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USD ($) / shares
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<div align="left" style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>Note B. </b><b><i>Summary of significant accounting policies</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Principles of consolidation. </i></b>The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiaries. A third-party formed an entity to
effectuate a tax-free exchange of assets for the Company. The Company has 100 percent control over
the decisions of the entity, but has no current direct ownership. The third-party will convey
ownership to the Company upon completion of the tax-free exchange process. As a result of the
Company’s control over the entity it has been consolidated in the Company’s financial statements.
All material intercompany balances and transactions have been eliminated.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Discontinued operations. </i></b>In December 2010 and March 2011, the Company sold its interests in
certain non-core Permian Basin and Bakken assets, respectively. As a result, the Company has
reflected the results of operations of these divested assets as discontinued operations, rather
than as a component of continuing operations. See Note O for additional information regarding this
divestiture and its discontinued operations.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Use of estimates in the preparation of financial statements. </i></b>Preparation of financial
statements in conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from these estimates. Depletion of oil and natural gas
properties are determined using estimates of proved oil and natural gas reserves. There are
numerous uncertainties inherent in the estimation of quantities of proved reserves and in the
projection of future rates of production and the timing of development expenditures. Similarly,
evaluations for impairment of proved and unproved oil and natural gas properties are subject to
numerous uncertainties including, among others, estimates of future recoverable reserves and
commodity price outlooks. Other significant estimates include, but are not limited to, the asset
retirement obligations, fair value of derivative financial instruments, purchase price allocations
for business and oil and natural gas property acquisitions and fair value of stock-based
compensation.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Cash equivalents. </i></b>The Company considers all cash on hand, depository accounts held by banks,
money market accounts and investments with an original maturity of three months or less to be cash
equivalents. The Company’s cash and cash equivalents are held in a few financial institutions in
amounts that exceed the insurance limits of the Federal Deposit Insurance Corporation. However,
management believes that the Company’s counterparty risks are minimal based on the reputation and
history of the institutions selected.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Accounts receivable. </i></b>The Company sells oil and natural gas to various customers and
participates with other parties in the drilling, completion and operation of oil and natural gas
wells. Joint interest and oil and natural gas sales receivables related to these operations are
generally unsecured. The Company determines joint interest operations accounts receivable
allowances based on management’s assessment of the creditworthiness of the joint interest owners
and the Company’s ability to realize the receivables through netting of anticipated future
production revenues. Receivables are considered past due if full payment is not received by the
contractual due date. Past due accounts are generally written off against the allowance for
doubtful accounts only after all collection attempts have been exhausted. The Company had an
allowance for doubtful accounts of approximately $1.3 million and $2.4 million at December 31, 2010
and 2009, respectively. The Company wrote off $2.0 million in receivables against the allowance for
doubtful accounts and allowed for additional bed debt of approximately $0.9 million during 2010.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Inventory. </i></b>Inventory consists primarily of tubular goods and other oilfield goods that the
Company plans to utilize in its ongoing exploration and development activities and is carried at
the lower of cost or market value, on a weighted average cost basis.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Deferred loan costs. </i></b>Deferred loan costs are stated at cost, net of amortization, which is
computed using the effective interest and straight-line methods. The Company had deferred loan
costs of $52.8 million and $20.7 million, net of accumulated amortization of $15.2 million and $8.6
million, at December 31, 2010 and December 31, 2009, respectively.
