13. Condensed Consolidating Financial Information

The 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 nine months ended September 30, 2011 includes a revision in presentation in the Issuer column, which increased cash flows from operating activities by $105.8 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)


	September 30, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	231,170		$	49,133		$	—		$	280,303
Short-term investments		126,213			—			—			126,213
Accounts receivable — oil and gas revenues		—			104,965			—			104,965
Accounts receivable — joint interest partners		—			83,630			—			83,630
Accounts receivable — from affiliates		291			3,559			(3,850	)		—
Inventory		—			21,142			—			21,142
Prepaid expenses		501			3,529			—			4,030
Advances to joint interest partners		—			4,025			—			4,025
Derivative instruments		—			17,320			—			17,320
Other current assets		78			—			—			78

Total current assets		358,253			287,303			(3,850	)		641,706

Property, plant and equipment
Oil and gas properties (successful efforts method)		—			2,079,016			—			2,079,016
Other property and equipment		—			45,261			—			45,261
Less: accumulated depreciation, depletion, amortization and impairment		—			(320,478	)		—			(320,478	)

Total property, plant and equipment, net		—			1,803,799			—			1,803,799

Investments in and advances to subsidiaries		1,563,143			—			(1,563,143	)		—
Derivative instruments		—			10,047			—			10,047
Deferred income taxes		33,616			—			(33,616	)		—
Deferred costs and other assets		21,405			3,944			—			25,349

Total assets	$	1,976,417		$	2,105,093		$	(1,600,609	)	$	2,480,901

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	4		$	30,950		$	—		$	30,954
Accounts payable — from affiliates		3,559			291			(3,850	)		—
Advances from joint interest partners		—			26,572			—			26,572
Revenues and production taxes payable		—			64,091			—			64,091
Accrued liabilities		25			200,519			—			200,544
Accrued interest payable		22,465			16			—			22,481
Derivative instruments		—			1,273			—			1,273
Deferred income taxes		—			3,782			—			3,782
Other current liabilities		—			5,256			—			5,256

Total current liabilities		26,053			332,750			(3,850	)		354,953

Long-term debt		1,200,000			—			—			1,200,000
Asset retirement obligations		—			20,529			—			20,529
Derivative instruments		—			360			—			360
Deferred income taxes		—			186,233			(33,616	)		152,617
Other liabilities		—			2,078			—			2,078

Total liabilities		1,226,053			541,950			(37,466	)		1,730,537

Stockholders’ equity
Capital contributions from affiliates		—			1,400,817			(1,400,817	)		—
Common stock, $0.01 par value; 300,000,000 shares authorized; 93,435,593 issued and 93,369,468 outstanding		923			—			—			923
Treasury stock, at cost; 66,125 shares		(1,901	)		—			—			(1,901	)
Additional paid-in-capital		653,999			8,743			(8,743	)		653,999
Retained earnings		97,343			153,583			(153,583	)		97,343

Total stockholders’ equity		750,364			1,563,143			(1,563,143	)		750,364

Total liabilities and stockholders’ equity	$	1,976,417		$	2,105,093		$	(1,600,609	)	$	2,480,901

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 September 30, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Revenues
Oil and gas revenues	$	—		$	178,748		$	—		$	178,748
Well services revenues		—			5,963			—			5,963

Total revenues		—			184,711			—			184,711

Expenses
Lease operating expenses		—			16,134			—			16,134
Well services operating expenses		—			5,420			—			5,420
Marketing, transportation and gathering expenses		—			2,744			—			2,744
Production taxes		—			16,433			—			16,433
Depreciation, depletion and amortization		—			57,684			—			57,684
Exploration expenses		—			336			—			336
Impairment of oil and gas properties		—			36			—			36
General and administrative expenses		2,988			10,898			—			13,886

Total expenses		2,988			109,685			—			112,673

Operating income (loss)		(2,988	)		75,026			—			72,038

Other income (expense)
Equity in earnings in subsidiaries		32,735			—			(32,735	)		—
Net loss on derivative instruments		—			(22,441	)		—			(22,441	)
Interest expense		(20,307	)		(672	)		—			(20,979	)
Other income		238			909			—			1,147

