interest at a rate of 10% per annum. PEC's Board of Directors has approved these amendments and the Company expects to close this transaction in June 2009.

It is the goal of the Company to increase its oil and gas reserves and production through the acquisition and development of oil and gas properties. The Company also continues to explore and consider opportunities to further expand its oilfield servicing revenues through additional investment in field service equipment. However, the majority of the Company's capital spending is discretionary, and the ultimate level of expenditures will be dependent on the Company's assessment of the oil and gas business environment, the number and quality of oil and gas prospects available, the market for oilfield services, and oil and gas business opportunities in general.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

RESULTS OF OPERATIONS

Revenues and net income during the three month period ended March 31, 2009, as
compared to the same periods in 2008 reflect the increased oil and gas sales,
presented below, offset by exploration costs and depreciation and depletion of
oil and gas properties. The table summarizes production volumes and average
sales prices realized (including realized gains and losses from derivatives).



                                          Three Months Ended March 31,
                                                                  Increase /
                                       2009           2008        (Decrease)
         Barrels of Oil Produced        172,000        156,000          16,000
         Average Price Received    $      44.00   $      78.45   $      (34.35 )

         Oil Revenue               $  7,575,000   $ 12,238,000   $  (4,663,000 )

         Mcf of Gas Produced          1,871,000      2,382,000        (511,000 )
         Average Price Received    $       4.52   $       9.18   $       (4.66 )

         Gas Revenue               $  8,463,000   $ 21,863,000   $ (13,400,000 )

         Total Oil & Gas Revenue   $ 16,038,000   $ 34,101,000   $ (18,063,000 )

Oil and gas prices received excluding the impact of derivatives were;

                                   Three Months Ended March 31,
                                                          Increase /
                                 2009          2008       (Decrease)
                  Oil Price   $    36.96    $    88.20   $     (51.24 )
                  Gas Price   $     4.52    $     8.77   $      (4.25 )

The increase in oil production is due to properties added during 2008 from our 2008 West Texas drilling program offset by the natural decline of existing properties. The decrease in gas production is primarily due to the natural decline of the offshore properties.

Lease operating expense for the three months of 2009 decreased by $1,479,000 compared to 2008 due to overall price decreases in oil field services combined with reduced production taxes related to reduced commodity prices.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

General and administrative expenses decreased $368,000 in the first three months of 2009 as compared to 2008 due to reductions in personnel costs.

Field Service income and expense for the three months of 2009 decreased $1,297,000 and $714,000, respectively, compared to 2008. These decreases reflect lower rates and labor costs during 2009.

Depreciation, depletion and amortization expense decreased to $11,768,000 in 2009 from $16,920,000 in 2008. This decrease is primarily related to the decrease in offshore production during the first quarter of 2009.

This Report contains forward-looking statements that are based on management's current expectations, estimates and projections. Words such as "expects," "anticipates," "intends," "plans," "believes," "projects" and "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and are subject to the safe harbors created thereby. These statements are not guarantees of future performance and involve risks and uncertainties and are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that they will prove to be accurate. Actual results and outcomes may vary materially from what is expressed or forecast in such statements due to various risks and uncertainties. These risks and uncertainties include, among other things, the possibility of drilling cost overruns and technical difficulties, volatility of oil and gas prices, competition, risks inherent in the Company's oil and gas operations, the inexact nature of interpretation of seismic and other geological and geophysical data, imprecision of reserve estimates, and the Company's ability to replace and expand oil and gas reserves. Accordingly, stockholders and potential investors are cautioned that certain events or circumstances could cause actual results to differ materially from those projected.