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 six months ended June 30, 2011 includes a revision in presentation in the Issuer column, which increased cash flows from operating activities by $34.4 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)


	June 30, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	195,660		$	43,226		$	—		$	238,886
Accounts receivable – oil and gas revenues		—			79,478			—			79,478
Accounts receivable – joint interest partners		—			66,794			—			66,794
Accounts receivable – from affiliates		266			3,361			(3,627	)		—
Inventory		—			19,550			—			19,550
Prepaid expenses		63			611			—			674
Advances to joint interest partners		—			1,957			—			1,957
Derivative instruments		—			35,257			—			35,257
Other current assets		1			—			—			1

Total current assets		195,990			250,234			(3,627	)		442,597

Property, plant and equipment
Oil and gas properties (successful efforts method)		—			1,769,570			—			1,769,570
Other property and equipment		—			41,333			—			41,333
Less: accumulated depreciation, depletion, amortization and impairment		—			(261,529	)		—			(261,529	)

Total property, plant and equipment, net		—			1,549,374			—			1,549,374

Investments in and advances to subsidiaries		1,313,402			—			(1,313,402	)		—
Derivative instruments		—			18,167			—			18,167
Deferred income taxes		24,980			—			(24,980	)		—
Deferred costs and other assets		22,132			4,100			—			26,232

Total assets	$	1,556,504		$	1,821,875		$	(1,342,009	)	$	2,036,370

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	—		$	1,010		$	—		$	1,010
Accounts payable – from affiliates		3,361			266			(3,627	)		—
Advances from joint interest partners		—			28,444			—			28,444
Revenues and production taxes payable		—			56,795			—			56,795
Accrued liabilities		7,312			230,382			—			237,694
Accrued interest payable		16,417			10			—			16,427
Deferred income taxes		—			11,780			—			11,780
Other current liabilities		—			2,895			—			2,895

Total current liabilities		27,090			331,582			(3,627	)		355,045

Long-term debt		800,000			—			—			800,000
Asset retirement obligations		—			16,982			—			16,982
Deferred income taxes		—			158,158			(24,980	)		133,178
Other liabilities		—			1,751			—			1,751

Total liabilities		827,090			508,473			(28,607	)		1,306,956

Stockholders’ equity
Capital contributions from affiliates		—			1,183,810			(1,183,810	)		—
Common stock, $0.01 par value; 300,000,000 shares authorized; 93,185,023 issued and 93,122,353 outstanding		922			—			—			922
Treasury stock, at cost; 62,670 shares		(1,808	)		—			—			(1,808	)
Additional paid-in-capital		651,271			8,743			(8,743	)		651,271
Retained earnings		79,029			120,849			(120,849	)		79,029

Total stockholders’ equity		729,414			1,313,402			(1,313,402	)		729,414

Total liabilities and stockholders’ equity	$	1,556,504		$	1,821,875		$	(1,342,009	)	$	2,036,370

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		—			67,268			—			67,268
Accounts receivable – from affiliates		88			1,540			(1,628	)		—
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 income taxes		13,158			—			(13,158	)		—
Deferred costs and other assets		15,742			3,683			—			19,425

Total assets	$	1,451,671		$	1,249,377		$	(973,666	)	$	1,727,382

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	23		$	12,184		$	—		$	12,207
Accounts payable – from affiliates		1,540			88			(1,628	)		—
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		—			106,141			(13,158	)		92,983
Other liabilities		—			997			—			997

Total liabilities		817,433			290,497			(14,786	)		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	$	1,451,671		$	1,249,377		$	(973,666	)	$	1,727,382

Condensed Consolidating Statement of Operations

(In thousands)


	Three Months Ended June 30, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Revenues
Oil and gas revenues	$	—		$	145,203		$	—		$	145,203
Well services revenues		—			3,861			—			3,861

Total revenues		—			149,064			—			149,064

Expenses
Lease operating expenses		—			12,029			—			12,029
Well services operating expenses		—			1,207			—			1,207
Marketing, transportation and gathering expenses		—			1,970			—			1,970
Production taxes		—			13,720			—			13,720
Depreciation, depletion and amortization		—			44,213			—			44,213
Impairment of oil and gas properties		—			2,203			—			2,203
General and administrative expenses		2,644			10,893			—			13,537

