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Debt

6 Months Ended

Jun. 30, 2011

3. Debt

Short-Term Line of Credit

The Company has an unsecured uncommitted money market line of credit (Line of Credit) with borrowing capacity of up to $40.0 million for a maximum of 30 days. As of June 30, 2011 and December 31, 2010 there were $12.7 million and $5.3 million in outstanding borrowings under the Line of Credit, respectively. Interest on amounts borrowed is charged at LIBOR plus a margin of approximately 1.4%. The outstanding borrowings under the Line of Credit at June 30, 2011 and December 31, 2010 had weighted average interest rates of 1.6% and 1.7%, respectively.

Senior Secured Revolving Credit Facility

On April 13, 2011, the Company entered into an amendment to its Credit Agreement (the Amendment). The Amendment extended the maturity date of the Credit Agreement to May 13, 2016 and increased the borrowing base from $875 million to $1.4 billion. Lender commitments remain unchanged at $875 million. In addition, the Amendment reduced (i) the LIBOR margin to between 1.50% and 2.50% based on the ratio of credit outstanding to the borrowing base, (ii) the prime rate margin to between 0.50% and 1.50% based on the ratio of credit outstanding to the borrowing base, and (iii) the annual commitment fee on the unused portion of the Credit Agreement to between 0.35% and 0.50%. The Amendment also provides the right for the Company to refinance its 10.25% senior notes due in 2014 (2014 Notes) and its 8.25% senior notes due in 2016 (2016 Notes) with similar notes or to retire the 2014 Notes or the 2016 Notes using available borrowing under the Credit Agreement subject to certain leverage and liquidity tests.

As of June 30, 2011 and December 31, 2010, there were $395 million and $170 million in outstanding borrowings under the Credit Agreement, respectively. The Company's total outstanding debt at June 30, 2011 under the Line of Credit and Credit Agreement was $408 million, with an additional $23 million in letters of credit issued under the Credit Agreement, leaving $444 million in borrowing capacity available.

The maximum amount available is subject to semi-annual redeterminations of the borrowing base based on the value of the Company's proved oil and natural gas reserves in April and October of each year in accordance with the lenders' customary procedures and practices. The Company and the banks each have the unilateral right to one additional redetermination each year. The Credit Agreement is collateralized by the Company's oil and natural gas properties.

The Credit Agreement contains restrictive covenants that may limit the Company's ability to, among other things, incur additional indebtedness, sell assets, make loans to others, make investments, enter into mergers, enter into hedging contracts, incur liens and engage in certain other transactions without the prior consent of its lenders. The Credit Agreement contains covenants which, among other things, require the Company to maintain the following ratios: (i) an interest coverage ratio, as defined in the credit agreement, of 2.75 to 1.0 and (ii) a minimum current ratio, as defined in the Credit Agreement, of 1.0 to 1.0. The Company is currently in compliance with all financial covenants and has complied with all financial covenants for all prior periods.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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