14. 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.

Condensed Consolidating Balance Sheet

(In thousands, except share data)



	March 31, 2013
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	81,836		$	84,153		$	—		$	165,989
Short-term investments		25,891			—			—			25,891
Accounts receivable – oil and gas revenues		—			132,069			—			132,069
Accounts receivable – joint interest partners		—			80,826			—			80,826
Accounts receivable – from affiliates		299			6,222			(6,521	)		—
Inventory		—			25,406			—			25,406
Prepaid expenses		156			1,266			—			1,422
Advances to joint interest partners		—			2,126			—			2,126
Derivative instruments		—			5,647			—			5,647
Other current assets		574			560			—			1,134

Total current assets		108,756			338,275			(6,521	)		440,510

Property, plant and equipment
Oil and gas properties (successful efforts method)		—			2,487,198			—			2,487,198
Other property and equipment		—			136,676			—			136,676
Less: accumulated depreciation, depletion, amortization and impairment		—			(446,666	)		—			(446,666	)

Total property, plant and equipment, net		—			2,177,208			—			2,177,208

Investments in and advances to subsidiaries		1,896,635			—			(1,896,635	)		—
Derivative instruments		—			5,284			—			5,284
Deferred income taxes		51,372			—			(51,372	)		—
Deferred costs and other assets		20,103			3,613			—			23,716

Total assets	$	2,076,866		$	2,524,380		$	(1,954,528	)	$	2,646,718

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2		$	23,558		$	—		$	23,560
Accounts payable – from affiliates		6,222			299			(6,521	)		—
Advances from joint interest partners		—			19,485			—			19,485
Revenues and production taxes payable		—			90,372			—			90,372
Accrued liabilities		63			197,263			—			197,326
Accrued interest payable		21,472			16			—			21,488
Derivative instruments		—			4,660			—			4,660

Total current liabilities		27,759			335,653			(6,521	)		356,891

Long-term debt		1,200,000			—			—			1,200,000
Asset retirement obligations		—			25,029			—			25,029
Deferred income taxes		—			265,155			(51,372	)		213,783
Other liabilities		—			1,908			—			1,908

Total liabilities		1,227,759			627,745			(57,893	)		1,797,611

Stockholders’ equity
Capital contributions from affiliates		—			1,610,162			(1,610,162	)		—
Common stock, $0.01 par value; 300,000,000 shares authorized; 93,730,917 issued and 93,596,984 outstanding		925			—			—			925
Treasury stock, at cost; 133,933 shares		(3,952	)		—			—			(3,952	)
Additional paid-in-capital		660,350			8,743			(8,743	)		660,350
Retained earnings		191,784			277,730			(277,730	)		191,784

Total stockholders’ equity		849,107			1,896,635			(1,896,635	)		849,107

Total liabilities and stockholders’ equity	$	2,076,866		$	2,524,380		$	(1,954,528	)	$	2,646,718

Condensed Consolidating Balance Sheet

(In thousands, except share data)


	December 31, 2012
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	133,797		$	79,650		$	—		$	213,447
Short-term investments		25,891			—			—			25,891
Accounts receivable – oil and gas revenues		—			110,341			—			110,341
Accounts receivable – joint interest partners		—			99,194			—			99,194
Accounts receivable – from affiliates		310			5,845			(6,155	)
Inventory		—			20,707			—			20,707
Prepaid expenses		313			1,457			—			1,770
Advances to joint interest partners		—			1,985			—			1,985
Derivative instruments		—			19,016			—			19,016
Other current assets		235			100			—			335

Total current assets		160,546			338,295			(6,155	)		492,686

Property, plant and equipment
Oil and gas properties (successful efforts method)		—			2,348,128			—			2,348,128
Other property and equipment		—			49,732			—			49,732
Less: accumulated depreciation, depletion, amortization and impairment		—			(391,260	)		—			(391,260	)

Total property, plant and equipment, net		—			2,006,600			—			2,006,600

Investments in and advances to subsidiaries		1,807,010			—			(1,807,010	)		—
Derivative instruments		—			4,981			—			4,981
Deferred income taxes		42,746			—			(42,746	)		—
Deferred costs and other assets		20,748			3,779			—			24,527

Total assets	$	2,031,050		$	2,353,655		$	(1,855,911	)	$	2,528,794

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	9		$	12,482		$	—		$	12,491
Accounts payable – from affiliates		5,845			310			(6,155	)
Advances from joint interest partners		—			21,176			—			21,176
Revenues and production taxes payable		—			71,553			—			71,553
Accrued liabilities		100			189,763			—			189,863
Accrued interest payable		30,091			5			—			30,096
Derivative instruments		—			1,048			—			1,048
Deferred income taxes		—			4,558			—			4,558