</div>
<!-- Folio -->
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</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 15pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        Future amortization expense of deferred loan costs at December 31, 2010 is as follows:
</div>
<div align="center">
<div align="center" style="width: 98%">
<div align="left" style="font-size: 10pt; margin-top: 10pt">
<div style="width: 100%; border-bottom: 2px solid #000000; font-size: 1px"> 
</div>
</div>
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="8%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left">
<div style="margin-left:20px; text-indent:-15px"><b>(in thousands)</b>
</div></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="5" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="line-height: 6pt"><!-- Blank Space -->
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="left">   $</td>
<td align="right">14,221</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">2012
</div></td>
<td> </td>
<td> </td>
<td align="right">14,368</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">2013
</div></td>
<td> </td>
<td> </td>
<td align="right">9,308</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">2014
</div></td>
<td> </td>
<td> </td>
<td align="right">2,173</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">2015
</div></td>
<td> </td>
<td> </td>
<td align="right">2,362</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">Thereafter
</div></td>
<td> </td>
<td> </td>
<td align="right">10,396</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="3" align="right" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:35px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">   $</td>
<td align="right">52,828</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="3" align="right" style="border-top: 3px double #000000"> </td>
</tr>
<tr style="font-size: 6px">
<td colspan="5" align="left" style="border-bottom: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 25pt">        <b><i>Oil and natural gas properties. </i></b>The Company utilizes the successful efforts method of
accounting for its oil and natural gas properties. Under this method all costs associated with
productive wells and nonproductive development wells are capitalized, while nonproductive
exploration costs are expensed. Capitalized acquisition costs relating to proved properties are
depleted using the unit-of-production method based on proved reserves. The depletion of capitalized
exploratory drilling and development costs is based on the unit-of-production method using proved
developed reserves on a field basis.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        The Company generally does not carry the costs of drilling an exploratory well as an asset in
its consolidated balance sheets for more than one year following the completion of drilling unless
the exploratory well finds oil and natural gas reserves in an area requiring a major capital
expenditure and both of the following conditions are met:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="9%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">(i)</td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">the well has found a sufficient quantity of reserves to justify its
completion as a producing well; and
</div></td>
</tr>
<tr>
<td style="font-size: 10pt"> </td>
</tr>
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="9%" style="background: transparent"> </td>
<td width="2%" nowrap="nowrap" align="left">(ii)</td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">the Company is making sufficient progress assessing the reserves and the
economic and operating viability of the project.
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        Due to the capital intensive nature and the geographical location of certain projects, it may
take the Company longer than one year to evaluate the future potential of the exploration well and
economics associated with making a determination on its commercial viability. In these instances,
the project’s feasibility is not contingent upon price improvements or advances in technology, but
rather the Company’s ongoing efforts and expenditures related to accurately predicting the
hydrocarbon recoverability based on well information, gaining access to other companies’
production, transportation or processing facilities and/or getting partner approval to drill
additional appraisal wells. These activities are ongoing and being pursued constantly.
Consequently, the Company’s assessment of suspended exploratory well costs is continuous until a
decision can be made that the well has found proved reserves or is noncommercial and is charged to
exploration and abandonments expense. See Note C for additional information regarding the Company’s
suspended exploratory well costs.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        Proceeds from the sales of individual properties and the capitalized costs of individual
properties sold or abandoned are credited and charged, respectively, to accumulated depletion.
Generally, no gain or loss is recognized until the entire amortization base is sold. However, gain
or loss is recognized from the sale of less than an entire amortization base if the disposition is
significant enough to materially impact the depletion rate of the remaining properties in the
amortization base. Ordinary maintenance and repair costs are expensed as incurred.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        Costs of significant nonproducing properties, wells in the process of being drilled and
completed and development projects are excluded from depletion until such time as the related
project is developed and proved reserves are established or impairment is determined. The Company
capitalizes interest, if debt is outstanding, on expenditures for significant development projects
until such projects are ready for their intended use. At December 31, 2010 and 2009 the Company had
excluded $80.6 million and $30.9 million, respectively, of capitalized costs from depletion and had
capitalized interest of $0.2 million, $0.07 million and $1.2 million, during 2010, 2009 and 2008,
respectively.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 15pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        The Company reviews its long-lived assets to be held and used, including proved oil and
natural gas properties, whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. An impairment loss is indicated if the sum of the expected future
cash flows is less than the carrying amount of the assets. In this circumstance, the Company
recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the
estimated fair value of the asset. The Company reviews its oil and natural gas properties by
amortization base or by individual well for those wells not constituting part of an amortization
base. For each property determined to be impaired, an impairment loss equal to the difference
between the carrying value