Total other income (expense)		12,666			(22,204	)		(32,735	)		(42,273	)

Income before income taxes		9,678			52,822			(32,735	)		29,765
Income tax benefit (expense)		8,636			(20,087	)		—			(11,451	)

Net income	$	18,314		$	32,735		$	(32,735	)	$	18,314

Condensed Consolidating Statement of Operations

(In thousands)


	Three Months Ended September 30, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Oil and gas revenues	$	—		$	87,596		$	—		$	87,596
Expenses
Lease operating expenses		—			9,597			—			9,597
Marketing, transportation and gathering expenses		—			238			—			238
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 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 before income taxes		63,950			112,730			(71,445	)		105,235
Income tax benefit (expense)		2,339			(41,285	)		—			(38,946	)

Net income	$	66,289		$	71,445		$	(71,445	)	$	66,289

Condensed Consolidating Statement of Operations

(In thousands)


	Nine Months Ended September 30, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Revenues
Oil and gas revenues	$	—		$	461,857		$	—		$	461,857
Well services revenues		—			10,484			—			10,484

Total revenues		—			472,341			—			472,341

Expenses
Lease operating expenses		—			37,979			—			37,979
Well services operating expenses		—			7,104			—			7,104
Marketing, transportation and gathering expenses		—			7,283			—			7,283
Production taxes		—			43,419			—			43,419
Depreciation, depletion and amortization		—			140,783			—			140,783
Exploration expenses		—			3,171			—			3,171
Impairment of oil and gas properties		—			2,607			—			2,607
General and administrative expenses		8,078			31,544			—			39,622

Total expenses		8,078			273,890			—			281,968

Operating income (loss)		(8,078	)		198,451			—			190,373

Other income (expense)
Equity in earnings in subsidiaries		145,021			—			(145,021	)		—
Net gain on derivative instruments		—			33,568			—			33,568
Interest expense		(47,136	)		(1,816	)		—			(48,952	)
Other income		533			1,988			—			2,521

Total other income (expense)		98,418			33,740			(145,021	)		(12,863	)

Income before income taxes		90,340			232,191			(145,021	)		177,510
Income tax benefit (expense)		20,458			(87,170	)		—			(66,712	)

Net income	$	110,798		$	145,021		$	(145,021	)	$	110,798

Condensed Consolidating Statement of Operations

(In thousands)


	Nine Months Ended September 30, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Oil and gas revenues	$	—		$	213,546		$	—		$	213,546
Expenses
Lease operating expenses		—			21,178			—			21,178
Marketing, transportation and gathering expenses		—			797			—			797
Production taxes		—			22,041			—			22,041
Depreciation, depletion and amortization		—			47,771			—			47,771
Exploration expenses		—			345			—			345
Impairment of oil and gas properties		—			3,313			—			3,313
General and administrative expenses		3,863			16,007			—			19,870

Total expenses		3,863			111,452			—			115,315

Operating income (loss)		(3,863	)		102,094			—			98,231

Other income (expense)
Equity in earnings in subsidiaries		105,832			—			(105,832	)		—
Net gain on derivative instruments		—			67,105			—			67,105
Interest expense		(17,909	)		(836	)		—			(18,745	)
Other income		946			269			—			1,215

Total other income (expense)		88,869			66,538			(105,832	)		49,575

Income before income taxes		85,006			168,632			(105,832	)		147,806
Income tax benefit (expense)		7,785			(62,800	)		—			(55,015	)

Net income	$	92,791		$	105,832		$	(105,832	)	$	92,791

Condensed Consolidating Statement of Cash Flows

(In thousands)


