UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-34776

 

Oasis Petroleum Inc.

(Exact name of registrant as specified in its charter)

Delaware		80-0554627
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
1001 Fannin Street, Suite 1500
Houston, Texas		77002
(Address of principal executive offices)		(Zip Code)

(281) 404-9500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of the registrant’s common stock outstanding at November 8, 2011: 92,457,664 shares.

 

 

OASIS PETROLEUM INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION			1
Item 1. — Financial Statements (Unaudited)			1
Condensed Consolidated Balance Sheet at September 30, 2011 and December 31, 2010			1
Condensed Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2011 and 2010			2
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2011			3
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2011 and 2010			4
Notes to the Condensed Consolidated Financial Statements			5
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. — Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. — Controls and Procedures			36
PART II — OTHER INFORMATION			37
Item 1. — Legal Proceedings			37
Item 1A. — Risk Factors			37
Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 6. — Exhibits			39
SIGNATURES			40
EXHIBIT INDEX			41
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. — Financial Statements (Unaudited)

Oasis Petroleum Inc.

		September 30,				December 31,
		2011				2010
		(In thousands, except share
		data)
ASSETS
Current assets
Cash and cash equivalents		$	163,601			$	143,520
Short-term investments			124,939				—
Accounts receivable — oil and gas revenues			40,703				25,909
Accounts receivable — joint interest partners			55,115				28,596
Inventory			2,813				1,323
Prepaid expenses			817				490
Advances to joint interest partners			3,846				3,595
Derivative instruments			33,284				—
Deferred income taxes			—				2,470
Other current assets			337				—
Total current assets			425,455				205,903
Property, plant and equipment
Oil and gas properties (successful efforts method)			983,768				580,968
Other property and equipment			13,825				1,970
Less: accumulated depreciation, depletion, amortization and impairment			(148,121	)			(99,255	)
Total property, plant and equipment, net			849,472				483,683
Derivative instruments			28,166				—
Deferred costs and other assets			11,283				2,266
Total assets		$	1,314,376			$	691,852
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	43,825			$	8,198
Advances from joint interest partners			11,194				3,101
Revenues and production taxes payable			14,953				6,180
Accrued liabilities			82,386				58,239
Accrued interest payable			4,835				2
Derivative instruments			—				6,543
Deferred income taxes			11,684				—
Total current liabilities			168,877				82,263
Long-term debt			400,000				—
Asset retirement obligations			11,566				7,640
Derivative instruments			—				3,943
Deferred income taxes			86,291				45,432
Other liabilities			1,027				780
Total liabilities			667,761				140,058
Commitments and contingencies (Note 11)
Stockholders’ equity
Common stock, $0.01 par value; 300,000,000 shares authorized; 92,474,193 issued and 92,453,471 outstanding at September 30, 2011 and 92,240,345 issued and outstanding at December 31, 2010			921				920
Treasury stock, at cost; 20,722 shares			(562	)			—
Additional paid-in-capital			646,310				643,719
Retained deficit			(54	)			(92,845	)
Total stockholders’ equity			646,615				551,794
Total liabilities and stockholders’ equity		$	1,314,376			$	691,852

The accompanying notes are an integral part of these condensed consolidated financial statements.

Oasis Petroleum Inc.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
		(In thousands, except per share data)
Oil and gas revenues		$	87,596			$	32,978			$	213,546			$	79,780
Expenses
Lease operating expenses			9,835				3,208				21,975				9,112
Production taxes			8,873				3,519				22,041				8,131
Depreciation, depletion and amortization			20,859				9,753				47,771				24,385
Exploration expenses			54				(6	)			345				36
Impairment of oil and gas properties			396				825				3,313				11,809
Stock-based compensation expenses			—				—				—				5,200
General and administrative expenses			7,306				4,848				19,870				12,107
Total expenses			47,323				22,147				115,315				70,780
Operating income			40,273				10,831				98,231				9,000
Other income (expense)
Net gain (loss) on derivative instruments			71,224				(3,124	)			67,105				(175	)
Interest expense			(6,786	)			(236	)			(18,745	)			(1,083	)
Other income			524				67				1,215				82
Total other income (expense)			64,962				(3,293	)			49,575				(1,176	)
Income before income taxes			105,235				7,538				147,806				7,824
Income tax expense			38,946				9,239				55,015				39,106
Net income (loss)		$	66,289			$	(1,701	)		$	92,791			$	(31,282	)
Income (loss) per share:
Basic and diluted (Note 10)		$	0.72			$	(0.02	)		$	1.01			$	(0.93	)
Weighted average shares outstanding:
Basic (Note 10)			92,060				92,000				92,052				33,700
Diluted (Note 10)			92,164				92,000				92,208				33,700

The accompanying notes are an integral part of these condensed consolidated financial statements.

Oasis Petroleum Inc.

		Common Stock								Treasury Stock
		Number								Number																Total
		of								of								Additional				Retained				Stockholders’
		Shares				Amount				Shares				Amount				Paid-in-Capital				Deficit				Equity
Balance as of December 31, 2010			92,240			$	920				—			$	—			$	643,719			$	(92,845	)		$	551,794
Stock-based compensation			234				—				—				—				2,592				—				2,592
Vesting of restricted shares			—				1				—				—				(1	)			—				—
Treasury stock — tax withholdings			(21	)			—				21				(562	)			—				—				(562	)
Net income			—				—				—				—				—				92,791				92,791
Balance as of September 30, 2011			92,453			$	921				21			$	(562	)		$	646,310			$	(54	)		$	646,615

The accompanying notes are an integral part of these condensed consolidated financial statements.

Oasis Petroleum Inc.

