7. Long-Term Debt

Senior unsecured notes. On July 2, 2012, the Company issued $400.0 million of 6.875% senior unsecured notes due January 15, 2023 (the “2023 Notes”). During 2011, the Company issued $400.0 million of 7.25% senior unsecured notes due February 1, 2019 (the “2019 Notes”) and $400.0 million of 6.5% senior unsecured notes due November 1, 2021 (the “2021 Notes”, and together with the 2023 Notes and the 2019 Notes, the “Notes”). Interest on the Notes is payable semi-annually in arrears. The issuance of these Notes resulted in aggregate net proceeds to the Company of approximately $1,175.8 million, including $392.4 million on July 2, 2012 for the 2023 Notes and $783.4 during the year ended December 31, 2011 for the 2019 Notes and the 2021 Notes. The Company has used the proceeds from the Notes to fund its exploration, development and acquisition program and for general corporate purposes. The Notes are guaranteed on a senior unsecured basis by the Company’s material subsidiaries (the “Guarantors”). These guarantees are full and unconditional and joint and several among the Guarantors, subject to certain customary release provisions, as follows:

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in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a person that is not (either before or after giving effect to such transaction) the Company or a restricted subsidiary of the Company;

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in connection with any sale or other disposition of the capital stock of that Guarantor (including by way of merger or consolidation) to a person that is not (either before or after giving effect to such transaction) the Company or a restricted subsidiary of the Company, such that, immediately after giving effect to such transaction, such Guarantor would no longer constitute a subsidiary of the Company;

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if the Company designates any restricted subsidiary that is a Guarantor to be an unrestricted subsidiary in accordance with the indenture;

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upon legal defeasance or satisfaction and discharge of the indenture; or

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upon the liquidation or dissolution of a Guarantor, provided no event of default occurs under the indentures as a result thereof.

The Notes were issued under indentures containing provisions that are substantially the same, as amended and supplemented by supplemental indentures (collectively the “Indentures”), among the Company, the Guarantors and U.S. Bank National Association, as trustee (the “Trustee”). The Company has certain options to redeem up to 35% of the Notes at a certain redemption price based on a percentage 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 certain dates, the Company has the option to redeem some or all of the Notes for cash at certain redemption prices equal to a certain percentage of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. The Company estimates that the fair value of these options is immaterial at December 31, 2012 and 2011.

The Indentures restrict 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 Indentures) 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 Indentures contain customary events of default, including:

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default in any payment of interest on any Note when due, continued for 30 days;

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default in the payment of principal or premium, if any, on any Note when due;

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failure by the Company to comply with its other obligations under the Indentures, in certain cases subject to notice and grace periods;

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payment defaults and accelerations with respect to other indebtedness of the Company and its Restricted Subsidiaries (as defined in the Indentures) in the aggregate principal amount of $10.0 million or more;

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certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (as defined in the Indentures) or group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary;

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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

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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.