of the properties and the estimated fair value (discounted future cash flows) of the
properties would be recognized at that time. Estimating future cash flows involves the use of
judgments, including estimation of the proved and unproved oil and natural gas reserve quantities,
timing of development and production, expected future commodity prices, capital expenditures and
production costs. The Company recognized impairment expense from continuing and discontinued
operations of $15.2 million, $12.2 million and $18.4 million during the years ended December 31,
2010, 2009 and 2008, respectively, primarily related to its proved oil and natural gas properties.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        Unproved oil and natural gas properties are each periodically assessed for impairment by
considering future drilling plans, the results of exploration activities, commodity price outlooks,
planned future sales or expiration of all or a portion of such projects. During the years ended
December 31, 2010, 2009 and 2008, the Company recognized expense from continuing and discontinued
operations of $7.6 million, $5.1 million and $31.6 million, respectively, related to abandoned
prospects, which is included in exploration and abandonments expense in the accompanying
consolidated statements of operations.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Other property and equipment. </i></b>Other capital assets include buildings, vehicles, computer
equipment and software, telecommunications equipment, leasehold improvements and furniture and
fixtures. These items are recorded at cost, or fair value if acquired, and are depreciated using
the straight-line method based on expected lives of the individual assets or group of assets
ranging from two to 31 years.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Intangible assets. </i></b>The Company has capitalized certain operating rights acquired in an
acquisition. The gross operating rights of approximately $38.7 million and related accumulated
amortization of $3.7 million at December 31, 2010, which have no residual value, are amortized over
the estimated economic life of approximately 25 years. Impairment will be assessed if indicators of
potential impairment exist or when there is a material change in the remaining useful economic
life. Amortization expense for the years ended December 31, 2010, 2009 and 2008 was approximately
$1.5 million, $1.6 million and $0.6 million, respectively. The following table reflects the
estimated aggregate amortization expense for each of the periods presented below:
</div>
<div align="center">
<div align="center" style="width: 98%">
<div align="justify" style="font-size: 10pt; margin-top: 12pt">
<div style="width: 100%; border-bottom: 2px solid #000000; font-size: 1px"> 
</div>
</div>
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom" style="font-size: 6pt">
<td width="88%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="8%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left">
<div style="margin-left:20px; text-indent:-15px"><b>(in thousands)</b>
</div></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td colspan="5" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="line-height: 6pt"><!-- Blank Space -->
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="left">   $</td>
<td align="right">1,549</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">2012
</div></td>
<td> </td>
<td> </td>
<td align="right">1,549</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">2013
</div></td>
<td> </td>
<td> </td>
<td align="right">1,549</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">2014
</div></td>
<td> </td>
<td> </td>
<td align="right">1,549</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">2015
</div></td>
<td> </td>
<td> </td>
<td align="right">1,549</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">Thereafter
</div></td>
<td> </td>
<td> </td>
<td align="right">27,228</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="3" align="right" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:35px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">   $</td>
<td align="right">34,973</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="3" align="right" style="border-top: 3px double #000000"> </td>
</tr>
<tr style="font-size: 6px">
<td colspan="5" align="left" style="border-bottom: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Environmental. </i></b>The Company is subject to extensive federal, state and local environmental laws
and regulations. These laws, which are often changing, regulate the discharge of materials into the
environment and may require the Company to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites. Environmental
expenditures are expensed. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefits are expensed. Liabilities for expenditures of
a noncapital nature are recorded when environmental assessment and/or remediation is probable and
the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments is fixed and readily determinable. At December 31, 2010 and 2009, the
Company has accrued approximately $1.4 million and $0.8 million, respectively, related to
environmental liabilities. During the years ended December 31, 2010, 2009 and 2008, the Company has
recognized environmental charges of $3.0 million, $2.3 million and $0.5 million, respectively.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        <b><i>Oil and natural gas sales and imbalances. </i></b>Oil and natural gas revenues are recorded at the
time of delivery of such products to pipelines for the account of the purchaser or at the time of
physical transfer of such products to the purchaser. The Company follows
the sales method of
accounting for oil and natural gas sales, recognizing revenues based on the Company’s share of
actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas imbalances are
generated on properties for which two or more owners have the right to take production “in-kind”
and, in doing so, take more or less than their respective entitled percentage. Imbalances are
tracked by well, but the Company does not record any receivable from or payable to the other owners
unless the imbalance has reached a level at which it exceeds the remaining reserves in the
respective well. If reserves are insufficient to offset the imbalance and the Company is in an
overtake position, a liability is recorded for the amount of shortfall in reserves valued at a
contract price or the market price in effect at the time the imbalance is generated. If the Company
is in an undertake position, a receivable is recorded for an amount that is reasonably expected to
be received, not to exceed the current market value of such imbalance.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        The following table reflects the Company’s natural gas imbalance positions at December 31,
2010 and 2009 as well as amounts reflected in oil and natural gas production expense for the years
