12. Condensed Consolidating Financial Information

The 2019 Notes and the 2021 Notes (see Note 7) 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 following financial information reflects 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 immaterial 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. The consolidating statement of cash flows for the three months ended March 31, 2011 includes a revision in presentation in the Issuer column, which increased cash flows from operating activities by $3.2 million and reduced cash flows from financing activities by the same amount. These revisions are eliminated in consolidation and have no effect on the Guarantors or consolidated financial statements.

Condensed Consolidating Balance Sheet

(In thousands, except share data)


	March 31, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	293,434		$	(6,136	)	$	—		$	287,298
Accounts receivable – oil and gas revenues		—			78,455			—			78,455
Accounts receivable – joint interest partners		88			70,285			(3,358	)		67,015
Inventory		—			10,422			—			10,422
Prepaid expenses		154			1,586			—			1,740
Advances to joint interest partners		—			3,280			—			3,280
Deferred income taxes		—			6,807			—			6,807
Other current assets		8			72			—			80

Total current assets		293,684			164,771			(3,358	)		455,097

Property, plant and equipment
Oil and gas properties (successful efforts method)		—			1,515,788			—			1,515,788
Other property and equipment		—			38,660			—			38,660
Less: accumulated depreciation, depletion, amortization and impairment		—			(215,436	)		—			(215,436	)

Total property, plant and equipment, net		—			1,339,012			—			1,339,012

Investments in and advances to subsidiaries		1,141,459			—			(1,141,459	)		—
Derivative instruments		—			486			—			486
Deferred costs and other assets		15,262			3,553			—			18,815

Total assets	$	1,450,405		$	1,507,822		$	(1,144,817	)	$	1,813,410

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	3,270		$	604		$	(3,358	)	$	516
Advances from joint interest partners		—			14,548			—			14,548
Revenues and production taxes payable		—			45,276			—			45,276
Accrued liabilities		50			139,663			—			139,713
Accrued interest payable		15,017			7			—			15,024
Derivative instruments		—			16,469			—			16,469
Other current liabilities		—			316			—			316

Total current liabilities		18,337			216,883			(3,358	)		231,862

Long-term debt		800,000			—			—			800,000
Asset retirement obligations		—			15,664			—			15,664
Derivative instruments		—			6,434			—			6,434
Deferred income taxes		(19,021	)		125,369			—			106,348
Other liabilities		—			2,013			—			2,013

Total liabilities		799,316			366,363			(3,358	)		1,162,321

Stockholders' equity
Capital contributions from affiliates		—			1,097,890			(1,097,890	)		—
Common stock, $0.01 par value; 300,000,000 shares authorized; 93,136,773 issued and 93,074,949 outstanding		922			—			—			922
Treasury stock, at cost; 61,824 shares		(1,783	)		—			—			(1,783	)
Additional paid-in-capital		648,964			8,743			(8,743	)		648,964
Retained earnings		2,986			34,826			(34,826	)		2,986

Total stockholders' equity		651,089			1,141,459			(1,141,459	)		651,089

Total liabilities and stockholders' equity	$	1,450,405		$	1,507,822		$	(1,144,817	)	$	1,813,410

Condensed Consolidating Balance Sheet

(In thousands, except share data)


	December 31, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	443,482		$	27,390		$	—		$	470,872
Short-term investments		19,994			—			—			19,994
Accounts receivable – oil and gas revenues		—			52,164			—			52,164
Accounts receivable – joint interest partners		88			68,808			(1,628	)		67,268
Inventory		—			3,543			—			3,543
Prepaid expenses		309			1,831			—			2,140
Advances to joint interest partners		—			3,935			—			3,935
Deferred income taxes		—			3,233			—			3,233
Other current assets		18			473			—			491

Total current assets		463,891			161,377			(1,628	)		623,640

Property, plant and equipment
Oil and gas properties (successful efforts method)		—			1,235,357			—			1,235,357
Other property and equipment		—			20,859			—			20,859
Less: accumulated depreciation, depletion, amortization and impairment		—			(176,261	)		—			(176,261	)

Total property, plant and equipment, net		—			1,079,955			—			1,079,955

Investments in and advances to subsidiaries		958,880			—			(958,880	)		—
Derivative instruments		—			4,362			—			4,362
Deferred costs and other assets		15,742			3,683			—			19,425