		Nine Months Ended
		September 30,
		2011				2010
		(In thousands)
Cash flows from operating activities:
Net income (loss)		$	92,791			$	(31,282	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization			47,771				24,385
Impairment of oil and gas properties			3,313				11,809
Deferred income taxes			55,015				39,106
Derivative instruments			(67,105	)			175
Stock-based compensation expenses			2,592				5,810
Debt discount amortization and other			1,041				422
Working capital and other changes:
Change in accounts receivable			(41,286	)			(22,895	)
Change in inventory			(1,850	)			(745	)
Change in prepaid expenses			(297	)			(711	)
Change in other current assets			(337	)			—
Change in other assets			(103	)			(84	)
Change in accounts payable and accrued liabilities			47,820				4,887
Change in other liabilities			317				8
Net cash provided by operating activities			139,682				30,885
Cash flows from investing activities:
Capital expenditures			(386,927	)			(164,666	)
Derivative settlements			(4,831	)			(59	)
Purchases of short-term investments			(124,939	)			—
Advances to joint interest partners			(408	)			(1,198	)
Advances from joint interest partners			8,093				1,218
Net cash used in investing activities			(509,012	)			(164,705	)
Cash flows from financing activities:
Proceeds from sale of common stock			—				399,669
Proceeds from credit facility			—				72,000
Principal payments on credit facility			—				(107,000	)
Proceeds from issuance of senior notes			400,000				—
Purchases of treasury stock			(562	)			—
Debt issuance costs			(10,027	)			(1,788	)
Net cash provided by financing activities			389,411				362,881
Increase in cash and cash equivalents			20,081				229,061
Cash and cash equivalents
Beginning of period			143,520				40,562
End of period		$	163,601			$	269,623
Supplemental non-cash transactions:
Change in accrued capital expenditures		$	23,422			$	22,585
Asset retirement obligations			3,925				261

The accompanying notes are an integral part of these condensed consolidated financial statements.

OASIS PETROLEUM INC.

1. Organization and Operations of the Company

Organization

Oasis Petroleum Inc. (“Oasis” or the “Company”) was formed on February 25, 2010, pursuant to the laws of the State of Delaware, to become a publicly traded entity. The Company’s predecessor, Oasis Petroleum LLC, was formed as a Delaware limited liability company on February 26, 2007 by certain members of the Company’s senior management team and through investments made by Oasis Petroleum Management LLC (“OP Management”) and certain private equity funds managed by EnCap Investments L.P. (“EnCap”). OP Management, a Delaware limited liability company, was formed in February 2007 to allow Company employees to become indirect investors in Oasis Petroleum LLC. In May 2007, the Company formed Oasis Petroleum North America LLC (“OPNA”), a Delaware limited liability company, to conduct the domestic oil and natural gas exploration and production activities of the Company. In April 2008, the Company formed Oasis Petroleum International LLC (“OPI”), a Delaware limited liability company, to conduct business development activities outside of the United States of America. In June 2011, the Company formed Oasis Well Services LLC (“OWS”), a Delaware limited liability company, to provide well services to OPNA. In July 2011, the Company formed Oasis Petroleum Marketing LLC (“OPM”), a Delaware limited liability company, to provide marketing services to OPNA. OWS, OPM and OPI currently have no material business activities or material assets.

A corporate reorganization occurred concurrently with the completion of the Company’s initial public offering (“IPO”) of its common stock on June 22, 2010. The Company sold 30,370,000 shares and OAS Holding Company LLC (“OAS Holdco”), the selling stockholder, sold 17,930,000 shares of the Company’s common stock, in each case, at $14.00 per share. After deducting underwriting discounts and commissions of approximately $25.5 million, the Company received net proceeds of $399.7 million. The selling stockholder received aggregate net proceeds of approximately $236.0 million. The Company did not receive any proceeds from the sale of the shares by OAS Holdco. As a part of this corporate reorganization, the Company acquired all of the outstanding membership interests in Oasis Petroleum LLC in exchange for shares of the Company’s common stock. The Company’s business continues to be conducted through Oasis Petroleum LLC, as a wholly owned subsidiary.

Nature of Business

The Company is an independent exploration and production company focused on the acquisition and development of unconventional oil and natural gas resources primarily in the Williston Basin. The Company’s assets, which consist of proved and unproved oil and natural gas properties, are located primarily in the Montana and North Dakota areas of the Williston Basin and are owned by OPNA.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company include the accounts of Oasis and its wholly owned subsidiaries: Oasis Petroleum LLC, OPNA, OPI, OWS and OPM. The accompanying condensed consolidated financial statements of the Company have not been audited by the Company’s independent registered public accounting firm, except that the condensed consolidated balance sheet at December 31, 2010 is derived from audited financial statements. All significant intercompany transactions have been eliminated in consolidation. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation have been included. In preparing the accompanying condensed consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.

These interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Annual Report”).

Cash Equivalents and Short-Term Investments

The Company invests in certain money market funds, commercial paper and time deposits, all of which are stated at fair value. The Company classifies all such investments with original maturity dates less than 90 days as cash equivalents. The Company classifies all such investments with original maturity dates greater than 90 days as held-to-maturity securities based on management’s intentions to hold the investments to their maturity date.

Treasury Stock

Treasury stock shares represent shares withheld by the Company equivalent to the payroll tax withholding obligations due from employees upon the vesting of restricted stock awards. The Company includes the withheld shares as Treasury Stock on its Condensed Consolidated Balance Sheet and separately pays the payroll tax obligation. These retained shares are not part of a publicly announced program to repurchase shares of the Company’s common stock and are accounted for at cost. The Company does not have a publicly announced program to repurchase shares of common stock.

