Supplemental Oil And Natural Gas Disclosures (Unaudited)

12 Months Ended

Dec. 31, 2012

Supplemental Oil and Natural Gas Disclosures (Unaudited) [Abstract]

SUPPLEMENTAL OIL AND NATURAL GAS DISCLOSURES (UNAUDITED)

NOTE 17 — SUPPLEMENTAL OIL AND NATURAL GAS DISCLOSURES (Unaudited)

Costs Incurred

The following table summarizes costs incurred and capitalized by the Company in the acquisition, exploration, and development of oil and natural gas properties for the years ended December 31, 2012, 2011 and 2010 (in thousands).

	Year ended December 31,
	2012		2011		2010
Property acquisition costs
Proved	$	–	$	–	$	–
Unproved and unevaluated		28,672		41,497		100,730
Exploration costs		115,084		108,662		60,719
Development costs		190,891		12,511		14,348
Total costs incurred	$	334,647	$	162,670	$	175,797

Property acquisition costs are costs incurred to purchase, lease or otherwise acquire oil and natural gas properties, including both unproved and unevaluated leasehold and purchases of reserves in place. For the years ended December 31, 2012, 2011 and 2010, respectively, essentially all of the Company’s property acquisition costs resulted from the acquisition of unproved and unevaluated leasehold positions.

Exploration costs are costs incurred in identifying areas of these oil and natural gas properties that may warrant further examination and in examining specific areas that are considered to have prospects of containing oil and natural gas, including costs of drilling exploratory wells, geological and geophysical costs, and costs of carrying and retaining unproved and unevaluated properties. Exploration costs may be incurred before or after acquiring the related oil and natural gas properties.

Development costs are costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing oil and natural gas. Development costs include the costs of preparing well locations for drilling, drilling and equipping development wells and related service wells (e.g., salt water disposal wells) and acquiring, constructing and installing production facilities.

Costs incurred also include new asset retirement obligations established, as well as changes to asset retirement obligations resulting from revisions in cost estimates or abandonment dates. Asset retirement obligations included in the table above were approximately $1.2 million, $0.5 million and $1.0 million for the years ended December 31, 2012, 2011 and 2010, respectively. Capitalized general and administrative expenses that are directly related to acquisition, exploration and development activities are also included in the table above. The Company capitalized $2.6 million, $2.0 million and $1.6 million of these internal costs in 2012, 2011 and 2010, respectively. Capitalized interest expense for qualifying projects are also included in the table above. The Company capitalized $1.6 million and $1.3 million of its interest expense for the years ended December 31, 2012 and 2011, respectively. The Company recorded only $3,235 in interest expense for the year ended December 31, 2010. As a result, the Company capitalized no interest expense for the year ended December 31, 2010.

Oil and Natural Gas Operating Results

The following table provides the results of operations from oil and natural gas producing activities, excluding corporate overhead and interest costs, for the years ended December 31, 2012, 2011 and 2010 (in thousands, except per BOE amounts).

	Year ended December 31,
	2012			2011			2010
Oil and natural gas revenues	$	155,998		$	67,000		$	34,042
Production taxes and marketing expenses		11,672			6,278			1,982
Lease operating expenses		28,184			7,244			5,284
Depletion, depreciation and amortization		79,592			31,619			15,423
Accretion of asset retirement obligations		256			209			155
Full-cost ceiling impairment		63,475			35,673			–
Net operating (loss) income		(27,181	)		(14,023	)		11,198
Income tax (benefit) provision		(9,595	)		(5,019	)		3,983
Results of oil and natural gas operations	$	(17,586	)	$	(9,004	)	$	7,215
Depletion, depreciation and amortization per BOE	$	24.16		$	12.29		$	10.76

Oil and Natural Gas Reserves

Proved reserves are estimated quantities of oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs using existing economic and operating conditions. Estimating oil and natural gas reserves is complex and is inexact because of the numerous uncertainties inherent in the process. The process relies on interpretations of available geological, geophysical, petrophysical, engineering and production data. The extent, quality and reliability of both the data and the associated interpretations of that data can vary. The process also requires certain economic assumptions, including, but not limited to, oil and natural gas prices, drilling, completion and operating expenses, capital expenditures and taxes. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas most likely will vary from the Company’s estimates.