Total assets	$	1,438,513		$	1,249,377		$	(960,508	)	$	1,727,382

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,563		$	12,272		$	(1,628	)	$	12,207
Advances from joint interest partners		—			9,064			—			9,064
Revenues and production taxes payable		—			19,468			—			19,468
Accrued liabilities		103			119,589			—			119,692
Accrued interest payable		15,767			7			—			15,774
Derivative instruments		—			5,907			—			5,907
Other current liabilities		—			472			—			472

Total current liabilities		17,433			166,779			(1,628	)		182,584

Long-term debt		800,000			—			—			800,000
Asset retirement obligations		—			13,075			—			13,075
Derivative instruments		—			3,505			—			3,505
Deferred income taxes		(13,158	)		106,141			—			92,983
Other liabilities		—			997			—			997

Total liabilities		804,275			290,497			(1,628	)		1,093,144

Stockholders' equity
Capital contributions from affiliates		—			941,575			(941,575	)		—
Common stock, $0.01 par value; 300,000,000 shares authorized; 92,483,393 issued and 92,460,914 outstanding		921			—			—			921
Treasury stock, at cost; 22,479 shares		(602	)		—			—			(602	)
Additional paid-in-capital		647,374			8,743			(8,743	)		647,374
Retained earnings (deficit)		(13,455	)		8,562			(8,562	)		(13,455	)

Total stockholders' equity		634,238			958,880			(958,880	)		634,238

Total liabilities and stockholders' equity	$	1,438,513		$	1,249,377		$	(960,508	)	$	1,727,382

Condensed Consolidating Statement of Operations

(In thousands)


	Three Months Ended March 31, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Revenues
Oil and gas revenues	$	—		$	137,906		$	—		$	137,906
Well services revenues		—			660			—			660

Total revenues		—			138,566			—			138,566

Expenses
Lease operating expenses		—			9,816			—			9,816
Well services operating expenses		—			477			—			477
Marketing, transportation and gathering expenses		—			2,569			—			2,569
Production taxes		—			13,266			—			13,266
Depreciation, depletion and amortization		—			38,886			—			38,886
Exploration expenses		—			2,835			—			2,835
Impairment of oil and gas properties		—			368			—			368
General and administrative expenses		2,449			9,750			—			12,199

Total expenses		2,449			77,967			—			80,416

Operating income (loss)		(2,449	)		60,599			—			58,150

Other income (expense)
Equity in earnings in subsidiaries		26,264			—			(26,264	)		—
Net loss on derivative instruments		—			(18,586	)		—			(18,586	)
Interest expense		(13,414	)		(485	)		—			(13,899	)
Other income		177			421			—			598

Total other income (expense)		13,027			(18,650	)		(26,264	)		(31,887	)

Income before income taxes		10,578			41,949			(26,264	)		26,263
Income tax benefit (expense)		5,863			(15,685	)		—			(9,822	)

Net income	$	16,441		$	26,264		$	(26,264	)	$	16,441

Condensed Consolidating Statement of Operations

(In thousands)


	Three Months Ended March 31, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations		Consolidated
Oil and gas revenues	$	—		$	58,744		$	—	$	58,744
Expenses
Lease operating expenses		—			5,630			—		5,630
Marketing, transportation and gathering expenses		—			312			—		312
Production taxes		—			6,083			—		6,083
Depreciation, depletion and amortization		—			13,812			—		13,812
Exploration expenses		—			32			—		32
Impairment of oil and gas properties		—			1,381			—		1,381
General and administrative expenses		1,263			4,687			—		5,950

Total expenses		1,263			31,937			—		33,200

Operating income (loss)		(1,263	)		26,807			—		25,544

Other income (expense)
Equity in earnings in subsidiaries		(3,170	)		—			3,170		—
Net loss on derivative instruments		—			(31,666	)		—		(31,666	)
Interest expense		(4,941	)		(257	)		—		(5,198	)
Other income		293			19			—		312

Total other income (expense)		(7,818	)		(31,904	)		3,170		(36,552	)

Loss before income taxes		(9,081	)		(5,097	)		3,170		(11,008	)
Income tax benefit		2,234			1,927			—		4,161

Net loss	$	(6,847	)	$	(3,170	)	$	3,170	$	(6,847	)