Capitalized Interest

The Company capitalizes a portion of its interest expense incurred on its outstanding debt. The amount capitalized is determined by multiplying the capitalization rate by the average amount of eligible accumulated capital expenditures and is limited to actual interest costs incurred during the period. The accumulated capital expenditures included in the capitalization of interest calculation begin when the first costs are incurred and end when the asset is either placed into production or written off.

Recent Accounting Pronouncements

Fair value. In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 changes some fair value measurement principles under U.S. GAAP, including a change in the valuation premise and the application of premiums and discounts. It also contains some new disclosure requirements under U.S. GAAP. It is effective for interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of this new guidance to have a significant impact on its financial position, cash flows or results of operations.

Comprehensive income. In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The new standard does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. On October 21, 2011, the FASB decided to propose a deferral of the new requirement to present reclassifications of other comprehensive income on the face of the income statement. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011 and will be applied retrospectively. The Company does not expect the adoption of this new guidance to have any impact on its financial position, cash flows or results of operations.

3. Inventory

Equipment and materials consist primarily of tubular goods and well equipment to be used in future drilling or repair operations and are stated at the lower of cost or market with cost determined on an average cost method. Crude oil inventories are valued at the lower of average cost or market value. Inventory consists of the following:

		September 30,				December 31,
		2011				2010
		(In thousands)
Equipment and materials		$	1,978			$	640
Crude oil inventory			835				683
Total inventory		$	2,813			$	1,323

4. Property, Plant and Equipment

The following table sets forth the Company’s property, plant and equipment:

		September 30,				December 31,
		2011				2010
		(In thousands)
Proved oil and gas properties(1)		$	896,283			$	479,657
Less: Accumulated depreciation, depletion, amortization and impairment			(147,151	)			(98,821	)
Proved oil and gas properties, net			749,132				380,836
Unproved oil and gas properties			87,485				101,311
Other property and equipment(2)			13,825				1,970
Less: Accumulated depreciation			(970	)			(434	)
Other property and equipment, net			12,855				1,536
Total property, plant and equipment, net		$	849,472			$	483,683

(1)		Included in the Company’s proved oil and gas properties are an estimate of future asset retirement costs of $10.0 million and $6.3 million at September 30, 2011 and December 31, 2010, respectively.
(2)		Included in the Company’s other property and equipment is well service equipment of $7.4 million at September 30, 2011. There was no such equipment at December 31, 2010.

As a result of expiring unproved property leases, the Company recorded non-cash impairment charges on its unproved oil and gas properties of $0.4 million and $3.3 million for the three and nine months ended September 30, 2011, respectively, and $0.8 million and $11.8 million for the three and nine months ended September 30, 2010, respectively. No impairment charges on proved oil and natural gas properties were recorded for the three and nine months ended September 30, 2011 or 2010.

5. Fair Value Measurements

The Company adopted the FASB’s authoritative guidance on fair value measurements effective January 1, 2008 for financial assets and liabilities and effective January 1, 2009 for non-financial assets and liabilities. The Company’s financial assets and liabilities are measured at fair value on a recurring basis. The Company recognizes its non-financial assets and liabilities, such as asset retirement obligations and proved oil and natural gas properties upon impairment, at fair value on a non-recurring basis.

As defined in the authoritative guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (“exit price”). To estimate fair value, the Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable.

The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (“Level 1” measurements) and the lowest priority to unobservable inputs (“Level 3” measurements). The three levels of the fair value hierarchy are as follows:

Level 1 — Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 — Pricing inputs, other than unadjusted quoted prices in active markets included in Level 1, are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 — Pricing inputs are generally less observable from objective sources, requiring internally developed valuation methodologies that result in management’s best estimate of fair value.

As required, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis:

		At fair value as of September 30, 2011
		Level 1				Level 2				Level 3				Total
		(In thousands)
Assets (liabilities):
Money market funds		$	105,327			$	—			$	—			$	105,327
Commodity derivative instruments (Note 6) (1)		$	—			$	—			$	61,450			$	61,450
Total assets (liabilities)		$	105,327			$	—			$	61,450			$	166,777

		At fair value as of December 31, 2010
		Level 1				Level 2				Level 3				Total
		(In thousands)
Assets (liabilities):
Commodity derivative instruments (Note 6)		$	—			$	—			$	(10,486	)		$	(10,486	)
Total assets (liabilities)		$	—			$	—			$	(10,486	)		$	(10,486	)

(1)		Included in the Company’s commodity derivative instruments is a liability for deferred premium puts of $9.7 million at September 30, 2011.

The Level 1 instruments presented in the table above consist of money market funds included in Cash and cash equivalents on the Company’s Condensed Consolidated Balance Sheet at September 30, 2011. The Company’s money market funds represent cash equivalents backed by the assets of banks and other liquid securities each with a minimum credit rating of A1/P1. The Company identified the money market funds as Level 1 instruments due to the fact that the money market funds have daily liquidity, quoted prices for the underlying investments can be obtained and there are active markets for the underlying investments.

The Level 3 instruments presented in the tables above consist of oil collars. The fair value of the Company’s oil collars is based upon mark-to-market valuation reports provided by its counterparties for monthly settlement purposes to determine the valuation of its derivative instruments. The Company has a third-party reviewer evaluate other readily available market prices for its derivative contracts as there is an active market for these contracts. However, the Company does not have access to the specific valuation models used by its counterparties or third party reviewer. The determination of the fair value of the Company’s oil collars also incorporates a credit adjustment for non-performance risk. The Company calculates the credit adjustment for derivatives in an asset position using current credit default swap values for each counterparty. The credit adjustment for derivatives in a liability position is based on the Company’s current cost of prime based borrowings (prime rate and associated margin effect). Based on these calculations, the Company recorded a reduction to the fair value of its derivative instruments in the amount of $0.5 million and $0.3 million at September 30, 2011 and December 31, 2010, respectively.