ended December 31, 2010 and 2009:
</div>
<div align="center">
<div align="center" style="width: 98%">
<div align="justify" style="font-size: 10pt; margin-top: 12pt">
<div style="width: 100%; border-bottom: 2px solid #000000; font-size: 1px"> 
</div>
</div>
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom" style="font-size: 1pt">
<td width="58%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>December 31,</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">
<div style="margin-left:20px; text-indent:-15px"><b>(dollars in thousands)</b>
</div></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td style="border-bottom: 0px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="line-height: 6pt"><!-- Blank Space -->
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">Natural gas imbalance liability (included in asset retirement obligations and other
long-term liabilities)
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="left">   $</td>
<td align="right">403</td>
<td> </td>
<td> </td>
<td align="left">   $</td>
<td align="right">533</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">Overtake position (Mcf)
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">71,153</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">101,278</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">Natural gas imbalance receivable (included in other assets)
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="left">   $</td>
<td align="right">100</td>
<td> </td>
<td> </td>
<td align="left">   $</td>
<td align="right">444</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">Undertake position (Mcf)
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22,240</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">98,584</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<div align="center">
<div align="center" style="width: 98%">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="10%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>Years Ended December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2008</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="line-height: 6pt"><!-- Blank Space -->
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">Value of net overtake (undertake) arising during the year increasing (decreasing)
oil and natural gas production expense
</div></td>
<td> </td>
<td align="left">   $</td>
<td align="right">(38</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">   $</td>
<td align="right">23</td>
<td> </td>
<td> </td>
<td align="left">   $</td>
<td align="right">(189</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">Net overtake (undertake) position arising during the year (Mcf)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,695</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">7,317</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(19,269</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:20px; text-indent:-15px">Value of net (undertake) related to divested natural gas properties
</div></td>
<td> </td>
<td align="left">   $</td>
<td align="right">(252</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">   $</td>
<td align="right">
<div style="margin-right: 10px">-
</div></td>
<td> </td>
<td> </td>
<td align="left">   $</td>
<td align="right">
<div style="margin-right: 10px">-
</div></td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:20px; text-indent:-15px">Net (undertake) position related to divested natural gas properties (Mcf)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(54,914</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">
<div style="margin-right: 10px">-
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">
<div style="margin-right: 10px">-
</div></td>
<td> </td>
</tr>
<tr valign="bottom" style="line-height: 3pt"><!-- Blank Space -->
<td>
<div style="margin-left:20px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 4px">
<td colspan="13" align="left" style="border-bottom: 1px solid #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 15pt">        <b><i>Derivative instruments and hedging. </i></b>The Company recognizes all derivative instruments as
either assets or liabilities measured at fair value. The Company netted the fair value of
derivative instruments by counterparty in the accompanying consolidated balance sheets where the
right of offset exists.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        The Company may designate a derivative instrument as hedging the exposure to changes in the
fair value of an asset or a liability or an identified portion thereof that is attributable to a
particular risk (a “fair value hedge”) or as hedging the exposure to variability in expected future
cash flows that are attributable to a particular risk (a “cash flow hedge”). Special accounting for
qualifying hedges allows the effective portion of a derivative instrument’s gains and losses to
offset related results on the hedged item in the statement of operations and requires that a
company formally document, designate and assess the effectiveness of the transactions that receive
hedge accounting treatment. Both at the inception of a hedge and on an ongoing basis, a hedge must
be expected to be highly effective in achieving offsetting changes in fair value or cash flows
attributable to the underlying risk being hedged. If the Company determines that a derivative
instrument is no longer highly effective as a hedge, it discontinues hedge accounting prospectively
and future changes in the fair value of the derivative are recognized in current earnings. The
amount already reflected in accumulated other comprehensive (loss) income (“AOCI”) remains there
until the hedged item affects earnings or it is probable that the hedged item will not occur by the
end of the originally specified time period or within two months thereafter. The Company assesses
and measures hedge effectiveness at the end of each quarter.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">        Changes in the fair value of derivative instruments that are fair value hedges are offset
against changes in the fair value of the hedged assets, liabilities or firm commitments, through
earnings. Effective changes in the fair value of derivative instruments that are cash flow hedges
are recognized in AOCI and reclassified into earnings in the period in which the hedged item
affects earnings.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 15pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Ineffective portions of a derivative instrument’s change in fair value are immediately
recognized in earnings. Derivative instruments that do not qualify, or cease to qualify, as hedges
must be adjusted to fair value and the adjustments are recorded through earnings. The Company did
not have any derivatives designated as fair value or cash flow hedges during the years ended
December 31, 2010 or 2009.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <b><i>Asset retirement obligations. </i></b>The Company records the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding increase in the