Oil and natural gas reserves are estimated using then-current operating and economic conditions, with no provision for price and cost escalations in future periods except by contractual arrangements. The commodity prices used to estimate oil and natural gas reserves are based on unweighted, arithmetic averages of first-day-of-the-month oil and natural gas prices for the previous 12-month period. For the period January through December 2012, these average oil and natural gas prices were $91.21 per barrel and $2.757 per MMBtu, respectively. For the period January through December 2011, these average oil and natural gas prices were $92.71 per barrel and $4.118 per MMBtu, respectively. For the period January through December 2010, these average oil and natural gas prices were $75.96 per barrel and $4.376 per MMBtu, respectively.

The Company’s oil and natural gas reserves estimates are prepared by the Company’s engineering staff in accordance with guidelines established by the SEC and then audited for their reasonableness and conformance with SEC guidelines by Netherland, Sewell & Associates, Inc., independent reservoir engineers, for the years ended December 31, 2012, 2011 and 2010.

The Company’s net ownership in estimated quantities of proved oil and natural gas reserves and changes in net proved reserves are summarized as follows. All of the Company’s oil and natural gas reserves are attributable to properties located in the United States. The estimated reserves shown below are for proved reserves only and do not include any value for unproved reserves classified as probable or possible reserves that might exist for these properties, nor do they include any consideration that could be attributed to interests in unevaluated acreage beyond those tracts for which reserves have been estimated. The Company does not report its natural gas liquids production and reserves separately. In the tables presented throughout this section, natural gas is converted to oil equivalent using the ratio of one Bbl of oil, condensate or natural gas liquids to 6 Mcf of natural gas.

	Net Proved Reserves
	Oil			Gas			Oil Equivalent
	(MBbl)			(MMcf)			(MBOE)
Total at December 31, 2009		103			63,929			10,758
Revisions of prior estimates		66			874			211
Extensions and discoveries		16			71,009			11,851
Production		(33	)		(8,400	)		(1,433	)
Total at December 31, 2010		152			127,412			21,387
Revisions of prior estimates		51			(646	)		(57	)
Extensions and discoveries		3,745			58,164			13,439
Production		(154	)		(14,512	)		(2,573	)
Total at December 31, 2011		3,794			170,418			32,196
Revisions of prior estimates		(782	)		(103,375	)		(18,010	)
Extensions and discoveries		8,687			25,443			12,927
Production		(1,214	)		(12,479	)		(3,294	)
Total at December 31, 2012		10,485			80,007			23,819
Proved Developed Reserves
December 31, 2009		103			25,369			4,331
December 31, 2010		152			43,143			7,342
December 31, 2011		1,419			56,547			10,843
December 31, 2012		4,764			54,040			13,771
Proved Undeveloped Reserves
December 31, 2009		–			38,560			6,427
December 31, 2010		–			84,269			14,045
December 31, 2011		2,375			113,871			21,353
December 31, 2012		5,721			25,967			10,048

The following is a discussion of the changes in the Company’s proved oil and natural gas reserves estimates for the years ended December 31, 2012, 2011 and 2010.

The Company’s proved oil and natural gas reserves decreased to 23,819 MBOE at December 31, 2012 from 32,196 MBOE at December 31, 2011. The Company’s proved oil and natural gas reserves decreased by 5,083 MBOE and the Company produced 3,294 MBOE during the year ended December 31, 2012, resulting in a net decrease of 8,377 MBOE. An increase of 12,927 MBOE in proved oil and natural gas reserves was a result of extensions and discoveries during the year, which was primarily attributable to drilling operations in the Eagle Ford shale play in South Texas. The Company’s oil and natural gas reserves decreased by 18,010 MBOE during the year as a result of revisions to previous estimates, primarily resulting from lower natural gas prices in 2012. The Company’s proved developed oil and natural gas reserves increased to 13,771 MBOE at December 31, 2012 from 10,843 MBOE at December 31, 2011, primarily due to proved developed reserves added as a result of drilling operations in the Eagle Ford shale. At December 31, 2012, the Company’s proved reserves were made up of approximately 44% oil and 56% natural gas.

The Company’s proved oil and natural gas reserves increased to 32,196 MBOE at December 31, 2011 from 21,387 MBOE at December 31, 2010. The Company increased its proved oil and natural gas reserves by 13,382 MBOE and produced 2,573 MBOE during the year ended December 31, 2011, resulting in a net gain of 10,809 MBOE. A total of 13,439 MBOE of the increase in proved oil and natural gas reserves was a result of extensions and discoveries during the year, all of which was attributable to drilling operations in the Eagle Ford shale play in South Texas and the Haynesville shale play in Northwest Louisiana. The Company’s oil and natural gas reserves decreased by 57 MBOE during the year as a result of revisions to previous estimates, representing the net impact of small changes in prior estimates of proved reserves on a well-by-well basis. The Company’s proved developed oil and natural gas reserves increased to 10,843 MBOE at December 31, 2011 from 7,342 MBOE at December 31, 2010, primarily due to proved developed reserves added as a result of drilling operations in the Eagle Ford and Haynesville shale plays. At December 31, 2011, the Company’s proved reserves were made up of approximately 12% oil and 88% natural gas.