The following table presents a reconciliation of the changes in fair value of the financial assets and liabilities classified as Level 3 in the fair value hierarchy for the periods presented.

		2011				2010
		(In thousands)
Balance as of January 1		$	(10,486	)		$	(2,953	)
Total gains (losses) (realized or unrealized):
Included in earnings			67,105				(175	)
Included in other comprehensive income			—				—
Settlements			4,831				59
Transfers in and out of level 3			—				—
Balance as of September 30		$	61,450			$	(3,069	)
Change in unrealized gains (losses) included in earnings relating to derivatives still held at September 30		$	71,936			$	(116	)

Fair Value of Other Financial Instruments

At September 30, 2011, the Company’s financial instruments, including certain cash and cash equivalents, short-term investments, accounts receivable and accounts payable, are carried at amortized cost, which approximates cost and fair value due to the short-term maturity of these instruments. The Company’s derivative instruments reported in the Condensed Consolidated Balance Sheet at September 30, 2011 are stated at fair value; however, certain of the derivative instruments have a deferred premium put, which reduces the asset or increases the liability depending on the fair value of the derivative instrument. The carrying amount of the Company’s long-term debt (senior unsecured notes due 2019) reported in the Condensed Consolidated Balance Sheet at September 30, 2011 is $400.0 million, which approximates fair value.

Nonfinancial Assets and Liabilities

Asset retirement obligations. The carrying amount of the Company’s asset retirement obligations (“ARO”) in the Condensed Consolidated Balance Sheet at September 30, 2011 is $11.6 million (see Note 8 — Asset Retirement Obligations). The Company determines the ARO by calculating the present value of estimated cash flows related to the liability. Estimating the future ARO requires management to make estimates and judgments regarding timing and existence of a liability, as well as what constitutes adequate restoration. Inherent in the fair value calculation are numerous assumptions and judgments, including the ultimate costs, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. These assumptions represent Level 3 inputs. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the related asset.

Impairment. The Company reviews its proved oil and natural gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. The Company estimates the expected undiscounted future cash flows of its oil and natural gas properties and compares such undiscounted future cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties to fair value. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected. These assumptions represent Level 3 inputs. No impairment charges on proved oil and natural gas properties were recorded for the three and nine months ended September 30, 2011 or 2010.

6. Derivative Instruments

The Company utilizes derivative financial instruments to manage risks related to changes in oil prices. As of September 30, 2011, the Company utilized two-way and three-way collar options and deferred premium puts to reduce the volatility of oil prices on a significant portion of the Company’s future expected oil production. All derivative instruments are recorded on the balance sheet as either assets or liabilities measured at fair value (see Note 5 — Fair Value Measurements). Derivative assets and liabilities arising from the Company’s derivative contracts with the same counterparty are also reported on a net basis, as all counterparty contracts provide for net settlement. The Company has not designated any derivative instruments as hedges for accounting purposes and does not enter into such instruments for speculative trading purposes. If a derivative does not qualify as a hedge or is not designated as a hedge, the changes in fair value, both realized and unrealized, are recognized in the Other Income (Expense) section of the Condensed Consolidated Statement of Operations as a gain or loss on derivative instruments. The Company’s cash flow is only impacted when the actual settlements under the derivative contracts result in making or receiving a payment to or from the counterparty. These cash settlements are reflected as investing activities in the Company’s Condensed Consolidated Statement of Cash Flows.

As of September 30, 2011, the Company had the following outstanding commodity derivative instruments, all of which settle monthly based on the average West Texas Intermediate crude oil index price:

				Total
				Notional
				Amount of				Average								Average				Average
Settlement		Derivative		Oil				Sub-Floor				Average				Ceiling				Deferred
Period		Instrument		(Barrels)				Price				Floor Price				Price				Premium				Fair Value Asset
																								(In thousands)
2011		Two-Way Collars			732,454							$	85.10			$	106.06							$	5,064
2011		Three-Way Collars			45,500			$	60.00			$	80.00			$	94.98								112
2012		Two-Way Collars			1,756,718							$	85.49			$	106.44								18,391
2012		Three-Way Collars			1,020,500			$	69.03			$	89.03			$	113.47								7,356
2012		Put			1,340,000							$	90.00							$	6.65				12,829
2013		Two-Way Collars			807,500							$	89.23			$	111.69								9,982
2013		Three-Way Collars			761,000			$	72.09			$	92.09			$	124.70								5,232
2013		Put			124,000							$	90.00							$	6.65				1,321
2014		Two-Way Collars			62,000							$	90.00			$	112.78								766
2014		Three-Way Collars			62,000			$	72.50			$	92.50			$	126.23								397
																								$	61,450

The following table summarizes the location and fair value of all outstanding commodity derivative instruments recorded in the balance sheet for the periods presented:

Fair Value of Derivative Instrument Assets (Liabilities)
				September 30,				December 31,
Instrument Type		Balance Sheet Location		2011				2010
				(In thousands)
Crude oil collars		Derivative instruments — current assets		$	33,284			$	—
Crude oil collars		Derivative instruments — non-current assets			28,166				—
Crude oil collars		Derivative instruments — current liabilities			—				(6,543	)
Crude oil collars		Derivative instruments — non-current liabilities			—				(3,943	)
		Total derivative instrument asset (liability)		$	61,450			$	(10,486	)

