Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 9 — Commitments and Contingencies

     Litigation — The Company is subject, from time to time, to certain legal proceedings and claims in the ordinary course of conducting its business. It records a liability related to its legal proceedings and claims when it has determined that it is probable that it will be obligated to pay and the related amount can be reasonably estimated. Except for those legal proceedings listed below, it believes there are no pending legal proceedings in which it is currently involved that, if adversely determined, would have a material adverse effect on its financial position, results of operations or cash flows.

     As further described in Note 14 of Part II, Item 8 in the 2010 10-K, the Company had been sued in royalty owner lawsuits filed in Oklahoma and Kansas.

     In Oklahoma, suits by a group of individual royalty owners and by a putative class representing all remaining royalty owners were filed in the District Court of Nowata County, Oklahoma. The lawsuits alleged that the Company wrongfully deducted post-production costs from the plaintiffs’ royalties and engaged in self-dealing contracts and agreements resulting in a less than market price for the gas production. The Company denied the allegations. Settlements have been reached in each of the cases, and on July 28, 2011, the Court entered an order approving the class action settlement. The Company used cash on hand to fund the $5.6 million in settlements on July 29, 2011.

     The Kansas action is a putative class action filed in the United States District Court for the District of Kansas, brought on behalf of all the Company’s royalty owners in that state. Plaintiffs allege that the Company failed to properly make royalty payments by, among other things, charging post-production costs to royalty owners in violation of the underlying lease contracts, paying royalties based on sale point volumes rather than wellhead volumes, allocating expenses in excess of the actual and reasonable post-production costs incurred, allocating production costs and marketing costs to royalty owners, and making royalty payments after the statutorily prescribed time for doing so without paying interest thereon. The Company has filed an answer, denying plaintiffs’ claims. No class certification hearing has yet been scheduled. The parties have participated in multiple mediation sessions. Another mediation session is scheduled in mid-August. If the matter cannot be resolved through mediation, the case will proceed with general discovery, a class certification hearing, and, if certified, a trial on the merits.

     At June 30, 2011, the Company had reserved $10.6 million for the estimated cost to resolve these cases. The reserve included $9.5 million and $100,000 added in the first and second quarter of 2011, respectively. After funding the settlement for the Oklahoma lawsuits, the reserve remaining for the estimated cost to resolve the Kansas lawsuit is $5.0 million. There can be no assurance the amount reserved will be sufficient to cover any final settlement or damage awards.

     Contractual Commitments — The Company has numerous contractual commitments in the ordinary course of business, debt service requirements and operating lease commitments. During the first quarter of 2011, the Company entered into new operating leases for compressors utilized in its gathering system. The leases convert already utilized compressors from month-to-month to a specified term lease. As a result, the $900,000 minimum amount of these contracts would be an increase to the amount included in the Company’s outstanding commitments table at December 31, 2010.

     Other than the compressor leases and debt repayments during the six months ended June 30, 2011, there were no material changes to the Company’s commitments since December 31, 2010.