Total expenses		2,644			86,235			—			88,879

Operating income (loss)		(2,644	)		62,829			—			60,185

Other income (expense)
Equity in earnings in subsidiaries		86,024			—			(86,024	)		—
Net gain on derivative instruments		—			74,595			—			74,595
Interest expense		(13,414	)		(660	)		—			(14,074	)
Other income		118			658			—			776

Total other income (expense)		72,728			74,593			(86,024	)		61,297

Income before income taxes		70,084			137,422			(86,024	)		121,482
Income tax benefit (expense)		5,959			(51,398	)		—			(45,439	)

Net income	$	76,043		$	86,024		$	(86,024	)	$	76,043

Condensed Consolidating Statement of Operations

(In thousands)


	Three Months Ended June 30, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Oil and gas revenues	$	—		$	67,206		$	—		$	67,206
Expenses
Lease operating expenses		—			5,951			—			5,951
Marketing, transportation and gathering expenses		—			247			—			247
Production taxes		—			7,085			—			7,085
Depreciation, depletion and amortization		—			13,100			—			13,100
Exploration expenses		—			259			—			259
Impairment of oil and gas properties		—			1,536			—			1,536
General and administrative expenses		1,318			5,296			—			6,614

Total expenses		1,318			33,474			—			34,792

Operating income (loss)		(1,318	)		33,732			—			32,414

Other income (expense)
Equity in earnings in subsidiaries		37,557			—			(37,557	)		—
Net gain on derivative instruments		—			27,547			—			27,547
Interest expense		(6,473	)		(288	)		—			(6,761	)
Other income		371			8			—			379

Total other income (expense)		31,455			27,267			(37,557	)		21,165

Income before income taxes		30,137			60,999			(37,557	)		53,579
Income tax benefit (expense)		3,212			(23,442	)		—			(20,230	)

Net income	$	33,349		$	37,557		$	(37,557	)	$	33,349

Condensed Consolidating Statement of Operations

(In thousands)


	Six Months Ended June 30, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Revenues
Oil and gas revenues	$	—		$	283,109		$	—		$	283,109
Well services revenues		—			4,521			—			4,521

Total revenues		—			287,630			—			287,630

Expenses
Lease operating expenses		—			21,845			—			21,845
Well services operating expenses		—			1,684			—			1,684
Marketing, transportation and gathering expenses		—			4,539			—			4,539
Production taxes		—			26,986			—			26,986
Depreciation, depletion and amortization		—			83,099			—			83,099
Exploration expenses		—			2,835			—			2,835
Impairment of oil and gas properties		—			2,571			—			2,571
General and administrative expenses		5,090			20,646			—			25,736

Total expenses		5,090			164,205			—			169,295

Operating income (loss)		(5,090	)		123,425			—			118,335

Other income (expense)
Equity in earnings in subsidiaries		112,286			—			(112,286	)		—
Net gain on derivative instruments		—			56,009			—			56,009
Interest expense		(26,829	)		(1,144	)		—			(27,973	)
Other income		295			1,079			—			1,374

Total other income (expense)		85,752			55,944			(112,286	)		29,410

Income before income taxes		80,662			179,369			(112,286	)		147,745
Income tax benefit (expense)		11,822			(67,083	)		—			(55,261	)

Net income	$	92,484		$	112,286		$	(112,286	)	$	92,484

Condensed Consolidating Statement of Operations

(In thousands)


	Six Months Ended June 30, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Oil and gas revenues	$	—		$	125,950		$	—		$	125,950
Expenses
Lease operating expenses		—			11,581			—			11,581
Marketing, transportation and gathering expenses		—			559			—			559
Production taxes		—			13,168			—			13,168
Depreciation, depletion and amortization		—			26,912			—			26,912
Exploration expenses		—			291			—			291
Impairment of oil and gas properties		—			2,917			—			2,917
General and administrative expenses		2,581			9,983			—			12,564

Total expenses		2,581			65,411			—			67,992

Operating income (loss)		(2,581	)		60,539			—			57,958

Other income (expense)
Equity in earnings in subsidiaries		34,387			—			(34,387	)		—
Net loss on derivative instruments		—			(4,119	)		—			(4,119	)
Interest expense		(11,414	)		(545	)		—			(11,959	)
Other income		664			27			—			691

Total other income (expense)		23,637			(4,637	)		(34,387	)		(15,387	)