The following table summarizes the location and amounts of realized and unrealized gains and losses from the Company’s commodity derivative instruments for the periods presented:

				Three Months								Nine Months
				Ended September 30,								Ended September 30,
		Income Statement Location		2011				2010				2011				2010
				(In thousands)
Change in unrealized gain (loss) on derivative instruments		Net gain (loss) on derivative instruments		$	71,403			$	(3,124	)		$	71,936			$	(116	)
Realized loss on derivative instruments		Net gain (loss) on derivative instruments			(179	)			—				(4,831	)			(59	)
		Total net gain (loss) on derivative instruments		$	71,224			$	(3,124	)		$	67,105			$	(175	)

7. Long-Term Debt

Senior secured revolving line of credit. The Company entered into its fourth amendment to its amended and restated credit agreement (the “Amended Credit Facility”) on June 16, 2011. The Amended Credit Facility provides for a senior secured revolving line of credit of up to $600.0 million and matures on February 26, 2015. Borrowings under the Amended Credit Facility are collateralized by perfected first priority liens and security interests on substantially all of the Company’s assets, including mortgage liens on oil and natural gas properties having at least 80% of the reserve value as determined by reserve reports.

Availability under the Amended Credit Facility is restricted to the borrowing base, which is subject to semi-annual redeterminations on April 1 and October 1 of each year. On January 21, 2011, a redetermination of the borrowing base under the Company’s Amended Credit Facility was completed, at the request of the Company, in lieu of the April 1, 2011 redetermination. As a result of this redetermination, the Company’s borrowing base increased from $120 million to $150 million, and was then automatically decreased to $137.5 million in connection with the issuance of the Company’s private placement of $400.0 million of senior unsecured notes due 2019 on February 2, 2011 (discussed below).

Borrowings under the Amended Credit Facility are subject to varying rates of interest based on (1) the total outstanding borrowings (including the value of all outstanding letters of credit) in relation to the borrowing base and (2) whether the loan is a London Interbank Offered Rate (“LIBOR”) loan or a bank prime interest rate loan (defined in the Amended Credit Facility as an Alternate Based Rate or “ABR” loan). The LIBOR and ABR loans bear their respective interest rates plus the applicable margin indicated in the following table as of September 30, 2011:

		Applicable Margin				Applicable Margin
Ratio of Total Outstanding Borrowings to Borrowing Base		for LIBOR Loans				for ABR Loans
Less than .50 to 1			2.00%				0.50%
Greater than or equal to .50 to 1 but less than .75 to 1			2.25%				0.75%
Greater than or equal to .75 to 1 but less than .85 to 1			2.50%				1.00%
Greater than .85 to 1 but less than or equal 1			2.75%				1.25%

An ABR loan does not have a set maturity date and may be repaid at any time upon the Company providing advance notification to the lenders under the Amended Credit Facility (the “Lenders”). Interest is paid quarterly on ABR loans based on the number of days an ABR loan is outstanding as of the last business day in March, June, September and December. The Company has the option to convert an ABR loan to a LIBOR-based loan upon providing advance notification to the Lenders. The minimum available loan term is one month and the maximum loan term is six months for LIBOR-based loans. Interest for LIBOR loans is paid upon maturity of the loan term. Interim interest is paid every three months for LIBOR loans that have loan terms that are greater than three months in duration. At the end of a LIBOR loan term, the Amended Credit Facility allows the Company to elect to continue a LIBOR loan with the same or a differing loan term or convert the borrowing to an ABR loan.

On a quarterly basis, the Company also pays a 0.50% (as of September 30, 2011) annualized commitment fee on the average amount of borrowing base capacity not utilized during the quarter and fees calculated on the average amount of letter of credit balances outstanding during the quarter.

The Amended Credit Facility contains covenants that include, among others:

	•		a prohibition against incurring debt, subject to permitted exceptions;
	•		a prohibition against making dividends, distributions and redemptions, subject to permitted exceptions;
	•		a prohibition against making investments, loans and advances, subject to permitted exceptions;
	•		restrictions on creating liens and leases on the assets of the Company and its subsidiaries, subject to permitted exceptions;
	•		restrictions on merging and selling assets outside the ordinary course of business;
	•		restrictions on use of proceeds, investments, transactions with affiliates or change of principal business;
	•		a provision limiting oil and natural gas derivative financial instruments;
	•		a requirement that the Company not allow a ratio of Total Net Debt (as defined in the Amended Credit Facility) to consolidated EBITDAX (as defined in the Amended Credit Facility) to be greater than 4.0 to 1.0 for the four quarters ended on the last day of each quarter; and
	•		a requirement that the Company maintain a Current Ratio (as defined in the Amended Credit Facility) of consolidated current assets (with exclusions as described in the Amended Credit Facility) to consolidated current liabilities (with exclusions as described in the Amended Credit Facility) of not less than 1.0 to 1.0 as of the last day of any fiscal quarter.

The Amended Credit Facility contains customary events of default. If an event of default occurs and is continuing, the Lenders may declare all amounts outstanding under the Amended Credit Facility to be immediately due and payable.

As of September 30, 2011, the Company had no borrowings and no outstanding letters of credit issued under the Amended Credit Facility, resulting in an unused borrowing base capacity of $137.5 million.

Senior unsecured notes. On February 2, 2011, the Company issued $400.0 million of 7.25% senior unsecured notes (the “Notes”) due February 1, 2019. Interest is payable on the Notes semi-annually in arrears on each February 1 and August 1, commencing August 1, 2011. The Notes are guaranteed on a senior unsecured basis by the Company’s material subsidiaries (“Guarantors”). These guarantees are full and unconditional and joint and several among the Guarantors. The issuance of these Notes resulted in net proceeds to the Company of approximately $390.0 million.