The Company’s proved oil and natural gas reserves increased to 21,387 MBOE at December 31, 2010 from 10,758 MBOE at December 31, 2009. The Company increased its proved oil and natural gas reserves by 12,062 MBOE and produced 1,433 MBOE during the year ended December 31, 2010, resulting in a net gain of 10,629 MBOE. A total of 11,851 MBOE of the increase in proved oil and natural gas reserves was a result of extensions and discoveries during the year, almost all of which was attributable to drilling operations in the Haynesville shale play in Northwest Louisiana. A total of 211 MBOE of the increase in proved oil and natural gas reserves was attributable to revisions of previous estimates, representing the net impact of small changes in prior estimates of proved reserves on a well-by-well basis. The Company’s proved developed oil and natural gas reserves increased to 7,342 MBOE at December 31, 2010 from 4,331 MBOE at December 31, 2009, primarily due to proved developed reserves added as a result of drilling operations in the Haynesville shale play. At December 31, 2010, the Company’s proved reserves were made up of approximately 1% oil and 99% natural gas.

Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Natural Gas Reserves

The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves is not intended to provide an estimate of the replacement cost or fair market value of the Company’s oil and natural gas properties. An estimate of fair market value would also take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs, potential improvements in industry technology and operating practices, the risks inherent in reserves estimates and perhaps different discount rates.

As noted previously, for the period January through December 2012, average oil and natural gas prices were $91.21 per barrel and $2.757 per MMBtu, respectively. For the period January through December 2011, average oil and natural gas prices were $92.71 per barrel and $4.118 per MMBtu, respectively. For the period January through December 2010, average oil and natural gas prices were $75.96 per barrel and $4.376 per MMBtu, respectively.

Future net cash flows were computed by applying these oil and natural gas prices, adjusted for all associated transportation costs, gravity and energy content, and regional price differentials, to year-end quantities of proved oil and natural gas reserves and accounting for any future production and development costs associated with producing these reserves; neither prices nor costs were escalated with time in these computations.

Future income taxes were computed by applying the statutory tax rate to the excess of future net cash flows relating to proved oil and natural gas reserves less the tax basis of the associated properties. Tax credits and net operating loss carryforwards available to the Company were also considered in the computation of future income taxes. Future net cash flows after income taxes were discounted using a 10% annual discount rate to derive the standardized measure of discounted future net cash flows.

The following table presents the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the years ended December 31, 2012, 2011 and 2010 (in thousands).

	Year ended December 31,
	2012			2011			2010
Future cash inflows	$	1,273,882		$	924,796		$	470,386
Future production costs		(325,413	)		(194,538	)		(107,183	)
Future development costs		(244,283	)		(235,469	)		(107,277	)
Future income tax expense		(77,821	)		(83,840	)		(35,352	)
Future net cash flows		626,365			410,949			220,574
10% annual discount for estimated timing of cash flows		(231,729	)		(195,476	)		(109,497	)
Standardized measure of discounted future net cash flows	$	394,636		$	215,473		$	111,077

The following table summarizes the changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the years ended December 31, 2012, 2011 and 2010 (in thousands).

	Year ended December 31,
	2012			2011			2010
Balance, beginning of period	$	215,473		$	111,077		$	65,061
Net change in sales and transfer prices and in production (lifting) costs related to future production		(60,892	)		53,903			7,632
Changes in estimated future development costs		16,937			(64,958	)		(36,821	)
Sales and transfers of oil and natural gas produced during the period		(116,142	)		(53,478	)		(26,776	)
Net change due to extensions and discoveries		358,159			182,282			94,265
Net change due to revisions in estimates of reserves quantities		(56,850	)		(653	)		1,676
Previously estimated development costs incurred during the period		9,750			1,023			7,125
Accretion of discount		24,873			11,987			7,036
Other		(290	)		(1,335	)		1,035
Net change in income taxes		3,618			(24,375	)		(9,156	)
Standardized measure of discounted future net cash flows	$	394,636		$	215,473		$	111,077