Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 10 — 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 reasonably be 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. Generally, 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 a final order approving the class action settlement. The Company funded the $5.6 million in settlements on July 29, 2011.

     The Kansas lawsuit 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 generally 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 parties have reached a settlement in this class action which is subject to approval by the Court. The settlement includes a payment of $3.0 million to be made within 30 days after final approval by the Court and a payment of $4.5 million one year thereafter.

     At September 30, 2011, the Company had reserved $7.0 million for the estimated cost to resolve the Kansas action. The $7.0 million includes $3.0 million expected to be paid in January 2012 and $4.0 million representing the present value of an additional $4.5 million expected to be paid one year thereafter. The $4.0 million reserve is reflected in other noncurrent liabilities in the condensed consolidated balance sheet. Increases to the reserve for both the Oklahoma and Kansas royalty owner lawsuits included $9.5 million, $100,000 and $2.0 million added in the first, second and third quarters of 2011, respectively.

     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. The Company also extended the term of a leased facility in Olathe, Kansas, in August 2011 for an additional five years to December 2016, for a total commitment of $335,000.

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