The Notes were issued under an Indenture, dated as of February 2, 2011 (the “Base Indenture”), among the Company and U.S. Bank National Association, as trustee (the “Trustee”), as amended and supplemented by the first supplemental indenture among the Company, the Guarantors and the Trustee, also dated as of February 2, 2011 (the “First Supplemental Indenture”) and as further amended and supplemented by the second supplemental indenture among the Company, the Guarantors and the Trustee (the “Second Supplemental Indenture”; the Base Indenture, as amended and supplemented by the First Supplemental Indenture and the Second Supplemental Indenture, the “Indenture”), dated as of September 19, 2011.

At any time prior to February 1, 2014, the Company has the option to redeem up to 35% of the Notes at a redemption price of 107.25% of the principal amount, plus accrued and unpaid interest to the redemption date, with the proceeds of certain equity offerings so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the Notes remains outstanding after such redemption. Prior to February 1, 2015, the Company has the option to redeem some or all of the Notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. On and after February 1, 2015, the Company has the option to redeem some or all of the Notes at redemption prices (expressed as percentages of principal amount) equal to 103.625% for the twelve-month period beginning on February 1, 2015, 101.813% for the twelve-month period beginning February 1, 2016 and 100.00% beginning on February 1, 2017, plus accrued and unpaid interest to the redemption date. The Company estimates that the fair value of this option is immaterial at September 30, 2011.

On September 23, 2011, the Company filed a Registration Statement on Form S-4 with the SEC to allow the holders of the Notes to exchange the Notes for registered notes that have substantially identical terms as the Notes. The Company and the Guarantors will use commercially reasonable efforts to cause the exchange to be completed within 360 days after the issuance of the Notes. Under certain circumstances, in lieu of a registered exchange offer, the Company must use commercially reasonable efforts to file a shelf registration statement for the resale of the Notes. If the Company fails to satisfy these obligations on a timely basis, the annual interest borne by the Notes will be increased by up to 1.0% per annum until the exchange offer is completed or the shelf registration statement is declared effective.

The Indenture restricts the Company’s ability and the ability of certain of its subsidiaries to: (i) incur additional debt or enter into sale and leaseback transactions; (ii) pay distributions on, redeem or repurchase, equity interests; (iii) make certain investments; (iv) incur liens; (v) enter into transactions with affiliates; (vi) merge or consolidate with another company; and (vii) transfer and sell assets. These covenants are subject to certain exceptions and qualifications. If at any time when the Notes are rated investment grade by both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no Default (as defined in the Indenture) has occurred and is continuing, many of such covenants will terminate and the Company and its subsidiaries will cease to be subject to such covenants.

The Indenture contains customary events of default, including:

•		default in any payment of interest on any Note when due, continued for 30 days;
•		default in the payment of principal of or premium, if any, on any Note when due;
•		failure by the Company to comply with its other obligations under the Indenture, in certain cases subject to notice and grace periods;
•		payment defaults and accelerations with respect to other indebtedness of the Company and its Restricted Subsidiaries (as defined in the Indenture) in the aggregate principal amount of $10.0 million or more;
•		certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (as defined in the Indenture) or group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary;
•		failure by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary to pay certain final judgments aggregating in excess of $10.0 million within 60 days; and
•		any guarantee of the Notes by a Guarantor ceases to be in full force and effect, is declared null and void in a judicial proceeding or is denied or disaffirmed by its maker.

Deferred financing costs. As of September 30, 2011, the Company had $1.5 million and $8.9 million of deferred financing costs related to the Amended Credit Facility and the Notes, respectively. The deferred financing costs are included in Deferred costs and other assets on the Company’s Condensed Consolidated Balance Sheet at September 30, 2011 and are being amortized over the respective terms of the Amended Credit Facility and the Notes. The amortization of these deferred financing costs is included in Interest expense on the Condensed Consolidated Statement of Operations.

8. Asset Retirement Obligations

The following table reflects the changes in the Company’s ARO during the nine months ended September 30, 2011:

		ARO
		(In thousands)
Balance at December 31, 2010		$	7,640
Liabilities incurred during period			2,422
Liabilities settled during period			(20	)
Accretion expense			418
Revisions of previous estimates			1,106
Balance at September 30, 2011		$	11,566

9. Income Taxes

Prior to its corporate reorganization in connection with the IPO (see Note 1), the Company was a limited liability company and not subject to federal or state income tax (in most states). Accordingly, no provision for federal or state income taxes was recorded prior to the corporate reorganization as the Company’s equity holders were responsible for income tax on the Company’s profits. In connection with the closing of the Company’s IPO in June 2010, the Company merged into a corporation and became subject to federal and state income taxes.

The Company’s effective tax rate for the three and nine month periods ended September 30, 2011 was 37.01% and 37.22%, respectively, which was consistent with the statutory tax rate applicable to the U.S. and the blended state rate for the states in which the Company conducts business. As of September 30, 2011, the Company did not have any uncertain tax positions requiring adjustments to its tax liability.

The Company had deferred tax assets for its federal and state tax loss carryforwards at September 30, 2011 recorded in noncurrent deferred taxes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of September 30, 2011, management determined that a valuation allowance was not required for the tax loss carryforwards as they are expected to be fully utilized before expiration.