Total current liabilities		36,045			300,895			(6,155	)		330,785

Long-term debt		1,200,000			—			—			1,200,000
Asset retirement obligations		—			22,956			—			22,956
Derivative instruments		—			380			—			380
Deferred income taxes		—			220,417			(42,746	)		177,671
Other liabilities		—			1,997			—			1,997

Total liabilities		1,236,045			546,645			(48,901	)		1,733,789

Stockholders’ equity
Capital contributions from affiliates		—			1,586,780			(1,586,780	)		—
Common stock, $0.01 par value; 300,000,000 shares authorized; 93,432,712 issued and 93,303,298 outstanding		925			—			—			925
Treasury stock, at cost; 129,414 shares		(3,796	)		—			—			(3,796	)
Additional paid-in-capital		657,943			8,743			(8,743	)		657,943
Retained earnings		139,933			211,487			(211,487	)		139,933

Total stockholders’ equity		795,005			1,807,010			(1,807,010	)		795,005

Total liabilities and stockholders’ equity	$	2,031,050		$	2,353,655		$	(1,855,911	)	$	2,528,794

Condensed Consolidating Statement of Operations

(In thousands)


	Three Months Ended March 31, 2013
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Revenues
Oil and gas revenues	$	—		$	241,651		$	—		$	241,651
Well services and midstream revenues		—			6,653			—			6,653

Total revenues		—			248,304			—			248,304

Expenses
Lease operating expenses		—			19,489			—			19,489
Well services and midstream operating expenses		—			2,914			—			2,914
Marketing, transportation and gathering expenses		—			3,389			—			3,389
Production taxes		—			22,089			—			22,089
Depreciation, depletion and amortization		—			66,261			—			66,261
Exploration expenses		—			1,857			—			1,857
Impairment of oil and gas properties		—			498			—			498
General and administrative expenses		2,876			10,978			—			13,854

Total expenses		2,876			127,475			—			130,351

Operating income (loss)		(2,876	)		120,829			—			117,953

Other income (expense)
Equity in earnings in subsidiaries		66,243			—			(66,243	)		—
Net loss on derivative instruments		—			(14,612	)		—			(14,612	)
Interest expense, net of capitalized interest		(20,518	)		(665	)		—			(21,183	)
Other income		376			404			—			780

Total other income (expense)		46,101			(14,873	)		(66,243	)		(35,015	)

Income before income taxes		43,225			105,956			(66,243	)		82,938
Income tax benefit (expense)		8,626			(39,713	)		—			(31,087	)

Net income	$	51,851		$	66,243		$	(66,243	)	$	51,851

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, net of capitalized interest		(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 Cash Flows

(In thousands)


	Three Months Ended March 31, 2013
	Parent/ Issuer			Combined Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
Cash flows from operating activities:	$	51,851		$	66,243		$	(66,243	)	$	51,851
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries		(66,243	)		—			66,243			—
Depreciation, depletion and amortization		—			66,261			—			66,261
Impairment of oil and gas properties		—			498			—			498
Deferred income taxes		(8,626	)		39,613			—			30,987
Derivative instruments		—			14,612			—			14,612
Stock-based compensation expenses		2,278			11			—			2,289
Debt discount amortization and other		644			102			—			746
Working capital and other changes:
Change in accounts receivable		11			(3,740	)		369			(3,360	)
Change in inventory		—			(8,407	)		—			(8,407	)
Change in prepaid expenses		157			136			—			293
Change in other current assets		(339	)		107			—			(232	)
Change in accounts payable and accrued liabilities		(8,286	)		23,664			(369	)		15,009

Net cash provided by (used in) operating activities		(28,553	)		199,100			—			170,547

Cash flows from investing activities:
Capital expenditures		—			(217,678	)		—			(217,678	)
Derivative settlements		—			1,686			—			1,686
Advances to joint interest partners		—			(141	)		—			(141	)
Advances from joint interest partners		—			(1,691	)		—			(1,691	)

Net cash used in investing activities		—			(217,824	)		—			(217,824	)

Cash flows from financing activities:
Purchases of treasury stock		(156	)		—			—			(156	)
Debt issuance costs		—			(25	)		—			(25	)
Investment in / capital contributions from affiliates		(23,252	)		23,252			—			—

Net cash provided by (used in) financing activities		(23,408	)		23,227			—			(181	)

Increase (decrease) in cash and cash equivalents		(51,961	)		4,503			—			(47,458	)
Cash and cash equivalents at beginning of period		133,797			79,650			—			213,447

Cash and cash equivalents at end of period	$	81,836		$	84,153		$	—		$	165,989

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