Condensed Consolidating Statement of Cash Flows

(In thousands)


	Three Months Ended March 31, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	16,441		$	26,264		$	(26,264	)	$	16,441
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(26,264	)		—			26,264			—
Depreciation, depletion and amortization		—			38,886			—			38,886
Impairment of oil and gas properties		—			368			—			368
Deferred income taxes		(5,863	)		15,685			—			9,822
Derivative instruments		—			18,586			—			18,586
Stock-based compensation expenses		1,591			—			—			1,591
Debt discount amortization and other		480			168			—			648
Working capital and other changes:
Change in accounts receivable		—			(27,768	)		1,730			(26,038	)
Change in inventory		—			(9,641	)		—			(9,641	)
Change in prepaid expenses		155			(124	)		—			31
Change in other current assets		10			473			—			483
Change in accounts payable and accrued liabilities		904			11,601			(1,730	)		10,775
Change in other current liabilities		—			(188	)		—			(188	)
Change in other liabilities		—			1,001			—			1,001

Net cash provided by (used in) operating activities		(12,546	)		75,311			—			62,765

Cash flows from investing activities:
Capital expenditures		—			(269,975	)		—			(269,975	)
Derivative settlements		—			(1,291	)		—			(1,291	)
Redemptions of short-term investments		19,994			—			—			19,994
Advances to joint interest partners		—			655			—			655
Advances from joint interest partners		—			5,484			—			5,484

Net cash provided by (used in) investing activities		19,994			(265,127	)		—			(245,133	)

Cash flows from financing activities:
Purchases of treasury stock		(1,181	)		—			—			(1,181	)
Debt issuance costs		—			(25	)		—			(25	)
Investment in / capital contributions from affiliates		(156,315	)		156,315			—			—

Net cash provided by (used in) financing activities		(157,496	)		156,290			—			(1,206	)

Decrease in cash and cash equivalents		(150,048	)		(33,526	)		—			(183,574	)
Cash and cash equivalents at beginning of period		443,482			27,390			—			470,872

Cash and cash equivalents at end of period	$	293,434		$	(6,136	)	$	—		$	287,298

Condensed Consolidating Statement of Cash Flows

(In thousands)



	Three Months Ended March 31, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(6,847	)	$	(3,170	)	$	3,170		$	(6,847	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Equity in earnings of subsidiaries		3,170			—			(3,170	)
Depreciation, depletion and amortization		—			13,812			—			13,812
Impairment of oil and gas properties		—			1,381			—			1,381
Deferred income taxes		(2,234	)		(1,927	)		—			(4,161	)
Derivative instruments		—			31,666			—			31,666
Stock-based compensation expenses		527			—			—			527
Debt discount amortization and other		188			68			—			256
Working capital and other changes:
Change in accounts receivable		—			(7,550	)		883			(6,667	)
Change in inventory		—			(37	)		—			(37	)
Change in prepaid expenses		118			361			—			479
Change in other current assets		(113	)		—			—			(113	)
Change in other assets		—			(3	)		—			(3	)
Change in accounts payable and accrued liabilities		5,681			(12,246	)		(883	)		(7,448	)

Net cash provided by operating activities		490			22,355			—			22,845

Cash flows from investing activities:
Capital expenditures		—			(91,126	)		—			(91,126	)
Derivative settlements		—			(512	)		—			(512	)
Purchases of short-term investments		(114,974	)		—			—			(114,974	)
Advances to joint interest partners		—			885			—			885
Advances from joint interest partners		—			4,938			—			4,938

Net cash used in investing activities		(114,974	)		(85,815	)		—			(200,789	)

Cash flows from financing activities:
Proceeds from issuance of senior notes		400,000			—			—			400,000
Purchases of treasury stock		(559	)		—			—			(559	)
Debt issuance costs		(9,650	)		(377	)		—			(10,027	)
Investment in / capital contributions from subsidiaries		(49,999	)		49,999			—			—

Net cash provided by financing activities		339,792			49,622			—			389,414

Increase (decrease) in cash and cash equivalents		225,308			(13,838	)		—			211,470
Cash and cash equivalents at beginning of period		119,940			23,580			—			143,520

Cash and cash equivalents at end of period	$	345,248		$	9,742		$	—		$	354,990