At September 30, 2010, the Company’s effective tax rate was 39.4%. The Company’s effective tax rate for this period differed from the federal statutory rate of 35% due to state income taxes and certain non-deductible IPO-related costs recorded in the post-corporate reorganization period. At September 30, 2010, the Company also increased its estimate of its deferred tax liability from $29.2 million to $35.4 million. After analyzing the book and tax basis differences for capital expenditure accruals made at June 30, 2010, management determined that an additional deferred tax liability of $5.2 million was needed as of the date of the corporate reorganization. In addition, new tax legislation was passed in September 2010, which extended bonus tax depreciation retroactive to January 1, 2010, resulting in an additional increase of the Company’s deferred tax liability of $0.8 million. These adjustments, along with $0.2 million of other changes in estimates, were recorded as a discrete deferred tax expense of $6.2 million for the three months ended September 30, 2010.

The following table summarizes the Company’s income tax expense for the three and nine months ended September 30, 2010:

		September 30, 2010
		Three				Nine
		Months				Months
		Ended				Ended
				(In thousands)
Initial deferred tax expense		$	—			$	29,238
Discrete adjustments to deferred tax expense			6,206				6,206
Federal and state income tax			3,033				3,662
Total income tax expense		$	9,239			$	39,106

10. Income (Loss) Per Share

Basic earnings (loss) per share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the periods presented. The calculation of diluted earnings (loss) per share includes the impact of potentially dilutive non-vested restricted shares outstanding during the periods presented, unless their effect is anti-dilutive. There are no adjustments made to income available to common stockholders in the calculation of diluted earnings (loss) per share.

The following is a calculation of the basic and diluted weighted-average shares outstanding for the three and nine months ended September 30, 2011 and 2010:

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
		(In thousands)
Basic weighted average common shares outstanding			92,060				92,000				92,052				33,700
Dilution effect of stock awards at end of period(1)			104				—				156				—
Diluted weighted average common shares outstanding			92,164				92,000				92,208				33,700
Anti-dilutive stock-based compensation awards			281				217				174				217

(1)		Because the Company reported a net loss for the three and nine months ended September 30, 2010, no unvested stock awards were included in computing diluted loss per share because the effect would have been anti-dilutive.

11. Commitments and Contingencies

Lease obligations. On January 12, 2011, the Company executed the fourth amendment to its office space lease agreement for an additional 11,638 square feet of space within its current office building. Under the terms of the fourth amendment, the Company’s rental obligation for the new premises commenced on May 1, 2011 and terminates on September 30, 2017. On September 26, 2011, the Company executed the fifth amendment to its office space lease agreement for an additional 27,538 square feet of space within its current office building. Under the terms of this amendment, the Company’s rental obligation for the new premises will commence once construction is substantially complete, which is projected to be in January 2012. The fifth amendment to the lease agreement terminates on September 30, 2017. The Company’s total rental commitments under non-cancelable leases for office space and other property and equipment at September 30, 2011 were $13.0 million.

Drilling contracts. As of September 30, 2011, the Company had certain drilling rig contracts with initial terms greater than one year. In the event of early contract termination under these contracts, the Company would be obligated to pay approximately $51.0 million as of September 30, 2011 for the days remaining through the end of the primary terms of the contracts.

Volume commitment agreements. As of September 30, 2011, the Company had certain agreements with an aggregate requirement to deliver a minimum quantity of approximately 10.4 MMBbl and 8.8 Bcf from its Williston Basin project areas within a specified timeframe. Future obligations under these agreements are approximately $35.5 million as of September 30, 2011.

Fracturing services. As of September 30, 2011, the Company had certain agreements with third party fracturing service companies for an initial term greater than one year. In the event of early contract termination under these agreements, the Company would be obligated to pay approximately $41.6 million as of September 30, 2011 for the months remaining through the end of the primary term of the agreement.

Litigation. The Company is party to various legal and/or regulatory proceedings from time to time arising in the ordinary course of business. The Company believes all such matters are without merit and involve amounts which, if resolved unfavorably, either individually or in the aggregate, will not have a material adverse effect on its financial condition, results of operations or cash flows.

12. Condensed Consolidating Financial Information

On February 2, 2011, the Company issued $400.0 million of Notes (see Note 7 — Long-Term Debt). The Notes are guaranteed on a senior unsecured basis by the Guarantors, which are 100% owned by the Company. These guarantees are full and unconditional and joint and several among the Guarantors. Certain of the Company’s immaterial wholly owned subsidiaries do not guarantee the Notes (“Non-Guarantor Subsidiaries”). The Notes were offered and sold to qualified institutional buyers in reliance on Rule 144A and non-U.S. persons under Regulation S. They have not been registered under the Securities Act of 1933, as amended, or any state securities laws; however, as discussed above in Note 7, on September 23, 2011, the Company filed a Registration Statement on Form S-4 with the SEC to allow the holders of the Notes to exchange the Notes for registered notes that have substantially identical terms as the Notes. This Registration Statement is pending approval by the SEC.

The following financial information reflects condensed consolidating financial information of the Company (“Issuer”) and its Guarantors on a combined basis, prepared on the equity basis of accounting. The Non-Guarantor Subsidiaries are minor and, therefore, not presented separately. The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the Guarantors operated as independent entities. The Company has not presented separate financial and narrative information for each of the Guarantors because it believes such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the Guarantors.