Income before income taxes		21,056			55,902			(34,387	)		42,571
Income tax benefit (expense)		5,446			(21,515	)		—			(16,069	)

Net income	$	26,502		$	34,387		$	(34,387	)	$	26,502

Condensed Consolidating Statement of Cash Flows

(In thousands)


	Six Months Ended June 30, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	92,484		$	112,286		$	(112,286	)	$	92,484
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(112,286	)		—			112,286			—
Depreciation, depletion and amortization		—			83,099			—			83,099
Impairment of oil and gas properties		—			2,571			—			2,571
Deferred income taxes		(11,822	)		66,983			—			55,161
Derivative instruments		—			(56,009	)		—			(56,009	)
Stock-based compensation expenses		3,793			105			—			3,898
Debt discount amortization and other		960			305			—			1,265
Working capital and other changes:
Change in accounts receivable		(178	)		(28,661	)		1,999			(26,840	)
Change in inventory		—			(21,636	)		—			(21,636	)
Change in prepaid expenses		246			1,254			—			1,500
Change in other current assets		17			473			—			490
Change in other assets		(7,305	)		(60	)		—			(7,365	)
Change in accounts payable and accrued liabilities		9,657			32,364			(1,999	)		40,022
Change in other current liabilities		—			2,470			—			2,470
Change in other liabilities		—			750			—			750

Net cash provided by (used in) operating activities		(24,434	)		196,294			—			171,860

Cash flows from investing activities:
Capital expenditures		—			(440,781	)		—			(440,781	)
Derivative settlements		—			(2,465	)		—			(2,465	)
Redemptions of short-term investments		19,994			—			—			19,994
Advances to joint interest partners		—			1,978			—			1,978
Advances from joint interest partners		—			19,380			—			19,380

Net cash provided by (used in) investing activities		19,994			(421,888	)		—			(401,894	)

Cash flows from financing activities:
Purchases of treasury stock		(1,206	)		—			—			(1,206	)
Debt issuance costs		(46	)		(700	)		—			(746	)
Investment in / capital contributions from affiliates		(242,130	)		242,130			—			—

Net cash provided by (used in) financing activities		(243,382	)		241,430			—			(1,952	)

Increase (decrease) in cash and cash equivalents		(247,822	)		15,836			—			(231,986	)
Cash and cash equivalents at beginning of period		443,482			27,390			—			470,872

Cash and cash equivalents at end of period	$	195,660		$	43,226		$	—		$	238,886

Condensed Consolidating Statement of Cash Flows

(In thousands)


	Six Months Ended June 30, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	26,502		$	34,387		$	(34,387	)	$	26,502
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of subsidiaries		(34,387	)		—			34,387			—
Depreciation, depletion and amortization		—			26,912			—			26,912
Impairment of oil and gas properties		—			2,917			—			2,917
Deferred income taxes		(5,446	)		21,515			—			16,069
Derivative instruments		—			4,119			—			4,119
Stock-based compensation expenses		1,571			—			—			1,571
Debt discount amortization and other		489			159			—			648
Working capital and other changes:
Change in accounts receivable		—			(20,940	)		995			(19,945	)
Change in inventory		—			(65	)		—			(65	)
Change in prepaid expenses		(382	)		128			—			(254	)
Change in other current assets		(211	)		—			—			(211	)
Change in other assets		(100	)		(3	)		—			(103	)
Change in accounts payable and accrued liabilities		13,013			31,594			(995	)		43,612
Change in other liabilities		—			323			—			323

Net cash provided by operating activities		1,049			101,046			—			102,095

Cash flows from investing activities:
Capital expenditures		—			(212,267	)		—			(212,267	)
Derivative settlements		—			(4,652	)		—			(4,652	)
Purchases of short-term investments		(164,913	)		—			—			(164,913	)
Redemptions of short-term investments		39,974			—			—			39,974
Advances to joint interest partners		—			983			—			983
Advances from joint interest partners		—			5,851			—			5,851

Net cash used in investing activities		(124,939	)		(210,085	)		—			(335,024	)

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 affiliates		(111,078	)		111,078			—			—

Net cash provided by financing activities		278,713			110,701			—			389,414

Increase in cash and cash equivalents		154,823			1,662			—			156,485
Cash and cash equivalents at beginning of period		119,940			23,580			—			143,520

Cash and cash equivalents at end of period	$	274,763		$	25,242		$	—		$	300,005