Senior secured revolving line of credit. OP LLC, as parent, and OPNA, as borrower, entered into a credit agreement dated June 22, 2007 (as amended and restated, the “Amended Credit Facility”). The Amended Credit Facility is restricted to the borrowing base, which is reserve-based and subject to semi-annual redeterminations on April 1 and October 1 of each year. 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. On April 3, 2012, the Company entered into its sixth amendment to its Amended Credit Facility (the “Sixth Amendment”). In connection with this amendment, the semi-annual redetermination of the borrowing base was completed on April 3, 2012, which resulted in the borrowing base of the Amended Credit Facility increasing from $350 million to $500 million. The Sixth Amendment added two new lenders to the bank group. Effective April 20, 2012, the Company executed an agreement consenting to the resignation of BNP Paribas as the administrative agent and a lender under the Amended Credit Facility. Wells Fargo was appointed successor administrative agent and assumed the credit commitment of BNP Paribas. BNP Paribas remains as a counterparty for the Company’s commodity derivative instruments. On June 25, 2012, the Company’s lenders waived the mandatory reduction of the Company’s borrowing base that otherwise would have occurred as a result of the Company’s issuance of the 2023 Notes in July 2012. On October 2, 2012, the Company entered into its seventh amendment to its Amended Credit Facility (the “Seventh Amendment”). In connection with this amendment, the semi-annual redetermination of the Company’s borrowing base was completed on October 2, 2012, which resulted in an increase to the borrowing base of its Amended Credit Facility from $500 million to $750 million. However, the Company elected to have the lenders’ aggregate commitment remain at $500 million. The Seventh Amendment provides that the Company may increase its aggregate commitment from $500 million to $750 million by increasing the commitment of one or more lender(s). The Seventh Amendment also added a requirement that the Company maintain a ratio of consolidated EBITDAX (as defined in the Amended Credit Facility) to consolidated Interest Expense (as defined in the Amended Credit Facility) of no less than 2.5 to 1.0 for the four quarters ended on the last day of each quarter. This covenant replaced the Total Net Debt (as defined in the Amended Credit Facility) to consolidated EBITDAX ratio covenant. All other terms and conditions of the Amended Credit Facility remained the same, including the October 6, 2016 maturity date and the $1 billion senior secured revolving line of credit.

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 domestic bank prime interest rate loan (defined in the Amended Credit Facility as an Alternate Based Rate or “ABR” loan). As of December 31, 2012, any outstanding LIBOR and ABR loans would have borne their respective interest rates plus the applicable margin indicated in the following table:


Ratio of Total Outstanding Borrowings to Borrowing Base	Applicable Margin for LIBOR Loans			Applicable Margin for ABR Loans
Less than .25 to 1		1.50	%		0.00	%
Greater than or equal to .25 to 1 but less than .50 to 1		1.75	%		0.25	%
Greater than or equal to .50 to 1 but less than .75 to 1		2.00	%		0.50	%
Greater than or equal to .75 to 1 but less than .90 to 1		2.25	%		0.75	%
Greater than .90 to 1 but less than or equal 1		2.50	%		1.00	%

An ABR loan may be repaid at any time before the scheduled maturity of the Amended Credit Facility 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 greater than three months in duration. At the end of a LIBOR loan term, the Amended Credit Facility allows the Company to elect to repay the borrowing, 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 0.375% (as of December 31, 2012) 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.

As of December 31, 2012, the Amended Credit Facility contained covenants that included, among others:

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a prohibition against incurring debt, subject to permitted exceptions;

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a prohibition against making dividends, distributions and redemptions, subject to permitted exceptions;

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a prohibition against making investments, loans and advances, subject to permitted exceptions;

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restrictions on creating liens and leases on the assets of the Company and its subsidiaries, subject to permitted exceptions;

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restrictions on merging and selling assets outside the ordinary course of business;

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restrictions on use of proceeds, investments, transactions with affiliates or change of principal business;

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a provision limiting oil and natural gas derivative financial instruments;

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a requirement that the Company maintain a ratio of consolidated EBITDAX to consolidated Interest Expense of no less than 2.5 to 1.0 for the four quarters ended on the last day of each quarter; and

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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 December 31, 2012, the Company had no borrowings and $2.2 million of outstanding letters of credit issued under the Amended Credit Facility, resulting in an unused borrowing base capacity of $497.8 million. The Company was in compliance with the financial covenants of the Amended Credit Facility as of December 31, 2012.

Deferred financing costs. As of December 31, 2012, the Company had $23.5 million of deferred financing costs related to the Amended Credit Facility and the senior unsecured notes. The deferred financing costs are included in deferred costs and other assets on the Company’s Consolidated Balance Sheet at December 31, 2012 and are being amortized over the respective terms of the Amended Credit Facility and the senior unsecured notes. The amortization of these deferred financing costs is included in interest expense on the Company’s Consolidated Statement of Operations.