Condensed Consolidating Balance Sheet
(In thousands, except share data)

		September 30, 2011
						Combined
		Parent/				Guarantor				Intercompany
		Issuer				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets
Cash and cash equivalents		$	120,330			$	43,271			$	—			$	163,601
Short-term investments			124,939				—				—				124,939
Accounts receivable — oil and gas revenues			—				40,703				—				40,703
Accounts receivable — joint interest partners			80				56,441				(1,406	)			55,115
Inventory			—				2,813				—				2,813
Prepaid expenses			463				354				—				817
Advances to joint interest partners			—				3,846				—				3,846
Derivative instruments			—				33,284				—				33,284
Other current assets			337				—				—				337
Total current assets			246,149				180,712				(1,406	)			425,455
Property, plant and equipment
Oil and gas properties (successful efforts method)			—				983,768				—				983,768
Other property and equipment			—				13,825				—				13,825
Less: accumulated depreciation, depletion, amortization and impairment			—				(148,121	)			—				(148,121	)
Total property, plant and equipment, net			—				849,472				—				849,472
Investments in and advances to affiliates			843,347				—				(843,347	)			—
Derivative instruments			—				28,166				—				28,166
Deferred costs and other assets			8,957				2,326				—				11,283
Total assets		$	1,098,453			$	1,060,676			$	(844,753	)		$	1,314,376
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	1,326			$	43,905			$	(1,406	)		$	43,825
Advances from joint interest partners			—				11,194				—				11,194
Revenues and production taxes payable			—				14,953				—				14,953
Accrued liabilities			10				82,376				—				82,386
Accrued interest payable			4,833				2				—				4,835
Deferred income taxes			—				11,684				—				11,684
Total current liabilities			6,169				164,114				(1,406	)			168,877
Long-term debt			400,000				—				—				400,000
Asset retirement obligations			—				11,566				—				11,566
Deferred income taxes			(8,739	)			95,030				—				86,291
Other liabilities			—				1,027				—				1,027
Total liabilities			397,430				271,737				(1,406	)			667,761
Stockholders’ equity
Capital contributions from affiliates			—				765,639				(765,639	)			—
Common stock, $0.01 par value; 300,000,000 shares authorized; 92,474,193 issued and 92,453,471 outstanding			921				—				—				921
Treasury stock, at cost; 20,722 shares			(562	)			—				—				(562	)
Additional paid-in-capital			637,567				8,743				—				646,310
Retained deficit			63,097				14,557				(77,708	)			(54	)
Total stockholders’ equity			701,023				788,939				(843,347	)			646,615
Total liabilities and stockholders’ equity		$	1,098,453			$	1,060,676			$	(844,753	)		$	1,314,376

		December 31, 2010
						Combined
		Parent/				Guarantor				Intercompany
		Issuer				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets
Cash and cash equivalents		$	119,940			$	23,580			$	—			$	143,520
Accounts receivable — oil and gas revenues			—				25,909				—				25,909
Accounts receivable — joint interest partners			—				28,902				(306	)			28,596
Inventory			—				1,323				—				1,323
Prepaid expenses			236				254				—				490
Advances to joint interest partners			—				3,595				—				3,595
Deferred income taxes			—				2,470				—				2,470
Total current assets			120,176				86,033				(306	)			205,903
Property, plant and equipment
Oil and gas properties (successful efforts method)			—				580,968				—				580,968
Other property and equipment			—				1,970				—				1,970
Less: accumulated depreciation, depletion, amortization and impairment			—				(99,255	)			—				(99,255	)
Total property, plant and equipment, net			—				483,683				—				483,683
Investments in and advances to affiliates			485,377				—				(485,377	)			—
Deferred costs and other assets			—				2,266				—				2,266
Total assets		$	605,553			$	571,982			$	(485,683	)		$	691,852
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	306			$	8,198			$	(306	)		$	8,198
Advances from joint interest partners			—				3,101				—				3,101
Revenues and production taxes payable			—				6,180				—				6,180
Accrued liabilities			—				58,239				—				58,239
Accrued interest payable			—				2				—				2
Derivative instruments			—				6,543				—				6,543
Total current liabilities			306				82,263				(306	)			82,263
Asset retirement obligations			—				7,640				—				7,640
Derivative instruments			—				3,943				—				3,943
Deferred income taxes			(954	)			46,386				—				45,432
Other liabilities			—				780				—				780
Total liabilities			(648	)			141,012				(306	)			140,058
Stockholders’ equity
Capital contributions from affiliates			—				513,501				(513,501	)			—
Common stock, $0.01 par value; 300,000,000 shares authorized; 92,240,345 issued and outstanding			920				—				—				920
Additional paid-in-capital			634,976				8,743				—				643,719
Retained deficit			(29,695	)			(91,274	)			28,124				(92,845	)
Total stockholders’ equity			606,201				430,970				(485,377	)			551,794
Total liabilities and stockholders’ equity		$	605,553			$	571,982			$	(485,683	)		$	691,852

Condensed Consolidating Statement of Operations
(In thousands)

		Three Months Ended September 30, 2011
						Combined
		Parent/				Guarantor				Intercompany
		Issuer				Subsidiaries				Eliminations				Consolidated
Oil and gas revenues		$	—			$	87,596			$	—			$	87,596
Expenses
Lease operating expenses			—				9,835				—				9,835
Production taxes			—				8,873				—				8,873
Depreciation, depletion and amortization			—				20,859				—				20,859
Exploration expenses			—				54				—				54
Impairment of oil and gas properties			—				396				—				396
General and administrative expenses			1,282				6,024				—				7,306
Total expenses			1,282				46,041				—				47,323
Operating income (loss)			(1,282	)			41,555				—				40,273
Other income (expense)
Equity in earnings in subsidiaries			71,445				—				(71,445	)			—
Net gain (loss) on derivative instruments			—				71,224				—				71,224
Interest expense			(6,495	)			(291	)			—				(6,786	)
Other income			282				242				—				524
Total other income (expense)			65,232				71,175				(71,445	)			64,962
Income (loss) before income taxes			63,950				112,730				(71,445	)			105,235
Income tax benefit (expense)			2,339				(41,285	)			—				(38,946	)
Net income (loss)		$	66,289			$	71,445			$	(71,445	)		$	66,289