carrying amount of the related long-lived asset. Subsequently, the asset retirement cost included
in the carrying amount of the related asset is allocated to expense through depreciation of the
asset. Changes in the liability due to passage of time are generally recognized as an increase in
the carrying amount of the liability and as corresponding accretion expense.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <b><i>Treasury stock. </i></b>Treasury stock purchases are recorded at cost. Upon reissuance, the cost of
treasury shares held is reduced by the average purchase price per share of the aggregate treasury
shares held.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <b><i>General and administrative expense</i></b>. The Company receives fees for the operation of jointly
owned oil and natural gas properties and records such reimbursements as reductions of general and
administrative expense. Such fees from continuing and discontinued operations totaled
approximately $14.4 million, $11.4 million and $4.9 million for the years ended December 31, 2010,
2009 and 2008, respectively.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <b><i>Stock-based compensation. </i></b>From time to time, the Company exchanges its equity instruments for
services provided by employees and directors that are based on the fair value of the Company’s
equity instruments or that may be settled by the issuance of those equity instruments in exchange
for the services. The cost of the services received in exchange for equity instruments, including
stock options, is measured based on the grant-date fair value of those instruments. That cost is
recognized as compensation expense over the requisite service period (generally the vesting
period). Generally, no compensation cost is recognized for equity instruments that do not vest.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <b><i>Income taxes. </i></b>The Company recognizes deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in income in the period that includes
the enactment date. A valuation allowance is established to reduce deferred tax assets if it is
more likely than not that the related tax benefits will not be realized.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          The Company evaluates uncertain tax positions for recognition and measurement in the
consolidated financial statements. To recognize a tax position, the Company determines whether it
is more likely than not that the tax positions will be sustained upon examination, including
resolution of any related appeals or litigation, based on the technical merits of the position. A
tax position that meets the more likely than not threshold is measured to determine the amount of
benefit to be recognized in the consolidated financial statements. The amount of tax benefit
recognized with respect to any tax position is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon settlement. The Company had no uncertain tax
positions that required recognition in the consolidated financial statements at December 31, 2010
and 2009. Any interest or penalties would be recognized as a component of income tax expense.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <b><i>Recent accounting pronouncements.</i></b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <i>Business combinations. </i>In December 2010, the Financial Accounting Standards Board (the “FASB”)
issued an update in order to address diversity in practice about the interpretation of the pro
forma revenue and earnings disclosure requirements for business combinations.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          The update requires a public entity to disclose pro forma information for business
combinations that occurred in the current reporting period. The disclosures include pro forma
revenue and earnings of the combined entity for the current reporting period as though the
acquisition date for all business combinations that occurred during the year had been as of the
beginning of the annual reporting period. If comparative financial statements are presented, the
pro forma revenue and earnings of the combined entity for the comparable prior reporting period
should be reported as though the acquisition date for all business combinations that occurred
during the current year had been as of the beginning of the comparable prior annual reporting
period.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 15pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          In practice, some preparers have presented the pro forma information in their comparative
financial statements as if the business combination that occurred in the current reporting period
had occurred as of the beginning of each of the current and prior annual reporting periods. Other
preparers have disclosed the pro forma information as if the business combination occurred at the
beginning of the prior annual reporting period only, and carried forward the related adjustments,
if applicable, through the current reporting period. The Company early adopted the update effective
January 1, 2010, and the adoption did not have a significant impact on its consolidated financial
statements.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <i>Various topics. </i>In February 2010, the FASB issued an update to various topics, which
eliminated outdated provisions and inconsistencies in the Accounting Standards Codification (the
“Codification”), and clarified certain guidance to reflect the FASB’s original intent. The update
is effective for the first reporting period, including interim periods, beginning after issuance of
the update, except for the amendments affecting embedded derivatives and reorganizations. In
addition to amending the Codification, the FASB made corresponding changes to the legacy accounting
literature to facilitate historical research. These changes are included in an appendix to the
update. The Company adopted the update effective January 1, 2010, and the adoption did not have a
significant impact on its consolidated financial statements.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">          <i>Accounting for extractive activities. </i>In April 2010, the FASB issued an amendment to a
paragraph in the accounting standard for oil and natural gas extractive activities accounting. The
standard adds to the Codification the SEC’s <i>Modernization of Oil and Gas Reporting </i>release. The
Company adopted the update effective April 20, 2010, and the adoption did not have a significant
impact on its consolidated financial statements.
</div>
</div>
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<!-- Begin Block Tagged NotefalsefalsefalsefalsefalseOtherus-types:textBlockItemTypestringThis element may be used to describe all significant accounting policies of the reporting entity.Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 22
-Paragraph 8
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