	Nine Months Ended September 30, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Cash flows from operating activities:	$	110,798		$	145,021		$	(145,021	)	$	110,798
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(145,021	)		—			145,021			—
Depreciation, depletion and amortization		—			140,783			—			140,783
Impairment of oil and gas properties		—			2,607			—			2,607
Deferred income taxes		(20,458	)		87,106			—			66,648
Derivative instruments		—			(33,568	)		—			(33,568	)
Stock-based compensation expenses		6,397			230			—			6,627
Debt discount amortization and other		1,616			422			—			2,038
Working capital and other changes:
Change in accounts receivable		(203	)		(70,899	)		1,939			(69,163	)
Change in inventory		—			(26,790	)		—			(26,790	)
Change in prepaid expenses		(192	)		(1,817	)		—			(2,009	)
Change in other current assets		(60	)		473			—			413
Change in other assets		(24	)		(95	)		—			(119	)
Change in accounts payable and accrued liabilities		8,620			72,398			(1,939	)		79,079
Change in other current liabilities		—			4,784			—			4,784

Net cash provided by (used in) operating activities		(38,527	)		320,655			—			282,128

Cash flows from investing activities:
Capital expenditures		—			(777,426	)		—			(777,426	)
Derivative settlements		—			2,784			—			2,784
Purchases of short-term investments		(126,213	)		—			—			(126,213	)
Redemptions of short-term investments		19,994			—			—			19,994
Advances to joint interest partners		—			(90	)		—			(90	)
Advances from joint interest partners		—			17,508			—			17,508

Net cash used in investing activities		(106,219	)		(757,224	)		—			(863,443	)

Cash flows from financing activities:
Proceeds from issuance of senior notes		400,000			—			—			400,000
Purchases of treasury stock		(1,299	)		—			—			(1,299	)
Debt issuance costs Debt		(7,255	)		(700	)		—			(7,955	)
Investment in / capital contributions from affiliates		(459,012	)		459,012			—			—

Net cash provided by (used in) financing activities		(67,566	)		458,312			—			390,746

Decrease in cash and cash equivalents		(212,312	)		21,743			—			(190,569	)
Cash and cash equivalents at beginning of period		443,482			27,390			—			470,872

Cash and cash equivalents at end of period	$	231,170		$	49,133		$	—		$	280,303

Condensed Consolidating Statement of Cash Flows

(In thousands)


	Nine Months Ended September 30, 2011
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	92,791		$	105,832		$	(105,832	)	$	92,791
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(105,832	)		—			105,832			—
Depreciation, depletion and amortization		—			47,771			—			47,771
Impairment of oil and gas properties		—			3,313			—			3,313
Deferred income taxes		(7,785	)		62,800			—			55,015
Derivative instruments		—			(67,105	)		—			(67,105	)
Stock-based compensation expenses		2,592			—			—			2,592
Debt discount amortization and other		793			248			—			1,041
Working capital and other changes:
Change in accounts receivable		(80	)		(42,306	)		1,100			(41,286	)
Change in inventory		—			(1,850	)		—			(1,850	)
Change in prepaid expenses		(227	)		(70	)		—			(297	)
Change in other current assets		(337	)		—			—			(337	)
Change in other assets		(100	)		(3	)		—			(103	)
Change in accounts payable and accrued liabilities		5,864			43,056			(1,100	)		47,820
Change in other liabilities		—			317			—			317

Net cash provided by (used in) operating activities		(12,321	)		152,003			—			139,682

Cash flows from investing activities:
Capital expenditures		—			(386,927	)		—			(386,927	)
Derivative settlements		—			(4,831	)		—			(4,831	)
Purchases of short-term investments		(164,913	)		—			—			(164,913	)
Redemptions of short-term investments		39,974			—			—			39,974
Advances to joint interest partners		—			(408	)		—			(408	)
Advances from joint interest partners		—			8,093			—			8,093

Net cash used in investing activities		(124,939	)		(384,073	)		—			(509,012	)

Cash flows from financing activities:
Proceeds from issuance of senior notes		400,000			—			—			400,000
Purchases of treasury stock		(562	)		—			—			(562	)
Debt issuance costs Debt		(9,650	)		(377	)		—			(10,027	)
Investment in / capital contributions from affiliates		(252,138	)		252,138			—			—

Net cash provided by financing activities		137,650			251,761			—			389,411

Increase in cash and cash equivalents		390			19,691			—			20,081
Cash and cash equivalents at beginning of period		119,940			23,580			—			143,520

Cash and cash equivalents at end of period	$	120,330		$	43,271		$	—		$	163,601